COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES HOUSE APPROPRIATIONS COMMITTEE

THE MAIN CAPITOL ROOM 140 HARRISBURG, PENNSYLVANIA

WEDNESDAY, FEBRUARY 22, 2 012 1:41 P.M.

PUBLIC HEARING DEPARTMENT OF BANKING

BEFORE:

HONORABLE WILLIAM F. ADOLPH, JR., CHAIRMAN HONORABLE JOSEPH F. MARKOSEK HONORABLE JOHN C. BEAR HONORABLE MARTIN T. CAUSER HONORABLE JIM CHRISTIANA HONORABLE HONORABLE GORDON DENLINGER HONORABLE BRIAN L. ELLIS HONORABLE MAUREE GINGRICH HONORABLE GLEN R. GRELL HONORABLE DAVID R. MILLARD HONORABLE T. MARK MUSTIO HONORABLE BERNIE O'NEILL HONORABLE MIKE PEIFER HONORABLE SCOTT A. PETRI CONTINUED:

HONORABLE JEFFREY P. PYLE HONORABLE THOMAS QUIGLEY HONORABLE MARIO M. SCAVELLO HONORABLE CURTIS G. SONNEY HONORABLE MATTHEW D. BRADFORD HONORABLE MICHELLE F.BROWNLEE HONORABLE H. SCOTT CONKLIN HONORABLE HONORABLE DEBERAH KULA HONORABLE TIM MAHONEY HONORABLE MICHAEL H. O'BRIEN HONORABLE CHERELLE L. PARKER HONORABLE JOHN P. SABATINA, JR. HONORABLE HONORABLE MATTHEW SMITH HONORABLE HONORABLE RONALD G. WATERS

ALSO PRESENT:

HONORABLE KERRY A. BENNINGHOFF HONORABLE JOHN R. EVANS HONORABLE MARK M. GILLEN HONORABLE PAUL I. CLYMER HONORABLE HONORABLE HONORABLE WILLIAM C. KORTZ, II HONORABLE VANESSA LOWERY BROWN HONORABLE H. WILLIE DeWEESE HONORABLE HONORABLE HONORABLE PETER J. DALEY

EDWARD NOLAN, MAJORITY EXECUTIVE DIRECTOR MIRIAM FOX, MINORITY EXECUTIVE DIRECTOR

BRENDA S. H^ILTON, RPR REPORTER - NOTARY PUBLIC INDEX

NAME PAGE

GLENN E. MOYER, SECRETARY 9 DEPARTMENT OF BANKING P R O C E E D I N G S

CHAIRMAN ADOLPH: Good afternoon,

everyone. I'd like to get started on the House

Appropriations budget hearing. The next testifier is

the Honorable Glenn Moyer, Secretary of the

Department of Banking.

Good afternoon -¬

SECRETARY MOYER: Good afternoon.

CHAIRMAN ADOLPH: — Mr. Secretary.

SECRETARY MOYER: Good afternoon.

CHAIRMAN ADOLPH: It's my understanding

that you'd like to give a brief opening comment.

SECRETARY MOYER: I would. And thank

you, Chairman Adolph, and thank you, Chairman

Markosek, and members of the Committee. Thank you

for inviting me here today to discuss the fiscal

2012/2013 appropriation for the new Pennsylvania

Department of Banking and Securities.

As you are aware, Governor Corbett has

announced his support for merging the Department of

Banking with the Pennsylvania Securities Commission,

agencies with a similar mission, into one state

agency.

We anticipate this merger will take effect in the 2012/2013 fiscal year. Representatives

of the two agencies have just begun to meet. In

fact, we've had one initial meeting of the senior

staff, at the senior staff level of these areas.

We are going to be putting together a

merger planning and integration team to really focus

on how to combine these two strong organizations into

hopefully an even more efficient and effective

organization.

We're still very much in the discovery

stage of this and really have no final details to

share with you today. However, throughout the merger

process, both of us have dedicated ourselves to not

missing a beat as we continue to service our clients

while working through the required reorganization

activities.

And I can assure you that our focus will

be forward looking as we explore what might be

possible, and I'd simply say thank you, and I'd be

happy to take any questions you may have.

CHAIRMAN ADOLPH: Thank you,

Mr. Secretary.

I'd first like to acknowledge the

presence of Representative Dick Hess, chairman of the

House Banking Committee. Good afternoon, chairman.

I'd also like to acknowledge an old friend and former state representative, Tom -¬

MR. MICHLOVIC: Michlovic.

CHAIRMAN ADOLPH: Michlovic. I couldn't pronounce it when he was here.

Nice to see you Tom.

MR. MICHLOVIC: Good to be here.

CHAIRMAN ADOLPH: Okay. Mr. Secretary,

I was going to ask you some questions regarding the merger; and hearing your opening statement and comment, it sounds like there's not an awful lot of facts that you can give us, you know.

I guess my first question is, does this take legislation by the General Assembly?

SECRETARY MOYER: Well, we are at this point working with other folks in the Governor's office to look at several aspects of this.

But we do believe at this point that it will take some legislative action. And certainly as we work through the budgeting process, we're going to try and make that as streamlined as -- as possible.

But it looks like there will be legislative action that will be needed.

CHAIRMAN ADOLPH: Okay. With -- with this merger, the purpose of this merger is to streamline and to become more efficient. Is that correct?

SECRETARY MOYER: Absolutely. This is one of several actions that the Governor has decided to undertake. They are focused on efficiency, both now, in the shorter term, but also as we go forward and we look at how together we would do our business.

So efficient but not efficient to the point that we don't serve our clients well, given the core mission that each of us has and I know feel very strongly about.

So we're trying to do this in a -- in a comprehensive, proactive, open setting and try and get the best of both.

CHAIRMAN ADOLPH: Okay. Well, as you gather your information regarding exactly what this merger will look like and -- I would appreciate if you would share that with -- with our committee.

SECRETARY MOYER: Okay.

CHAIRMAN ADOLPH: Okay. So we can see.

Because obviously it's involved in this year's budget.

SECRETARY MOYER: Uh-huh. CHAIRMAN ADOLPH: So as soon as you have

that information, if you would forward that to us.

Okay?

SECRETARY MOYER: We will do that. We

look forward to that.

CHAIRMAN ADOLPH: Okay. Representative

Mario Scavello.

REP. SCAVELLO: Thank you,

Mr. Chairman.

Just to go back to the merger just

briefly, your -- your present complement in banking

is 175, your securities is 75 positions?

SECRETARY MOYER: 73 to 75, yes.

REP. SCAVELLO: Okay. And with the

merger, the authorized complement is 269. Why would

you be going up? That is the numbers that I looked

at. Wouldn't you reduce?

SECRETARY MOYER: Let me just look here

a second. The authorized complement is going to be

269.

REP. SCAVELLO: Right.

SECRETARY MOYER: Currently, the

authorized at the state -- at the Department of

Banking is 196, but we have 175 filled.

REP. SCAVELLO: Okay. That's what I'm looking -- so you are authorized for 196?

SECRETARY MOYER: Yes.

REP. SCAVELLO: You only have 175 filled.

SECRETARY MOYER: Right.

REP. SCAVELLO: So it's possible that that 269 won't be -- you won't be filled -- it's possible that you won't be filling that?

SECRETARY MOYER: We — we may. But

I -- I think we're going to make every effort, obviously, to keep the staffing as lean as we can.

REP. SCAVELLO: Okay. I want to talk about the National Mortgage Settlement, the 25 billion foreclosure settlement announced with the five national mortgage services. The Commonwealth's share of that settlement is approximately 266 million.

One of the programs that, you know, it's been very successful in my area is that HEMAP program, and I'm wondering, I know that there's about

-- approximately 69 million that might be available, that -- that there's no strings, that it can go into that program, and I'd like to know what is your views on that? Is that a possibility or -¬

SECRETARY MOYER: Well, thank you for your question about that. Clearly this has been on a

national scene coming out of the pressure that's

occurred in the mortgage market. A major

undertaking.

I will certainly tell you that nothing

is finalized at this point, but an agreement in

principle, as you saw the press release, and I

believe the numbers that you're referring to are what

Attorney General Linda Kelly -¬

REP. SCAVELLO: Uh-huh.

SECRETARY MOYER: -- said would be

Pennsylvania's share of the settlement if it's

finalized as -- as projected a week or two ago.

And there is included in that $266

million $69 million of what's projected to be a

direct payment to the Commonwealth of Pennsylvania,

the Office of the Attorney General.

We have been working with the Attorney

General on this settlement for over a year. As you

know, following it in the paper, it was going to be

settled, it wasn't settled, it was going to be

settled, it wasn't settled.

I think we're there now but, of course,

anything can tilt -- still take -- turn the other

way. While it's not final, it needs to be approved by the Federal District Court in the

District of Columbia, and hopefully that's going to occur sometime over the next week or so.

Discussions within the administration have been focused on the majority of funds to be received by Pennsylvania going to the HEMAP program administered by PHFA.

REP. SCAVELLO: That's great.

SECRETARY MOYER: As this matter is being finalized, I've got to say it's good to hear that others agree with this approach and want to be supportive of that. And certainly we look forward to finalizing this matter over the coming weeks.

We would like to get -- and I'll now put my hat on, in addition to being Secretary of Banking,

I also serve as the chair of the Pennsylvania Housing

Finance Authority Board.

And certainly one of the things that board has talked about, and Brian Hudson in his leadership has advocated, is trying to find a way to get HEMAP restarted. The banking industry wants it.

It seems to be a universal agreement.

So we're looking forward to that, and work out the final details. REP. SCAVELLO: That's great news. My last question, because it -- especially today when folks are having trouble getting mortgages. It's not that easy to get homeowners -- or mortgages. With seller financing, being that it's only -- you know, it's been a -- it's against the law because of a federal interpretation or something.

And it really -- you know, I know I have a bill introduced and what's your feelings on it?

What's -- what's the plans?

SECRETARY MOYER: Let me -- let me talk about seller financing. Because some of you in -- in your areas of the Commonwealth do have this more than in some other areas.

And certainly we've had a conversation in your part of the Commonwealth. It is there.

The mortgage arena, coming out of a trauma, and certainly the legislature and -- and the

Commonwealth has worked closely with the Department of Banking and my predecessor to get good legislation that, of course, will require to be in line for the most part with the federal SAFE Act, the act that is now overseeing the mortgage organizations and -- and licensing.

But as the Department of Housing and Urban Development -- when they issued a regulation in -- in 2011, they did not delineate what might be allowable when people are doing a small number of seller financing type of mortgages.

We've done two things. And hopefully you have all either gotten a copy or seen a copy of a secretary's letter that went out on October 6th. We took the position that it was permissible for an individual to make or broker three or less mortgage loans annually without being licensed as a mortgage loan originator. And, of course, that has its own set of requirements.

Currently legislation is being developed and will be introduced soon to make this requirement statutory. The feeling was that that certainly allows for people to do a few of them but if it becomes your way of doing business, then you ought to fall into the mortgage originator.

REP. SCAVELLO: Right.

SECRETARY MOYER: The response in the industry has been this has been a good bridge -¬

REP. SCAVELLO: Uh-huh.

SECRETARY MOYER: And they want to work with us and we'll look forward to working with you on the legislation. REP. SCAVELLO: Thank you,

Mr. Secretary. And thank you for coming down.

CHAIRMAN ADOLPH: Thank you,

representative.

Representative Gordon Denlinger.

REP. DENLINGER: Thank you,

Mr. Chairman.

And welcome, Mr. Moyer. Good to see

you. It's been a -- a few years.

SECRETARY MOYER: Thank you.

REP. DENLINGER: I wanted to touch on

Act 133 which the Governor signed into law back in

December, which modified the changes that banks need

to go through when they transfer into a state charter

situation, and also, I guess, tied to that we're

seeing the Dodd-Frank regulations which transfer some

amount of regulatory authority from the federal down

to state regulators.

I'm wondering in these two situations is

your agency, I guess you'd say, up to speed? I

understand there's a June 28th implementation

deadline at which point you will be fully empowered

and fully required to have that regulatory

oversight.

Can you give us a status update, you know, where your agency stands?

SECRETARY MOYER: Coming out of the financial stresses, I think if anyone does -- has not heard the name Dodd-Frank every -- but everybody has got a different interpretation of what Dodd-Frank is .

Dodd-Frank certainly was a comprehensive effort on the part of the federal legislators to put together a significant overhaul of the nation's financial system, expand consumer protections, and enhance financial regulation.

Enhance financial regulation has different meanings to different people. And one of the key things that we're trying to deal with in the

Commonwealth here is to make sure that our banking legislation is in line where we need to be in line but where there is discretion that literally we are trying to be as supportive of the community banking function in the Commonwealth as possible.

We view the fact that we have 208 or 209 banking charters remaining in this state as a source of strength. We view strong community banks as being key to recovery in the economy in different communities.

We are blessed to have everything from very large to very small banks in the Commonwealth, and I think that's essential.

So what we need to do coming out of

Dodd-Frank, we will be in compliance -- in a direct answer to your question -- by the dates that we do, but there will be multiple pieces of Dodd-Frank rolling out.

And so our view is that we need to be proactive. We are working on a banking modernization legislative package. We are working with the banking industry to understand what their concerns are.

They need to understand and I believe do understand that our concern is always a safe and sound banking structure and what can we do to build around that.

The legislative package that we're working on could include up to six different bill -¬ current bills that are there to be modernized and streamlined. And certainly we're feeling time pressure to keep that moving because of some of these deadlines that are embedded in the different acts.

And so as we're supporting a safe and sound structure, we also want to make sure that the community banks in this Commonwealth know that they have an option. Do they want to be chartered at the state level or do they want to be chartered at the federal level?

I'm pleased to report to you that over the last eleven months we have had seven banks formerly nationally chartered banks that have applied and have elected to become state chartered banks.

That's a good thing for our -- our Commonwealth. We have three others that are in active parts of that application process and review.

And so we could see ourselves very shortly, certainly by the middle part of the year, being in excess of 70 percent of the banking charters in the state being state charter as opposed to federal charter. And we're certainly willing to work hard on that.

So a lot of things going on in the regulatory area. We want to make sure we comply, but we also want to be as clear to the banks that are -¬ are chartered and headquartered here that we also want to be supportive of the growth as they stay safe and sound.

REP. DENLINGER: Very good. I appreciate that. And just one last quick follow-up question.

I'm presuming that these new state-chartered banks -- this is a reversal of a trend of many years that we -- where we were seeing less and less of the state charters and more of the federal charters? Is that fair?

SECRETARY MOYER: It -- it -- it really is. And we're not the only state or Commonwealth where this is happening.

I will tell you that our conversion pace and percentage is higher than most. And I think that's a credit to a lot of people that are in the

Department of Banking that preceded me.

The approach has always been safety and soundness is key, but that examination process has to be fair and balanced and we look to do it on a prescriptive basis as opposed to a punitive basis.

I think that message is out and certainly we are looking for banks that are strong, well managed, not under regulatory orders from their federal regulators.

And certainly there are banks out there and bank boards of directors that are making the decision to apply for our charter.

REP. DENLINGER: When you say regulatory orders, memorand -- memorandum of understanding? Is that -- SECRETARY MOYER: Yes.

REP. DENLINGER: Okay.

SECRETARY MOYER: There are -- are in the -- in the -- in the enforcement arena in banks, there are formal regulatory actions and there are informal.

The -- the formal would be the consent agreements, the cease and desist, and then the memos -- memorandums of understandings more informal where a bank simply takes on to commit to make certain improvements and as long as they follow that we work with them and look forward to them returning to healthy status.

REP. DENLINGER: Very good. Thank you.

Thank you, Mr. Chairman.

CHAIRMAN ADOLPH: Thank you, representative.

Representative Gary Day.

REP. DAY: Thank you, Mr. Chairman.

Thank you for being here today.

My question -- my first question is about the merger, and I'm curious. I heard your opening comments that there's a lot to be decided yet on the merger.

But do you expect that it will become a self-sufficient department, the merged organization?

Right now the banks -- the bank fund -¬ funds a lot of the banking, all of the banking, and do you -- do you intend the merged entity then will be entirely self-sufficient?

SECRETARY MOYER: I can say that with an resounding absolutely yes.

Both the Securities Commission and the

Pennsylvania Department of Banking take a lot of pride in the fact that our industries pay for our services.

And that's something that in my mind should continue, will continue. We need to look at the revenue models and streams of both the

Pennsylvania Securities Commission and those -- those user fees in the Department of Banking.

In the Department of Banking, representative, what I find is that we have not increased our assessment fees for banks, for instance, since 1994.

So we need to begin to do that to make sure that we do not get in a position of needing to ask the general fund for any sort of -- of a commitment.

REP. DAY: Do you plan on making those recommendations in the near future or -¬

SECRETARY MOYER: Well, we do. We're working on the whole revenue review and modernization.

In the banking department and banking fund, we are beginning to vet a proposal, both in the

Governor's office with his staff, but also out with the industry. And, you know, anything that we would do -- you know, I believe in giving people advanced notice and not surprising them. They can plan for that.

And, literally, we would then be headed toward fiscal year 2013/14 and we'd certainly have a revenue stream in place that would continue to keep us fully standalone between now and then.

REP. DAY: What are the obvious synergies for a merger? Where are the areas that -¬ where do you think there would be save -- you know, the only reason why you would merge two entities is to become more efficient.

Are there particular tasks in each of the agents -- areas that are obvious to merge?

SECRETARY MOYER: Well, there -- there are lots of things we can work on and, again, having worked through mergers in the -- in the banking arena before I -- I came into this position, I think you always talk in terms of what can be done in the short term, kind of in the six to twelve-month arena, but also then twelve months and going into the out years.

Certainly in the shorter term, we can look at where are there similar but necessary administrative, technical overlaps, and -- and there's going to be and can be some savings there, as we look at doing that more efficiently.

And my guess is that we're talking about something that in that shorter term, six to twelve months, is about a million dollars savings.

Beyond that then, as you start looking at how we can function together while still hitting our core missions, there probably are process things, programmatic things going forward that we might be able to bring together. And that's what we'll look forward to.

REP. DAY: What are the areas of concern? When -- when -- also when you merge, there's certain things that we have to continue to do and do very well. What are those areas -¬

SECRETARY MOYER: Well -¬

REP. DAY: -- that we should keep our eyes on and make sure are done properly?

SECRETARY MOYER: Here's -- here's the best way for you to keep an eye on it, and that is that you hear from constituents whether or not they're consumers or individuals or whether they're businesses.

You know, my hope is that you don't hear from folks in the securities industry. My hope is that you don't hear from banks or folks in the banking industry or consumers that feel like for some way, while we're working on this administrative consolidation, we drop the ball on the services.

I'm convinced that won't happen. I know the quality of people that were sitting around the initial table, and it's a great group of people.

So I'm convinced we can do it.

REP. DAY: My last question is about the

National Mortgage Settlement. There was a little bit of discussion about that.

But can you briefly expand -- explain what you believe -- how much -- how much of that settlement will come to Pennsylvania and what do you plan to do with this funding?

SECRETARY MOYER: Yeah. Let me -- let me just go to a note here so I get the -- the numbers right.

As was referenced earlier -- and, again, this is coming out of Attorney General Kelly's press release, in four categories, $266 million estimated.

Now, there are some soft dollars in here that depending on what the claims are that people who are affected may drive what the final number is, but it seems to be breaking down for Pennsylvania that there would be available for up to $93 million in loan modifications and other direct relief.

That we have the -- hold on one second;

I want to get these right -- $21 million in cash payments to Pennsylvania borrowers who suffered through servicing abuses or lost their homes to foreclosure for a finite period, January 1st of 2008 through December 31st of 2011 just past and then up to $81 million that would be available for

Pennsylvania homeowners who are underwater. Their homes are worth less than what their mortgages are, to help with a refinancing process. And then the direct $69 million payment that will come to the

Commonwealth through the Office of Attorney General.

Should be around $265 million.

REP. DAY: My last question is just about the way the constituent -- the way our constituents look, what they hear, the way they look at this, what they hear and see about being underwater. Many people feel they're underwater but by the definition they're not.

When they do enter the process, it seems to be mountains of paperwork in order to get through this .

Can you -- can you just offer -- I'm -¬

I'm -- I'm looking to you to try to offer your take on what we should be telling our constituents about the effort, whether -- whether they qualify, whether they should go apply, whether they should go? What's your -- your best comments about that?

SECRETARY MOYER: Yeah. Let me -¬ because I think that's a very good -- very good question and a lot of concerns.

As Attorney General Kelly kind of cautioned in her press release, the answers are not going to be there tomorrow. I mean, first of all, the -- the suit has to -- or the settlement has to be finalized in district court.

The good news is there's going to be a single monitor at the federal level. He happens to be my counterpart from North Carolina. And so the good news is he understands at the state level how things need to operate to actually get it through to real people.

He's going to dig into it. He's got a great ability to understand both the technical compliance but also the practical piece at the consumer level.

And so we're going to wait for him to put out the guidelines.

I would say to you, I would say to anybody that asks me these questions, if in doubt, ask. There are all kinds of nuances to this as to what mortgages might be covered, what mortgages might not be covered.

Mortgage lending as you know, when I started in banking, was one of the most simplistic products going down the road. Thirty-five years later it's one of the most complex, you know, product offerings going down the road.

So people need to ask. They may well be eligible, and they should not let the asking intimidate them.

REP. DAY: Thank you for your answers to these questions and your comments, and I appreciate your service to the Commonwealth.

Thank you, Mr. Chairman. CHAIRMAN ADOLPH: Thank you.

Representative John Bear.

REP. BEAR: Thank you, Mr. Chairman.

And -- and, Mr. Secretary, thank you for joining us.

My question actually is kind of a follow-up to Representative Denlinger's question dealing with the Dodd-Frank Act and, you know, back in the district over this past year I've heard a lot from constituents, both bankers as well as small business owners, saying, you know, the pendulum has kind of been swinging different ways. For a while there it was maybe too liberal in lending practices but now it's maybe overly conservative.

Is there anything we can do at the state level to kind of get a little bit more in the middle where the bankers feel they can lend more money to small businesses that generally have always been good performers in the past and have been very good with paying their debts?

Is there anything we can do at the state level? Because I know it's heavily regulated at the federal level.

SECRETARY MOYER: Well, I think that the best thing we can do is continue to take a fair and balanced approach. You know, I -- I talk about the punitive approach. And, you know, that's -- somebody feels like they have to leave dead bodies laying in the road.

I don't think dead bodies build much for anything, you know, to go forward. We have to make sure that our regulations and the encouragement at the state -- state level is clear. We don't want bad actors. Nobody wants bad actors.

But we also want to have a clear environment where people know what the rules are and if they follow them, they should feel all the confidence in the road to go forward.

The biggest thing we can do is -- is take uncertainty down some more notches. I'm hopeful. I'm hopeful that whether you agree or disagree with the premises of this mortgage servicing settlement, that that's another step along the way to begin to bring some certainty back into the mortgage lending arena.

I get concerned, though, when you have a major settlement like this and something that you think can clear things up and at the moment that's coming out you have other government entities at the federal level seeming to initiate new additional reviews.

So, you know, where we spend a lot of

our time is saying how can we give clarity to our

banks, to our mortgage companies, to our mortgage

originators? This fine -- hopefully the final piece

of legislation on the Mortgage Licensing Act, which

will be coming forward to clear up seller financing

and some other things, the quicker we can get that

done the better.

But that's the best thing I know at this

point. I don't think it's putting in more programs.

It's just bringing clarity and certainty to the

processes that are there already.

REP. BEAR: In your estimation -- and

that's great. Thank you. I've heard that, you know,

too.

Have you seen anything improved, in

terms of the lending environment, without any

action? Have things -- have the banks adjusted in

your estimation?

SECRETARY MOYER: The banks absolutely

are adjusting. It's interesting, if you read in the

American Banker where banks who are growing loans now

again -- and we're starting to see that more and

more, but most of the loan growth is in the mortgage lending arena. It's not in the commercial area where

there still seems to be very tepid demand.

So if I put that into my perspective and

look back on that, I'm saying that's a pretty good

first step, to say that things are beginning to move

forward.

You cannot ignore the fact right now

that, given the rate environment, if you are not

refinancing or if you are not considering the

purchasing of a home, if that's something that you're

working toward, you've got to look at it right now

and say, could it be possible, because the rates are

just at a terrific historical low.

REP. BEAR: Thank you very much.

CHAIRMAN ADOLPH: Chairman.

REP. MARKOSEK: Thank you,

Mr. Chairman.

I'd like to recognize the presence of

the Democratic Chair of the Banking and Commerce

Committee, Representative Pete Daley.

REP. DALEY: Thank you, Mr. Chairman.

REP. MARKOSEK: Welcome.

REP. DALEY: Thank you.

CHAIRMAN ADOLPH: Thank you. The next

question will be by Representative . REP. PETRI: Thank you, Mr. Chairman.

Thank you, Mr. Secretary.

There's probably not a day that goes by now that I don't get calls from consumers about either credit card companies or bank companies.

And I'm wondering how many complaints your department has re -- have received. The area of concern seems to be in primarily two areas. One on mortgage foreclosures that the assignment of the note or paper was improper.

They talk about faxed documents, unrecorded assignment and the like, and then the mortgage foreclosure process starts and the consumer becomes aware that there may have been a deficiency after a judgment was entered and then wants -- want to know whether the process is proper and may or may not have recourse.

So starting with that, have you been receiving complaints about the mortgage foreclosure process and how some large banks are handling their assignment and whether they're correct or not?

SECRETARY MOYER: We have. But my sense is that the number of inquiries and complaints are decreasing. You know, what you're describing at the core, is what's coming out of this settlement will be the first set of national mortgage servicing expectations and criteria.

One of the things that is a problem, whether it's a very large bank or, you know, your mortgage is owned by somebody across the country, was trying to figure out is there one person, is there one single point of contact that understands. While they may be talking to you about a refinance, they may also be starting a foreclosure process. There's nothing illegal about that.

But the issue is when the two parts are not talking to each other, you get the kind of feedback from constituents that is not what it should be and is not very comforting.

I'm convinced that the servicing standards not only have improved already during the negotiating process, but the standards that are going to be written and come out, I think, are going to serve us pretty well for a long time. Because there's going to be required communication at a single point, and there's going to be a time response that they have to meet or they lose their position.

REP. PETRI: Okay. The other area of concern I hear frequently -- and I'm actually even hearing it from my local magistrates -- are the attorneys representing credit card companies that come in with only a summary of an account and they either negotiate a settlement with the consumer, the defendant, or they have -- they have no records or -¬ or even information to present and hold themselves out as having effectively the necessary information.

Oftentimes the defendant, as reported by the district justices, has no idea whether the account summary that they're being presented is correct. They may know they owe money. Invariably they probably do. But they have no idea whether it's the appropriate amount. And really don't even question it.

Have you heard those types of complaints?

SECRETARY MOYER: We have. But we have not heard certainly as much about the credit card area as the mortgage area.

You know, that is a tough area where -¬ you know, does the legal community have enough checks and balances and sanctions available to it that if somebody really does present something that they are certifying to it and it's not accurate that then there should be follow-up?

It -- it will be a challenge. You know, we want to make sure that consumers in the

Commonwealth understand that there are people they

can talk to that don't have a vested interest and,

you know, something -- going to -- in the mortgage

arena, something like HEMAP, where there is

counseling, that's what we probably have to make sure

we support.

REP. PETRI: Well, I thank you,

Mr. Secretary, and I think that's important

information for consumers to not assume that just

because someone is attempting to collect the debt and

you know that you owe a debt, that the amount that

they're seeking is necessarily proper.

The last area I wanted to explore with

you was also an area of concern, and in my -- in my

days as a lawyer I've done mortgage foreclosure

matters before.

What I'm hearing more and more are banks

that are refusing to take even partial payments, even

if they're whole monthly payments, they're taking the

position that if someone is behind five months,

they've got to pay that five months in one lump sum.

And so they try to save up and they get to the sixth

month and then they have to pay the entire six

months. Mr. Secretary, do you think that some area of relief is needed here? I don't want to say that would require a bank to necessarily accept, but it seems to me that the further along, the more delinquent diligent people get, the less likely it is that they can catch up.

And I'm a firm believer in -- in forbearance agreements where the bank is protected and the consumer is protected, even on partial payments.

But what do we need to do in your opinion? Do we need to communicate with banks that this is a very foolish step on their part or what should we be doing? Because I'm really at a loss.

SECRETARY MOYER: Two things. First of all, on a national scale, the teeth have got to be in the servicing guidelines and requirements.

I -- as I said earlier, I think we're making progress and we're going there.

I do think that this is one of the strengths. When I said we have 208 chartered banks in this -- in this Commonwealth. We have 550 credit unions chartered in this Commonwealth.

These are all people that you can go in and talk to face-to-face and have a conversation with. That should not be minimized.

It's one of the things that motivates

me -- and I think I can speak for our staff -- to

work hard to say that's why we've got to keep a

strong community banking arena and where banks want

to invest in this Commonwealth.

People solve problems. You've got to be

able to talk to people. Anything we can do to

improve that is -- is better.

REP. PETRI: I would agree with your

comment, though, about Pennsylvania community banks

and our -- our credit unions. They are a strong

asset and they should not be overlooked, even if

they're a little bit higher, because you are

correct. At least you can work out your problem with

them. Some national bank, good luck.

Thank you, Mr. Chairman.

CHAIRMAN ADOLPH: Thank you,

representative.

Representative Samuelson.

REP. SAMUELSON: Thank you,

Mr. Chairman.

And thank you for your answer to Rep.

Petri's questions. I think we all have had the

frustration of trying to help constituents who have issues with mortgage lenders.

Sometimes it's a multi-state bank and your department has given me at least a contact person to -- but I realize your jurisdiction is only those 206 state charter banks.

I understand also you have licensing over 15,000 nonbank lenders. Everything from check cashing companies to consumer discount companies to sales finance companies to installment sellers.

I wonder if you could give the committee some sense of the state of regulation over these nonbank lenders with -- a lot of people trying to -¬ with -- with -- with a lot of ways that people can borrow money, sometimes the interest rate is exorbitant. And if you do -- if you borrow money for ten days and you do an annual calculation, the interest rate is through the roof.

I wonder if there's any kind of limit what a cash seller or an installment seller or financial company can charge in term of the annual interest rate?

SECRETARY MOYER: Let me first comment about the -- what we refer to as the nondepository licensees, and that's where we're into this 15,000 plus . Clearly the largest part of those are mortgage brokers, originators. The second largest group tends to be auto dealer financing. You go in for the car loan and they make the loan there for you.

But then we do get into some of the areas where by number they are smaller, but certainly there is a financial need out there.

I've got to tell you, when I came to the department, coming out of 33 years on the commercial banking side, I didn't know that we oversaw pawn brokers. I guess pawn brokers are now interesting because they're on reality TV.

But the fact of the matter is any segment in society that uses something ought to have choice. They ought to have choice and they ought to have fair disclosure as to what they are paying for.

I get concerned when we then turn around and say, well, beyond choice and beyond the clarity of what you're being charged and why you're being charged, that then we get into saying what should be charged.

I think the marketplace, if there's choice out there and there's competition, I believe the marketplace is going to have to be competitive in that segment.

The segment for what pawn brokers charge and the risks that they take are very different than what somebody takes in the residential mortgage arena.

And so we have focused more on the regulatory process and making sure people understand what the rules of the game are than telling them, in effect, what their business should be from a cost standpoint.

REP. SAMUELSON: Well, I guess let me ask you, should -- shouldn't there be some kind of limit?

We had -- we had an experience in my district of a gentleman who had his Social Security check checked [sic] by a check casher every month and when it came to our attention we noticed that the -¬

I think the Social Security check was about $600 and the cash cashing agency was charging him about 30 bucks, five percent for one month. So that's -- my goodness.

And ultimately we helped him find a way to get his own -- you know, he no longer needed that cash checking service.

But it caused me to wonder, isn't there any kind of limit on what -- what people can charge, even for a short-term service like that, or even a short-term loan?

SECRETARY MOYER: Yeah. And, again, you know, as -- as we all look forward, those rates that are charged on the shortest-term, highest-risk unsecured loans, certainly if you look at something on a comparative basis to a home mortgage where the lender has a direct first lien on a hard asset, get what I'll call hard to explain, you know, by simply looking at what the APR is, the annual percentage rate, that a consumer is charged.

There are -- there's got to be guidance included there. And yet we also have to acknowledge that the consumer needs to be protected and those people that are providing those products, which a lot of different lenders aren't willing to provide some of those products, ought to be available in a regulated mind set as opposed to saying, well, we're going to outlaw them or we're going to limit what can be paid -- or what can be charged, and then they end up being done on the street corners for ways that abuse the individuals even more.

So there's a balance there, and we're constantly looking for it. REP. SAMUELSON: Okay. Well, I thank

you. Thank you for your answers and thank you,

Mr. Secretary.

CHAIRMAN ADOLPH: Mr. Secretary, I want

to thank you for coming before the committee today,

and I just want to remind you that we will be looking

for that information regarding the -- the merger and

if -- if, when you receive it, if you would forward

it to my office, I would appreciate it.

SECRETARY MOYER: We'll do that.

CHAIRMAN ADOLPH: And -- and have a good

afternoon and thank you for joining us.

SECRETARY MOYER: Thank you,

Mr. Chairman. Thank you.

CHAIRMAN ADOLPH: For the members'

information, the next hearing will be in five

minutes, the Attorney General of Pennsylvania.

(The proceedings were adjourned at

2:33 p.m.) I hereby certify that the proceedings and evidence are contained fully and accurately in the notes taken by me on the within proceedings and that this is a correct transcript of the same.

Brenda~S7~HamiIton7~RPR~ Reporter - Notary Public