Predatory Mortgages And Foreclosures

Floor Speech

Mr. CLEAVER. Mr. Speaker, when Barack Obama was sworn in as the 44th President of the United States, there were a number of statements that were subliminally made to the Nation and, indeed, to the world. And one of the statements was that we, as a Nation, had moved significantly from the days of not only chattel slavery but even the days of Jim Crow and the bitter segregation that enveloped the entire United States.

I can remember growing up in Texas, in Wichita Falls, Texas, and my father purchased a home in what was then, very clearly, what was known as a white neighborhood. And when my father purchased the home across the street from, I think, a shopping center that was going to be built, a strip shopping center, he had to move the home from its location to the east side of the tracks, where the African American community lived.

He purchased the home, hired a moving company that moved homes, and the home in which my father lives in today, the home in which I and my three sisters grew up in now stands at 818 Gerald Street in Wichita Falls, Texas, and it has been moved, probably, 8 miles from where it was built,

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because in those days African Americans could not live on the other side of the tracks.

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Now while I speak very clearly and experientially about Wichita Falls, Texas, please understand that was the case all over the length and breadth of the United States. We had problems where the banks would not lend money to purchase homes in certain neighborhoods. It was called ``red-lining,'' where if a white homebuyer wanted a home, it was clear that the banks would not sell them a home or would not finance the home in certain areas, and they would only finance homes in certain areas for African Americans and to some degree to Hispanics. And this went on in our country for years and years and then decades and decades.

And then, finally, as our Nation began to experience what I like to call the ``Great Awakening,'' we found that Martin Luther King, Jr. and Whitney Young really began to change things. And things began to change, really, in the 1950s with Brown v. Topeka Board of Education. And then with the movement, the Southern Christian Leadership Conference, Martin Luther King, Jr., when you look at what was going on with the NAACP, the Urban League, and I think a beginning of an awakening by all of the country, things began to change, albeit very slowly. And we had the Voting Rights Act approved. We had the Civil Rights Act of 1964, 1965.

And then by the 1970s, there was, for the first time, a very clear movement of the United States Congress toward creating some kind of a society that would allow all Americans to enjoy the benefits of America. And so, in 1977, the Congress of the United States put in place something called the Community Reinvestment Act. It is called CRA. And in this act, there was an attempt by Congress to address discrimination in loans made to individuals and businesses from low to moderate income neighborhoods.

Now, this is important because finally in 1977--and I know probably for young people who may be watching this broadcast on C-SPAN, they probably are having difficulty even grasping the fact that in 1977 the Congress of the United States had to pass a law that would stop the redlining that pretty much pushed African Americans and Hispanics in certain neighborhoods. They don't see that as much today, although we are still, unfortunately, still bitterly segregated in terms of housing. But in 1975, to reduce discrimination, Congress moved to pass the Community Reinvestment Act. That was a major piece of legislation.

And while many Americans probably don't even know what CRA is, this is an opportunity for you to understand what began to change the whole housing drama in the United States of America, the Community Reinvestment Act.

This act began to cancel out, to erase, the practice known as ``red-lining.'' And in this Community Reinvestment Act, it required that appropriate Federal financial supervisory agencies would regulate financial institutions to meet the credit needs of the local community in which they were chartered, consistent with, I might add, safe and sound operations. And that is important, and I will get to that in just a moment.

The agencies that have been commissioned with the responsibility for regulating these agencies, I think most people would know who they are. They would be the FDIC, they would be the Federal Reserve, they would be the Office of the Comptroller of the Currency, the OCC, and the Office of Thrift Supervision, the OTS. And those agencies would have the responsibility to monitor what banks in the United States did to make sure that they did not arbitrarily and capriciously exclude entire segments of cities for loans both in terms of residential homes and in terms of businesses. And therein, Mr. Speaker, we began a new chapter in the United States.

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Mr. CLEAVER. Would the gentleman yield?

Congressman, it may be of some value for you to share with us the yield spread premium, which is one of the critical developments that we find that people suffer as they are losing their homes. And what has happened over the past year is that in the middle of a tidal wave of foreclosures, people have sought to place the blame on somebody or somebodies. And tragically and painfully, it has fallen on the poor and the minorities. They are being blamed for the crisis.

One of the people I really liked a lot, and we had a very good relationship, was former Congressman Jack Kemp, the former Secretary of the Department of Housing and Urban Development. He, of course, died, and I think all of Capitol Hill is mourning Jack Kemp. He was a former quarterback in the NFL, and he was a great guy.

He wrote a book where he talked about what happens to the poor and how the poor get blamed. I have that autographed book in my office in my basement in Kansas City. He lays out clearly how the poor always seem to get the blame. When we say that CRA caused this tidal wave of foreclosures, it is a way of blaming poor people because what that means is when the government passed the Community Reinvestment Act and said you cannot discriminate any more, what is being suggested from Capitol Hill, and you can hear it at night on the television and radio talk shows, is that banks and Fannie Mae and Freddie Mac were forced to make bad loans, and there were a lot of bad things happening, including the yield spread premium.

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Mr. CLEAVER. Mr. Speaker and Mr. Green, I flew into Washington on Monday of this week and sat next to a gentleman who serves on a board of a bank. When he found out that I was on the Financial Services Committee, we began to talk about the crisis, and I am sure that happens to you and all of us who end up on this committee at this particular time in history.

During the conversation he said to me that at a recent bank board meeting, one of his colleagues on the bank board said to him: CRA is going to ruin this bank. It is forcing us to give loans to people who don't qualify.

And he said no matter how he argued, the man would not release the notion that somehow the requirement that is placed on institutions to be fair caused the financial crisis.

I think that the Members of Congress in 1977 who had the vision of creating or beginning the task of creating an America where people could live where they wanted

would be pleased today to know that we have made significant progress. We have not made the ultimate progress, but we have made significant progress.

Imagine this, Minneapolis, Minnesota, having an entire section of the city where banks are not making loans. And then as that city goes into decay, people would drive back and say, You know, poor people don't take care of their property. See what is going on over there, not understanding that banks were not making loans to that area. That was supposed to stop in 1977.

Now there are banks in my hometown who are very active in making loans in the urban core. There are other banks that I think are prodded by the passage and the enforcement of the CRA.

I did not have this on the airplane, but I wanted to bring it here tonight. This comes from chapter 20 of the Community Reinvestment Act, section 2901, Congressional Findings and Statement of Purpose. It reads: ``It is the purpose of this chapter to require each appropriate Federal financial supervisory agency,'' those are the agencies that I mentioned earlier, ``to use its authority when examining financial institutions to encourage such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions.''

This is in the language of the law. And in spite of the clarity of this statement, there are people, even unfortunate and tragically who are part of this body, who are still going around on TV shows saying that CRA caused the financial crisis.

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Mr. CLEAVER. Thank you, Mr. Green. I think that those forward-thinking Members of this body who in 1977 approved the Community Reinvestment Act did a tremendous service for all of us. It provided us with opportunities to buy homes--and our children.

It is refreshing for me to know that the young pages who work here in the Capitol--we have two helping us tonight, Raven Tarrance and Jasmine Jennings. These pages will not have to suffer what my father had to experience and what our parents and grandparents had to experience because, in part, the Community Reinvestment Act will not allow banks to take deposits from people and then not make loans to them. And it's really so ludicrous that we have to argue this point because the law is so clear.

I just added another section of the law here with us. The bill text of section 2903, Financial Institutions Evaluation, reads thusly: ``A, in general, in connection with its examination of a financial institution, the appropriate Federal financial supervisory agency shall, one, assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods consistent with the safe and sound operation of such institutions.''

Now, according to recent data, we found out that 75 percent of the higher-priced loans during the peak years of the subprime boom were made by independent mortgage companies not operating under CRA, which means that it is absolutely ridiculous to blame CRA for the crisis when the institutions that ignited the crisis were not operating under CRA.

It is so sad that a Nation that is moving in many ways far beyond where most of us thought it would move, at least at this moment in time in history, is still, in part, dealing with those who are spreading divisive messages that CRA, or poor people, caused this crisis.

When you read about the Great Depression or when you read about recessions even in foreign countries, for some perverted reason, and maybe it's a part of human nature, people always look for a villain instead of us saying that we had a problem.

Housing prices in the United States rose precipitously for a 50-year period. There was not one year during the 50-year period that the housing prices did not rise. There was no way that they could continue to go as such. And so eventually they were ballooned, and the balloon burst, and what we have here is a result of creating a housing market that was never real.

In Washington, D.C., if you walk within a couple of blocks of our offices, you will find homes at $450,000 to $500,000. You go to California, we have the jumbo loans out there, with $750,000 homes that would probably cost, in the Midwest, $200,000 or less.

And so we had this explosion of growth and everybody was getting their little piece. Everybody participated in it. People were making bad loans because money was plentiful and victims were plentiful. There were a lot of people who were steered into getting these loans. All of us had people in our own congressional district to tell us horror stories about how they ended up in a home underwater, where the mortgage owed on the home is far greater than the value.

What we find right now is that those mortgages, as my colleague Mr. Green mentioned, have been bundled, securitized, and then sold on Wall Street. When we passed the Toxic Asset Removal Program, known as TARP, it

was designed to remove the toxic assets, mainly mortgages, bad mortgages. Toxic assets were bad mortgages. If we could move those out of the market, then there would be a higher level of confidence on the part of investors to invest their money. Unfortunately, at the time, Hank Paulson and President Bush used the money for something else.

It gives me an opportunity to say at this time, Mr. Speaker, that I spoke to a group of students in an MBA program from the University of Missouri-Kansas City a couple of hours ago on Capitol Hill. I asked them to raise their hands if they believed that the Congress had approved money to give to the banks. Two-thirds of the people raised their hands. I think the rest believed that they thought they might get a bad grade or something, or congressional punishment, if they raised their hands, so they didn't raise their hands. But probably most of the people looking at this program believed that we voted to give the money to the banks.

I would remind the public that we voted to approve the Toxic Asset Removal Program to buy the toxic assets. It was the Secretary of the Treasury, acting with the President of the United States, without consulting Congress, who decided to move the money from its intended purpose that was approved right here in this Chamber and give it to banks.

I think that they have been able to do that pretty much with impunity because most of the country probably still believes that we sat in here and voted to give the money to the banks. But the purpose of that was to remove the bad mortgages, and the bad mortgages did not come as a result of the Community Reinvestment Act.

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Mr. CLEAVER. I am so glad that you brought that issue up because, as I mentioned at the beginning, how I think this Nation is maturing with regard to the issue of race. It is unsettling then to see how there have been people--and I am not sure all the motivation and I am not sure it is important at this point, why they would continue to say day after day after day after day that CRA caused the crisis. It boggles the mind. Our colleague, Mr. Green from Texas, had mentioned earlier that the chairman of the Federal Reserve found it necessary to come out and declare that this was not a fact.

Sandra Bernstein, the director of the Federal Reserve's Consumer and Community Affairs Division, stated at a hearing before our committee, ``I can state very definitely that, from research we have done, the Community Reinvestment Act is not one of the causes of the current crisis.''

And then Alan Greenspan, the former Chair of the Fed, pointedly did not blame the Community Reinvestment Act or low-income borrowers. In fact, his statement was, ``The evidence strongly suggests that without the excess demand for securitizers, subprime mortgage originators''--undeniably the original source of the crisis--``would have been far smaller and defaults accordingly far lower.'' Only 25 percent of these subprime loans were made by CRA regulated banks.

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Mr. CLEAVER. The three of us serve together on the Financial Services Committee with our chairman, Barney Frank, who has been roundly beaten about the face and head by some of our colleagues and as well as some of the talk show folk around the Nation, and I think it is important to mention at this time that he is an unbending advocate for the Community Reinvestment Act. I also take a great deal of joy in saying that as a very clear sign that we are in fact moving in the right direction on issues of race in this country.

When you look at Barney Frank, who is not, as the three of us, African American, and who has been as strong an advocate for equality of lending as I have ever seen in my life, and I count myself fortunate to have had the opportunity to serve with him. But I think it might be of some value for me to mention, and I think the two of you mentioned earlier, that Barney Frank has been chair 2 years and a little more than 100 days, and so all of a sudden the blame has been pushed on him, and secondarily us, for causing a crisis and blaming a bill that was actually passed in 1977.

The truth of the matter is many people believed, and they were led to believe, that these were new homebuyers rushing out to buy homes. From 1998 to 2007, 50 percent of the subprime loans were refinancings. They were people who simply refinanced their homes and fell victim to an exotic product. So these are people who already had loans and there were crooks out there ready to take advantage.

By the way, the three of us were in a hearing today trying to stop another problem from arising. There is no lack of ingenuity for wrongdoers, and there are people now ready to take advantage of people trying to get their mortgages modified and they are doing all kinds of tricks.

So I am pleased that we have this opportunity to stand before our colleagues and you, Mr. Speaker, to try to clear up the problems that have been created by people who have given the wrong information about the Community Reinvestment Act.

Testimony of Hon. Marc H. Morial, President and CEO, National Urban League, October 16, 2008

Chairman Dodd, Ranking Member Shelby, thank you for this opportunity to testify today to set the record straight about what I call the Financial Weapon of Mass Deception: the ugly and insidious and concerted effort to blame minority borrowers for the nation's current economic straits.

This Financial Weapon of Mass Deception--as false and outrageous as it is--has taken hold, thanks to constant and organized repetition and dissemination throughout the media and political circles.

This is not a harmless lie, an innocuous stretching of the truth for some fleeting political advantage. It is an enormously damaging and far-reaching smear designed to shift the blame for this crisis from Wall Street and Washington, where it belongs, onto middle class families on Main Street and Martin Luther King Boulevard who are most victimized by their excesses.

For years, the National Urban League and others in the civil rights community have raised the red flag and urged Congress and the Administration to address the predatory lending practices that were plaguing our communities. For example, in March of 2007, I issued the Homebuyers Bill of Rights in which I called upon government to clamp down on predatory lending and other practices that were undermining minority homebuyer. Unfortunately, my call went unheeded until disaster struck.

Now that disaster has struck, many of those who caused it are trying to blame the minority community and measures that helped to clear the way for qualified minorities to purchase homes--most notably the Community Reinvestment Act (CRA). In fact, it was the failure of regulatory policy and oversight that led to this debacle.

Let's start with the plain and simple facts:

1. Wall Street investors--not Fannie Mae and Freddie Mac--were the major purchasers/investors of subprime loans between 2004 and 2007, the period for which this data is available.

2. While minorities and low-income borrowers received a disproportionate share of subprime loans, the vast majority of subprime loans went to white and middle and upper income borrowers. The true racial dimensions of the housing crisis have been reported in a number of outlets, including the New York Times.

3. African-Americans and Hispanics were given subprime loans disproportionately compared to whites, according to ComplianceTech, leading experts in lending to financial services companies. Also, African-American borrowers are more than twice as likely to receive subprime loans as white borrowers.

Furthermore, according to a detailed analysis by ComplianceTech:

In each year between 2004-2007, non-Hispanic whites had more subprime rate loans than all minorities combined;

In 2007, 37.3% of African American borrowers were given subprime loans, versus 14.21% of whites, according to ComplianceTech. More than 53% of African-American borrowers were given subprime loans compared with 21% of whites, according to the National Urban League's Equality Index published in our 2008 State of Black America report;

The vast majority of subprime rate loans were originated in largely white census tracts, i.e., census tracts less than 30% minority;

The volume of subprime rate loans made to non-Hispanic whites dwarfs the volume of subprime rate loans made to minorities;

In each year, the white proportion of subprime rate loans was lower than all minorities, except Asians;

Upper income borrowers had the highest share of subprime rate loans during each year except 2004, where middle income borrowers had the highest share;

Contrary to popular belief, low income borrowers had the lowest share of subprime rate loans;

It is becoming clearer everyday that a large number of people who ended up with subprime loans could have qualified for a prime loan. That's where the abuse lies;

Non-CRA financial services companies were major originators of subprime loans between 2004 and 2007, the period for which data is available.

These facts are unequivocal. They are clear. They are indisputable.

Yet these facts are being buried in an avalanche of false accusations, scapegoating and downright lies being spread by the purveyors of the Financial Weapon of Mass Deception. Conservative commentators from Fox News commentator Neil Cavuto to ABC News analyst George Will to Washington Post columnist Charles Krauthammer have fanned out across the airwaves, talking points in hand, telling the world that this crisis is NOT the result of a failure of regulation but the fault of minority borrowers who bit off more than they could chew.

Charles Krauthammer tells us that ``[f]or decades, starting with Jimmy Carter's Community Reinvestment Act of 1977 ..... led to tremendous pressure to ..... extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity.''

George Will tells us that regulation: ``criminalize[d] as racism and discrimination if you didn't lend to unproductive borrowers. Fannie Mae and Freddie Mac existed to gibber--to rig the housing market because the market would not have put people into homes they could not afford.''

And even right here in the halls of Congress, echoes this same, false refrain, as we heard from Rep. Michele Bachmann of Minnesota (R-Minn), who added Congressional weight to this myth when she quoted an Investor's Business Daily article from the floor of the House that said banks made loans ``on the basis of race and little else.''

As seen in the attached internet blogs from highly trafficked sites, this baseless blame game has turned into vicious attacks on African-Americans, Hispanics, Jews and Gays and Lesbians.

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In the last few weeks, I have undertaken an aggressive campaign directed at the nation's financial leaders to dispel this myth. In letters to Treasury Secretary Henry Paulson and Federal Reserve Chairman, Benjamin Bernanke, I have asked that they both publicly refute claims by some conservative pundits and politicians that most of the defaulted subprime loans at the root of the crisis were made to African-Americans, Hispanics and other so-called ``unproductive borrowers.''

On the basis of hearsay, rumors and misinformation, seeds of division are being sown all across the United States in a volatile political environment where Americans are terrified by the economic situation. History provides too many lessons on the consequences of singling out only certain segments of the population as culprits for a country's woes for us not to do all within our power to stop this ugly and insidious smear campaign in its tracks.

I urge you, in the strongest possible terms, to join me in standing up to this big lie, this Financial Weapon of Mass Deception. It is your duty to stop the precious waste of time and energy being spent on blaming the victims and force a healthy debate on what must be done to curb too much Wall Street greed and too little Washington oversight. This hearing is an important step toward that end and I applaud you for holding it.

I call upon you to join with me to ensure that innocent people in our community who look to you for protection are not further scapegoated, victimized and exploited by unscrupulous and greedy players and those who do their bidding.

I call upon you to not allow yourselves to be distracted by the attempts to undercut the Community Reinvestment Act and undermine regulatory reform.

I call upon you to stay focused and to take strong and positive steps to strengthen our communities and the nation's financial foundation through regulatory reform.

I call upon you to do your part to disarm this false and dangerous Financial Weapon of Mass Deception.

In this time of global crisis, we must bring Americans together and not continue to divide ourselves with false racial arguments.

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