An hour with Sheila Bair

from the leed center at the university of kansas k pr presents an hour with sheila bair and j mcintyre sheila bair is chairman of the fdic the federal deposit insurance corporation she is a two time graduate of k u and was recently named one of the thirty most powerful people in that your father thought of even if in theory and now here is where i'm delighted to be back it take you i really love to hear mike lee law degree in particular has had great value it has opened doors for me my professors taught me how to think about the law and more importantly they gave me a practical common sense point of view of the application of law to the real world the competence and the critical tools to make decisions that i think are right about my career about my life and today as a public policymaker in washington i also got to washington because of bob dole he first

hired me in the nineteen eighties tortoises council on the course at the committee of the senate judiciary committee which he then shared i handle civil rights cases for him constitutional law and other legal issues later i worked on his missouri leadership staff in his nineteen eighty eight presidential campaign the senator and i have another connection needless to say we both got to katy because of parents who supported us but we also got here because of beggars he had a three hundred dollar loan and a half from a banker in russell as he likes to tell the story i actually got a job working as a bank teller with the savings on here in lawrence over nine straight to say that's in cash before i started law school banking also taught me humility i ran for congress in my old though the home district of the fictitious of kansas in nineteen ninety and i lost the race by just seven hundred and sixty votes i was less than one percent andy a picture that race just happened to be a banker to connect with who has since become a patron i'd like to know more about you know so i was whining about

ask you question especially for the at the student center in the audience i'm just curious how many of you are freshness offers you have an underclass been here and merging is the senior it's us register disintegration see which a setting where their business and finance majors out there who have a lot of those are targeting class credit for this right that's ok do in liberal arts majors political science english history many political are the liberal arts majors in our major spies now many of those ok well i hope we do have a lot of students actually you ever have absolutely no interest and finances a crevasse and you might think that was strangely say but i i hope we have plenty of those types of students because even if you have no interest in finance you still need to learn the basics including manager money and security economic future i know all of you will soon be very ready to break away and take on the world but there is a

major hurdle many of you will face the average college grad these days is flat broke it's sad to say students are deeper debt than ever before two out of three students graduate with debt of those who graduate from a public college like a u their average debt is over seventeen thousand dollars from sea lions alone ten years ago that figure was only a thousand dollar it's on top of that this credit card debt the average college senior has three thousand dollars in credit card debt and four credit cards most don't pay off that debt each month registers actually have twice that amount of credit card debt these are very sobering numbers as not much better frankly for the general public so what happens to the american safer as a nation of three hundred million people living in the richest country the world has ever seen were not doing a very good job of handling our own money we spend their cash in the bar was so we could spend

some more and we never think about saving any money for a rainy day has a couple more numbers for you know books last year americans say just point four percent of their incomes that's the lowest rate since records have been kept some fifty years ago historically the us savings rate has averaged a fairly healthy seven percent when i graduated from college and pay you in nineteen seventy five the us savings rate was ten percent this thing going downhill ever since howard doing globally among our heroes were at the bottom of the heap many european industrialized countries are approaching fifteen year savings hiatus in france germany and italy savings rates exceed ten percent in china are just recently visited there setting up a deposit insurance we were invited over to to help them in their our endeavors to set up to passengers china i learned a lot about the savings culture in china and they have a

savings rate a whopping twenty four percent are you a calmer so there we all know the devil is in the detail when it comes to data points in history that us savings data do not reflect growth and the value of family assets such as the home or socks nor do they include your education that is counted as consumer spending but nonetheless no matter how you slice it the very low us savings rate is very troubling and the veteran dave continues to be download so what is the fdic chair the fdic was treated in nineteen thirty three to restore confidence in the banking system after literally thousands of bank failures during the great depression we insured bank accounts up to one hundred thousand dollars per count two and fifty thousand dollars for a text or savings accounts and we do this as a way to encourage people to deposit money in the bank and keep it there weren't safe by knowing their money is safe and customers are most likely to withdraw when times are tough or

uncertain this prevents the bank credit suisse on the nineteen thirties which most historians believe is what pushed the nation into depression after the nineteen twenty nine stock market crash as fdic chairman i believe we need public policies that encourage people to save and for those who choose to put some of their savings in banks the fdic helps make sure their money is safe as safe can be it's interesting that even during this time of market turmoil we really haven't had any bank run site in the united states and i would contrast that to a situation we're seeing in uk now where ayoub very large financial situation has gotten itself into trouble with certain forms of mortgage lending and is actually a bank run on that are back now in and the uk out they do have deposit insurance that you actually have to wait six months to get your money out of your bank becomes insolvent and here i take there are pride in the fact that the fdic has systems in place to make sure that the pastors have immediate access to their money even if a bank does fail and forty five that does not

happen very often but i digress let's get back to the savings culture where we're going from the city's culture to its consumer culture this is a true and raul are relatively recent phenomenon and to me it's it's frankly very puzzling were descendents of a generation of savers many vets can tell stories of the cash only happen severe depression era parents and grandparents my own parents and get the shot the bar was their eleventh commandment i can imagine them putting an ipod or so much as a starbucks coffee and a credit card so what's happened to america saving culture there are various theories one theory is that long periods of economic prosperity have reduced and misperceptions about the need for a cautionary savings it has been over thirty years since we had a severe economic downturn and even the troubled nineteen seventies were nothing compared to the hardships of the great depression this may explain reduce savings among middle and upper income families have never experienced a severe

economic downturn but it doesn't really explain the lack of savings among lower income families for them the growing wage gap combined with increasing housing health and education costs have made economic hardship a way of life for them economic conditions have stretched family budgets and made it much more difficult to save another theory is that wire access to credit by families of all income levels has dampened the need for emergency savings the ability to tap credit cards or other short term loans maybe allowing people to spend money that was once available only for rainy days indeed the explosion in consumer credit during the past decade cal says the most people are more willing to borrow and to save because of their financial capacity and higher credit scores middle and upper class families are more likely to have access to recently kreischer trump credit compared to lower income families to hear again from lower income families the only option may be high cost credit products or the inappropriate use a fee based overdraft protection other checking

accounts or worse trying to a payday loan the burden of paying back these expensive loans and peers the ability to save by putting additional demands on already strained family budgets this can have the effect of locking lower income families into a vicious cycle limiting the ability to build wealth and economic independence this is also happening more more to the middle class and it can also happen to you because you're just starting out in life stephen recent grads can be easy prey for aggressive marketing or sometimes a subjective marketing but i will tell you getting every t t shirt or a low teaser interest rate for six months on a credit card are not good reasons to get a credit card i was very glad to learn that hey you has restricted can credit card marketing on campus at the start of each semester and i'm even more please the k u has wisely require that when credit card companies to come to campus they must clearly explained the risk of using credit cards that can

include late fees up to thirty dollars or eighteen percent apr as unpaid balances sometimes higher watch out for those debit cards to students they're really just credit cards with training wheels you can get socked with high overdraft fees if you peel to keep a close eye on how much are spending so what do we do about arctic culture first public policymakers and regulators i think need to take a hard look at consumer credit rules is disclosure effect of our disclosures being provided to customers adequate to let them know the true cost of the financial services that second consumers can take greater responsibility for their own finances lenny nominee is a surefire way to help turn things around susan secular have to understand that when you overdraft your account to buy five dollar latte you may well get hit with a thirty dollars overdraft fee and thirty five boxers a lot to pay for a latte even one that said no

cat notes that decaf carmel model but lots of put in the other way that would be like playing an annual percentage rate of seven thousand two hundred percent this image replenish your checking account within thirty days at a pretty high interest rate pretty scary financial education is a big deal at the fdic they provide training materials are thousands of schools and community organizations and we have found that the more people learn about how money works the better they do him in their personal finances they spend less they save more and they pay off their debts on time i'm delighted that case students want to take charge of their finances i understand there's a new class of personal finance their two sections and already one hundred and eighteen students have signed up i'm an ex professor so i know that's pretty good for no active is anyone here tonight taking crystal finance wanna one see you know well decided for next semester i think you'll learn a lot and i hope it'll become a required class is your aim for the more people

know more about how money works and that brings me to the other topic i were talking about tonight the subprime mortgage turmoil i'm sure most of your word the seizure for about it it's causing a lot of problems and local housing and potentially could impact the broader economy also the ramifications are being felt globally i was just came back from a meeting in basel switzerland i which was convened by the head of the european central bank and included the heads of all the central banks developed countries as well as all the heads of the major bank regulatory agencies and the sole purpose was to talk about the subprime turmoil and how is having broader ramifications for the marketing world economy lacks inclusive lending practices really responsible for a lot of the problem that some of that could have been avoided if people had taken the time to learn more about the house and whys of mortgage lending here's a basic facts most of the outstanding problem subprime mortgages were made on that i'm able to say by non bank lenders not traditional banks and thrifts

so many songs it involve predatory lending practices many were poorly underwritten mean that few questions were asked by lenders investors and lenders relied on been seeking your miles to determine a credit responsive during a good old fashioned low level analysis and those miles or are proving very unreliable and now many these adjustable rates of time subprime loans are resetting at very very high rates after witcher three years of low teaser rates many borrowers are facing foreclosure but we hope the majority of these loans can be a structure to refinance into more affordable loans and we're certainly strongly encouraging the banks we regulate to try to help the borrowers that are trapped in these unaffordable loans who have been in good faith making payments to see those funds can be restructured to avoid foreclosure but it's going to take quite a while for things to work out we had the bank regulators have issued new guidelines for banks and threats that curb risky mortgage lending and

again that help borrowers into more affordable fixed rate products and federal reserve i'm happy to say is set to now set national standards that would cover non bank mortgage lenders were a lot of these problems have originated off so as other sources of more of a mortgage lending dry out the fdic is closely monitoring bank says the increase lending to take up the slack the new rules the bank regulators have issues are significant but i and i very much believe in the market but sometimes you have to set rules for the markets and the situation the markets are deftly not working the way they should i also strongly believe that much of the pain there were now seeing could've been avoided if we'd been smarter about the new exotic credit products that are used to phone to finance so much of this funding and this goes for all the actors the regulators to investors the lenders and borrowers all of us could use a refresher for sa finance when i won even alan greenspan admitted on sixty minutes that he didn't see it coming even the big wall street names

the credit rating agency credit rating agencies are supposed to understand risk and figure out how risky these mortgages were did not figure it out and they're still trying to figure it out as the market is now making adjustments and re pricing rest in a way that hopefully will be more accurate as we move ahead one thing that this whole term while that's true is that you can always count on community computer models for rating agencies for accrediting for predicting credit risks so let me make one final point nobody's against subprime lending i think it's very very important to emphasize that we're extending lending loans to those who do not have a credit history or if they had some troubles in the past can expand homeownership in a positive way if done correctly this current situation is not develop because of subprime lending it developed because of irresponsible subprime lending and i would hasten to note that the subprime loans that are fixed rates are actually performing pretty well the very severe problems were seeing

again on these adjustable rate products with very secure payment shock so prime lending has helped us achieve a nearly seventy percent generated american homeownership the trip now is to try to fix the problem without unduly drying up credit to make sure that credit worthy borrowers borrowers can repay their mortgages are still able to access credit lenders need to verify credit information they need to properly valued in your wedding underlying collateral for a while and they need to determine whether borrower can surely afford to repay the mortgage over so long term not just over the shorter term teaser rate investors need to do their more of their own loan analysis they need to stop just relying on rating agencies are models regulators need to make sure the borrowers have what they need to fully understand the terms of the loan and borrowers need to make sure that they fully understand the long before they sign on the dotted line when you borrowed money you should be asking a lot of questions expression along as large as a

mortgage what the interest rate is a fixed rate or is a variable rate and what are the hidden fees as a bar any any borrower who has certainly anticipate intensity or had just great mortgages the very wary of payment shock these are mortgages that are advertised a low teaser interest rates and are low monthly payments for the first two or three years but then the monthly payments by cut sharply in later years make sure you know what you came out with patients will be throughout the life of the loan and don't you get a loan that will become unaffordable down the road because you think you'll be able to refinance and other before the payments go higher that's exactly the assumption that the borrowers and lenders made in the current subprime debacle and it's a very risky bet it's a kind of assumption that requires a very sophisticated understanding of the direction of home prices and interest rates as are now saying not even wall street's best and brightest understood those dynamics so i hope you take the hard lessons are learning from the consequences of the subprime mortgage mess i firmly would wave up with

is a silver lining on this this magical and going forward to be sure their major lessons about economics finance and public policymaking in general but as you leave here tonight and continue cities tomorrow i hope you take away the lesson that you need to be self reliant and bad shenanigans learned twenty first century financial markets work even if you're not interested in financing need to learn and the skills to make wise decisions about your money and build a healthy financial speech or for yourselves and eventually for families families a pleasure to be here with you tonight and i hope of these remarks advantage of some benefits you and i will be pleased to take your questions the permits i have a question do an increase in savings rates out why not not tax

the interest income you would receive from the savings account why not non tax it right through our savings or any of the other ideas to heart ryan standing right why i think we can dare take a little more of a look at the year the tax policies that said that applied to return some savings our we have obviously a provided a lot of incentives to our racing for one ks they're for tax free savings were a return interests are best return can but she like tax rate others really sound that would would go farther and cannot tax and on and i think you know that continues to be debated there are some that say wishy going farther and to start taxing consumption get away from getting savings or income it really wanted to try to change the economic dynamics i mean clearly our tax policies have overplayed your audience for lower income family's tax policies may not be particularly effective and increasing savings rates and end there i think are a

minute to look at and other types of programs i was wondering which are best advice of the two ideas the future use of the business ventures of years in kansas would be a business majors how to be successful right to be successful you well you know it sounds trite and old but it's true and it's you need to work or any need to be willing to you know a star or you can start to get a job that you're given out whatever it is and you know wow throughout my career i mean i can say that said that being a bank teller was by one of the more exciting things i did but you know what i did it i did it well and i took a lot of a bourne information the retail banking level out in the end i think you know every step of my career out whether they've been the glamour jobs a candidate right now every day job searchers try to do that really well and eight even if that worked in particularly interesting i think to any job doing

is worth doing well and i think employers appreciate that i think ultimately it pays off and it you know don't don't go to castor take measured risks are who keep an eye open for opportunities we don't force that are usually a future counted and start your car is i know all business majors and other images hear it you are successful com am i don't have a place in that i do have a remark to mate concerning the year get out when you buy a home and we bought our home in nineteen seventy one which the market wasn't what it is today that might have slowed today is what my house and i am seeing a lot of the younger generation all in the last ten years each time the value of their homeland and their tech slowed gotten higher and their payment land the care

so it's all tied together in their house payment and it became really tiny ten minutes not improved a whole lot and they get i'm seeing a couple of people lose their homes the carriers going up over their badges they may have bought to match fastest diarrhea date that's really something you need if they think the geary and in future years ago when that that's absolutely right and that's an excellent point and the gardens that we've issued to our banks in terms of that underwrite mortgages we required that they take tax insurance into account and determining whether the bar is abel able to make the monthly payment ah that's very very important now we've seen how a lot of these sad sack prime loans the taxes on insurers insurers can be urbanized as the taxes that can be a bit of a chuckle changes well i seventy seven runs were made without regard to

taxes and insurance and we've actually got reports were partially get refinanced every six months just try to pull out equity of their their homes just to make the tax insurance so if you're taking out a mortgage that's where your lender chevy you should to a makeshift in service but the principal interests of the taxes and insurance up his taxes can go into areas very very severe than an obligation the city of alienating to have to pay down your mortgage bank yes that's really the point on this bear thank you for being here tonight question i got is on the insurance portion of the fdic insurance i know you know well can you explain to us how the insurance works for fdic sure well our first call if you do you really want to get into the intricate details say she got our website fdic duchy of the fdic that gap we have a deposit calculator which reagan put in the money that you have and banks and it will tell us how much of that is insured the basic rule is one hundred thousand dollars per account two hundred and fifty

thousand dollars for a tax deferred of savings that has an ira out by structuring a chance though are you can get more than a hundred thousand dollars of coverage set phrases you if you have a can just in your name eight hundred thousand dollars coverage for that he had to count yourself your spouse you get another hundred thousand dollars us at the chester county child and yet another hundred thousand dollars so there are actually ways seth restructuring oh your cancer to get more than a thousand dollars as a single bag and a porcelain applies for banks so even if you don't have to do that kind of account restructuring each bag can get a hundred thousand dollars that the limit is for bank is not per per depositor so actually are you know a lot of people put that much money into a bank that other ways to structure couser through mobile banking relationships to get it quite quite high amounts of the passengers ob gyn you sure you're you're you're you're fully insured up to those limits obviously bank becomes

insolvent would typically will happen is that we will outline before we close the bag we will find another bank to save the deposit liabilities of the failed institution that bank will immediately take over the surprises and there will be no interruption in your ability to access your fines out that almost always this is what happens that i've been told historically the few situations where we were not able to arrange for it oh another bank to acquire the deposits as there still is only twenty four hours searching for our way before the assets can access their insured funds so we we try very hard hour we meander pass or protection uses are our first and primary mission we take it very seriously and i think about that one of the reasons why even though we have some institutions now that are in a challenging situation with some of the more mortgage market turmoil but really noticing that france in this country in heaven for some time and that reason is i think really is the fdic i

guarantee our which is a very strong guarantee of it to say that but i'm very proud to run yes my question is why do need for regulatory agencies we read more like i don't really more regulatory agencies and a queenie better regulation i guess my question is is a long enough to do it before you do to meet bb bank regulators only regulate banks and banks or institutions that actually take deposits at if you take a deposit your bank unless have fdic insurance if you're going to be holding yourself up and that that trust relationship consumers taking deposits their number of financial situation so over of lenders who do not take deposits they go to the capital markets to access the funding to support lending activities those are out fritz says mortgage finance companies i had been doing a lot of the winning that were overseen some problems now a lot of them have

gone out of business now because they made a lot of bad lending decisions those types of institutions islamic institutions historically have been regulated the same level mr clay they are subject to lesser lighter regulatory regimes and i think we're now starting to realize that there needs to be an even level of underwriting standards and there are protections for all those disparate more easily not just insured depository institutions historically it's been up that way i dont know why other countries do just have one regulator for everybody backs non banks our weed out now but we certainly starting to understand now that that we need stronger sanders in a non bank sector of question would be a wise approach for college students as far as credit cards are concerned credit cards can be or a convenience and they can also be a way to start building up a credit history which might serve you well down the road up so if you take out a credit card use it when you need to use it and make sure you

pay to go off each month on time i think if you keep a bill way i didn't give away a fee if he did a lot that can increase your interest rate and it could also impact your your credit score so if you misuse a credit card you're gonna be creating a lot of problems for yourself not just in terms of the sahara just race but also in terms of that image credit history which will mean that when you later go to apply for a car loan or a mortgage should they have to pay higher interest rate so don't get the credit card on issues or coughing you know i use it use it wisely and pay off but the most important thing is pay off the balance in full every month if you made it to flutter for a couple months or whatever you pay in time and preferably painful on time every month ms bair well do you see any similarities to the situation that occurred in the late eighties and early nineties with the thrift industry and what is going on today with the so called so called credit crunch and worked the regulatory agencies and they learn anything from

what happened back in the early nineties right sereno says it's a good question and i think the differences is that most of this lending has been done outside the banking system on the savings and loan crisis that we had was being done by insured depository institutions not those insured by the fdic and a richer by the old federal savings and loan insurance corporation also known as the fist like this has been done primarily outside the banking sector and i guess the good news is because most of the non all the most has been done outside breaking out that it's really not creating the kind served some of the challenges that we saw during the s and l debacle other sound that ended in july know mortgage insurers that are having some challenges but for the most part i think this is when it in fact earnings of banks that is not an avenue have significant impact on on some of the issues the way we saw it during its health crisis so obviously that is the debt is assisting them

primarily outside the year the banking sector this time around again underscoring that we've got the regulation rider least better for the deposit or institutions but we didn't extend it to non banks based on your knowledge of investing who would be your advice for short term investing based on how the market is performer right now are first wants in the short term that the american market you know i'm sorry i don't give an investment advice i have a very strict rule that that aspect of the sec has rules about getting registered if you were if you were you know the surprise i would say that i think is exactly the kinds of questions that get answered in a personal finance course wraps and some investment sources of the ages india business school here obviously they are short term investments their long term investments if you're investing for the short term you wanna find very safe you know low risk investments lead to access the money right away if you have a long term investment horizon and even take more risk because your resume go up they go down and they go up a second you can read those fluctuations out are obviously

that the safer short term investments or bank deposits up treasury securities are many markets those types of investments for short term and most experts would say that's where there were a pitcher that you mentioned that he rate for her the insurance rate for diaries just two hundred and fifty thousand and the other one was a hundred thousand and more those last adjusted in two thousand six and her congress pass comprehensive that was insurance reform legislation to thousand six and they also authorized us to index the limits for inflation so that the first show ok we will have to index for inflation adjusted thousand eleven they follow a question now that we have a two hundred and fifty thousand dollars limit on how many ironies out there what percentage of them would lose money if there was a problem but with a wooden they would lose any money after turning fifty thousand dollars

debt you know i doubt so that i don't know off the top of my head right now if you want to give me your card later we are hard times why haven't i don't know what that number is you spoke of subprime mortgage turmoil one ripple effect as we almost mortgage foreclosure how can the general population avoid being drawn into lawsuits by mortgage foreclosure companies that are structured as attorney written foreclosure factories that reach into states and name individuals that are not even geographically close to the actual clients involved what happens with these mortgages these subprime mortgages this is there are or securitize basically their pools and civic investment pool at pools divided up into securities interested in those securities are sold out to investors so unlike traditional mortgage lending where the weather holds on to the mortgage if you get in trouble

tried to repay at their lender can try to help you out restrictions on the avalon is sold off to lots of different investors however there are firms called servicers the continued to wiggle service that debt that is they're the ones that collect the payments from you each month and make sure that those payments are properly treated it your account and they do have some authority under most not all the most of the securitization cool agreements these servicers to have some authority to restructure these lines so if you have an unaffordable product you have an adjustable rate more easily see michelle ponce and the pain is going to go up and your atm payments pay it you should you should contact or service or contact the name of unity that it has on your bill wednesday and that as your service or an od if you can't if they're not going to talk to you and you should you can call the fdic it's a response center we have a number of the toll free numbers space in kansas city but the number on our website we can refer you to a group called neighbor works which is it's a grassroots organization is working with with

borrowers in servers just write these loans restructured not all servicers have the legal authority to restructure long but most of them to and that will be my strong advice to you if you're among these paintings shock loans aren't you know it's not in anybody's interest frankly for for an owner occupied home ah where the b owners and i have been making regular payments under the day lower rate on these sub prime mortgages to keep them out of their homes because they can't make the reset rate of foreclosures we're expensive for lenders for investors for borrowers foreclosure foreclose property significantly adversely impacts other properties that are in the neighborhoods so we're dealing with an unpleasant situation here that that really the best of all possible solutions for for borrowers or their homes have been making good faith payments he just convert their mortgage into a fixed rate mortgage at the start or at the replay we know that they can't pay their mortgage and let them stay in their home and again this is a strong

messenger we're putting out the servicers if they're affiliated with banks and their jurisdiction those are the kinds of instructions they got from us so i would encourage you if you know someone who's in this situation they shouldn't first issue call a service for the name on the billing statement they can assess faction that way either number of good grassroots organizations they worked this one in our call center and put them in touch with their work safely if they can find them or directly a i n and i wish the message was this is really a very unfortunate situation for everyone i enjoyed this very much thank you so much questions and half less about specific few tariffs chairman of the fbi field for federal deposit insurance for families and fears focus of the event on september seventeenth two thousand seven sponsored by jane anderson chandler lecture series i think a huge school of business we're talking about the crisis in the subprime mortgage industry which provides

loans to high risk borrowers have low incomes consumer advocates call many of these loans predatory lenders target vulnerable consumers and charge excessive interest rates and fees in this report on the public radio exchange funny have not the bee's profile the woman whose son prime loan went wrong and looks at what's being done to fight predatory lending getting talked into the wrong lung can spell financial disaster julie harris has learned that lesson all too well in the cramped studio apartment she now shares with her husband were still she's chopping vegetables in the tiny kitchen this is just not what it used to we have cracked and experts that are on the front steps away that night we're going for arts all the time they have a it's got to get out and she makes dinner julie hass remembers the house she used to live in in the oakland hills if it was just two wonderful neighborhoods you didn't even have to argue for

certain things her dad bought the house in nineteen fifty five and she lived there on and off for most of her life i raised him like to fans in that house so there's a lot of good memories in their home has inherited the house from her bad in two thousand to she decided to take out a loan for home improvements including a new roof and plumbing but her loan servicer fairbanks capital engaged in fraud by cashing checks then failing to post the monthly mortgage payments to her account soon they were charging her penalties and late fees and before she knew it the lenders began foreclosing on her home claiming she had close to one hundred thousand dollars in delinquent payments because foreclosures become part of public record house was barraged with phone calls letters emails and even visitors offering to bail her out with a new loan john came to the door and he said they see or you're interested in refinancing your home and i certainly can help you land

that he had down to investors that were eager to arm made got loans on the property especially in the area that we were and that was be no problem whatsoever has decided to go through with the refinancing deal two loans worth nearly half a million dollars that she started to feel nervous a couple of days later when she sat down to find papers the lender was i was sitting there is just shoving papers at me and not really explaining anything i didn't understand a lot of the stuff i tried to get him to explain it but he you know he says well this is just all standard contracts and blah blah blah and i looked at him and i said that they're buying papers said he says will though just on the amounts of everything that's a standard route procedure and i felt like i had a shotgun to my head

what has didn't realize was that when she signed the loan documents including those blank papers she was tricked into signing to interest only loans only after she received copies of or sign them papers did she find out that the broker had lied about the terms of the loan which included huge prepayment penalties and several thousand dollars in fees for the first loan her broker had falsely quoted her an interest rate of five and a half percent instead of telling her the true interest rate of twelve percent later she found out that one of the blank papers she signed it turned out to be a blue note which required she come up with a one hundred thousand dollar payment only two months after the loan was issued to her a couple of months after has signed the loan documents her husband was hit by a car his hip was shattered requiring emergency surgery and when he came home from the hospital we were homeless they said that you're not allowed in your house you've been affected we were not allowed to hang out get

any of our possessions whatsoever and no clothing no medication none of our legal papers birth certificates passport my husband's while it was in the house it's the cycle of predatory views ideally is the associate director of hair on a new nonprofit legal service for consumers with lung problems in alameda county and this was her the pattern of going from one predatory lending situation to poetry servicer and then ultimately to the final predatory investor lender that she lost her home to please as predatory lenders is a number of aggressive and misleading ways of targeting consumers including high pressure tactics they'd in sweats and outright fraud and forgery folks who comes knocking on their doors claiming to be contractors claiming to be brokers or realtors and saying you know we can help you to get a loan to picture how to fix your roof to fix the plumbing but enforcing go ahead and then without ever really explaining whatever loan the borrower is going towards

can build a takeout or sometimes take time to go home sometimes will issue them what are called interest only loans so that they now as the homeowner some quaint default on a payment will lose title to their home lee says some fine people for perjury brokers might even have familiar faces they could be co workers members of the same church or even fellow students in an english as a second language class she adds that immigrants are especially vulnerable because loan documents are typically in english quote we're in the offices of the california reinvestment coalition in san francisco's mission district c r c associate director kevin stein says predatory lending is epidemic in latino and african american communities these are groups that traditionally have been underserved by regulated banking institutions so there is a demand for credit within certain neighborhoods that haven't had access to a bank being located in their area

so they are more susceptible to a subprime lender coming in a recent c r c study of california's second largest banking companies found that latino and african american borrowers pay more for their loans regardless of income nevertheless there are certain laws to protect consumers and we think there should be more so we've been promoting into predatory lending laws on the federal state and local level and you know help her some momentum around for example this year's he backed in oakland city ordinance that provide stronger consumer protection than existing state and federal laws it restricted prepayment penalties and required loan counseling for subprime borrowers and the ordinance hold investors who purchase mortgages on the secondary market accountable for predatory practices but the california supreme court struck down that ordinance earlier this year the american financial services association or outside representing four hundred companies including major lenders wells fargo and washington mutual sued the city of oakland and one

attorney mark henne argued the case for access the problem with oakland and other municipal entity cities and towns passing their own ordinances was that you would end up with a confusing inconsistent patchwork of regulations that an industry simply could not follow kenny says after hopes to encourage partnerships between the banking industry and consumer groups to fight predatory lending practices partnerships toward education toward identifying the bad guys towards working together for the kinds of regulations that on the one hand won't interfere with the marketplace forces that will bring money for those who need it landed and on the other hand will help combat the kinds of wrongful practices that we're all interested in seeing eradicated two different bills in congress are at odds on just how to re form as predatory practices consumer advocates support the prohibit predatory lending act which features protection similar to those in the ill fated oakland city ordinance

a competing bill backed by the mortgage industry is called the responsible lending act it would provide more limited regulation and would create a uniform national mortgage lending standards overriding state and local legislation both bills are currently in subcommittees so for now the only protection many consumers may have is learning how to make an informed decision about loans oh my grandma at the acorn housing agency in oakland's fruitvale district about fifteen first time homebuyers are learning the basics of home ownership tonight like every thursday the classes in spanish and topics range from home maintenance to counseling and how homeowners can choose the rate loan and avoid the pitfalls of mortgage default and foreclosure dr supper and probably end up with a bad loan if you're coming from you know having a bad credit situation or low income so you assume can christine fahlund is a counselor at acorn housing so are markets where cases individually to see cases in the south in the spring sitting here

so i think it is this is a growing problem but there's also a movement for stopping and torturing people more aware of what's going on especially in oakland's before the fall says that kind of education is sorely needed but it's too late for people actually has nearly two years after losing their home she and her husband remain in the run down west oakland studio apartment and my life was just taken from me and my family we feel totally betrayed and and having our home and everything in it just totally stolen from us and to this day we got more possessions or perhaps a verse still awaiting arbitration to try to reclaim their home that they have seen one small victory the ftc found fairbanks capital guilty of illegal practices and forced the company to pay out forty million dollars to consumers of that settlement the

house's receive the sound of eight hundred dollars and funny of monkeys tens of millions of americans don't have bank accounts some are leery of banks some live paycheck to paychecks others need cash advances in the middle of the month these unbanked people increasingly are turning to check cashing and payday loan centers for their financial needs sheila bair of the fdic says those centers often take advantage of customers by charging higher fees much higher than a customer at a bank would pay we look at the check cashing industry and payday loans in this feature i was angular it's payday at the money more in san francisco civic center it's the city's largest money market is open twenty four hours a day there are about ten people in line at any given time the mostly african american men larry lipscomb has been cashing checks here for ten years he pays a ten percent fee for personal checks castaway or without an id any case at three percent you cast payroll checks

lipscomb cass is about two thousand dollars a month in personal checks so he pays two hundred dollars in fees is a washington mutual offering free checking accounts a block away so why does lipscomb go to the money market thank you and in this instance that i used to look at a walk and go care as much chicken well it's a three hundred ballots tickled maybe six on the ballot sick and they might take thirty hours on tuesday uses three different chuck cassis centers in san francisco much attention because of the time looking at but when it comes down to the end of the month a little thirty

dollars here in that twenty dollars bid to head up date sometime it was and i had just a day critics of the check cashing industry say those fees are unfair but acknowledged that the centers are easy to use and offer needed services mainly to low income customers well i think that really turn to financial institutions as do most of the things that the mission was alan fisher is executive director of the california reinvestment coalition a statewide organization of two hundred nonprofits working for equal access to financial institutions for low income people they do check cashing they do payday lending data wire transfers to back home countries and so they're there to do that quickly without a lot of fun you know comedy it used to have to put forward often they'll serve people who are not documented and send money back for them so it's a very profitable business it's a very quick business it's very easy to get in and out of her i think it just so totally different

california is home to over sixty four hundred check cashing and payday loan centers and estimated five point two million californians use them the gas tax at a price of two to ten percent according to the california reinvestment coalition the average customer spends five hundred dollars in fees every year check cashing centers most of those fees come from payday loans the process to get a loan is simple customers get an advance on their paycheck on the spot but at a high cost the charts for a one hundred dollar loan is seventeen sixty five that famously pay off within two weeks or will double and that can lead to a cycle of debt they are eighty dollars in interest and that will just roll for another fourteen days city in ohio is a payday loans for a mini mart in oakland's so at the end of forty eight you have to pay five hundred and he could keep this region saw a

lot of customers to be adding up to a lot of debt for a lot of the people one and a half million california households use a payday lender eleven times a year the hyatt says he often wrestled with her conscious about her job and i think she was charging he was recently i console myself well you know i'm getting paid to worry about anything you think one of the main in cash check i know i would never know what the situation never go to a check cashing place in yemen mohammad finally decided to quit in march after she got a call from a regular customer who couldn't pay off his loan because he was in the hospital so the only thing that i could do with cities and then it would bounce in his account and when he got up on the city it's probably when i hung up i just felt so bad idea that a pig is refinance them out and that's what i mean you know i care

mr hiatt now works at a community credit union west oakland where it is almost impossible to find a large bank the california reinvestment coalition dan fisher draws a comparison between the neighboring towns of west oakland and pete matt piedmont is half the size of west oakland piedmont's household income is a hundred thirty four thousand and the average west oakland is twenty seven thousand people has three bank branches know check cashers west oakland has no bank branches in three check cashers so i mean you really can see the disparity in these communities the banks may not have a physical presence in places like west oakland but they do invest they're the coalition study found that california's largest banks are financing check cashing and payday loan centers so bank of america union bank us bank west america bank wells fargo bank all of these financial institutions are lending millions of millions of dollars to the predators who have taken their place in the community and overcharged fisher says the lack of

competition from mainstream banks has allowed check cashing and payday loan centers to thrive the number of centers nationwide has grown from two thousand and nineteen ninety six to twenty two thousand in two thousand three i mean bank of america had said when it merged with fleet years old though that it wasn't doing any moral and a business with payday lenders and check cashers we find that they organized a three hundred million dollar arm loan facility for that commercial securities that it that america was one of the lenders so i mean it's just it's a very hypocritical and i think the level of a systematic nature of it was surprising to me it also is you know it's a crankshaft we requested interviews with all of the banks and check cashing center cited in the california reinvestment coalition freeport they either refused our requests are never returned our calls currently there are no laws restricting the check cashing and payday loan industry there are no caps on interest rates for example or limits on the number of times a service can be used consumer advocates are pressing for regulation

but a state study on the check cashing and payday loan industry is not due for another two years i've read that you are i'm kate mcintyre if you've been listening to kbr presents a production of kansas public radio at the university of kansas and we won't rest until the first official flight of the celebrity of next time i'm at our prisons congressman john lewis a civil rights leader and recipient of this year's goal leadership prize join us eight o'clock sunday night of kansas public radio as lewis looks back on his days of leading protests against segregation and talks about his twenty years in congress so this is you know the congressman

john lewis the recipient of this year's goal leadership either sunday night at eight o'clock on kansas public radio needs it i know if beak it's been it's b

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