COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND PUBLIC MEETING BEFORE COUNCIL COMMITTEE ON PUBLIC HEALTH AND HUMAN SERVICES - - - Room 400, City Hall Philadelphia, Pennsylvania Monday, December 11, 2000 11:15 a.m. - - - BILL 000715 - an ordinance enacting a new Chapter 9 9-2400 of the Philadelphia Code, entitled "Prohibition Against Predatory Lending," and amending Section 19-201 entitled "City Depositories," Section 19-2602 entitled "Licenses," and Section 22-1001 entitled "Investments," to prohibit all business entities and their affiliates from making, issuing or arranging any sub-prime or high-cost loan or assisting others in doing so in any manner which has been determined to be abusive, unscrupulous and misleading, providing penalties for noncompliance, establishing a Predatory Lending Review Committee to investigate alleged predatory loans and to make enforcement recommendations against business entities who have made, assisted with, issued or arranged a loan determined to be predatory, and granting remedies to aggrieved parties and community organizations; all under certain terms and conditions. PRESENT: COUNCILWOMAN MARIAN B. TASCO, Chair COUNCILMAN DAVID COHEN COUNCILWOMAN DONNA REED MILLER COUNCILWOMAN BLONDELL REYNOLDS-BROWN COUNCILMAN FRANK RIZZO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 I N D E X BILL 000715 PAGE SANDRA BACOATE, PHRC ......................... CAROL HEMINGWAY, ACORN .................. 18, 102 IRA GOLDSTEIN, Reinvestment Fund ........ 24, 111 IRV ACKLESBERG, Community Legal Services...36, 95 LEVI MOORE .................................. 50 EDNA BURGIN ................................. 54 MARION FIELDS ............................... 57 PHYLLISA STILES ............................. 61 BETTY LEFAVI ................................ 65 GAIL FLOYD .................................. 71 YASMEEN EL .................................. 75 DOROTHY RICHARDSON .......................... 79 RUTH GASKINS, Urban League .................. 83 TANYA JONES ................................. 84 JOHN KROMER, OHCD ........................... 117 E. ROBERT LEVY, Mortgage Bankers and Brokers . 130 SAM MORELLI, Assoc. of Mortgage Bankers ..... 151 MIKE DELONZO, Assoc. of Mortgage Bankers .... 152 MICHELLE LEWIS, Northwest Counseling ......... 197 JOYCELYNN KILE, ACORN ........................ 205 ALLYSON HUGES, Homeowners Counseling ......... 208 JOHN SHUMAN .................................. 212 REGINALD MC GLAWN ............................ 216 JAMES COX .................................... 224 GEORGE CORMENY ............................... 231 3 P R O C E E D I N G S
Could I have your attention, please. Councilmembers are on their way and we will begin the public hearing shortly. Thank you very much for your patience. Good morning. Committee on Public Health and Human Services will come to order. We have a quorum in the presence of Councilwoman Donna Reed Miller, Councilwoman Blondell Reynolds Brown, Councilman Rizzo, and myself. We'd like the Clerk to read the title of the bill into the record, please.
Bill No. 000715, an ordinance enacting a new Chapter 9-2400 of the Philadelphia Code, entitled "Prohibition Against Predatory Lending," and amending Section 19-201 entitled "City Depositories," Section 19-2602 entitled "Licenses," and Section 22-1001 entitled "Investments," to prohibit all business entities and their affiliates from making, issuing or arranging any sub-prime or high-cost loan or assisting others in doing so in any manner which 4 12/11/00 - PUBLIC HEALTH - BILL 000715 has been determined to be abusive, unscrupulous and misleading, providing penalties for noncompliance, establishing a Predatory Lending Review Committee to investigate alleged predatory loans and to make enforcement recommendations against business entities who have made, assisted with, issued or arranged a loan determined to be predatory, and granting remedies to aggrieved parties and community organizations; all under certain terms and conditions. Thank you.
Thank you very much. Good morning. I'm Marian Tasco, Chair of the City Council's Committee on Public Health and Human Services, and we welcome you here this morning for this hearing. (Applause.)
This is a hearing that has been in the making since the early spring. I became aware of this predatory lending issue last winter through a segment on Good Morning America, and it was reaffirmed that it was also a national issue. We had had some 5 12/11/00 - PUBLIC HEALTH - BILL 000715 earlier problems in my district. The segment told the lamentable story of a homeowner who had obtained a loan for housing improvements. The loan had so many complicated terms and costs which the homeowner had not expected and could not pay, she lost her home in foreclosure. During the hearings Community Development Block Grant proposal, several representatives from home and loan counseling agencies testified as to how the practices had entered into the Philadelphia market and was creating havoc for our residents homeowners. The witnesses indicated that some protections and safeguards had to be put in place immediately. Northwest Counseling Services set up a variety of community meetings to discuss the issue. Congressman Bob Brady and I made the rounds of the sessions to alert consumers to possible pitfalls in the home mortgage process, and this is still a much-needed message. Out of the same Community Development Block Grant hearing, I began a conversation with ACORN, which expressed an interest and 6 12/11/00 - PUBLIC HEALTH - BILL 000715 willingness to participate in drafting a piece of legislation based on their case files, both locally and nationally. In the fall, I supported the establishment of a local predatory lending task force under the direction of Michelle Lewis of Northwest Counseling Services. Jeff Ordower (ph), head of ACORN Predatory Lending Committee took the issue to the editorial board of Philadelphia Inquirer. I am most grateful to both of these organizations in their leadership for their involvement and commitment to this project and for keeping it on the front burner. I also express -- you may clap if you'd like. (Applause.)
Some of you may know that there has been a task force ad hoc committee on predatory lending, and that committee is made up of all of the organizations in the City, just maybe about or 30 23 organizations to address this issue. And they 24 have an ongoing task force process going on, and 25 this piece of legislation sort started with ACORN 7 12/11/00 - PUBLIC HEALTH - BILL 000715 and we drafted it at their request, but the task force also is looking at legislation because we have to go to the State. And we have begun discussions with some of our State legislators to ask them to become familiar with this issue so that whatever legislation has to be drafted and proposed and chartered through the State legislative process, we will do that. So it's an ongoing process and we are really pleased to have the task force working on this and we also want to thank those members of the ad hock committee who worked to put this bill together. Finally, I'm very appreciative of the time and attention that the Office of Housing and Community Development afforded this drafting process and the full participation that OHCD has pledged to the enforcement process. I see John Kromer's here. I want to thank you very much. We find ourselves on the cutting edge of a dilemma that continues to surface in cities around the nation. So prevalent and of such a crisis nature is this phenomenon that both the Department of Treasure and the Department of 8 12/11/00 - PUBLIC HEALTH - BILL 000715 Housing and Urban Development issued a joint report in June of this year entitled "Curbing Predatory Lending Home Lending." So we know that we're on the right course, and we intend to take those actions which will protect the civil rights of our citizens and our real estate tax base. We often hear that it is difficult to define predatory lending, but this bill makes definite progress in itemizing the characteristics of predatory loans. We can take direction from the Supreme Court on this one. As with obscenity, a definition may be elusive, but we know it when we see it; and we are beginning to see it more than we would like. You will see in the testimony of various borrowers who became victims of these practices. In a nutshell, predatory lending can be undertaken by creditors, brokers, or home improvement contractors. They engage in outright deception and fraud. They manipulate the borrower through aggressive sales tactics and they usually take unfair advantage of a borrowers lack of understanding about loan terms. Quite frequently, the loan terms themselves are 9 12/11/00 - PUBLIC HEALTH - BILL 000715 abusive. The bill identifies 13 of these tactics. This legislation is our first in developing a strategy to combat predatory lending. We will invent our own process for protecting our citizens in Philadelphia. (Applause.)
Even though there may be a statute that originates in Harrisburg or Washington, many features of Bill 12 000715 mirror the recommendations and the joint report of the Treasure Department and the Office of Housing and Urban Development. They make an extraordinary case for education and counseling and the development of a literacy level that can protect our consumers. Finally, they speak out quite firmly on the need for local governments to establish predatory lending task forces to see serve as watchdogs and ombudsmen. (Applause.)
This morning you will hear from borrowers, advocates, loan counselors, lending organizations and their 10 12/11/00 - PUBLIC HEALTH - BILL 000715 representatives. I anticipate a continuing dialogue around the feature of the bill with all of the interested parties. With the cooperation of the lending community, I believe that we can stamp out the abusive and harmful practice of predatory lending, and I thank you very much. (Applause.)
I want to thank you all and hope that you will give respect to the people who come to the table. Allow them to make their presentations. You may agree or disagree. We hope you will hold your comments until you come before the table and you can respond. You can share your agreement or disagreement, but we would like to have this hearing held in a very orderly and respectful manner. And I will tell you I'm suffering here today from the flu, so I hope you will bear we me. First we're going to have panels. And so we will call groups of people up together because they'll talk about the same issue in that panel. Our first panel this morning will be 11 12/11/00 - PUBLIC HEALTH - BILL 000715 the Pennsylvania Commission on Human Relations. And we all Sandra Bacoate who's the Regional Director and Charles Nier, Assistant Chief Counselor, if they're here. (Witnesses come forward.)
Good morning. Would you state your name for the record, please.
Good morning. My name is Sandra Bacoate, and I am the Regional Director of the Pennsylvania Human Relations Commission. I'm being supported in my testimony today with Assistant Chief Counsel for the Commission, Charles Nier. Mr. Nier is also an active member of the task force, and we very much appreciate the opportunity to be with you here today to present this testimony.
Thank you, Sandra. We've been around a long time, haven't we? Still fighting for the same issues.
First of all, Councilwoman, while our commissioners have not yet had the opportunity to fully review this 12 12/11/00 - PUBLIC HEALTH - BILL 000715 particular ordinance, the issue of predatory lending is one of concern for the Commission. As you may be aware, the Commission enforces the State laws prohibiting discrimination in employment, housing and commercial property, publish accommodations, and education. In establishing the Human Relations Commission, the Pennsylvania legislature found that the practice or policy of discrimination against individuals or groups by reason of their race, color, familial status, religious creed, ancestry, age, sex, a few other protective areas, that that discrimination is a matter of concern to the Commonwealth, and specifically, the statement, such discrimination forments domestic strife and unrest threatens the rights and privileges of the inhabitants of the Commonwealth and undermines the foundations of a free Democratic state. The denial of equal employment, housing and public accomodation opportunities because of such discrimination and the consequent failure to utilize the productive capacities of individuals to their fullest extent deprives large segments of the population of the 13 12/11/00 - PUBLIC HEALTH - BILL 000715 Commonwealth of earnings necessary to maintain decent standards of living, necessitates the resort to public relief, and intensifies group conflicts, thereby resulting in grave injury to public health and welfare, compels many individuals to live in dwellings which are substandard, unhealthful, and overcrowded, resulting in racial segregation in public schools and other community facilities, juvenile delinquency, and other evils and thereby threatening the peace, health, safety and general welfare of the Commonwealth and its inhabitants. Such findings, unfortunately, remain true today and are germane to the issue of predatory lending. Under the Pennsylvania Human Relations Act, it is unlawful to refuse to sell, finance, or otherwise deny or withhold any housing accommodation or commercial property from any person because of their race, color, familial status, age, religious, creed, ancestry, sex, national origin or disability or discrimination against any person in the terms or conditions of selling or leasing any housing accommodation or 14 12/11/00 - PUBLIC HEALTH - BILL 000715 commercial property or in furnishing facilities, services, or privileges in connection with the ownership, occupancy, or use of any housing accommodation or commercial property because of those same protective classes. As the proposed ordinance's legislative findings indicate, citizens from many lower and moderate income neighborhoods in Philadelphia have been unable to access legitimate financing for home purchases and renovations. Indeed, the historical origins of predatory lending are inextricably linked to the practice of redlining. Historically, some traditional financial institutions engaged in the practice the redlining minority communities resulting in a credit vacuum in such areas. Where entire minority communities were abandoned by traditional financial institutions, the residents of those areas were forced to turn to other sources of credit. This process resulted in the creation of a dual housing finance market. Such a dual market presented attractive prey to unscrupulous predatory lenders who exploited such circumstances by implementing the practice of 15 12/11/00 - PUBLIC HEALTH - BILL 000715 reverse redlining. In contrast to redlining, which is the practice of denying the extension of credit to specific geographic areas due to the income, race, or ethnicity of its residents, predatory lenders may engage in reverse redlining, which is the practice of extending credit on unfair onerous or fraudulent terms to those same persons and/or those communities with the aim to strip equity from the mortgaged property and/or seize the equity rich property through foreclosure.
In the past, the Commission has received, investigated and resolved complaints involving allegations of redlining by traditional financial institutions. Several such cases were resolved with the goal of providing legitimate financing for home purchase and renovations which in turn could undercut the market for predatory lenders. Further, the Commission has received complaints involving allegations of predatory lending. For example, the Commission received one complaint in which the complainant alleged unlawful discrimination because of her race, 16 12/11/00 - PUBLIC HEALTH - BILL 000715 African-American, by targeting her property in an African-American neighborhood for foreclosure because of an alleged default in loan payment. The complainant maintains that she has no 6 knowledge regarding the mortgage for the respondent, as it was handled by deceased husband. She's currently facing foreclosure. Such a loan may have been prohibited under the terms of this proposed ordinance, or at a minimum, the complainant may have received home loan counseling and received appropriate educational information regarding the loan transaction. In other words, the ordinance has a potential to afford protection before a potential act of discrimination occurs. Similarly, the Commission is familiar with studies and research that have suggested that predatory lenders often target minorities, minority neighborhoods, and the elderly for abusive predatory practices. Any predatory lending practice which result in housing being made unavailable to persons because of their protected class and/or subject to discriminatory terms and conditions thereby reducing their 17 12/11/00 - PUBLIC HEALTH - BILL 000715 ability to use and enjoy housing because of their protected class are of great concern to the Commission. Such practices would constitute a violation of the Human Relations Act and would be inconsistent with the Commission's legislative mandate to eradicate unlawful discrimination in the Commonwealth of Pennsylvania. In conclusion, the Commission commends the efforts of Councilwoman Tasco to fight this effort to combat predatory lending and glad to assist in that effort.
Thank you very much. Mr. Nier, do you have any comments?
Thank you both very much for coming. We appreciate your testimony.
I'm going to go to another panel. I want Ira Goldstein, Carol Hemingway and Irv Acklesberg. They've been involved in this issue for a long time. I want 18 12/11/00 - PUBLIC HEALTH - BILL 000715 them to establish on the record just what we're talking about here and... (Witnesses come forward.)
We have many, many members here this morning from the lending community, and we want them to have a clear understanding of what this legislation is all about and how we got here, which I've kind of laid out, but also some of the problems that you have dealt with as representatives from people who have been victims of predatory lending and what our objectives are here today. So, Irving, do you want to go first? Or who wants to go first? Carol?
I would just like to, on behalf of ACORN, thank you for inviting us here today to testify. I am Carol Hemingway. I am the president of Pennsylvania ACORN and I have been working on this issue of predatory lending for some time. I want to do three things in my 19 12/11/00 - PUBLIC HEALTH - BILL 000715 testimony today. First, I want to talk about some research and studies that ACORN has done in our neighborhoods about the epidemic of predatory lending. Second, I want to talk about living in the community and how easy it is to get a predatory loan and the system of financial apartheid under which we live. Third, I want to dispel the misconceptions and horror stories from the Mortgage Brokers Association and other opponents of solving this problem. Facts: Acorn did a study called Equity Stripping which focused on the Kingsessing neighborhood in Southwest Philadelphia. Kingsessing is where we have had an ACORN neighborhood chapter for years called PACO, 17 Positive Action Community Organization. 18 (Applause.) 19
Twenty-three years of 20 neighborhood organizing has done a lot of good 21 for that neighborhood. The Kingsessing 22 Recreation Center is in fantastic shape and the 23 neighborhood has traditionally escaped many of the worst aspects of blight in similar neighborhoods. However, we are devastated by the 20 12/11/00 - PUBLIC HEALTH - BILL 000715 impact of predatory lending in Southwest Philadelphia. 3 percent of all loans to 63 percent of all loans originating in the neighborhood. In the City as a whole, the foreclosure rate is skyrocketing despite the good economy. In Kingsessing, for example, 79 percent of all foreclosures are from non-bank lenders. These loans lead to foreclosures; good bank loans do not. Sub-prime lending has created financial apartheid in this country and in this city. And what I mean by that is quite evident in this country that there is a system of lending practices that are based on race, neighborhood, and class, which concerns us greatly. It seems that this is not the American way of doing business, that people are not getting credit based on the fact of credit risk, but more so based on where they live, the neighborhoods they come out of, and the race that they are. That is a problem for us. We continue to perpetuate two financial systems of low-cost credit available to 21 12/11/00 - PUBLIC HEALTH - BILL 000715 some and to a system of high-cost credit available to others. Low- and moderate-income people and minorities pay more for the same credit and as a result we see a massive unnecessary transfer of wealth from the poor to rich, Wall Street investors. This is truly criminal. Second, I want to talk about what this really means in my neighborhood. I'm from South Philadelphia. In South Philadelphia, we are inundated by the flyers, the information, the telephone calls, the recruitment of people by contractors referring them to predatory lenders to do home repairs, to do different things done in their homes. One of the things that often people come to me is like they said, I've gotten five phone calls in a week from somebody saying that my roof needs to be repaired. These people actually go around in the community, look at buildings, see buildings where roofs are decaying. " Go back, get names from people, get their telephone numbers, call them up on the phones and say, "Is your home 22 12/11/00 - PUBLIC HEALTH - BILL 000715 in need of roof repair? We were referred by your neighbor so-and-so," because they got the name of somebody who lives down the street so people think that they are legitimate contractors looking out for them because somebody referred them to them. This is not how business should be done in our communities. Third, I want to dispel the myth perpetuated by our opponents. If we pass this legislation, many lenders will be driven out of our neighborhoods. I sure hope so because predatory lenders, brokers, and shoddy contractors have no place in my neighborhood. Many of our folks who have good credit will then be able to find good bank loans which are being under-marketed because of the dim of sub-prime. For those of us with blemished credit, we will start to see lenders who make loans based on a borrower's credit and risk. A small number of sub-prime lenders like AmeriQuest are stepping up to the plate. And Philadelphia is a good pilot city for their work. Finally, this bill emphasizes long counseling above all else. Philadelphia's home 23 12/11/00 - PUBLIC HEALTH - BILL 000715 ownership rates are incredibly high nationally due to the fact that this city spends more money on housing counseling than a lot of other cities in the country. We need to create the same bridge around refinancing, home equity, and home repair loans because this is where these predatory lenders prey on people a lot. With good housing counseling, we can match borrowers up with good products. When predatory lenders are doing the counseling, borrowers, community, and Philadelphia loses.
For the last years we 13 have been battling to make the dream of home 14 ownership a reality for thousands of 15 Philadelphians and have been succeeding. Now, an indiguous plot to strip plot and equity from homeowners is unfolding. On behalf of the 5,000 members, families of Philadelphia ACORN, hundreds of thousands of low- and moderate-income Philadelphians and thousands more current and potential victims, I urge you to support this bill. Thank you very much. ) 24 12/11/00 - PUBLIC HEALTH - BILL 000715
Thank you very much. We'll hold the questions till after the presentations.
Good afternoon. My name is Ira Goldstein and I'm the Director of Public Policy and Program Assessment at the Reinvestment Fund. We at the Reinvestment Fund welcome the opportunity to convey to the City Council of Philadelphia the results of some of the findings of our foundation funded research on the topic of the proposed legislation, predatory lending. Our work is not yet complete and the results that we report really should be viewed as a work in progress. For interest of brevity, I'll skip the description of the Reinvestment family, as I'm sure you're aware of who we are and what we do. In terms of the context of predatory lending, we like to think of mortgage industry as having products that broadly fit into two categories, those that are prime and sub-prime. Prime loans are designed for those borrowers whose credit is generally quite good and whose transaction fit squarely within the general 25 12/11/00 - PUBLIC HEALTH - BILL 000715 parameters of the mainstream financial institutions and the secondary market. Sub-prime loans are designed for those borrowers whose credit is somehow flawed or whose transactions --
I think what he's saying is very important and I would like to get it all.
Can you speak into the mike. I can hardly -- you're moving so fast, it's muffled.
Now I'm comfortable. Prime loans are designed for those borrowers whose credit is generally quite good and whose transactions fit squarely within the 12/11/00 - PUBLIC HEALTH - BILL 000715 general parameters of the mainstream financial institutions and the secondary market. The sub-prime loans are designed for those borrowers whose credit is somehow flawed or whose transactions do not fit the general prescriptions relating to the amount of debt one can carry, how much money they are putting down or some other critical underwriting characteristic. In general, it is safe to assume that those getting loans in the prime market pay less both in terms of the interest rates and the points and fees than those getting loans in the sub-prime market. And although by no means do we imply that all sub-prime loans are predatory, predatory lending generally does occur within the sub-prime mortgage market. The generally recognized characteristics of predatory loans are that, unlike the rest of the mortgage market, in a predatory loan the cost, that would be the interest and a whole variety of fees that are borne by the borrower far exceeds the risk that is presented by that borrower. Ordinarily there 27 12/11/00 - PUBLIC HEALTH - BILL 000715 is some equation between risk and cost. The greater the risk, the greater the cost, and vice versa. Additionally, predatory loans generally appear to be made without regard for the borrower's ability to pay or, perhaps more importantly, their true need or desire for credit; thus, a default, a foreclosure, or a refinancing of that loan really becomes inevitable. Finally, the borrowers appear to have been targeted because of some characteristic that makes them particularly susceptible to the predatory lender. For example, the borrowers may not have options, know that they have options, or be sufficiently experienced to evaluate the transactions that are placed before them. Oftentimes borrowers live in areas that are historically under-served by mainstream financial institutions. Accordingly, the borrowers do not always have well-established banking relationships or experiences. What makes these predatory transactions especially hazardous to borrowers is that because the loans are secured 28 12/11/00 - PUBLIC HEALTH - BILL 000715 by the borrower's homes, failure to meet the financial obligation can lead to dire consequences, that being foreclosure. The Reinvestment Fund received a grant from the Ford Foundation in January of the year 2000 to study the issue of predatory lending, and this research is being undertaken using several approaches. First, we're attempting to go develop methodologies to estimate the nature and extent of predatory lending across the City of Philadelphia and our study is limited to the City of Philadelphia. This task uses data on the sale and finance history of a sample of loans across the City. We are also looking at every residential property in selected census tracts for a separate and complementary analysis. Second, we are conducting systemic interviews with people who are in some way related to this process. Interviews include people currently or formerly involved in the lending process which might include borrowers, lenders, brokers, titlement and settlement attorneys and agents, appraisers, foreclosure 29 12/11/00 - PUBLIC HEALTH - BILL 000715 attorneys, trade associations, and State regulators. The interviews, taken together with the statistical work, give us a unique body of knowledge to draw upon for this testimony. Research is beginning to show that there are areas of the City of Philadelphia that are especially vulnerable to predatory lenders. Vulnerability is defined using three factors, the value of housing, and their lower value generally equates to higher vulnerability. The percentage of homes owned by people 55 or more years of age where higher percentages equate to higher vulnerability.
And the percentage of homes owned free and clear, again, where higher percentage equate with higher vulnerability. The areas of greatest potential vulnerability cluster in North, West, and South Philadelphia, and I attached to the testimony a copy of the map that displays where we believe the areas of greatest vulnerability are. Aside from the three characteristics used to define potential vulnerability, areas that are highest in vulnerability have other characteristics in common. For example, these 30 12/11/00 - PUBLIC HEALTH - BILL 000715 areas tend to have lower income. They have experience greater estimated population loss between 1980 and 1998. They have substantially higher percentages minority. And they have higher percentages of adults with less than a high school degree. Preliminary data analysis on selected areas in several neighborhoods of the City, and those area are highlighted on that map with a little red border around the census tract.
Preliminary data analysis on the selected areas of the City show that the more vulnerable the area, the more likely it is to manifest lending patterns consistent with predatory lending. Areas that manifest greater potential vulnerability show far higher likelihoods of refinancing, both prime and sub-prime loans into sub-prime loans than the areas of lower vulnerability. Conversely, areas 31 12/11/00 - PUBLIC HEALTH - BILL 000715 that manifest greater potential vulnerability show far lower likelihood of refinancing both prime and sub-prime loans into prime loans, the latter representing a sort of credit repair refinancing touted by sub-prime lenders as one of the benefits of the product. Additionally, the lending institutions most active in the areas of greatest potential vulnerability are very different from those in the other areas in the City. Whether these patterns clearly suggest predatory lending may be debated, but what is not debatable is that the residents of certain areas of the City of Philadelphia are clearly paying more than others for access to mortgage credit and they are dealing with a different set of financial institutions. Another indicator of predatory lending is the systematic extraction of equity from the home that can be reflected in multiple refinance transactions within a very short period of time, each time for a slightly greater amount. This culminates oftentimes in a large refinance coming close to or even exceeding the value of 32 12/11/00 - PUBLIC HEALTH - BILL 000715 the home. We have found that areas with a higher potential vulnerability are substantially more likely to manifest that pattern of refinance transactions as well. Our interviews with borrowers and others involved in the transaction suggest that the borrowers oftentimes do not comprehend the complex transactions they enter into. Think about whether a naive borrower could truly comprehend a 15-year mortgage with a 30-year amortization schedule, meaning that at the end of years, they owe a significant balloon payment. 14 Or that the loan they just got can adjust as much 15 as 7 percent in one year keying it ultimately to an interest rate standard, LIBOR, that is not used by most prime or sub-prime lenders. We have been told how borrowers are targeted and aggressively marketed. Brokers can buy lists off the Internet of names of people who are older, of lower income, likely homeowners and likely living alone. From that, they can search publicly available property records and determine who may already have a sub-prime loan. And these people are then targeted for the predatory 33 12/11/00 - PUBLIC HEALTH - BILL 000715 product. We have heard how the need for small amounts of credit are turned into significant first liens in order to generate more fees for those involved in the transaction. The transactions make no rational economic sense for the borrowers and do not yield them a net financial benefit. We have seen examples where people are paying off HEMAP loans with sub-prime loans carrying interest rates far in excess of the term. We have similarly heard of an owner of one of the Nehemiah homes who was approached by the refinance soft-second mortgages totaling more than $20,000 in order to get a few thousand dollars cash to do basement renovations. That means they were willing to take on over $20,000 worth of debt that they did not have to pay back.
HEMAP is the Homeowner's Emergency Mortgage Assistance Program. It's a state program that's design to provide assistance at the point that they are facing foreclosure. 34 12/11/00 - PUBLIC HEALTH - BILL 000715
We have heard of instances where borrowers have paid as much as $3,000 for one year of force-placed property insurance, contents excluded. Thousands of dollars are paid in single-premium credit life insurance premiums. All these things add unnecessarily to the indebtedness of the borrower and can lead to the lose of their home. Borrowers think that their brokers, although paid dearly, represent them. Fees for brokers sometimes exceed 10 points or 10 percent of the mortgage amount. Brokers do not have a legal obligation to get their best or most appropriate deal. While most ethical brokers do work hard to get their customers a selection of deals and options, others do not. Regardless of the needs of the borrower, the predatory broker will bet the deal that is most financially advantageous to him or her, not to the borrower. Borrowers are unrepresented at settlement and thus are at a distinct disadvantage. Disclosers, although plentiful for certain, are not an effective means to 35 12/11/00 - PUBLIC HEALTH - BILL 000715 communicate the dimensions and gravity of the transaction being contemplated. In response to a question about the efficacy of the various disclosure forms, one broker told us "These people don't understand..." And I'll leave the word out. This broker went on to say that he does not like to attend settlements because the borrowers ask too many questions. Although not a link scientifically made, it is reasonable to suspect that areas hardest hit with predatory lending are most likely to be the areas experiencing greatest increases in foreclosures. A cursory review of the data from program year 2000 on those HEMAP applications show that some of the areas with the greatest number of the applications for assistance are the areas with the greatest potential vulnerability for predatory lending. Additionally, our analyses show that the incidence of sheriff sale activity is higher in sample high potential vulnerability census tracts than those with the lower potential vulnerability. One of our interviewees told us that for numerous reasons, some financial, some 36 12/11/00 - PUBLIC HEALTH - BILL 000715 administrative, homes taken in foreclosure frequently become abandoned dwellings blighting entire community. Thus, it is not only the individual borrower that is hurt by the transaction, we are all adversely impacted. In conclusion, we at the Reinvestment Fund applaud the City Council of Philadelphia for taking on this issue on behalf of all Philadelphians and remain committed to sharing our findings with any interested party. We thank you for the opportunity to testify and stand ready to answer any of your questions.
Members of Council, my name is Irv Acklesberg, and I'm the managing attorney of the North Philadelphia Office of Community Legal Service. I also lead our consumer work. And for years, for the last 23 years much of my practice has consisted of 24 assisting Philadelphians in foreclosure crisis. 25 Now, traditionally when you see a 37 12/11/00 - PUBLIC HEALTH - BILL 000715 foreclosure, you don't focus too much on the origins of the loan. Someone applied for a loan, you assume it was legitimate, something happened to them in the future, an injury, a loss of job, whatever, something's happened and so you try to get them back on track. About -- I would say in about 1996, we started to see foreclosures coming in that had a different character to them. And they had sort of three unique characteristics. One was that they were very recent loans, loans just made within the last year, two years. And the people facing the foreclosure often had a very hard time articulating the reasons for the loan. I mean, that may seem odd but, in fact, person after person would come in and would be confused as to how they got the loan, why they got the loan, and what the loan was for. And clearly, way out of proportion, often, even when they did remember, for example, it was to get work done in their house, the amount of loan would be vastly out of proportion with the amount of work that they had done on the house. And the third characteristic is that 38 12/11/00 - PUBLIC HEALTH - BILL 000715 often these were people with very, very clear vulnerabilities. I mean, one of my very first cases, Paratransit brought in a woman who walked in with her walker. She had suffered several strokes. Within the last year she had entered into a fairly complex transaction, and I found out that they actually had to hold her hand to sign papers. Now, what began as a trickle of cases around 1996, a trickle of these new and very suspicious transactions, soon became an explosion. Now, remember we're talking about in these years of relatively strong economy. Always one of the rules of the mortgage business is when the economy is good, the foreclosure numbers are down. But what's happened here is the opposite. The economy is good, but foreclosure numbers have skyrocketed. And we know that from Sheriff Green, I believe, has also said that he's noticed a tremendous bump upwards of foreclosures. It's because of the nature of the lending changing. Now, presently at Community Legal Services and Philadelphia Legal Assistants, our sister organization, I would say that we are 39 12/11/00 - PUBLIC HEALTH - BILL 000715 currently -- we currently have, I would say, seven lawyers working full-time on defending predatory lending cases, and we cannot come close to meeting the demand. We are begging for help from the Bar Association to help us. We know that we cannot save all of the houses that need to be saved. We are convinced that what we are facing is the housing equivalent of a public health epidemic. Now, in order to understand what these loans are and how different they are from what most of us conceive of as mortgage transactions, I brought with me a typical settlement sheet. If I could approach and distribute these. The settlement sheet that's being distributed is an October 1996 loan. The lender is a company called -- was a company; they're no 20 longer in business -- called the United Companies Lending Corporation. The borrower is Gail Floyd who actually is on one of the panels will be speaking. We had thought that they would be speaking first, that she would tell her story. So I'll let her tell the details of that story, 40 12/11/00 - PUBLIC HEALTH - BILL 000715 but I want to just take you through this. The important thing of her story to remember, there are two highlights of this story that I have tell you in order for you to understand this settlement sheet. First is what Miss Floyd needed was $1500 to buy a furnace.
As she'll tell you, the contractor came, said it will cost $2500. She had a thousand; she needed $1500. At the time, she had two mortgages on her home. One was at CoreStates, a 9 percent lone and the other was with Commercial Credit 11 percent loan that she had taken out to do some home repairs. Both of those loans were current at the time. The CoreStates loan was 9 percent, the Commercial Credit loan was 11 percent. Now, again, this was a loan from her standpoint to get $1500 of home improvements, and this is what she got: A lawyer for the title company came to her house -- this is a closing done at her kitchen table, and this is what happened to her. You'll notice on the front of the settlement sheet that the amount of loan is $33,600. Now, you might wonder as we all would, well, where did the money go? Well, as we can 41 12/11/00 - PUBLIC HEALTH - BILL 000715 see from the last line, it wasn't cashed to her. 73. So where did all of this money go? If you turn to the back, the second side of the settlement sheet, and this is known in the trade as a HUD-1. This is basically the road map for where all the money went. You'll notice Line 801, loan origination fee, $3,004. This is known in the trade as points. Now, it's not points that you and I know about, points that actually are paid upfront as a way to bring a fee down. No, these are points that are pure and simple gouges, just ways to take money out of someone's home. We learned in depositions that this company used these points, so-called points, as commissions for its sales representatives. So this is basically like selling mortgages like you would Avon where, you know, the higher the amount of the loan. The higher the commissions to the person selling the loan. So there's this incentive to knock the loan up as high as possible. If you go down further, you'll see a few other fees, appraisal, credit report fee, $101. I guess it's an expensive credit report. 42 12/11/00 - PUBLIC HEALTH - BILL 000715 One of my favorites, $295, a loan fee, as opposed to the other fees. $10, $10, $90 all fees different fees to this lender. And then we get to another large item at Line 811, broker fee, $1,430. This is by my client Ms. Floyd who you will meet, never hired a broker. She never even knew what a broker was. And in discovery in a case against this company, we learn that this loan officer actually had a staff of signed broker agreement by this particular broker and he would basically slip him some business and essentially slip him some of the homeowner's equity. If you go down a little further, Line 904, credit life $2,430. Now, this is a life insurance, this is credit life, again, like we don't ever see in the regular world the mortgages. I'm sure you know that for most people that have mortgages every year you get in the mail an offer to get credit life. It's a decision you can make on an annual basis. It adds a little bit to your monthly payment. Well, to say the poor pay more in this case is an 43 12/11/00 - PUBLIC HEALTH - BILL 000715 understatement. This is a different product only offered to the poor. It's called single-premium credit life. It's a product where you pay up front for the life of the loan a very high premium. A very large portion of that premium is just more commissions to the lender and then this is financed over the course of the 30-year or 25-year loan. This is a product that has no 10 market justification. It is pure and simple a predatory product that is just put in these loans to, again, earn more profits. And if you go work your way down the sheet, you see, sure enough there's $1500 for a home improvement escrow. Well, at least she got her heater. And then two mortgages being paid off. I forgot to mention to you that this loan was 13 percent. She paid off two lower percent interest mortgages with this loan. She essentially refinanced to a higher rate. There are examples of these kinds of extraordinary refinancings all over.
In North Carolina the most dramatic one being the refinancing of 0 percent Habitat for Humanity loans. 44 12/11/00 - PUBLIC HEALTH - BILL 000715 Ira Goldstein mentioned that paying off soft-seconds, just to make sure you understand what that is, often as a way to put subsidy into a new home. We have a so-called soft-second. It's a way that the subsidy can be put on the title so that the person getting a subsidy can't just resell the house immediately and pocket the subsidy. Those soft-seconds disappear after a period of time, often 10 years. Well, more and more we are seeing in the City of Philadelphia people being told to refinance these soft-seconds. In other words, pay off a mortgage that you don't even have to pay. We're seeing people with wrap agreements being told to pay off their water bills. It just goes on and on. The key is, people being fooled in borrowing more money than they want or they need or they ask for. Now, versions of this transaction that I have shown you have been replicated all over the City as the Reinvestment Fund has begun to quantify, primarily in low-income minority neighborhoods. The particular company that we were looking at just now in the Floyd 45 12/11/00 - PUBLIC HEALTH - BILL 000715 transaction, this company, UC Lending company which probably most consumers have never heard of, had, according to some of their research done by the Reinvestment Fund, in 1998 a percent 6 market share of all refinancings in black census 7 tracts in this city. There really is in essence 8 an economic apartheid that is being installed 9 here. 10 In our office alone at Community 11 Legal Services, we are currently representing 70 12 individual homeowners just from this one company. 13 That's just UC Lending. And there are numerous 14 companies that are selling this so-called credit. 15 Now, I'm sure you're going to be hearing from the industry that the large fees they're grabbing from unsuspecting consumers are justified by the added risk of making loans to credit repaired homeowners and that action by City Council will have the effect of drying up credit to such borrowers. Now, these really are myths. They're two myths that are the stock and trade of this industry. Look at this loan from Gail Floyd. Where did the higher risk come from? They manufactured the risk. She didn't ask for a 46 12/11/00 - PUBLIC HEALTH - BILL 000715 $34,000 loan. She asked for $1500 to buy a heater. The risk of their own creation, and as Ira stated in his testimony, they created loans that are virtually a cinch for either going into foreclosure or having to be refinanced, which is a great thing if you're making all of your money in upfront points. You just keep refinancing until you've sucked out of the equity out of the house. The other myth that they'll dry up sub-prime credit, there has always been credit available to the poor. I man, I've been doing this work for years. People that needed $1500 15 for a heater, they could always get it. 16 Sometimes you're right, they would pay more than 17 they should, bt they would pay a high interest 18 rate on what they asked for, the $1500. And 19 that's what's changed. 20 Certainly we need credit in 21 low-income neighborhoods. Certainly institutions 22 making this credit are entitled to price the 23 credit products in accordance with the real risks 24 that the borrowers present. But what we are 25 dealing with is poison, poison loans that are 47 12/11/00 - PUBLIC HEALTH - BILL 000715 being sold to unsuspecting trusting homeowners. I said predatory lending is the equivalent of a public health crisis. I will be more specific. In my judgment, predatory lending is the housing equivalent of the crack cocaine epidemic. )
These loans are poison, they're killing our neighborhoods and it's become big business and we've got to do something about it. Thank you.
Thank you very much. Certainly, as you were testifying I was thinking that as I look at the chart given to us, it further calls it redlining in the community because what happens, the more foreclosures you have, any credible lending institution will look at that map and say, These people don't pay their bills. And they really become victimized again because the traditional lending agencies don't 48 12/11/00 - PUBLIC HEALTH - BILL 000715 want to go into that community but, you know, not really understanding that the increase in foreclosures is a result of this predatory lending. So people are continuing to be victimized. Councilwoman Brown had questions. She had to run. There's a simultaneous meeting going on. And I apologize for that. She'll be back, so don't go away. She has some questions for you. So what we'll do is have the other panel come forth and then we'll call you back for questions by her. Thank you very much for your testimony. (Applause.)
Irv, one question I wanted to ask you here. This United Companies Lending Corporation, that was a sub-prime lending corporation or was it -- how were they identified?
They were a sub-prime. And I think that that's -- we're generally, it's important to note that we're generally not talking about the banks. These are 49 12/11/00 - PUBLIC HEALTH - BILL 000715 not loans being made by the banks. These are loans made by these non-depository financial companies that are called sub-prime. That's the name of the industry. Not all of them are in the business of predatory lending; some of them are. One of them was United Companies Lending, and it recently went bankrupt. But often these companies go under, but the loans, the poison is sort out there. And ironically, what we found is that more and more of these loans are making their way into basically retirement funds, mutual funds. I mean, we've seen these loans even in social choice funds. That's why it's so important, I think, that the bill is seeking to address investment in these sorts of products.
Next we'll have Phyllisa Stiles, Levi Moore, Edna Burgin. Are they here? (Applause.)
Phyllisa Stiles, Levi Moore and Edna Burgin, come forward, please. 50 12/11/00 - PUBLIC HEALTH - BILL 000715 (Witnesses come forward.)
Do we have Gail Floyd, Betty Lefavi, you're here, Umar and Yasmeen El? Why don't we have just everybody come forth and we will take their testimony. And Brittany Richardson. (Witnesses come forward.)
We can't all get up at the table. We'll call up the three later. Would you like to proceed with your testimony? Are you Mr. Burgin?
Mr. Moore, I'm sorry. Would you speak into the mike and identify yourself for the record.
Okay, good morning. My name is Levi Moore, I live at 1246 South 49th Street in Southwest Philadelphia.
You have to speak slowly because I can't hear that fast.
Okay, thank you. I'm an ACORN member and a victim of predatory lending. I inherited my house through the death of my mother and owned it free. In April of '98, I 51 12/11/00 - PUBLIC HEALTH - BILL 000715 was approach by Jim Hollerin (ph), a contractor who offer to do remodel my home, my bedroom, bathrooms and so forth. I had to have a room 5 fixed up for my little girl because I was fighting for custody through a court order for her. So they had sent an investigator out so I had to get that work done. So in the process of time Jim offered to arrange to get the loan for me 'cause I was down from being hurt on my job. I was waiting for things to go through. I was going back and forth to therapy to my doctors and I was, like, had an operation, my back surgery, slipped discs, and I was walking with a limp until I go through therapy. And after Jim kept coming back and forth to convince me what he can do for me because I really need it and I thought was going to do me a great deal until things start rolling for me.
Had you approached him to do the room and then he expanded to do the whole house? Or you approached him or he approached you first?
Well, during the time that he was coming back and forth, yeah, I got to know him.
The checks, after making arrangement to get the work done which wasn't completed, the checks that was given to us, me and my wife, one for the bill and one for the contractor, which we only received one check from him and the second check he kept, saying that it was issued to the company that was going to do the work on the house, which we never seen. During the process of time since he didn't finish the work with this contractor, they left things half done, it wasn't finished. My son had to finish some of it, which my house is still in a wreck right now today and it's not completed and I'm still trying to do the best I 53 12/11/00 - PUBLIC HEALTH - BILL 000715 can. He took the money forged our name on the check after going through -- his contractor left the house and that's why we seek help through, thank God, for the legal service people who came in and I gave him the contract and they read it over and they told me it what's what. Now, after finding out what I've done by mistake, not knowing what I was getting involved in, like balloon payment, I didn't know anything about that, fully understanding it. Okay, so the $33,000 that I was supposed to be borrowing to get house done, $29,000 balloon payment for the years and then after paying the balloon payment off, here I'm in a $90,000 debt for a house that I already own, you know. And now -- that's it. And I just thank God for the hearing and ACORN will come in and try to give you more examples.
The contractor secured the loan for you? He contacted the lending institution?
He made all the 54 12/11/00 - PUBLIC HEALTH - BILL 000715 arrangements?
Right. He carried us to the place. Everything was already set up when we got there. They just gave us a little example of what we had to do and that was it.
I got a $90,000 in debt that I got to pay for a house that was already given to me.
Who is next? Would you identify yourself for the record?
Good morning. My name is Edna Burgin, I live at 1647 North 59th Street in the Overbrook Section of Philadelphia. And I'm a member of ACORN and I also feel like I'm a victim of predatory lending. A few years ago, I sold a small house 55 12/11/00 - PUBLIC HEALTH - BILL 000715 that was left to me by my family. And I just said at that time I'd been in my neighborhood for almost about 40 years and you know you always have ideas about you want to do things when you get a hold of some money. So I decided that I wanted to get my kitchen done over. I always had dreams of how I wanted to do it and I got three estimates, which is what people usually do until they come across best price. So I accepted a contract with American Home Concepts. The cost of the kitchen was just about $20,000 short of one or $200. It was a $20,000 contract. I paid them $10,000 in cash, assuming that the balance that I owed them would be on the $10,000. However, shortly after that, without any notice from them, I received a statement from the Associates Company telling me that my total that I would owe was $23,000, which was more than the cost of the kitchen, because as a layman I just figured I'm paying for half of it so my balance monthly should only be on that second half. However, here I am owing more than the kitchen cost in the first place. And I decided to try to keep my 56 12/11/00 - PUBLIC HEALTH - BILL 000715 credit good, which I did have good credit standing by sending them like I think the minimum was like $125 a month, and I was sending them $11 or $12 more a month each month in order to offset the total balance, which was outstanding. In the statement that I would receive monthly never showed where that $11 was going, nor was there anything even in the fine print to show what the interest rate was. And when I finally got through to somebody, they kept passing the buck telling me to hold on, hold on, hold on until I finally got to somebody. And they are reluctantly told me that my interest rate was 15 percent. 16 My argument is with the fact that the 17 people I contracted with in the first place never notified me when I signed on the bottom line to have the work done and gave them a $10,000 check to start to pay for half of it that I was going to be shifted off to somebody else. I assumed that my contract was with the first people that I paid the money to. So what happened is, you know, this contractor set my loan up and told me nothing 57 12/11/00 - PUBLIC HEALTH - BILL 000715 about it, and I just feel like I'm caught in a bind here. I'm 69 years old, and from the looks of things, I'll be paying for this kitchen for the rest of my life. So this legislation would stop contractors from arranging shady loans because they lose business license probably. So I beg you to please support the anti-predatory lending ordinance. Thank you for your time.
My name is Marion Fields and I bought a duplex in 1998 and my sister co-signed for me. And I was so thrilled that she did this so I had her name put on my deeds also, I was that grateful. In 1994, I had to have some repairs done. And a friend of mine recommended this particular man that worked for Ford Consumer Finance. I only needed $13,000 to have the repairs done. I explained to the gentleman that I did not want a company -- a balloon and that I 58 12/11/00 - PUBLIC HEALTH - BILL 000715 wanted a company that would accept my mortgage payments and would include my taxes and my home insurance such as I have always done. I have owned other properties and I never had any problems paying my mortgage. I had a perfect mortgage record. The day of the settlement, there was another gentleman there from Ford, and this particular man, the contractor -- not the contractor, but the broker. I asked him again, I said, "Now, you sure?" Because he's the one that told me, he said, I owed $38,000 on this property so he suggested that they would pay off the property and then I could get the $13,000 loan. And I said to him, I said, "Are you sure that they will" -- they will -- I forgot what you call it when you pay -- escrow, escrow. And he said, "Don't worry about it. Everything's okay." I said, "Well, I don't want a balloon either." He said, "Don't worry about it. Everything is fine. All you have to do is just sign the paper. Just don't worry about it." So not knowing better, I should have 59 12/11/00 - PUBLIC HEALTH - BILL 000715 had a lawyer, but I had never done business with crooks before and I didn't know that such people existed that would do me that way because I was 62 years old. But when the tax time came, I noticed that I had these papers saying that I owed this money and this tax money. When I called him, he was saying, "Oh, yes, you have to pay your taxes." And I was wondering why the coupons they sent me didn't state how much I would spend for taxes and all, such as my other company. He said, "You also have a $51,000 balloon that you'll be owing in 14 years." So I said "Why?" You know, I said, "I told you I didn't... " He said, "Well, I told you I'd take care of it. But, you see, I was going to get you a Fannie Mae loan. And remember when you said you didn't want to pay high taxes I told you don't worry about it, you know, that this would be at a 10 percent or something like that and I get you with a Fannie Mae for a 7 percent or less. And I remembered that, and my sister 60 12/11/00 - PUBLIC HEALTH - BILL 000715 told him, she said, "Well, you know, I'm retiring next year," according to the time she had put in, not age. "And will you have time to do all of this?" You know, when he said something about getting me a Fannie Mae loan, but he didn't tell me why he was going to get me the Fannie Mae loan, he just said at a lower percentage. So he said, "Don't worry it. Everything is fine." Well, I guess I was so stupid when he said that. I thought everything was going my way. I wouldn't have the balloon. I wouldn't have a high mortgage payment and such. But it turned out that everything I asked him, I told him I didn't want, that's what I got. And now I'm 75 -- I'll be 75 next month. I've never been behind in my payment, but I am now and I'm behind in my taxes because I could not pay $670 a month because my Social Security is very small. At the time I was working part-time, but I didn't know that my payments would be that high until I had to pay them. And now I can't pay anything. I have gotten bad credit because I couldn't pay off the things that I owed people. I couldn't pay my 61 12/11/00 - PUBLIC HEALTH - BILL 000715 taxes. I can't anything because I get -- I have a duplex and I get $450 a month for that duplex and I have to take $220 of my 288 Social Security to put with it in order to pay this loan.
Well, I'm very sorry that all of that has happened. It's very sad and very painful to sit here and listen to the stories and then get questioned as to why we introduced this bill. Do you have something to say, ma'am?
Yes. My name is Phyllisa Stiles. I'm her co-signer and I'm also a member of ACORN. And I just wanted to add that since we have signed onto this particular mortgage, it not only affected her credit rating, it has affected my credit rating. We don't have any -- we're unable to get insurances. We were unable to fire insurances. As a result, our taxes are now delinquent $7,000. And when we first got into this balloon, I had A-1 credit and there was no reason for us to go this way. But the broker, which I didn't know personally, but it was brought to us by a mutual friend, had said that the loan that he wanted to do pursue like 62 12/11/00 - PUBLIC HEALTH - BILL 000715 the Fannie Mae loan, we would have to go this way and after a couple of months he would change us over to the Fannie Mae loan, but that turned out not to be the case. We still have the balloon. The company has changed hands, I believe, three times. And the broker tells us he no longer works for company and he's not -- I'm not really sure what he's doing now. But as a result, my credit is messed up and we have these outstanding things. And please pass the bill.
At that time it was Ford Consumer. Now they go by the name of Associates Equity, Home Equity.
Thank you. Obviously, there's going to be a lot of work until we get where we want to be. But I'm hoping that everyone listening, if they're watching today, I don't know. You said that you weren't used to dealing with people that weren't honorable. And I'm hoping that everyone listening realizes that they shouldn't sign anything, shouldn't sign anything without legal 63 12/11/00 - PUBLIC HEALTH - BILL 000715 guidance or someone that you have --
The reason I'm bringing this up is this isn't going to happen -- these changes aren't going to happen overnight, and there's many people that this week, next week, the week after could be put into the same situation. It's interesting when I got the copy of this mortgage, I jested with the Chair and I said, "It looks like the one I just signed." But unfortunately, there are people that have been abused and taken advantage of. And I know that that's what we want to accomplish here. But I'm hoping that everyone listening to my voice won't be schmoosed (ph) by some slick salesperson to say everything's okay. Going forward from today, I would hope that no one signs anything until they're confident. And I would bet ACORN and there's also organizations that would be, hopefully, be able to guide you through the process in the event that you can't afford an attorney, which can be very expensive. So I think if anything today going 64 12/11/00 - PUBLIC HEALTH - BILL 000715 forward until all of this is worked out and we have something that protects people from people that would want to take advantage of us that everyone just slow down, put it on hold until they're really, really confident that they're signing something that's an honorable document. So I'm very sorry what's occurred here today, and hopefully we'll be able to move forward and do something about this terrible activity. Thank you. Thank you, Madam Chair.
Thank you. And what we plan to do through the task force is certainly continue the education process because it's extremely important that we educate people about predatory lending and the ways they can get into trouble. People want to improve their homes. They want a nice place to live. And sometimes they get into a situation, well, if I ask this question they may think I don't know anything or I feel stupid. But feel stupid. And if you don't feel comfortable, don't do it, don't do it. 65 12/11/00 - PUBLIC HEALTH - BILL 000715 (Applause.)
Good afternoon. Thank you very much for listening to my little complaint here. My name is Betty Lefavi. I live at 2028 East Tioga Street. I am one of the victims of predatory lending and a member of ACORN. I owned my home free and clear until Beneficial came into my life.
Would you speak into the mike? Can you lean over, pull up to the table to speak into the mike so we can hear you. We want to hear you.
Let me be clear, this is not Beneficial Bank we have heard of, but Beneficial Predatory Lender which claims to save you lots of money, but really it's a scam. I though these people was a branch of Beneficial Bank. I have very good credit, but I couldn't get a bank loan because I only wanted to borrow a small amount of money and they told me I had to 66 12/11/00 - PUBLIC HEALTH - BILL 000715 borrow at least anywhere from 15,000 up. Now, why would anybody at any age that's on a fixed income would want to go into debt if you cannot, you know, afford?
The regular bank told me I had to borrow for a home equity loan or any kind of a loan, you know, 15,000 and on up. 14 Now, I can't afford it. I cannot go borrow 15 something I cannot afford. 16
All I wanted to do was 18 pay a little Sears loan off for $4200 and it was 19 a total of like $4800. So Beneficial had said, 20 because a little loan with them and it was for a Kirby sweeper. That's how I got involved with these people. And they said, "Oh, you know, we can give you a really good rate." Because they look into your history and what you owe. And I thought what is this great rate? Well, you pay 67 12/11/00 - PUBLIC HEALTH - BILL 000715 percent. So 13 percent, who isn't going to jump at a deal 13 percent? You're going to say, 13 percent is a whole lot better. Well, here I'm paying more towards this company than I would have Sears. Then when you go in, well, they turn around, "We're going to combine all of your little loans." No, I have them paid. I don't need to pay four or five years. So I didn't have -- I didn't combine that. But the one little bill that I had with them, which was 300, it brought me up to $4800. And then when they said come in it was approved and, you know, just sign the paper. Well, you trust them. I asked them, "Well, home equity? I don't want to borrow but a certain amount. "My home be taken from me?" Oh", no, no, they can't take your home. There's no problem. We can't just take your home." Here when I read these papers after I signed it -- plus no one sits there in the little booth. Go in there and sign a paper. You trust in these people. They do not explain the length 68 12/11/00 - PUBLIC HEALTH - BILL 000715 of the loan, which I do not know the length of my loan. They don't explain what you're paying for, this and that. And when I called them, they said, "Well, if you don't like it, pay it off." Very rude to you. I said, never again. Never. And if anybody ever went against you, I'll be the first one to protest against you people 'cause you need to lose your business. 'cause you are nothing but dirty, lousy, sneaky people to do this to people. You take their money. You have no 14 respect for the person. So I said, " That's fine. You sit in your little South Philly home. That's why you got a home like you do because you take it from people like us." Thank God I'm not a victim as like these people are where it's thousands and thousands. But I have -- I don't trust -- I thought I was streetwise and wise enough that I've been on my own raising my children, that I was smart to these people. But they have you so sewed up and the way they talk, they have you in 69 12/11/00 - PUBLIC HEALTH - BILL 000715 the envelope and all sealed up. It is so quick. (Applause.)
And what do they do? They want to take your home and strip you of your wealth, of anything you have. And they tell you, "Oh, we're you're friend." Yeah, you're my friend when I sign it, when you stick me in a little glass cage, sign the paper, and then have an attitude. Well, they should be closed up. Maybe if they had their homes taken from them they would know how people all through the country is being treated and they wouldn't like it. This is what should -- these loans should be stopped. We shouldn't have to pay. And then when they don't have no 17 job or money, they'll know how the little person feels. And we can "patooy" spit on them like they spitting on us. (Applause.)
Thank you very much. I hope that the bill will be passed. And I appreciate for you to listen to the complaint. So if you would like to see this kind of junk that I have found in this paper that they are 70 12/11/00 - PUBLIC HEALTH - BILL 000715 telling you you cannot switch and if you don't abide by their law they'll automatically take your home and in this little clause that I have. And they're now a mortgage company. It's not a loan company, this is a mortgage company. I didn't know they had a license to be a mortgage company.
No, I didn't 'cause when they gave me the check, it was sent out, what could I do? But they don't sit down and speak to us people and say "This is what you pay for. This is your insurance." I wasn't stupid enough to take their insurance. They call you back and say "Oh, we're sending you checks and, well, we want to refinance it." Don't do me no favors. "We'll save you money, we'll pay you twice a month." You ain't saving me money. You pocketing in and you ain't getting on me the second time. One time lightning hit me. I ain't 71 12/11/00 - PUBLIC HEALTH - BILL 000715 going for the second strike.
I would like to say that the mortgage they paid off for me was $38,000. I received $13,000 of that money and the $7,000 I guess went for them. In other words, I owe 20,000 and I only needed 13,000. Then I was told I really didn't need that much because the guy cheated on me. The man that worked for the compete is the one that suggested the contractor that I have.
Excuse me, my name is Gail Floyd and I am the one that you had the paper on the floor for the loan.
The other two 72 12/11/00 - PUBLIC HEALTH - BILL 000715 can still come up to the table. Is Brittany Richardson here?
Good afternoon. My name is Gail Floyd. I bought a house in June 1991. I paid $17,000 and had a mortgage with CoreState Bank. The interest on the mortgage was around 9 percent. My mortgage payments was $143 a month. In 1996, I got a home improvement loan from the Mellon Bank for $8,400. The interest rate on the second mortgage was 11 percent. My payments was $182 a month. That same year, I ended up with a $34,000 mortgage loan from a company called UC Lending. I did not need this mortgage and I never asked for it. It was only one year later after I got help from the Community Legal Service that I realized how badly I was taken advantage by that company. It started when I agreed to have a contractor put a gas heater in my home. The cost of job was 2500, and I had $1,000 of my own money. So the contractor said he would get me a 73 12/11/00 - PUBLIC HEALTH - BILL 000715 loan for the 1500 I was short. UC Lender called me and told me that I was approved for the loan and for the heater and that they would send a lawyer out to my house to have me sign papers. They told me the loan was going to be paid off by existing mortgage and that it would be a good idea to consolidate everything together. I didn't realize that my -- I didn't realize that they were refinancing my existing mortgage to a higher rate, and I certainly didn't ask them to do that. I also didn't realize and no one explained to me that the mortgage contained a $9,000 in fee an charges that I was now going to have to pay years of interest on. There was a 18 large broker fee to a company I never heard and 19 never heard of. There was a 2400 credit life 20 insurance premium I certainly did not ask for and 21 since I already had life insurance from my job. 22 The payment from UC Lender Mortgage 23 was -- they have here 403, but I was paying them 24 $455 a month. I can't afford this payment, and 25 my house is now in foreclosure procedures. 74 12/11/00 - PUBLIC HEALTH - BILL 000715 I am grateful that I'm able to -- to Community Legal Services. Dealing with UC lender, what happened to me was I needed a heater for my house and I thought that the gas company could do it, but the gas company don't do that anymore.
So I was told you have to go through the yellow pages in order to get the parts and the pieces. And through that, what happened to me is how I wound up with UC Lender because, like I said, I had $1,000 of my own money but the other 1500 I didn't have. They are fast talkers. They did come to me talking fast. Like I said, I only needed the $1500. But like I said, on the paper that you have in front of you, I never realized. When I did contact them, no one called me back to explain to me because I thought that my mortgage payments should have went down. But after I lost my job, found out that they were calling me five times a day, wanted the money. Then I got a phone call wanted to know from UC Lending I could get another mortgage, another loan, did I want to 75 12/11/00 - PUBLIC HEALTH - BILL 000715 borrow some more money from them. They're rotten.
My name is Yasmeen El and I live in South Philly and I'm a member of ACORN and a victim of predatory lending. I'm on a fixed income and I receive a widow's pension. I never asked for a loan. But I got a check in the mail for $4,000.
$4,006, some-odd cents. I wasn't even sure it was a check, but didn't say "This is not a check" or "non-negotiable," so I asked my son, I said, "Is this a check and real?" He said, "It looks real to me." So I just put it up for a while and I kept it a couple weeks. And in the meantime, I needed some major work on a roof. My kitchen, it's not shed kitchen, but it's, you know, separate from the house and the roof, you could 76 12/11/00 - PUBLIC HEALTH - BILL 000715 see outside. And, of course, any time it rained, the water would seek its own level and it was ruining the walls and the kitchen floor. And I just kind of got tired of that. So I said, I'm going to find out if this is really a check. So I deposited the check and it cleared. So I said, "wow." I saw on the back, there was, you know, arrangements and things that I will have to do so I said, okay, I signed that. I'll pay them back. As soon as the check -- the reason I found out the check cleared is they called me. Household Finance called me and told me they saw that I had cashed their check, they would need some additional papers signed, that I should come into their office and sign these papers. Well, that sounded reasonable. All I had done was cash their check, you know, so I figured I needed additional papers. I went into the office and I was told at that time that I had $522 more available to me if I wanted it. I told them no, I didn't want more money. The arrangements I had made were fine. So the guy says, "Well, I see you just turned 60, so you need this credit life 77 12/11/00 - PUBLIC HEALTH - BILL 000715 insurance. You must have it." So I said, "Okay, if I have to have it, I'll write" -- and I was going to write him a check for this amount because I hadn't spent any of this money at that time. He says, "No, it has to be included in the loan. We'll take care of it." So he comes in with the papers. You know, I'm figuring I'm signing for $4,000 which would be repaid to the amount of $6,000 and some-odd dollars. I go home. I have the repairs done. I received a letter in the mail the following week thanking me for payment in full. So I'm like, you know, these people are confused and I pay it no mind. Two days later I get a -- it's not a coupon exactly, but it's the bill where you send the top part to them, and the payment amount is more than it's supposed to be. So I'm looking at it and I go and get this letter and I look and I happen to notice that the letter, the payment in full has one, has number on it and the payment slip has another number. They took the $4,000 78 12/11/00 - PUBLIC HEALTH - BILL 000715 loan and refinanced it so I now owe them over $8,000. I never got another dime. They gave me a credit insurance policy I didn't need, doesn't do anything for me. I mean, it doesn't benefit me in any way. And because the payments are more than I expected, I have fallen behind. They're calling me three, four times a day; four, five days a week, Sundays. I'm really afraid that I'm going to lose my house. Oh, by the way, my percentage rate was 27.4. So I'm worried about these exorbitant rates and methods used to bring customers in to refinance. These methods or killing our neighborhoods and impacting thousands of people. And I urge you to support this bill that fights predatory lending. Thank you.
When you signed the papers for the -- when you signed the papers for the life insurance and/or the $4,000, did you sign additional papers for the $4,000? 79 12/11/00 - PUBLIC HEALTH - BILL 000715
No. See, it was presented to me like it was the papers for the $4,000.
So when you signed the check, you in essence had signed for the $4,000?
So when you signed the second set of papers, you were signing for another $4,000.
That's what happened. Thank you very much. We're very sorry. Next?
My name is Dorothy Richardson, aka, Brittany Richardson. I want to my story. On December 19, 1988, I purchased a mortgage from GMAC to buy property, and the payment was $241.41. That was approximately 12 years ago. In 12 years, I had paid the mortgage payment on time without error or complication. In 1999, I received a letter from 80 12/11/00 - PUBLIC HEALTH - BILL 000715 Aurora for foreclosure.
Aurora Loan. And I'm going to try to explain it quickly. GMAC was mortgage company number one. On October 20, 1992, a letter from Platt Valley stated that they had recently acquire the rights to service my mortgage, and the payment was 298. Platt Valley was a second mortgage company. On October 16, 1996, Source One sent a notice of transfer of servicing rights. They wrote to inform me that they had purchased the service rights on my loan for the mortgage. Source One was mortgage company number three, and the correct mortgage was 298; they charged me 313. January 24, 1998, I was notified that the servicing of my mortgage loan had been transferred to Aurora and the amount was increased. Aurora Mortgage was mortgage company number four. So this is four different mortgage companies and the issues are the transfer of the 81 12/11/00 - PUBLIC HEALTH - BILL 000715 loan and the increase in the payment. Also the prior company didn't issue a refund and also they did not send the escrow payment from mortgage company to mortgage company, okay. My question is, could I have just said to the new service company, I would rather deal with GMAC, the first mortgage company? However, I didn't have the knowledge or education of dealing with the mortgage company after they transferred me. I didn't -- I wasn't knowledgeable about the transfer. The language wasn't clear. And so on the other hand, I feel as though, you know, this was a trick. But anyway, nevertheless, in 1994, I refinanced my loan with Platt Valley thinking this was a legitimate mortgage company. Okay, so after I refinanced with Platt Valley, here comes another mortgage company Source One, and that's when the problems started. During the transfer of the mortgage payment, they did not forward the escrow account from the prior year of 1998 to Aurora Loan. Source One had also owed my account a refund. Okay, let me try to cut through this. 82 12/11/00 - PUBLIC HEALTH - BILL 000715 Okay, so they raised the monthly payment and I continued to pay. But because the prior mortgage company did not send the escrow payment, the current mortgage company said, we're going to raise your payments for this mortgage payment, but the escrow account was supposed to have come from the prior mortgage company. So they raised my payments. So I said to them, "I'm not liable to pay $50 more a month on my mortgage, it's the prior mortgage company." So I just -- let me see. Now I'm facing foreclosure because of the prior mortgage company. So to sum up -- to sum up, I have been paying my mortgage to Aurora, but they have been sending the payments back. They're saying now I owe legal fees, attorney fees. For what? We haven't gone to court. So now I'm in foreclosure because of the prior mortgage company not paying my escrow. That's about it.
Yes. I'm with Community Legal. They're handling my case. And 83 12/11/00 - PUBLIC HEALTH - BILL 000715 I'm also with Urban League.
Good afternoon. My name is Ruth Gaskins, and I'm the Director of Housing for the Philadelphia Urban League. We have been involved with working with borrowers who have been affected by the predatory lenders for a long time. The story that we're going to talk about today is not one that we can probably do the same, fill this Council room with horror stories and people that are losing their homes in different areas of the City purposely targeted by these different tactics. The one that we're going to tell today, Tanya Jones and myself, is a story about a person who really -- and I have her permission to say this -- was not creditworthy at the time of the loan. There was no prudent underwriting done. She did not have enough funds to close, and a host of other things. But dealing with a very gifted shyster and a person who had the gift of 84 12/11/00 - PUBLIC HEALTH - BILL 000715 gab, got her involved in this situation. This story is one of those success stories because this young lady went to Councilwoman Blackwell's office, and she in turn referred her to the Urban League. I'll let her tell the story and I'll come back and talk how working together, I think, that we can really do something along with that bill to curb predatory lending. This is Tanya Jones.
Thank you. Tanya identify yourself for the record, please.
Good afternoon. My name is Tanya Jones. I live at 56th and Market Street. Basically, I was referred to this particular mortgage company through a friend of mine. I gave them an initial call and they asked me for all of my, you know, my name, my address and my Social Security number, and they told me they would call me back in a couple of days. So they did, they call me back within like two days. They told me I was pre-approved even though they ran my credit and that I could start looking for a house. When I initially looked for houses, I 85 12/11/00 - PUBLIC HEALTH - BILL 000715 didn't see anything I liked, so I put it off. That was in February. In August, I got back in contact with them again and they reran my credit. Everything was still the same on my credit and they still said that I was approved. I was approved for $65,000, pre-approved. So they also told me they had just recently acquired the license to have a real estate agency. So now they are actually showing houses. By the next day, they told me that they had a house. The secretary at the mortgage company told me they had a house that I could possibly look at, That I could meet the real estate agency at that house. So that weekend, I went to the house. I went to the house. I looked at it. He told me that the house was going for $70,000. Well, I made a offer of 65,000. He also said that the seller was requesting $1,000 down for all serious buyers. So that was no problem. I did have $1,000. So I wrote out a check for $1,000 and then I went into the mortgage company, met with them about the house. They were still waiting for the lady who was selling the house to come 86 12/11/00 - PUBLIC HEALTH - BILL 000715 back from her vacation or wherever she was. So when she came back, she accepted my offer. They explained to me that what the repairs was that she was going to do in the house. So we set a date for September 29, 2000. Every week I would talk to them. They will call me and let me know everything was going fine. About a week, maybe about two weeks after I agreed to buy the house, they told me I needed an appraisal on the house, so I wrote out another check for $250. So after I wrote the check and they went through the appraisal. They said everything was fine. I never got any paperwork about this appraisal. They just said it was done. You know, I asked them was the appraisal done? What happened? They said it was done, don't worry about. It everything is fine. So I had -- I knew I was going to be short a couple of hundred dollars. I asked one of my family members would they be able to lend it to me. About three days before settlement, they called me told me they couldn't get a hold of the money. So I called the mortgage company and asked them even though I know that once the 87 12/11/00 - PUBLIC HEALTH - BILL 000715 date is set, that you can't change it. But I asked them could we move it back a week because I actually was getting paid the following week. Could we please move it back a week. So they said, Well, you're going to have to try to get the money because you signed this agreement of sale. So either you're going to have to get the money or you're going to lose the money and the house. So, of course, I started paying again 'cause now I'm out $1250 that I can't afford to just give away. So I called Councilwoman Blackwell's office. I also faxed her like a brief summary of what was going on. Asking them for help to either get this date pushed back, get my money back or some kind of way to help me. So when I talked to one of the representatives out of her office, she asked me about the letter and I spoke with her again. I think Miss Hayes. So she told me to get in contact with the Urban League of Philadelphia, which is how I got in contact with Miss Gaskins. When I spoke to Miss Gaskins, she asked me what my settlement date was.
She told 88 12/11/00 - PUBLIC HEALTH - BILL 000715 me to bring in all information, my pay stubs, my credit report, any paperwork I had from the mortgage company. " And I said, "Yeah, I really want this house. This house is perfect. I like the neighborhood and, you know, this is what I wanted. " So after sitting down with her and she asked me a couple questions about some of the information that was on the forms like the late charges, the percentage rate. She was explaining to me -- she asked me did I really know what they mean. And I told her, no, I didn't really know what it meant and I was going to ask questions about it, so she was explaining it to me. So she decided, well, let me call the mortgage broker and we were on a conference call. So she introduced herself to who she was and told them I was there, that she had permission to talk to them from me and could they explain some of the charges that was on there that she couldn't 89 12/11/00 - PUBLIC HEALTH - BILL 000715 explain it. Well, it boiled down to us being on the phone with the mortgage broker, the actual lender for almost four hours in her office, back and forth she's asking, well, what is this charge? Well, what is that? Why is this this way? Why didn't you send her this? Well, at one point, the mortgage broker told her "Well, she doesn't have the right papers. " So she said, "Well, what do you mean she doesn't have the right papers? " No one told me that they were the wrong papers. So it went back and forth about the charges and the papers. When she called down to the actual lender, first we was on the phone for about 20 minutes just sitting there waiting for somebody to pick up because nobody -- they said, "Well, we don't know who handles the loan. Nobody personally speaks with the borrower. So she said, "Well, somebody has to have a record of who this woman is. " So finally a man got on the phone and first thing, you know, she introduced herself again. Her first question was about a letter of introduction, I think it was.
The APR at this point. What happened, it just got to be four hours -- thank you, Jannie -- of work with this whole thing, but it was rewarding because we had a successful end to it. What happened was simply this: By the time we got through to the broker who was giving us one story. And the broker was telling us that she had the wrong documents. I said, "Fine. Send met correct ones." Of course, he would not do that. And I questioned the dates because everything was done within days of one another and I was getting dates on documents that was dated 9/14. It was the issuing date. However, her signature was 9/6 and then there was a question about whether it was her signature or whether it was forged, not to mention they could not explain what each 91 12/11/00 - PUBLIC HEALTH - BILL 000715 charge was about. This young lady is looking for $800 in order to close the deal; however, they had it listed that she was going to put $19,600 down. They approved her for a mortgage which was 70 percent of her gross monthly income. The principal and the interest on this particular loan would have 57 percent of her gross monthly income. We're not talking about taxes and insurance now. We're talking P and I only, not to mention how they were trying to convince her that we have a second loan that's going to take care of all of this. I said, "Well, please explain it to me. I don't understand it. I'd love to explain it to her." "Well, you have to listen." I said, "Well, being a former banker and underwriter, maybe I'll understand it. Take your time, break it down so that we both know what talking about." Well, the story just one of those crazy stories. We're going to give her 13.6 and a 22 percent loan. 92 12/11/00 - PUBLIC HEALTH - BILL 000715 I said, "How she supposed to pay it?" "Oh, wait, there's grants." "Well, who's giving these grants?" And it went on and on and on. We, of course got the lender. And after all of this time that she was telling me, we finally got a gentleman from lending department who assured me that they deal with these brokers. And I said, "What about prudent underwriting? You know, how do you purchase a loan without taking a look at it?" I don't care what you do, how do you purchase anything without making sure, one, that the borrower can support this debt. Two, this young lady had a serious credit problem. I want to understand your underwriting guidelines here." Of course, they were unable to explain that to us. And all the time we kept her on, I kept her on. We were on a conference call so I wanted to make sure that what we're talking about that she was being educated and she had an opportunity to see just how gifted they are in persuading you to do something when you know you do not have the ability to do it and that you're being set up for a failure. 93 12/11/00 - PUBLIC HEALTH - BILL 000715 So we went on and, of course, the thing got ugly, but he was afraid because we -- I had to use Councilwoman Blackwell's name a little bit here. I said, "Look, this young lady walked in my office. I had never seen her before. She was referred to me by Councilwoman Blackwell's office and I will make a report as to what you're trying to do here. The settlement is schedule for tomorrow. I advise you not to penalize her, to return every dime, and I in turn will only give a cursive review. Otherwise, I'm giving the full story and I assure you, you will hear from her." Well, the truth of the matter is we had to -- Councilwoman Blackwell had her attorney to write. And after we got the letters, of course, the success is is that she was refunded all of her money. (Applause.)
The need for some bill, any bill if this is not the bill, a bill is what we're trying to do. I've had the privilege of 94 12/11/00 - PUBLIC HEALTH - BILL 000715 working with the group in order to write something up for you. I hope you will seriously consider it. There is an immediate need in the meantime, I think, and that is for the news media to do and out and out blitz just like they're doing in trying to persuade you to take these loans, to tell everybody to be on guard, be careful and to seek counseling from anybody, I don't care who it is, understand the transaction before you enter into it. Thank you.
Irv Acklesberg, we'd would like for you to come back. Councilwoman Blondell Reynolds Brown has some questions. And next we're going to hear from the lending community, those people who have asked to testify. The Chair recognizes Councilwoman Blondell Reynolds Brown.
Good morning -- 95 12/11/00 - PUBLIC HEALTH - BILL 000715 good afternoon.
Could I also please ask Carol Hemingway, I have a couple questions for you as well. Thank you very much. You shared with us the settlement statement, did you not?
And you highlighted a number of lines on the back, and I asterisked them in an attempt to determine what institution would be responsible for that requested dollar amount. In the testimony provided by your colleague, Ira Goldstein, a number of parties on the other side have been mentioned. Based on this statement that you shared with us, what parties do we need to be aware of as we go down this statement to examine the big picture around this issue? I mean, you mentioned an insurance allocation. So the insurance industry. I just want to get a handle on who are all the other parties on the other side of this issue.
Most of the fees in 96 12/11/00 - PUBLIC HEALTH - BILL 000715 this particular transaction were fees that went directly to the lender. See, one of the things that's unique to this kind of lending is that -- you know, when we think about people getting ripped off on loans, we tend to be thinking about rates, are you paying a high rate, a high interest rate. In this kind of lending, rate is not where the action is. The action is in up-front fees and charges that get loaded into the transaction. These are all companies that are intending to unload the loan immediately. They're looking to sell the loan off. And by loading a lot of their fees into the loan, they're able, in effect, to recognize some profit instantly. It also means that unlike a regular loan where a lender has an incentive that the person actually be able to make the loan, in these cases, our feeling is that the incentive really is that to just do it again since most of the profits are being made on these up-front fees. So the more you can put someone through these transactions time and again, the more fees you're able to charge. It's actually like equity 97 12/11/00 - PUBLIC HEALTH - BILL 000715 getting gradually sucked out of house. Now, in this particular transaction, most of the fees are to the lender itself. Then you have at Line 811 the broker fee. That's not the lender. That is to, you know, an independent operator called the broker. In these cases, this is really just points going to someone other than lender. It's just more sort of a percentage of loan being loaded into the loan. This is not like when we think of brokers, you know, it's someone you hire to get you -- to shop for you to get you the best deal. This is really just something totally different. This is just points, these sort of sales commissions being paid to a referring broker. In this case, what happened, I believe, was that the contractor had a relationship with the broker. The contractor needed to find a loan for Miss Floyd, so the contractor called up a broker who in turn had a relationship with this lender. The company would ordinarily, they say, charge 10 points, but when they had a middle-man broker involved, they would up it 15 98 12/11/00 - PUBLIC HEALTH - BILL 000715 points. Again, remember, she never even hired this broker. He was just brought in by the contractor. So then the broker and the lender would basically just decide how the fees would be split, and this settlement sheet shows what they came up with.
Would it be fair to say then that those professionals you just mentioned become the indirect beneficiaries of this transaction?
Well, I would say they're direct beneficiaries because once a loan is closed, they get a check for whatever percentage they've been promised. The credit life charge, which is very large, that $2400 that's down at Line 904. That's a product that is sold by the lenders acting almost like insurance agents for a company. In some cases, the insurance companies are actually just another division of the same company. Often, in this particular case, I believe that they sold credit life that was actually sold by an insurance company that was a 99 12/11/00 - PUBLIC HEALTH - BILL 000715 part of the same company. But whether or not they're affiliates or not, the commissions that the lender gets for selling this product are huge, anywhere from 30 to 50 percent of the premium. So let's say some company out there is selling this rip-off insurance. They'll get a lender to sell it and then the lender gets a very large commission for doing it. And it's a product that no one in their right mind, if they understood what they were getting, would do.
Let me ask another question. There are normal settlement transactions where X professionals are a part of the transaction and it's a business transaction so in the best scenario both parties win. This transaction is viewed in every way as unfair and wrong. Are there any additional professionals that come into play with this transaction versus a so-called normal settlement transaction?
Well, I wouldn't say that it's distinguished from a normal one. I would say if look here, you can see that on Line -- well, first of all, there's an appraiser 100 12/11/00 - PUBLIC HEALTH - BILL 000715 up at line 803. In most of these loans, the appraisals are way out of whack. There's tremendous incentive to jack the value up as high as possible in order to get the loan as high as possible in order to get the up-front fees that are based on a percentage of the loan. So you have appraisers. You have the brokers that I mentioned them. They're bird dogs for these lenders. Then you'll notice at line 1107 there's actually a law firm mentioned. That would have been a lawyer that came to her house, hired by -- working for a title company that had been hired by a lender to do the closing. So a lawyer actually would get the signatures. The brokers usually don't attend, as was mentioned before, the Brokers don't like be in a position where they have to answer any questions so often the brokers won't be there. Often the lenders won't be there. You'll have a title company sometimes represented by a lawyer who has no idea where this loan came from. It really isn't their -- their function isn't to advise the borrower; their function is to get documents signed for the lender. 101 12/11/00 - PUBLIC HEALTH - BILL 000715
So in terms of identifying the parties on the other side, 'cause I want to get a real handle, the parties on the other side of this equation. You've mentioned brokers. You've mentioned bankers. You've mentioned the insurance industry, attorneys. Any other additional persons as we look at the big picture?
I would say in terms of what the City can do, the key players are the people that are the gatekeepers for this, the people that are putting people into the system which would be -- and these are people with business privilege licenses in the City of Philadelphia like contractors and brokers. You also have the title companies that are doing these deals for a fee for the lenders, and they might with the legislation proposed have to look at these things with a little more critically. I mean, some title company looked at this closing statement that we all looked at in this hearing today, and I would submit that just on its face, it's pretty apparent that this person's getting ripped off. Again, it went 102 12/11/00 - PUBLIC HEALTH - BILL 000715 through title insurance, a lawyer present at the closing, and this is all just hundreds of this probably happening every month in the City of Philadelphia.
I would like for you to answer two questions. One, ACORN represents a range of issues all in the area of housing. The first question is, where does this issue stack in terms of frequency, if you will? When you look at all of the types of housing issues that ACORN confronts on an annual basis or a daily basis, how often does this one come before you? If you have to attach a percentage to it compared to other issues that ACORN deals with, where would it fall?
Well, I think the fact that because this issue has been identified, issues that ACORN deals with are issues that are identified by our membership who usually who are suffering from this kind of problem.
And people started coming in, our members started coming in and saying, "I'm having this --" they were being referred to housing counseling session because they said they had a housing issue. And then the housing counseling said, who traditionally had been dealing with helping people to obtain home mortgages because they were buying a home, these were people that already had a mortgage, already owned their home that were talking about refinancing or because they, as I said in my previous testimony, wanted to get a home repair and now were being faced if foreclosures started being identified. So what happened was, it became a very much re-identified -- this is being very much need issue as something that we needed to do start paying more and more attention to because more and more people were coming in with this problem.
Okay, so this issue was beginning to supercede your initial mission, which is to help low-income, moderate-income folk acquire housing?
At what time did 104 12/11/00 - PUBLIC HEALTH - BILL 000715 you begin to see this, a year ago, months ago, just to get a handle on the escalation of the problem?
I think the problem 6 started to be identified for us, like, about four 7 or five years ago. And it just started 8 escalating more and more. People started coming 9 forward. Because we do this kind hands-on 10 neighborhood contact kind of thing with people in 11 the community because we're knocking on doors and 12 people know that they can come to ACORN around 13 this kind of thing, somebody would tell somebody 14 else and they said, "Yes, go to this agency 15 because they will help you with this problem." 16 We started seeing it more and more, then we 17 realized we had to do more things about and it 18 just became a balloon. And as has been testified 19 before, we're here in Philadelphia. This is a 20 national problem, okay? For us, because we're 21 from Philadelphia and it is what we see is 22 hurting our community so bad, we are talking 23 about it today,, but do not be mistaken, this is 24 definitely a national issue.
Final question. 105 12/11/00 - PUBLIC HEALTH - BILL 000715 Mr. Goldstein provided for us a graph that speaks to the frequency of this issue citywide. If you had to draw a profile of the type of individual that comes in with this as a burden, what would this person look like in terms of gender, age, color? Paint a profile for us of the average person that comes with this issue because Councilwoman Tasco presented what I believe very credible witnesses today. Most of them look like me, female and black. So what -- is that the average, if you will, of individuals who come in burdened b by this issue?
This is definitely an issue that it can be associated with low-income minority neighborhoods, okay? Female heads of household, the elderly. So when you talk about drawing a profile, I think one of the things that we need to look at is the profile that fits low-income communities, okay? Who are the people that live there, the concentration of the issues which is in certain locations that are attacked. Like I said, I'm from South Philadelphia and I live on Tasker Street. The area that I'm around is -- I cannot testify what 106 12/11/00 - PUBLIC HEALTH - BILL 000715 happens in South Philadelphia across Broad Street, but I can sure tell you what's happening on my side in my community in terms of the people that come to my door that's asking me to take on these loans. And my neighborhood looks like me, okay, that are people of color. And statistically, what we found out in ACORN is that these are the neighborhoods that's being attacked, low-income, African-American, people of color, a lot of females, and certainly the elderly.
On that point, it certainly -- what Carol has testified is certainly consistent with what we have seen. It is primarily female African-American senior citizens. Remember that these companies are looking for equity. And they want -- they're looking for neighborhoods where people either own their homes free and clear or have paid down their mortgages substantially. I think that's why you are seeing lots of senior citizens, but 107 12/11/00 - PUBLIC HEALTH - BILL 000715 also because the senior citizens tend to be more vulnerable and more trusting.
Somewhere in the testimony I've read a number of organizations that have come together and formed a coalition. I do not see the Philadelphia Office of Aging. Since that is a constituency that is adversely affected, have they been reached out to, has there been any dialogue to engage them since the world they represent, which are senior citizens, are most adversely affected? I'm curious.
I'll just say nationally, besides legal service lawyers and consumer advocates and other very, very vocal organization has been AARP on a national front.
Very well. Thank you both. I have do have a question for Mr. Ira Goldstein. Is he still here?
Irv, don't leave. Councilman Rizzo has -- come on, Mr. Goldstein. Councilman Rizzo has a question. 108 12/11/00 - PUBLIC HEALTH - BILL 000715 (Witness comes forward.)
Some of the horror stories that we heard today are just troubling me. Have any of these charges, any of these accusations ever been brought to the District Attorney for criminal prostitution? Because it sounds like they're right on the line based on the alleged stories that you've told us today.
The only case that I'm familiar with, and I would say as a general matter first, it's over the years as a consumer lawyer, I mean, we see -- we see activity that I would regard as criminal all the time. It is not easy to get District Attorney's Office involved in these sorts of crimes as a general matter. Occasionally, we will through persistence be able to get them to take one of these cases. You heard this morning -- we've had a success in one case. You heard this morning from Mr. Levi Moore who talked about he mentioned a contractor who came and fooled him into a loan and then ran away with the proceeds before the work was done on the deal. That contractor has 109 12/11/00 - PUBLIC HEALTH - BILL 000715 in fact been arrested and is facing charges but, you know, we just got in the past two weeks just four cases alone from that contractor. We now have in our office -- the first story that was described where a guy sets up a loan, he's a contractor. By the way, he now is a licensed broker. (Laughter.)
He now has a license to steal. He -- I'm not sure the county. I think it's ten or twelve cases just in our office involving this contractor where stole all the proceeds for the loan and ended up with mostly senior citizens who are now facing foreclosure. That case is going to trial, but that's the only case I'm aware of where the District Attorney has made an arrest.
Counselor, after today's hearing, I'm sure the District Attorney's Office is monitoring this very closely, I would hope that there be a real serious effort to put some of these people in jail. That's where I'd like to see some of these people go. (Applause.) 110 12/11/00 - PUBLIC HEALTH - BILL 000715
I've said what I've said. But also, some of the bad guys and girls are out hiding in the bushes. There are a lot of honorable people that are probably here today because they don't want to be painted with the same brush as some of these folks that we're discussing, the ones I want to put in jail. So I think in all fairness, we have to protect the people that do this for a living that do it honorably and help people.
And help people. Because I think so it's better to be told no and work something else out than be lead to the slaughter. (Applause.)