Today, the Financial Crisis Inquiry Commission (FCIC) held a field hearing in Bakersfield, California entitled “The Impact of the Financial Crises—Greater Bakersfield.” Testifying before the FCIC were the following witnesses:

Session 1: Welcome

  • Congressman Kevin McCarthy, California’s 22nd District
  • Kern County Supervisor Ray Watson, District 4
  • Bakersfield City Councilwoman Irma Carson, Ward 1

Session 2: Local Banking

Session 3: Residential and Community Real Estate

Session 4: Local Housing Market

Session 5: Foreclosures and Loan Modifications

Session 6: Forum for Public Comment

FCIC Chairman FCIC Chairman Phil Angelides opened the hearing by explaining that the FCIC has been charged with determining how the U.S. financial system almost collapsed. In order to make this determination, the FCIC is conducting four hearings around the country to uncover local causes, of which this hearing is the first.

During Session One, Congressman McCarthy, Kern County Supervisor Ray Watson and Bakersfield City Councilwoman Irma Carson described the local economy in Kern County and Bakersfield. With an unemployment rate of approximately 15.9% and one of the largest foreclosure rates in the country, this community is arguably one of the communities in the U.S. hardest hit by the near collapse of the U.S. financial system.

Session 2 focused on how community banks in Bakersfield weathered the crisis and the effect the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act) will have on them. The witnesses attributed the especially negative impact of the financial crisis on Bakersfield to its inexpensive real estate prices (relative to the Bay area and Southern California) and easy access to loans prior to the crisis. Investors began buying real estate, driving up real estate prices and fueling a further buying frenzy, increasing employment in the construction and financial services industries. When borrowers started defaulting on their loans, the bubble burst. This led to rising unemployment and further loan defaults. However, the witnesses were unanimous in saying that their community banks all employed conservative banking practices prior to and during the crisis. They explained that they generally had not changed their underwriting processes as a result of the crisis because they already had strict standards. They also generally remarked that the rules to be promulgated under the Dodd Frank Act would be too onerous on community banks, emphasizing the unfairness of the imposition of such rules on them given that they were not the cause of the financial crisis.

Sessions 3 and 4 reiterated the circumstances leading up to the bursting of the real estate bubble in Bakersfield described by the witnesses in Session 2. In addition, during Session 4, Gary Crabtree discussed the role of appraisers in creating the housing bubble, noting that the licensure of appraisers was very poorly regulated and lenders developed a false sense of security regarding the authority of appraiser licensure. Similar to credit rating shopping, lenders would ask appraisers for a particular appraisal amount before the appraisal had even been conducted, all of which they said artificially inflated housing prices and then deflated them after the crash. The key to fixing this issue, according to Gary Crabtree, is better regulation of appraiser licensing.

Session 5 focused on foreclosures and loan modifications. The witnesses testified about the slowness of the loan modification and short sale processes. Brenda Amble recounted that in order to qualify for loan modification, borrowers must be delinquent on three payments, effectively ruining their credit. She lamented that the loan modification process really has just been a springboard for placing homeowners in foreclosure.

The hearing ended with remarks from the public.