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Hearing of the Interstate Commerce, Trade and Tourism Subcommittee of the Senate Commerce, Science and Transportation Committee: Improving Consumer Protection in Subprime Lending

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Location: Washington, DC

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SEN. CLAIRE MCCASKILL (D-MO): Thank you, Mr. Chairman.

I think you hear the frustration. I'm a former prosecutor. If we had a crime outbreak in a certain area of Kansas City that involved armed robbery of convenience stores, we would have a cop on the beat. We would know who the cop on the beat was and we would know how to address that problem.

So far there seems to be a lack of anyone stepping up and saying, "I'm the cop on the beat." And we want you, Ms. Parnes, to be one of the cops on the beat. And it doesn't appear so far that people are taking responsibility for not being a cop on the beat or really saying I want to be that cop.

And let me talk specifically now about the aftermath. As we would say in Missouri, the cow is out of the barn and we now have to try to clean it up. We now have to prevent these going forward. And one of the things that's happening is the same people that were vulnerable to these subprime loans are now vulnerable to the scams that are coming after the subprime loan debacle.

There's a company called Mortgage Shield out of Houston, Texas. Are you familiar with this company, Ms. Barnes -- Parnes, excuse me? Does that sound familiar at all? Well, I know you said earlier in your testimony that you didn't want to talk about specific companies, but let me tell you what Mortgage Shield is doing.

They call people that they are getting names of in stress situations and they're saying they are a loan modification program, that they can help people with a loan modification. Then, if you want to hear more you press two. And then someone comes on the line and has speaking points. And they give the impression that they can help you at your time of crisis, these vulnerable people. All you have to do is send them ($)19.95 for the subscription. And if you pay ($)19.95 for the monthly subscription, they can help you through this mess.

That is just one example and I'm sure there are dozens and dozens out there of the vultures preying upon these people in their time of crisis trying to make a quick buck. And I hope -- I mean, now is the time for all of those cops that you have -- not enough, obviously and you can't say you need more because the president will get mad -- but all that you have need to step up and say we are at least going to be really aggressive and high profile, because you have the deterrent ability.

You know, there is deterrence that is possible here. And you know it, because you guys have done it in other areas before when the FTC has gotten exercised. And I just hope you all are as exercised. Are you aware of any investigations you have ongoing concerning these companies that are now preying upon these vulnerable people?

MS. PARNES: These are exactly the types of investigations that we have ongoing. There are -- the types -- the companies that are preying on consumers who are particularly vulnerable right now because their homes -- because they're in foreclosure. We have a case that we brought yesterday where consumers whose names were -- consumers were targeted, we allege, by this company because their names were included in public records --

SEN. MCCASKILL: Right.

MS. PARNES: -- as being --

SEN. MCCASKILL: Defaulting.

MS. PARNES: Exactly, defaulting on their loans. And these consumers received solicitations from the company that we sued charging them not ($)19.95 but $1,000 and promising that they would take them out of foreclosure, and not delivering. And we've sued that company, several others. We have many more investigations under way, and our cops on the beat are participating in regional task forces throughout the country so that we can work with our colleagues in state and local governments and really share resources and leverage our resources and be most effective that way.

SEN. MCCASKILL: I certainly would recommend -- I know that you're having task forces, but the people who are losing their homes aren't going to those task forces. I would certainly recommend that you forward information to all of our offices.

We get heartbreaking phone calls every day of people at -- when they have -- when they're at the end of their rope, somebody tells them well, call your congressman, call your senator, and we are fielding calls on a daily basis that make me sick. These people are trying so hard. I would love it if you guys would begin communicating directly with our offices so we can send out e-mails to our -- those who have e-mail -- where we can send letters to people who have called us with information about some of the scams that you all are looking at as it relates to these people that are vulnerable who are looking for any kind of lifeline and mistakenly are giving people money thinking they're getting a lifeline and they're getting nothing.

MS. PARNES: Senator, we would be happy to do that. We actually have -- we have some pages on our website that are specifically geared towards these types of consumer -- financial issues. We would be happy to work with your staff and make sure that your website links to our website so your constituents can get that information directly.

SEN. MCCASKILL: If I might, Mr. Chairman, one more question.

SEN. DORGAN: Yes.

SEN. MCCASKILL: Thank you.

There is another area that has the same danger signals that subprime had. And really, if you take a helicopter view of subprime, it was pretty simple. The people who made money on closing the loans had no risk, and when you don't have risk then you don't care whether people can pay them back. You don't care if it's unfair. You're not going to have an ongoing relationship with this person. It's not like a small community bank. These are people who knew that if they closed the loan, they made their money and they were done, washed their hands of it.

The same situation is true in reverse mortgages. The people who are closing reverse mortgages have no risk. Now, what's really kind of scary about reverse mortgages is tax payers have the risk. And now these things are being marketed as a government benefit you can't miss. And they are being widely marketed, and as you know, Congress wants to take the lid off reverse mortgages because we make money in our budget to spend because in the closing cost of a reverse mortgage, there is a fee that comes to the federal government. So the appropriators -- all due respect because I know you're an appropriator, Mr. Chairman -- but, you know, we want more money in the budget and we get money off the closing of those reverse mortgages and -- but the tale of them is a long tale. And it is also expensive for seniors, and frankly, a mortgage is not near as complicated as a reverse mortgage.

So I hope -- I would like to know specifically from you what FTC is doing ongoing looking at these reverse mortgage firms, looking at these marketing techniques. I mean, we saw in a hearing that companies were marketing annuities in tandem with a reverse mortgage -- I mean, no shame, absolutely no shame -- to 80-year-old people. And I am anxious -- we've taken some legislative steps to try to correct some of these things, but I'm anxious to get specifics from your agency as to what you're doing, because this is the next problem that could occur if we don't get on it now, and shame on us if we don't fix it now rather than waiting until we've got the kind of problem that we have with subprimes.

MS. PARNES: Right. And I think certainly with the changing demographics in our country, it's the beginning of the issue, and you're absolutely right. It's an area that we are getting on, and we would be happy to do further briefings for you as we move ahead.

SEN. MCCASKILL: Okay. And we'll try to get you more people next year.

MS. PARNES: Thank you.

SEN. MCCASKILL: Thank you, Mr. Chairman.

SEN. DORGAN: Senator McCaskill, thank you very much.

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