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Equity Predators: Stripping, Flping and Packing Their Way to Proms

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Equity Predators: Stripping, Flping and Packing Their Way to Proms S. HBG. 105-508 EQUITY PREDATORS: STRIPPING, FLPING AND PACKING THEIR WAY TO PROMS HEARING BEFORE THE SPECIAL COMMITTEE ON AGING UNITED STATES SENATE ONE HUNDRED FIFTH CONGRESS SECOND SESSION WASHINGTON, DC MARCH 16, 1998 Serial No. 105-18 Printed for the use of the Special Committee on Aging U.S. GOVERNMENT PRINTING OFFICE 47_447 WASHINGTON: 1998 For sale by the U.S. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 ISBN 0-16-057106-5 SPECIAL COMMITTEE ON AGING CHARLES E. GRASSLEY, Iowa, Chairman JAMES M. JEFFORDS, Vermont JOHN B. BREAUX, Louisiana LARRY CRAIG, Idaho JOHN GLENN, Ohio CONRAD BURNS, Montana HARRY REID, Nevada RICHARD SHELBY, Alabama HERB KOHL, Wisconsin RICK SANTORUM, Pennsylvania RUSSELL D. FEINGOLD, Wisconsin JOHN WARNER, Virginia CAROL MOSELEY-BRAUN, Illinois CHUCK HAGEL, Nebraska RON WYDEN, Oregon SUSAN COLLINS, Maine JACK REED, Rhode Island MIKE ENZI, Wyoming THEODORE L. ToFMAN, Staff Director KENNETH R. COHEN, Minority Staff Director (II) CONTENTS Page Opening statement of Senator Charles E. Grassley . ............................................ 1 Statement of Senator John Breaux .................................. ......................... 3 Statement of Senator Susan Collins ....................................... .................... 5 Prepared statement of Senator Larry E. Craig ..................................................... 6 Prepared statement of Senator Michael Enzi ....................................................... 7 PANEL I Helen Ferguson ............................................................ 8 Accompanied by: Jerome Swindell, Attorney Gael Carter ........................................................... 10 Vireta Jackson Arthur, testifying on behalf of her parents ............... .................. 22 PANEL II Jim Dough, former employee of a predatory lender ......................... .................... 30 PANEL III Gene A. Marsh, Professor of Law, University of Alabama Law School, Tusca- loosa AL ........................................................... 39 Jodie Bernstein, director, Bureau of Consumer Protection, Federal Trade Commission, Washington, DC ............................................................ 58 William J. Brennan Jr., director, Home Defense Program, Atlanta Legal Aid Society, Atlanta, GA ............... ............................................ 80 APPENDIX Testimony submitted by Home Equity Lender Leadership Organization (HELLO) ............................................................ 109 Testimony submitted by Finkelstein, Thompson, and Loughran ........... ............. 125 Testimony submitted by the Office of The District Attorney of San Diego County................................................................................................................... 131 Written comments submitted by Elizabeth Renuart, Margot Saunders Attor- ney ............................................................ 238 Testimony submitted by the National Home Equity Mortgage Association ....... 259 Testimony submitted by the Senior Benefit Association .................. .................... 267 Prepared statement of the Consumer Credit Insurance Association .......... ........ 271 (111) EQUITY PREDATORS: STRIPPING, FLIPPING AND PACKING THEIR WAY TO PROFITS MONDAY, MARCH 16, 1998 UNITED STATES SENATE, SPECIAL COMMITTEE ON AGING, Washington, DC. The committee met, pursuant to notice, at 1:01 p.m., in room SD-628, Dirksen Senate Office Building, Hon. Charles E. Grassley (chairman of the committee), presiding. Present: Senators Grassley, Collins, and Breaux. OPENING STATEMENT OF SENATOR CHARLES GRASSLEY, CHAIRMAN The CHAIRMAN. Good afternoon. I welcome all of you to our hear- ing, which is on the subject of "Equity Predators: Stripping, Flip- ping and Packing Their Way to Profits." First, let me say welcome and thank you to each of our wit- nesses, one of whom is jeopardizing his future in the industry by being here, three of whom will relive some very painful situations, and our panel of experts who have taken time to share their exper- tise with us. Next, let me also say welcome and thank you to other members, particularly Senator Breaux who is here, and there will be others coming along shortly because I know they want to take time out of their busy schedules to be with us, and of course, the members of the public who are here and are very much interested in this issue. We are pleased to have in attendance today Mr. Raymond White, another victim of predatory lending practices. Mr. White is here today because he believes strongly that such practices must be stopped. I would like to ask Mr. White to stand so we can recognize him at this point. [Mr. White stands.] Thank you very much, Mr. White, for your interest in this issue. "Equity predators" at first blush might sound like a new horror movie targeted to bring chills and thrills to teenagers across Amer- ica. Unfortunately, the topic that we are talking about today is in fact a horror. However, there are no chills and thrills, and the tar- get of these equity predators is not teenagers, but anyone who has a good deal of equity in their home, especially unsuspecting senior citizens, especially females, who are equity-rich and cash-poor. What exactly are we talking about when we say that equity pred- ators target folks who are equity-rich and cash-poor? These folks are our mothers and our fathers, our aunts and uncles, and all (1) 2 people who live on fixed incomes. These are people who oftentimes exist from check to check and dollar to dollar, and who have put their blood, sweat and tears into buying a piece of the American dream, and that is their own home. This should not come as a surprise. In fact, do not be surprised, because it is estimated that more than 23 million American home- owners have no mortgage debt and that the average age of such a homeowner is 64Y2. Indeed, for many senior homeowners, the eq- uity in their homes represents their lifetime savings and their larg- est asset. In fact, the estimates of their collective equity range from 600 billion to more than 1 trillion. So it is no wonder that these folks have become the apple of many a lending company's eye. Before I get into a little bit more depth about the practices used by some lending companies to rip off our senior citizens, there is something that needs to be said clearly and unequivocally. Most subprime lending institutions operate in an appropriate, ethical, moral, compassionate and legal manner. They provide a vital serv- ice to those borrowers who may be unable to take advantage of tra- ditional lending institutions because of such things as poor credit and insufficient income. These lending companies are providing thousands of seniors with needed cash-cash that is used to pay for everything ranging from medical bills to transportation. Now let me turn more directly to our matter at hand. Equity predators, these con artists, are in the cheating and swindling busi- ness. They make money by stripping, flipping and packing the loans they make to unsuspecting consumers. These are often trust- ing senior citizens with little knowledge about finance and the practices of lending institutions. You just heard me say a few terms that might have different meanings depending on what part of the country you come from. Those terms are "stripping," "flipping" and "packing." We have a chart up here that will give you the definitions-a glossary of terms that will be useful as we discuss the practices used by some in this industry. Another question legitimately asked is just how prevalent this problem is. I wish I had a statistically valid number for you, but none exists, and that is very unfortunate. But there are a few things I can say and can say with certainty. During the course of conducting the investigation for this hearing, it became apparent that often the victims of equity predators are rarely aware of the fact that they have been the subject of a scam. In fact, it has been reported that home repair and equity fraud have stripped the value from the homes of about 100,000 unsuspecting people in 20 States. In addition, the sheer size of the home equity market is incred- ible and would naturally attract unworthy business people. Just imagine-home equity loans jumped from 1 billion in 1982 to 600 billion in 1996. Next, it is estimated that about 663,000 elderly households have lived in their homes for over 20 years, own their homes free of mortgage debt, have incomes of $30,000 or less and have equity of $100,000 or more. Even the experts to whom we spoke all seemed to agree on one thing-they are seeing more and more cases of predatory lending and, as I said, who knows what we are not seeing. 3 In fact, we learned that the State of California determined the problem of predatory lending was significant enough to merit a fraud unit with local district attorneys offices devoted solely to ad- dressing this problem. Today we are going to hear from seven panelists. Three wit- nesses are going to talk about their personal and very painful expe- riences with lending institutions. While listening to these wit- nesses, please pay particular attention to each of their stories. One will explain how her family was scammed through a home repair scheme, one through the financing of a consumer item, and one by simply calling one of the 800 numbers advertising that the com- pany sold money. These witnesses all ended up in the same boat-just about losing their homes-but the way it happened was
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