[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                  PROGRESS IN ADMINISTRATIVE AND OTHER


                   EFFORTS TO COORDINATE AND ENHANCE


                    MORTGAGE FORECLOSURE PREVENTION

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 2, 2007

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-79





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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            RICHARD H. BAKER, Louisiana
CAROLYN B. MALONEY, New York         DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois          MICHAEL N. CASTLE, Delaware
NYDIA M. VELAZQUEZ, New York         PETER T. KING, New York
MELVIN L. WATT, North Carolina       EDWARD R. ROYCE, California
GARY L. ACKERMAN, New York           FRANK D. LUCAS, Oklahoma
JULIA CARSON, Indiana                RON PAUL, Texas
BRAD SHERMAN, California             STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York           DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas                 WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
RUBEN HINOJOSA, Texas                JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York           GARY G. MILLER, California
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
AL GREEN, Texas                      SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin,               JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee             STEVAN PEARCE, New Mexico
ALBIO SIRES, New Jersey              RANDY NEUGEBAUER, Texas
PAUL W. HODES, New Hampshire         TOM PRICE, Georgia
KEITH ELLISON, Minnesota             GEOFF DAVIS, Kentucky
RON KLEIN, Florida                   PATRICK T. McHENRY, North Carolina
TIM MAHONEY, Florida                 JOHN CAMPBELL, California
CHARLES WILSON, Ohio                 ADAM PUTNAM, Florida
ED PERLMUTTER, Colorado              MICHELE BACHMANN, Minnesota
CHRISTOPHER S. MURPHY, Connecticut   PETER J. ROSKAM, Illinois
JOE DONNELLY, Indiana                KENNY MARCHANT, Texas
ROBERT WEXLER, Florida               THADDEUS G. McCOTTER, Michigan
JIM MARSHALL, Georgia                KEVIN McCARTHY, California
DAN BOREN, Oklahoma

        Jeanne M. Roslanowick, Staff Director and Chief Counsel



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    November 2, 2007.............................................     1
Appendix:
    November 2, 2007.............................................    51

                               WITNESSES
                        Friday, November 2, 2007

Longbrake, Bill, Anthony T. Cluff Senior Policy Advisor, The 
  Financial Services Roundtable..................................    29
Marks, Bruce, Chief Executive Officer, Neighborhood Assistance 
  Corporation of America.........................................    27
Miller, Hon. Tom, Attorney General, State of Iowa................    22
Montgomery, Hon. Brian D., Assistant Secretary for Housing-
  Federal Housing Commissioner, U.S. Department of Housing and 
  Urban Development..............................................     8
Samuels, Sandor, Executive Managing Director, Countrywide 
  Financial Corporation..........................................    31
Steel, Hon. Robert K., Under Secretary for Domestic Finance, U.S. 
  Department of the Treasury.....................................     5
Wade, Kenneth D., Chief Executive Officer, NeighborWorks America.    24

                                APPENDIX

Prepared statements:
    Longbrake, Bill..............................................    52
    Marks, Bruce.................................................    62
    Miller, Hon. Tom.............................................    70
    Montgomery, Hon. Brian D.....................................    87
    Samuels, Sandor..............................................    91
    Steel, Hon. Robert K.........................................   111
    Wade, Kenneth D..............................................   116

              Additional Material Submitted for the Record

Hinojosa, Hon. Ruben:
    Statement of the National Association of Hispanic Real Estate 
      Professionals..............................................   127


                  PROGRESS IN ADMINISTRATIVE AND OTHER



                   EFFORTS TO COORDINATE AND ENHANCE



                    MORTGAGE FORECLOSURE PREVENTION

                              ----------                              


                        Friday, November 2, 2007

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:06 a.m., in 
room 2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Sherman, Hinojosa, 
Green, and Moore of Wisconsin.
    The Chairman. The hearing will come to order. Are two 
members a quorum for a hearing? I don't know. I will ask the 
Parliamentarian.
    Mr. Green. Is that a quorum or a quarrel?
    The Chairman. Two members constitute a sufficient quorum.
    This hearing is called as part of a cooperative effort 
between the Legislative and Executive Branches on dealing with 
the subprime crisis. As we have made clear, the subprime crisis 
has required us to take a two-fold approach. On Tuesday this 
committee will be marking up legislation that will, we hope, if 
enacted diminish the likelihood of a crisis such as this 
recurring. But we are constrained when we are dealing with 
existing mortgages and existing contracts from legislating in 
most cases. We don't want to advocate existing contracts by 
law. We are prepared to encourage negotiations. So it is a two-
track process.
    I would like to say that I very much appreciate the 
cooperation we have had from the Administration, particularly 
the bank regulators, but also Commissioner Montgomery going 
forward, because this committee has already responded in 
substantial part to the Administration's request in the FHA. So 
we have a collaborative effort going on, some differences, but 
essentially a collaborative effort on the FHA. And the bank 
collaborators, the FDIC, the OCC, the OTS, the Credit Union 
Administration, and the Fed have been cooperative in working 
with us and drafting legislation. Again, we won't have 100 
percent agreement, but we are within, I think, a generally 
agreed upon framework.
    So that is one part of it. The other part is the ongoing 
effort we have had to try to persuade people to do 
modifications of existing contracts, although there has also 
been some legislative cooperation. The President has supported, 
and the House has passed, legislation to make sure that there 
is no tax liability for mortgagors who are given some kind of 
flexibility.
    And one other one that I would mention that I think has 
been a very good example, and a necessary example of 
cooperation here, members of this committee wrote to the 
Securities and Exchange Commission earlier this year and asked 
them to intervene with the Financial Accounting Standards Board 
to encourage them to make it clear to the servicers that if the 
servicers of mortgages in the secondary market could 
demonstrate that it was in the interest of the holders of the 
paper to do a workout, namely, that it would be better for them 
from the economic standpoint not to foreclose but in fact to do 
some reworking so there would be a steady income stream, that 
they could do that. We got the permission of the Financial 
Accounting Standards Board, which was responsive.
    Now the reason I cite all these things is this: A lot of 
pieces have been put in place, and the bank regulators have 
also made it clear, to their credit, that forbearance will be 
allowed, that--we have done a great deal to encourage the 
holders of the mortgages to show flexibility. We have provided 
some tax help. We have a number of very useful organizations, 
neighborhood organizations, and citizens groups who are trying 
to work with the borrowers.
    What seemed to some of us a few weeks ago while the pieces 
were out there, they weren't meshing, that we had put a number 
of individual policies in place but we needed to overcome the 
inertia of everybody in their separate sphere. A lot of efforts 
like that have been going on. One was this HOPE NOW that the 
Administration has proposed, and we thought it would be very 
useful to get a report on that. We have two panels: First, some 
representatives of the Administration; and second, some 
neighborhood and citizens groups and also some of the 
businesses.
    One of the things we do want to make clear is that we are 
not talking about legislation that compels anybody to do 
anything. I also want to repeat this: We are not talking about 
any kind of bailout in the sense of public money. No public 
money is going to go either to mortgagors or mortgagees. No 
public money is going to go to pay off people in terms of the 
loan. Public money is useful for helping to make sure the 
advocates are available, that we can reach out.
    Secondly, I want to again deal with those who claim that 
there is a moral hazard involved here, namely, that we are 
going to be so effective in alleviating problems that a number 
of people will say, ``Boy, that was fun, let's do it again.'' 
As anybody involved in this knows, that is not remotely true. 
We are mitigating pain, we hope. We are diminishing terrible 
consequences. Nothing we are doing, if we are 100 percent 
successful, is going to make anybody on either side of this 
transaction, I believe, want to go through it again. We are 
talking about losses to the lenders that they deserve to have 
because they made, in some cases, bad decisions. We are talking 
about pain on the borrowers that we cannot avoid, but we can 
diminish.
    There is one last point that I would make, and that is the 
justification for all this energy on the part of high officials 
of this Administration from HUD and Treasury, and from Members 
of Congress. One of the arguments is, well, why should we help 
these people make bad decisions? Leave aside compassion, and 
the fact that some people were misled. Leave aside all of those 
reasons. There is a very good reason, I think, in economic 
terms; the externalities of this crisis are severe. That is, 
the negative economic effects on people who by nobody's 
definition did anything remotely unwise or incorrect are 
severe.
    In particular, we have a large number of people in this 
country who are making what, $30,000 to $50,000 or $60,000 a 
year. They took out mortgages. They are working hard to pay 
their mortgages. And they are among the victims of a widespread 
foreclosure pattern. Because if you own a home, and you are 
paying your mortgage, but the house across the street is 
foreclosed upon, and other houses in the neighborhood are 
foreclosed upon, then you get a deterioration of the 
neighborhood. You get vacant housing, which becomes a source of 
difficulty, and you get a deterioration of property values. So 
there is an excellent public policy reason for us trying both 
to alleviate this crisis now and make it less likely in the 
future.
    Are there any further opening statements from my 
colleagues? The gentleman from Texas.
    Mr. Green. Thank you, Mr. Chairman. And I sincerely thank 
you for holding this hearing today. I am also appreciative that 
we have such outstanding witnesses here today--Mr. Steel and 
Mr. Montgomery. I am very grateful that you are here.
    I would like to also, if I may, simply thank the staff 
because the briefing material on this has been absolutely 
excellent. I really look forward to hearing the testimony, but 
I can tell you that what I have read so far has been very 
impressive, and it is going to, I trust, allay a lot of 
concerns.
    We need not go into the statistical information about the 
impact of the subprime concerns on the broader market. But I do 
want to let folks know that we know that there is a lot of 
consternation and a lot of people are very concerned about what 
is going to happen to them. I think that a project or a program 
like the HOPE NOW program is going to give people just that, 
hopefully.
    Hope: It will cause people to understand that the 
government does care, and that it does want to be involved in a 
way that is permissible and acceptable so as to help people to 
extricate themselves from a most difficult circumstance that 
many people find themselves in. And for those who are of the 
opinion that this does not impact them, I think that what the 
Chair said bears reiterating. There are a lot of prime 
communities with subprime home loans within them. And because 
we have this circumstance, every neighborhood ought to be 
concerned, every school district ought to be concerned. The 
counties ought to be concerned because they collect taxes and 
all of this can have an impact. But I think that we are making 
the right move to give the public some assurance that the 
government does want to be involved in the solution. We want to 
help people to come to a solution.
    And finally I would say this, as we move toward finding a 
solution, I think that we do want to make it very clear to 
people that we are not interested in changing the dynamics of 
the marketplace in some sort of irreparable way. We understand 
that there are dynamics in the market, and we want to let the 
market do what the market does. But by the same token, we want 
to try to save as many people who are in foreclosure as we can 
because some of the circumstances were created in an adverse 
way that were not--they didn't have all of the information and 
intelligence such that they would have made different 
decisions. There was a market that was booming. Everybody 
thought that housing prices were going to go up forever, I 
suppose. And when that turned around, it caught a lot of people 
without the ability to extricate themselves.
    So I am honored that this hearing is taking place, and I do 
look forward to hearing from the witnesses. I thank you again, 
Mr. Chairman, and I yield back the balance of my time.
    The Chairman. Are there any further opening statements? The 
gentleman from Texas.
    Mr. Hinojosa. Chairman Frank, I want to thank you for 
holding a hearing on such an important topic. Hopefully this 
and subsequent hearings will shed light on what needs to be 
done to help curb what is predicted to be a tidal wave of 
foreclosures. The drop in the Dow has put the fear into 
investors throughout the country. I received some information 
from an association that I want to discuss with you. The 
National Association of Hispanic Real Estate Professionals 
predicted that foreclosures in the Hispanic community alone are 
expected to reach nearly $25 billion in 2007, and almost twice 
that--$52 billion--in 2008.
    I ask unanimous consent, Mr. Chairman, to insert into 
today's record a letter from the National Association--
    The Chairman. Without objection, it is so ordered.
    Mr. Hinojosa. Minority homeowners, particularly Hispanics, 
receive a disproportionate number of unscrupulous loans, and in 
the past have been preyed upon by several entities that I won't 
mention here today. Those companies paid hefty fines as a 
result of their misdeeds. I believe that those entities have 
paid their dues. I imagine the regulators will impose similar 
fines once they determine the entities that have once again 
preyed most upon the Hispanic community and other minorities.
    At this point in time, I believe that it is crucial that we 
set aside our differences and focus on the task at hand. As 
Chairman Frank and others have noted, it is time to examine the 
recent progress by the Administration and others in 
coordinating the lenders, mortgage servicers, nonprofit 
organizations, community-based organizations, and others to 
assist at-risk homeowners; encourage modifications of troubled 
loans; and prevent as many mortgage foreclosures as possible. 
Working together, I believe that we can accomplish these goals.
    Having said that, Mr. Chairman, I yield back the remainder 
of my time.
    The Chairman. The gentlewoman from Wisconsin is now 
recognized for an opening statement.
    Ms. Moore of Wisconsin. Thank you, Mr. Chairman. I can tell 
you that before coming to Congress, before being an elected 
official at all, I worked for the Wisconsin Housing and 
Economic Development Authority back in the 1980's, and one of 
the first things that I looked at was securitization of loans, 
really wanting decent people who are not necessarily ``A'' 
borrowers to have an opportunity to move into their homes. And 
for sure, some of this has occurred because borrowers were not 
impeccable. But clearly many of the problems are not just based 
on life's circumstances or life's changes--deaths, divorces, a 
loss of income--but some of them have been because of some of 
the products that we all have created.
    I hope that today is more than just a love fest of our 
talking about our HOPE NOW project and really trying to create 
an environment where lenders will, in fact, redo these 
mortgages, will in fact come to the table and realize that it 
is more cost effective, in many instances more than they have 
stepped up to this point, to work with consumers to try to keep 
them in their homes because it is not just that borrower who is 
losing their home. It has a rippling effect on tax revenues for 
our cities, for declining property values for other residents 
who live in the community, and just really open season for 
criminals who see a checkerboard of foreclosures and boarded-up 
homes.
    So I thank you for coming, and Mr. Chairman, I yield back.
    The Chairman. I just unplugged the microphone with my foot, 
so I will disappear for a minute to plug it back in. But we 
will begin. Let me express my appreciation to our two 
Administration officials, and we will begin with Mr. Steel.

STATEMENT OF THE HONORABLE ROBERT K. STEEL, UNDER SECRETARY FOR 
       DOMESTIC FINANCE, U.S. DEPARTMENT OF THE TREASURY

    Mr. Steel. Chairman Frank, members of the committee, good 
morning. I very much appreciate the opportunity to appear 
before you today to present the Treasury Department's 
perspective on efforts to coordinate and enhance foreclosure 
prevention. As you know, we are experiencing a period of 
adjustment in the credit and mortgage markets. Fortunately, 
this market stress is occurring against a backdrop of healthy 
U.S. fundamentals and a strong global economy. Yet as Secretary 
Paulson has said, the housing decline is the most significant 
current risk to our economy. And additionally, as others have 
said, a significant number of homeowners will experience strain 
and could face foreclosure.
    The issues of foreclosure are complex and nuanced. In 
truth, thousands of homes end up in foreclosure every year, 
even when housing markets are strong. Between 2001 and 2005, 
more than 650,000 homeowners began the foreclosure process 
every year. This baseline foreclosure rate can result from 
events such as job loss, credit problems, or changes in family 
circumstances. These foreclosures, although unfortunate, are 
largely unavoidable.
    Over the course of the next 18 months, we expect the 
foreclosure rate to remain elevated and above its historic 
level. A rising foreclosure rate during a housing downturn is 
not surprising but largely because of lax underwriting in 
recent years, especially in the subprime market, a higher 
number of homeowners will face delinquency during the next 
year-and-a-half. In total, over 2 million subprime mortgages 
are expected to reset in the next 18 months, but not all will 
end up in foreclosure.
    Some homeowners will be able to afford their new payments 
without trouble and many others will qualify for a refinanced 
fixed-rate mortgage on their own. Others, however, have been 
stretched too far beyond their means and unfortunately 
foreclosure is inevitable. Our challenge is to identify the 
group of homeowners who, with a bit of assistance, can stay in 
their homes.
    On August 31st, President Bush announced an aggressive 
comprehensive plan to help as many homeowners as possible stay 
in their primary residences. The Department of Housing and 
Urban Development and the Treasury Department have been working 
closely with leading servicers, mortgage counselors, lenders, 
and investors to understand the causes of foreclosures and the 
very best ways to help people keep their homes. We are 
continuing to learn, but have reached two early conclusions.
    First, it is clear to all that the earlier we identify 
struggling borrowers, the more likely it is that servicers and 
lenders will be able to refinance or modify their mortgages 
into something more sustainable for the long term. If we wait 
until borrowers miss several payments, their credit profiles 
will be tarnished, and they will have far fewer refinancing 
options.
    Second, once identified, the method and technique of 
contacting borrowers is quite important. When contacted by 
lenders, many borrowers mistakenly believe that the lender's 
goal is to repossess their homes in foreclosure. In almost all 
cases, lenders would rather find a way to help homeowners stay 
in their homes than foreclose. Yet we understand that up to 50 
percent of those who lose their homes to foreclosure never 
contacted their mortgage servicer or mortgage counselors for 
help.
    From our review, it became clear that while many product 
market participants are working hard on their own trying to 
help homeowners, they are not having as much success as they or 
we would like. In addition, mortgage securitization has brought 
many benefits but has also led to complexity in finding 
solutions. Treasury and HUD encourage servicers, lenders, 
investors, and counselors to work together.
    On October 10th, they announced the formation of an 
alliance called HOPE NOW. To date, the HOPE NOW Alliance 
consists of: 4 counseling organizations; 17 mortgage servicers 
and lenders, comprising almost 60 percent of the U.S. market 
for mortgage servicing; 3 investor groups, including the 
American Securitization Forum, which represents 370 members; 
and 10 trade associations. Since their launch, they have been 
developing and implementing an aggressive plan. Earlier this 
week, the Alliance announced a national direct mail campaign to 
contact at-risk borrowers. Servicers have been mailing letters 
to their at-risk customers, but have had limited success 
because borrowers in trouble do not want to hear from their 
lenders.
    In contrast, independent counselors have reported a 
significantly higher success rate. This new letter campaign, 
which will come from the HOPE NOW Alliance rather than from the 
servicers, is expected to increase their effectiveness at 
reaching at-risk borrowers. The Alliance will send over 200,000 
letters by the end of this month alone.
    Let me take a moment to emphasize the importance of these 
letters and ask for your help. When you are at home in your 
districts over the weekend or for the holidays, please tell 
your constituents about this mail campaign. Tell them it is 
okay to contact HOPE NOW for assistance. The organization is 
ready to lend a hand, but we need your help in making their 
message known.
    The Alliance is also working hard to develop strong working 
relationships between servicers and counselors. Some servicers 
already have dedicated teams and contacts for counselors to 
call. Others don't. And as a result, counselors can spend hours 
trying to find the right person to contact. Servicers and 
counselors who joined the Alliance have agreed to adopt a 
standard process model that will strengthen and speed work 
flow, productivity, and communication between them.
    The Alliance is working to expand the capacity of an 
existing national counseling network to reach borrowers. Most 
borrowers feel more comfortable speaking with independent, not-
for-profit counselors than with their lenders. While there are 
already many conscientious HUD-certified mortgage counselors, 
their efforts could be enhanced through a uniform message and 
adopted best practices.
    The servicers have also agreed to work toward cross-
industry technology solutions to better serve homeowners. Some 
major servicers use sophisticated software to analyze borrower 
situations and determine if workouts or modifications are 
appropriate. The Alliance is taking this software and making it 
Web-enabled so that other servicers and counselors can access 
it. This will speed the loan modification process where 
appropriate.
    Today the industry does not have a thorough, standardized 
set of metrics to evaluate servicers' loss mitigation 
performance or evaluate counselors' effectiveness. The Alliance 
is developing standard performance measures to identify 
categories of borrowers who can be helped, determine successful 
treatments and measure the rate of successful outcomes.
    The efforts of this private sector alliance alone will not 
prevent all foreclosures but is a critical first step. By 
better identifying those borrowers in need, we hope to see more 
loan modifications and refinancing.
    Just as lenders, servicers, and counselors have come to 
develop metrics and standards that will measure the most 
effective way to make counseling accessible to troubled 
borrowers, we have also encouraged them to come together in a 
similar way to develop an efficient methodology for offering 
suitable mortgage solutions, such as loan modifications, where 
appropriate.
    We are optimistic about the effectiveness of our current 
initiatives. Yet given the size, nature, and implications of 
these current challenges for homeowners, we need to continue to 
work to find additional solutions without compromising our 
shared ambitions to not bail out lenders, speculators or those 
who have committed fraud. Mortgage providers must offer clear, 
transparent, and understandable information on the mortgage 
products they sell, and the homebuyers have a responsibility to 
use that information and understand their mortgages. Buying a 
home today is a complex process but that in no way excuses 
homeowners from their obligation for due diligence.
    Finally, the Administration has requested that Congress do 
their part by focusing on three initiatives: First, Congress 
should pass Federal Housing Administration modernization to 
make affordable FHA loans more widely available; second, the 
President has asked Congress to temporarily eliminate taxes on 
mortgage debt forgiven on a primary residence; and third, the 
Congress should enact comprehensive government-sponsored 
enterprise reform, or the GSEs.
    The tax relief proposal has cleared the House of 
Representatives and awaits action in the Senate. In large part 
due to this committee's hard work, FHA and GSE reforms have 
passed the House of Representatives and await action. Congress 
should enact these bills as quickly as possible.
    Mr. Chairman, in conclusion, let me thank you for holding 
this hearing. Under the President's leadership, the 
Administration is working diligently to help mitigate the 
impact of rising foreclosures on homeowners and the economy. We 
pledge to keep you apprised of our efforts. Thank you, and I 
look forward to your questions.
    [The prepared statement of Under Secretary Steel can be 
found on page 111 of the appendix.]
    The Chairman. Commissioner Montgomery.

   STATEMENT OF THE HONORABLE BRIAN D. MONTGOMERY, ASSISTANT 
   SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER, U.S. 
          DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Mr. Montgomery. I want to thank you, Chairman Frank, and 
distinguished members of the committee, for the opportunity to 
talk about the HOPE NOW Alliance.
    Homeownership, and more importantly homeownership 
retention, have long been a priority for the Federal Housing 
Administration. We believe borrowers with FHA-insured mortgages 
have unparalleled access to loss mitigation alternatives to 
help them weather personal financial crises. In fact, in Fiscal 
Year 2007, we provided this support to 91,000 borrowers; 86,500 
of them cured their defaults and stayed in their homes. While 
not every one of these borrowers will be successful in the long 
term, historically 89 percent of all borrowers who benefit from 
our loss mitigation program still have active loans 2 years 
after the assistance.
    This success is responsible in part for a reduction in both 
the number and percentage of FHA foreclosures, with the 
foreclosure rate dropping from a high of 1.74 percent of 
insured loans in Fiscal Year 2004, to 1.45 percent in Fiscal 
Year 2007.
    Throughout this year, HUD staff and senior officials 
nationwide have sponsored and participated in more than 125 
separate homeownership retention events, including town hall 
meetings, fairs, and joint task forces. They have reached the 
combined actual audience of more than 25,000 people. While 
these events allow us to reach borrowers in critical need of 
supportive services, the number of homeowners being affected by 
current housing trends continues to rise.
    As we know, it has been reported that more than 2 million 
subprime ARMs are expected to reset to higher interest rates by 
the end of 2008. And many of those borrowers unable to afford 
the higher payments will be forced into foreclosure unless the 
industry takes immediate and aggressive action to provide 
alternatives.
    In September, FHA announced one such alternative. FHASecure 
is one of our refinance options designed specifically for 
conventional and subprime borrowers who default on their 
mortgages solely because they can no longer afford the payments 
on their ARM loan after the interest rate resets to a higher 
rate. Though still a very new program, 575 FHA-approved lenders 
are already using FHASecure to rescue borrowers from the 
potential loss of their homes. And since early September, more 
than 70,000 conventional borrowers have applied for FHASecure 
refinance loans.
    Additionally, we are proactively reaching out to 
approximately 1.2 million at-risk homebuyers whose subprime 
loans are scheduled to reset between now and this time next 
year, and by the way, whom we can reach under our current loan 
limits. Through a comprehensive direct mail database, we are 
able to contact these borrowers, the majority of whom are 3/27 
or 2/28 ARMs, and provide them alternatives to their current 
loans.
    Current trends suggest that there may be over 1 million 
foreclosure starts this year alone. If the industry works 
together, it is possible to reinstate or refinance many of 
these loans, but only if borrowers respond to offers of 
assistance.
    Industry sources reported that more than 40 percent of 
delinquent borrowers fail to respond to any contact from their 
lender until it is too late, and that is why Treasury and HUD, 
at the direction of the White House, have encouraged companies 
and organizations that historically do not share this 
information, business practices, or resources to join in 
together to create a unified, coordinated plan to reach and 
support these borrowers.
    All of the Alliance partners are contributing staff 
resources and millions of dollars towards a number of specific 
goals, including outreach, staffing, and funding. And as Under 
Secretary Steel just mentioned, the most critical of these 
goals are communication and access.
    Adopting a standardized service or counselor communication 
model to ensure that borrowers who contact the network get 
consistent, accurate, and timely access to workout strategies 
will be extremely important. And there will be equal stress 
placed on the industry's adoption of systematic protocols for 
identifying sustainable mortgage products for eligible 
borrowers.
    All of these actions are under way; some can be implemented 
quickly while others will take longer. The toll free line is up 
and operating with 122 experienced counselors nationwide; 
another 50 are currently being trained; and more are being 
recruited. And just this week, Secretaries Jackson and Paulson 
endorsed the first major deliverable of HOPE NOW, a nationwide 
mailing of HOPE NOW letters to at-risk borrowers.
    The Alliance's technology group is completing development 
of a Web-based loan workout tool that will provide a common 
decision platform for both servicers and counselors that will 
significantly streamline default resolution. We have been told 
this tool should be available for general use in early 2008.
    Senior staff from both Treasury and HUD are participating 
on Alliance working groups and working behind the scenes to 
broaden participation to include all major lenders and a 
greater number of qualified housing counseling organizations.
    This is a multi-year project and we remain committed to 
ensuring that the HOPE NOW Alliance lives up to the promise of 
delivering significant and measurable results for families 
struggling to hold on to their piece of the American dream.
    Thank you for your time this morning. I look forward to 
answering your questions.
    [The prepared statement of Commissioner Montgomery can be 
found on page 87 of the appendix.]
    The Chairman. Thank you, Commissioner. And we do want to be 
very cooperative on all this. Let me ask, are the pieces 
getting put in place? Where are we in terms of actual 
restructuring? What is the timetable? Has that begun to happen? 
Mr. Steel, when does the actual--because we are told the resets 
are happening and they are coming soon. Do we have any kind of 
results yet? Or when can we expect some?
    Mr. Steel. Well, I think, sir, that the original results 
are to make contact, and that is happening right now. We are 
also having individual meetings with large lenders and 
servicers; we have had two in the last 2 weeks. They are 
describing to us their increased efforts for modification and 
for refinancing, so it is happening in the field, and we are 
providing encouragement to that.
    I think that what we want to do, though, is to develop 
metrics so that we can really report back and understand. And 
we are not there yet on that ability to provide specific 
feedback, but we are pursuing that, and in the interim we are 
just doing our best to--
    The Chairman. As you develop the metrics, I hope someone is 
asking for raw data to come in so that when we get the metrics, 
you won't have lost that.
    Mr. Steel. Absolutely.
    The Chairman. Let me ask one question. FDIC Chair Sheila 
Bair has proposed a more general approach. There has been some 
question about whether doing it case-by-case is enough. Where 
are we on that, in your judgment, now? What do you think of 
what Chairman Bair has said?
    Mr. Steel. Well, I think that Chairman Bair has provided a 
very good perspective on this issue, and we have met with her 
several times to understand the way in which she is thinking 
about it. I believe that she is exactly right, that this model 
is by nature distributed with lots of different players. And 
given the size and the scale of the challenges that we are 
facing, a more systematic and standardized approach is needed. 
We have brought that same systematic and standardized approach 
to the idea of contacting borrowers, and the Secretary has 
indicated just this week in his public comments that we need to 
have a more systematic and standardized approach to the idea of 
modifications and refinancings. Now the exact formula for that 
we are still working on, but the idea of a more systematic and 
standardized--
    The Chairman. Obviously speed is important, too. And I do 
think it should be noted that when the Chair of the FDIC says 
that, it is coming not from an advocate for neighborhoods but 
from a regulator; indeed not just a regulator, you, but the 
woman in charge of protecting the integrity of the Deposit 
Insurance Fund. So I would think if she takes that position, 
nobody ought to say this is in any way jeopardizing safety, 
soundness, etc. This is very impressive coming from the chief 
protector of the Deposit Insurance Fund. So we will be 
encouraging people to in fact rather than go one at a time to 
do some across-the-board kinds of approaches.
    Mr. Steel. Well, I think the idea of systematic and 
standardized are the words we are using to tell people that 
while decisions are made in essence in some ways on a case-by-
case basis that having broad guidelines--
    The Chairman. Within the framework. Yes. It really--time is 
obviously an issue.
    Mr. Montgomery, one other thing, I was pleased and 
gratified that the Under Secretary mentioned that in two of the 
three areas the committee has worked--FDIC and FHA--and we 
collaborated with our friends at Ways and Means, in fact all 
three of those pieces of legislation that you have talked about 
have passed the House. The FHA one is well along, but that is 
my question, Commissioner Montgomery. I am disturbed by one 
thing. You asked for some FHA legislation. We responded. We 
responded in this committee last year. Under Republican 
leadership, it was blocked in the Senate. We are doing it 
again. I understand there are some policy differences, but it 
is again within the framework of agreement. It has passed the 
House, it is passed the committee in the Senate. Given that I 
was disappointed to read that the FHA is now in effect acting 
in that area, not waiting for the legislation, and there are 
some areas where there is difference, that is not helpful in my 
judgment in our working together. You know if there was nothing 
going on, I would understand your needing to move. But the 
raising of fees and raising them in ways that differ in some 
ways certainly from the bill that the House passed, is it not 
possible for the FHA to hold off on that until next year when 
we hope the Senate may do something when the bill is out of 
committee? Particularly since the bill may very well differ in 
some respects from what you are doing. You would then be 
required, I would assume, in compliance with the law, absent a 
signing statement, to comply with that.
    So why--having asked us for legislation, and having us well 
along in the legislative process, pass the House, pass one 
committee--pass the committee in the Senate, why are you acting 
without waiting?
    Mr. Montgomery. I would assume you are referring to the MIP 
increase on the multifamily.
    The Chairman. Yes. Was it multifamily? I thought it was--
    Mr. Montgomery. If it is the MIP increase--
    The Chairman. No. I am talking about the most recent 
proposal we saw for an increase with regard to people with 
weaker credit.
    Mr. Montgomery. There is a risk-based pricing proposal.
    The Chairman. Yes. Yes. That is the one I am talking about. 
Because risk-based pricing is what is in our bill. It is the 
risk-based pricing proposal.
    Mr. Montgomery. Ours is only within current statutory 
limits.
    The Chairman. I understand, but they differ some with 
what--
    Mr. Montgomery. There is not a lot of difference. But as 
you know, sir, yours actually goes to 3 percent. Ours can only 
go to 2.25 percent on the up-front premium. And as you are 
aware, since we are an insurance company, because of a certain 
type of gift downpayment assistance we have been using for many 
years, we have been moving closer toward a positive credit 
subsidy, in fact, perilously close to a positive credit 
subsidy. Risk-based pricing helps answer that question.
    The Chairman. I understand that. We are passing legislation 
dealing with risk-based pricing at your request, and you are 
now moving without us. There is one fundamental difference--and 
I want to stress this again--it really troubles me that we 
continue to have it. Our notion of risk-based pricing says that 
if you are someone who is high risk and weaker credit, but you 
work hard and make your payments, you should not be the one to 
bear the brunt of people like you who could make payments. And 
your proposal says no, we are going to treat all those people 
in that category the same, and the people in the lower income--
because that is by and large where the weaker credit is--that 
they are going to have to make higher payments for the 
insurance than I would, even if they make their payments.
    And I understand why a private insurance company might have 
to do that. I do not understand why the Federal Government does 
that. I do not understand why we say to some hard-working woman 
who has made every payment she was supposed to make, you know 
what, there are other people who didn't make their payments, so 
you have to make up for that and I don't. So why do we not say, 
as we have said in the bill, if you make your payments, we will 
not charge you more?
    Mr. Montgomery. So then the alternative to that is that we 
raise premiums on everybody.
    The Chairman. No. Yes. A little bit. Commissioner, 
absolutely right. So here is the choice. We raise them higher 
on a relatively small number of lower income people, but we 
raise them more on everybody, so you and I share in that as 
opposed to putting it on the woman making $45,000. Isn't that 
an easy question for us to answer by any model standpoint?
    Mr. Montgomery. Sir, I will say there is this much 
difference between them. Currently we cannot help the higher 
risk, lower income borrower under our current pricing 
structure. By doing the risk-based structure and moving from 
1.5 percent to 2.25 percent, which on our average mortgage of 
$130,000 a year, sir, is less than the cost of a Domino's pizza 
every month, then higher risk, lower income borrowers--
    The Chairman. Okay. As you know we are not talking about 
whether or not--that is not a fair answer. Because we are not 
talking about whether or not you should reach those people, but 
who should bear the cost.
    Mr. Montgomery. We can't reach them today, sir, is my 
point. Subprime loan.
    The Chairman. Yes. But we are very close to passing the 
bill. Then let me ask you, you are doing it now. What do you 
think we should do in the bill in this regard? And let me say, 
by the way, when you are talking about a low-income family, 
please don't scoff at the cost of a Domino's pizza a month. It 
may not be a big deal to me and you.
    Mr. Montgomery. That is all we help are lower-income 
families, sir. We want to help higher risk, lower income 
families.
    The Chairman. Mr. Montgomery, why would you say that? You 
know I agree with that. The question is not--I guess there is a 
fundamental philosophical divide between us that troubles me.
    Mr. Montgomery. I don't think there is.
    The Chairman. We agree that we should help people with 
weaker credit. The question is, should the people with weaker 
credit have to subsidize each other? Or should all of us 
subsidize the people with weaker credit?
    Mr. Montgomery. Right now the only choice is subprime--
    The Chairman. What about in the bill? Mr. Montgomery, you 
are not answering the question. Don't pull this again. You do 
this, and it troubles me. I am asking you a question. I 
understand the current law.
    What do you think about passing a bill which says that to 
the extent that there has to be some bearing of a higher risk 
for people with weaker credit that we share it for all of us 
who might get FHA rather than making only the people with 
weaker credit subsidize each other? What is your position on 
that?
    Mr. Montgomery. Absolutely, sir. As we have done all along 
through this process, we have been very deliberative--
    The Chairman. What is your answer to the question?
    Mr. Montgomery. Sir, I think we are doing that today. If I 
am a low-income, high-risk family who cannot use FHA today, if 
someone says by paying $8 or $9 more a month, I would say, 
where do I sign up?
    The Chairman. Mr. Montgomery, please answer my question.
    Mr. Montgomery. That is all I am trying to do, sir.
    The Chairman. No, no, no. You know better. Here is the 
question: Assuming we are going to help people who are of 
weaker credit and assuming that means that somebody has to pay 
for a higher default rate, should that cost be borne only by 
all the people in that subcategory of weaker credit? Or should 
that cost be borne by all of those getting--
    Mr. Montgomery. It is borne by everyone, sir.
    The Chairman. No, Mr. Montgomery. Please answer the 
question.
    Mr. Montgomery. Everybody pays premiums, sir. That is the 
beauty of this program. It is not a handout. Everybody pays 
premiums.
    The Chairman. Yes. And Mr. Montgomery--
    Mr. Montgomery. It will attract some lower risk borrowers. 
And all of these people are low income, sir. The average income 
of our borrower is $55,000 a year.
    The Chairman. Mr. Montgomery, you know I know that. You 
will stop filibustering. This is appalling. We agreed on all of 
that. We agreed that we are going to reach people. We are going 
to stay here until you answer the question ``yes'' or ``no.'' 
This is appalling to me that you would try to evade the 
question. We agree to all of that. We agree there has to be 
somebody bearing the cost because more people will default when 
you get lower down the credit thing. You say, let those people 
with weak credit subsidize each other because it is only a 
Domino's pizza a month to them. I say, no, let's not even do 
that. Let's share that subsidy among everybody. Which do you 
prefer?
    Mr. Montgomery. Well, as current practice--
    The Chairman. I am not asking you current practice. Which 
do you prefer?
    Mr. Montgomery. Since I run an insurance company, sir, I 
have to be mindful of not coming to Congress and asking for 
money, which as you know we get--
    The Chairman. Mr. Montgomery--
    Mr. Montgomery. I also want to help higher risk lower 
income families.
    The Chairman. You know you are not answering the question. 
I agree that you need more money from the premiums. You accept 
that, right? We are talking about, how do we allocate the 
higher premiums? Do we allocate it only to the people in the 
weaker credit? Or do we allocate it to all people who pay the 
premiums? So please don't filibuster with extra money from the 
Congress. That is not an issue.
    Given that we have to pay for this with higher premiums, 
should they come entirely from the people in that same category 
of weaker credit or should they be spread throughout the 
universe of people getting insurance?
    Mr. Montgomery. Sir, I would say the flip side of that is 
some of the lower income--
    The Chairman. Are you answering the question?
    Mr. Montgomery. --borrowers will pay lower.
    The Chairman. Will you answer the question?
    Mr. Montgomery. Some of your constituents will pay lower 
under this. And I think that is a good thing.
    The Chairman. Mr. Montgomery, would you answer the 
question?
    Mr. Montgomery. Some people--
    The Chairman. Mr. Montgomery, will you answer the question? 
The question is, given that we have to have some increase in 
premium income to accommodate the fact that we will have a high 
or low loss rate for people with lower credit, should that be 
applied only to the people in that same category, which would 
be a lower income category, or should it go through all the 
borrowers?
    Mr. Montgomery. It should be spread out among all 
borrowers.
    The Chairman. And that is what is in our bill. Fine. So you 
are not opposing that provision in the bill?
    Mr. Montgomery. Sir, that risk is spread out today.
    The Chairman. No. But it is not spread out. No. You know 
that there is a difference.
    Mr. Montgomery. Sir, your premium goes to 3 percent. Ours 
only goes to 2.25 percent.
    The Chairman. Oh, I am sorry--wait a minute. Excuse me.
    Mr. Montgomery. Under your bill 3 percent--
    The Chairman. Do you want us to change that to go back to 
2.25?
    Mr. Montgomery. No, sir.
    The Chairman. Excuse me, Mr. Montgomery.
    Mr. Montgomery. You can help our borrowers. We do support--
    The Chairman. You are changing the subject again on this 
issue.
    Mr. Montgomery. No, sir. I am supporting that part of your 
bill.
    The Chairman. Oh, you are? That is the first time.
    Mr. Montgomery. That is what we had in the bill last year. 
You know I support this legislation. There is a little 
difference.
    The Chairman. No, but you differed to that particular 
provision. So I accept your support of it now. But let me ask 
you--
    Mr. Montgomery. The different approach is to helping the 
higher risk borrowers.
    The Chairman. Mr. Montgomery, I want to follow up on this. 
You said you are only at 2.25 percent, was it?
    Mr. Montgomery. 2.25 percent.
    The Chairman. And we are going as high as 3 percent.
    Mr. Montgomery. That is correct.
    The Chairman. It sounds like you think we are going too 
high. Do you want us to go back to 2.25 percent?
    Mr. Montgomery. No, sir. I think that 3 percent goes to 
help higher risk lower income borrowers. It is more than I can 
do currently--
    The Chairman. When you say we are going to 3, we are doing 
that at your request. It did sound like you were contrasting us 
at 3 percent.
    Mr. Montgomery. No, sir. I wish that we could go to 3 
percent.
    The Chairman. You do want us to?
    Mr. Montgomery. Yes, sir. Absolutely.
    The Chairman. Well, when you said that we were 3 and you 
were 2.25, it sounded like you were kind of putting that 
responsibility on us.
    Mr. Montgomery. No, sir. I can't go to 3 percent today.
    The Chairman. I know you can't. Mr. Montgomery, please 
refrain from telling me today is Friday every third sentence 
because you don't want to answer another question. I know it is 
Friday. I know you can't go to 3 percent. It did sound to me 
like you were suggesting that we wanted to go higher than you 
wanted. So the 3 percent is at your request?
    Mr. Montgomery. Yes, sir. We worked together on this bill 
for--
    The Chairman. Well, sometimes yes and sometimes no. But let 
me just--again, you do agree with the provision in the bill 
that says the higher subsidy for the weaker credit people 
should be shared throughout the universe rather than limiting 
it only to the other people with weaker credit?
    Mr. Montgomery. So it is spread among all borrowers, 
correct.
    The Chairman. Thank you.
    Mr. Hinojosa.
    Mr. Hinojosa. Thank you, Mr. Chairman. In listening to the 
first presenter, Mr. Steel, you spoke about some solutions in 
your prepared statement: the first, second, and third parts 
that are recommended by your organization. But you also said 
that your attempt to reach out to the borrowers through the 
letter or mail campaign that you put out was not successful, 
and, in fact, it was probably the independent counselors who 
had experienced better success and the loan servicers.
    What is the difference between the message that the 
independent counselors and the loan servicers are communicating 
to the borrower?
    Mr. Steel. Thank you, sir. I think that the key issue is 
that when homeowners are challenged, that there is a 
trepidation on a contact from the actual lender servicer, and 
whether they are uncomfortable, that it is a foreign feeling 
relationship, whereas having community-based organizations and 
professional counselors reach out, that it is a more friendly 
face. And the message might actually be the same, but the 
person who is delivering it is really the success.
    And we see that the success rates jump significantly. When 
that message of wanting to contact and begin a discussion comes 
from the counselor, then you get a much higher response rate 
than if it comes from a servicer or lender. And so I think it 
is the idea of someone who is the agent who is not part of the 
servicer per se, but instead is an independent agent and often 
part of community-based organizations.
    Mr. Hinojosa. Okay. Well, let's take that--and I accept 
that it would be friendlier and certainly better received.
    But if I were a borrower, and I was making $500 a month 
payments under the ARM's rate, and then it suddenly jumped up 
to twice that, $1,000, I don't know that just reaching me and 
having this communication is going to be able to allow me to 
keep my home because I have a salary, my wife has a salary, and 
together we have to come up with the $1,000, and that is not 
possible. What other solutions are there?
    Mr. Steel. Well, I think that we have to look at this 
contact as the first step and then, when appropriate, begin 
discussions often with a counselor helping the homeowner 
contact and discuss these options with the servicer and to see, 
where appropriate, whether refinancing or the modification are 
tools and whether new products can be organized. But I think 
having the counselor in the middle to represent and to be the 
agent of the borrower is a crucial part of it.
    And so that is really a first step, to begin the 
engagement. When a homeowner goes into foreclosure with never 
contacting the lender or the servicer, there is just no chance 
of success. So this is the first step to begin the discussion 
and understand the actual situation.
    Mr. Hinojosa. I agree. But there has to be some solution 
for the borrower, and I am using myself as the example. Have 
you all discussed the possibility that a second family share 
the home and share the payment? I have seen that in many 
minority families where they buy a home, which is a little bit 
more expensive than one family can buy, and two families then 
wind up sharing that home, even though they are crowded.
    Mr. Steel. Sure.
    Mr. Hinojosa. Has that been discussed and what the 
consequences would be?
    Mr. Steel. I think that on the second panel you will have 
the real professionals who work at the face of this issue, and 
they can answer that with more specificity than me. But the 
counselors are trained to walk through all the alternatives 
with the actual homeowner. And so I think they are the right 
people.
    Mr. Hinojosa. Time is running out for me. I want to ask the 
question on financial literacy education, how far have you 
gone? Because I have not received any information as to what 
the success has been by these counselors and loan servicers you 
are using, even after the mess that they are in. It should have 
happened before the loan was made. But now that they are, how 
is the financial literacy component being utilized?
    Mr. Steel. Well, I think that there is really the immediate 
issue of HOPE NOW dealing with the challenges that have been 
described of what is happening right now with regard to 
mortgage resets and things of that nature. There is a second 
and quite important financial literacy effort that Treasury and 
the Administration have been working with. And that has been 
going on all along, and we are talking about ways to raise that 
focus on financial literacy in the broad sense, of which 
homeownership is a part. And so we are committed to that, and I 
think you will be pleased with the progress that we are making 
there.
    Mr. Hinojosa. My time has expired, Mr. Chairman, and I 
yield back.
    The Chairman. I thank the gentleman. The gentleman from 
Texas is recognized.
    Mr. Green. Thank you, Mr. Chairman. Again, I thank the 
witnesses.
    I am still impressed with the concept of HOPE NOW, and I 
want to do all that I can to make what is ideal real. It is a 
great ideal circumstance that you want to create, but I would 
like to see it become a reality. And for it to be a reality, I 
have to ask a couple of questions and make a few 
recommendations. So if you would, let's remonstrate for a 
moment, as opposed to demonstrate.
    First of all, what are we doing to go beyond the Internet 
and go beyond what I would call the traditional methodology of 
communicating the message? Because many people who were victims 
of predatory loans, some people who were in subprimes who 
should have been in primes, they don't use the Internet. They 
really are not--the Internet is not a friendly vehicle for 
them. So beyond the Internet and beyond what I would call the 
traditional means, what are we doing to get to them and let 
them know that we have this product? And Mr. Montgomery, if you 
would like to start, I would be grateful.
    Mr. Montgomery. Absolutely. As we have referenced this 
quickly, direct mail with all the data and all that we are able 
to literally surgically look at a community and a neighborhood 
and see where a lot of maybe concentration of these types of 
loans. And that will be one of the--enable the HOPE NOW 
Alliance to use that tool. Because you are absolutely right, a 
lot of families do not have access to the Internet.
    There is also a toll free number that has been up and 
running for some time now where families can also call and talk 
to a counselor, maybe even through a loan transfer be connected 
to a servicer, to their particular servicer.
    I would also say to FHA's part, this is a challenge we have 
every day, which is why we have been using those tools for some 
time, both the call center and certainly we are now going to 
start doing a more direct mail approach as well.
    Mr. Green. Let me recommend this, and that is all good. But 
somehow we have to get to the small newspapers, the community 
newspapers. And I am not sure that you have an advertising 
budget. I don't know. So perhaps I should ask. Do you have--I 
suspect I know, but I will ask. Do you have any money budgeted 
for advertising in newspapers?
    Mr. Montgomery. Sir, I can't give you an exact amount. But 
yes, marketing and outreach, consumer awareness is certainly a 
part of this effort. And we also obviously do that through the 
partners. We have broad tentacles into the communities they 
represent as well.
    Mr. Green. Well, let me suggest this based upon my 
experience, which may not be the experience of every Member. 
But when I talk to my small newspapers, they continually say to 
me that they don't have the opportunity to help with programs 
like this because for whatever reasons they are not contacted 
for the ad buys. And they can really perform a great service 
because they reach an audience that--while I respect the larger 
news outlets--the other outlets just don't reach.
    So I think it is important to give some consideration to 
the smaller newspapers, to get them involved. Also, some of the 
smaller radio stations that cater to a certain audience, they 
really penetrate that market. And they are going to get to the 
people who really need to hear this message.
    It is unfortunate that so many of the people are minorities 
who find themselves in this position, who have language 
concerns. With reference to what Mr. Hinojosa said about 
financial literacy, we have some people who need to hear this 
in Spanish, and Spanish radio is a good way to do it.
    In my district we have the ballot printed in English, 
Spanish, and Vietnamese. I would assume that we ought to at 
least go to the Vietnamese radio stations as well, the Asian 
radio stations because we can identify the market that has been 
hit.
    So I would strongly recommend that we use some of these 
other sources.
    Another point, with reference to the statement, Mr. Steel--
and I understand totally what you mean. But you indicated that 
there is no chance of success when a homeowner goes into 
foreclosure. I understand the present circumstance, but I think 
that is where we have to find some more flexibility. Because a 
lot of the people who are in foreclosure if given this 
opportunity, I believe they too can do a re-fi, a modify and/or 
re-fi, and they can succeed.
    So I am going to beg that you encourage the people that we 
are working with in this project to be a little bit more 
flexible and give those people who are in foreclosure, some of 
them the opportunity to look into this product and benefit from 
it as well. It is a good product, but it can only be good if 
people take advantage of it and if it is used effectively.
    Finally, with reference to the rule on bailouts or not, 
``rule out bailouts'' is what I made a note of here. We have to 
rule those out, and I think most of my constituents would agree 
with you. But they also--some people are saying that we should 
literally freeze foreclosures now.
    I want a professional opinion. Mr. Steel, give us your 
sincere opinion, your well-thought-out opinion of the impact of 
freezing foreclosures. I would like to hear your answer on 
freezing foreclosures, and then I will yield back. .
    Mr. Steel. Thank you, sir. I think that the housing market 
in the United States in many ways is viewed around the world as 
an icon or something that has worked well. And when you look at 
the growth in homeownership in our country over the last few 
decades, it has worked quite successfully.
    I think the reality is, as Representative Moore suggested 
in her comments, that there is some level of foreclosure that 
seems to be consistent in the normal marketplace. A function of 
change of circumstances were her words and things like that. 
And I think that the issue from my point of view, sir, is that 
we need to make sure we understand that activity.
    But then in addition, what foreclosure is a function of 
these other circumstances that are not natural and do what we 
can first to help those people in the second category. I think 
the idea of a freeze doesn't seem to be the right way. We 
should have a target approach trying to help the people where 
with some flexibility--and I used this expression at a previous 
hearing--where we can put a thumb on the scale on behalf of 
some people who with some help can stay in their homes. That 
should be the focus of what we do.
    Mr. Green. Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentlewoman from Wisconsin.
    Ms. Moore of Wisconsin. Thank you, Mr. Chairman. I would 
like to start with Mr. Steel and sort of follow up on other 
questions that other members have already asked.
    Starting with what Mr. Frank said, you know, you have been 
urging institutions, I think, to work with borrowers to 
mitigate losses and really issued clarifications, regulations, 
and guidelines that have reassured institutions that their 
safety and soundness will not be affected if they forbear. But 
I suspect that our second panel is going to tell us that even 
though that is the case, many of these institutions have been 
reluctant to not just go on and foreclose. So I am wondering 
what you all are doing in terms of using the bully pulpit or 
the chutzpa, if I could borrow that term, to get these 
institutions more on board with, you know, and the suggestion 
of perhaps of Mr. Green that they sort of stop these 
foreclosures when they are--you know because what makes me 
nervous is your discussion of how you have to develop these 
metrics, how you have to sort of evaluate how the counseling 
works. And I am looking at data that indicates that these 
foreclosures are fast upon us at the last quarter of this year 
and first quarter of next year by the time you put all these 
pieces together.
    So what exactly are you doing to incline these institutions 
to forbear?
    Mr. Steel. Thank you. I think that the first thing I would 
point you to is that the bank regulators issued a notice 
encouraging this flexibility, which I think was quite 
effective, the four key bank regulators, and I think in the 
month of July, that basically gave voice to this idea of 
increased flexibility. Point one.
    Point two, at Treasury, as early as earlier this week, 
Secretary Paulson specifically suggested this idea of 
flexibility, understanding and that servicers and lenders 
should work to this end. And we have had multiple meetings of 
the HOPE NOW Alliance basically trying to also give voice to 
this issue.
    I, like you, am aware of the timeliness of our action, and 
I can pledge that everyone at Treasury and others in the 
Administration are working flat out on this issue, recognizing 
the importance of the timing issue--200,000 letters are going 
out in November, that is not the end, that is the beginning, 
letters will go out and we are focused on this to bring bear as 
fast as we can.
    Also, in response to Chairman Frank's comments, we have to 
have the ability to measure our success and see how we are 
doing, but it is challenging to bring disparate people 
together, who, until we brought them together, were competitors 
and now we are saying you have to take off your own jersey, and 
instead, wear the HOPE NOW uniform and work together. And that 
is what we are doing and encouraging with HOPE NOW.
    Ms. Moore of Wisconsin. Let me follow up with some 
questions that Mr. Green and Mr. Hinojosa have asked about 
advertising. It has been my experience that--number one, we 
have these mortgage rescue exams out there, and so your letter 
doesn't look any different from anybody else's letter when they 
get it in the mail. And one of the characteristics of someone 
who is going into foreclosure is the completely do the ostrich 
and not open their mail. So that is just a dumb idea to just 
mail to people.
    Why aren't you using television advertising, use the 
prestige of the Treasury Department to say this is the number, 
the toll free number to call, this is the legitimate number, 
these are the legitimate institutions in your community to 
call, because this would fit right into my mortgage rescue 
scam, because all I can do is send out a letter. I have seen 
letters that look like they are from the IRS or the Federal 
Government, and this is a waste of advertising, as far as I am 
concerned. Why don't you go on TV? I see TV for other things 
the government wants to promote, when they want to promote 
Medicare Part D or ending Social Security or anything else, so 
why can't we use TV?
    Mr. Steel. Brian?
    Mr. Montgomery. Yes. Congresswoman, that is not the way we 
should look at it. I would say NeighborWorks America, who has 
been out in front of the this issue for some time, has been 
doing exactly that. They have been running some foreclosure 
prevention ads, they are part of the Alliance. And Mr. Wade, 
who is on the second panel, can discuss that. They are in 
English, they are in Spanish, they also have radio spots.
    Ms. Moore of Wisconsin. Do they have a HUD logo or a 
Treasury insignia on them?
    Mr. Montgomery. They have the NeighborWorks logo on them 
now, but the thought back to Under Secretary's previous point, 
if it is a name of a nonprofit that is probably well-known in 
the community, a homeowner in dire straits is more than likely 
to open that letter.
    Ms. Moore of Wisconsin. No, they are not going to open the 
letter.
    Mr. Montgomery. If it has the name of the bank on it, or 
maybe even the U.S. Government's name.
    Ms. Moore of Wisconsin. They will not open the letter, let 
me reassure you.
    Mr. Montgomery. I agree with you on the point about the 
advertising, absolutely.
    Ms. Moore of Wisconsin. Don't do it on the cheap--this is a 
crisis, we have to use TV. I know how much it costs, because I 
had to get elected, so use TV.
    Mr. Steel. If I could, since it was originally directed to 
me.
    Ms. Moore of Wisconsin. If the chairman would yield? My 
time is up.
    The Chairman. Yes. I am in no position to hold anybody to 5 
minutes this morning.
    Ms. Moore of Wisconsin. Sir, you can respond.
    Mr. Steel. I think your points are all good ones, and I 
pledge to follow up, but you should also know that there's a 
bit of hand-to-hand combat, and the people from these 
organizations are going out door-to-door also, because that is 
the most effective. When someone from your neighborhood knocks 
on your door and says, you know me from our neighborhood. I am 
part of a group that you know from a community-based 
organization, then that can be the most effective. And so we 
have the radio, TV, and other spots, but we will keep what you 
have said in mind.
    Ms. Moore of Wisconsin. Thank you.
    Mr. Steel. Thank you.
    Ms. Moore of Wisconsin. I yield back.
    The Chairman. Let me just reiterate, I understand the need 
for metrics, and I am not suggesting you said there would be, 
but that can't interfere with the ongoing work, the resets are 
coming, we really need results and will be talking to Mr. 
Longbrake, but I would hope by now we would have some of these 
actually happening. And the metrics are important, but we need 
to move and we need to generate data, keep the data, and then 
we can figure out how to work it.
    Thank you, and--
    Mr. Hinojosa. Mr. Chairman, since you are being so generous 
with time, I would like to let the record show that I have also 
listened carefully to Ms. Moore's questions about the lack of 
using television to advertise the services that are available 
through the government. But I would also like to let the record 
show that I have not seen PSAs or public service announcements 
being used by the government to get the message out.
    Members of Congress use it very effectively when we want to 
let our constituents know of an event that is coming up or 
whatever the message is. And I don't understand why, if we are 
losing billions of dollars because of this mess that we are in, 
why you aren't using PSAs with individuals who are well-known 
in the regions of the State where we have these greatest 
numbers of foreclosures. Can you tell me why that is not being 
done?
    Mr. Steel. Well, in fact it is. At foreclosure prevention 
TV, PSAs have run on the Tonight Show, the Today Show, CSI 
Miami, Dr. Phil, and Oprah already. In July, the campaign 
reached 2.28 million households. So while I am sure we can go a 
better job, there is effort in this behalf. And I can give you 
more data on exactly what networks, what communities and things 
like that. So there is work in process and that doesn't mean we 
can't do better, that in defensiveness, it is an invitation to 
perspective from you.
    Mr. Hinojosa. I have been informed by staff that the law 
requires, under the FACT Act, to do this. Evidently, you are 
doing some, but you are not making much of an impact, so you 
need some marketing people to see if you all can improve that 
and the frequency. And possibly I heard you say you had it in 
different languages, and certainly, that is important. But 
again, there needs to be some improvement on getting the 
information out and giving them some alternatives. Thank you, 
Mr. Chairman.
    The Chairman. The gentleman from Texas, for one last 
comment.
    Mr. Green. Yes, I will be very brief. I appreciate all of 
those that you announced, but a lot of people who are having 
this problem are not watching those programs. They may be 
looking at Good Times or they may be looking at The Jeffersons. 
And they relate to what is happening to those families to some 
extent. So I would just encourage to you broaden the reach to 
some of the nontraditional--
    The Chairman. I appreciate the gentleman's request. Let's 
not forget all of those households that are tuned into C-SPAN 
this morning, both of them. I thank the Under Secretary and the 
Commissioner.
    Next panel.
    We will get started, if the witnesses will all take their 
seats. And we will begin with an occasional and very welcome 
participant in our proceedings who often speaks for himself and 
for his fellow attorneys general, the Attorney General of Iowa, 
Mr. Miller. Mr. Miller, please begin.

STATEMENT OF THE HONORABLE TOM MILLER, ATTORNEY GENERAL, STATE 
                            OF IOWA

    Mr. Miller. Thank you, Mr. Chairman. This is a daunting 
problem, as we can tell from the comments and the questions 
just a few minutes ago, but there is a precedent for success 
and that is the farm crisis in Iowa in the 1980's, which was a 
horrible experience for us. But through required mediation of 
all those farm foreclosures, we saved a number of farms and 
saved the fabric of rural Iowa in a lot of ways. The principle 
is a simple one, difficult to implement, it is what I call 
enlightened self interest.
    There is a point at which in some of the loans, not all of 
them, but many of them, that the borrower can pay a certain 
amount less than what the contract requires, but a certain 
amount is affordable. That amount will realize for the investor 
more than foreclosure, so it is in both parties' interest to 
modify the loan to get there. The problem is, how do you get 
there?
    We have been talking about working on this problem since at 
least July. The attorneys general and the banking regulators, 
the Conference of State Bank Supervisors. We had a meeting in 
July of 37 States, and some of the people in the industry. In 
September, we had a meeting with the 10 largest servicers in 
the subprime market, five servicers 1 day, and five the next 
day in Chicago. We have another meeting with the next 10 next 
week, and the first set of meetings were very good meetings. We 
had direct conversations, no defensive attitudes, no obstacles 
placed; it was a terrific meeting. And what we found was there 
are some obstacles, but we knew that to begin with.
    The chief obstacles that we found are these: One is the 
issue of contact, that was discussed considerably this morning, 
how to get in contact with the borrowers, and State officials 
can help there, community groups, not-for-profits can help 
there, HOPE NOW can help there, but it is a daunting task and a 
major obstacle.
    Another obstacle is what we call the disconnect within the 
servicing company. At the top level, they believe that 
enlightened self-interest, this equilibrium should be reached 
and those should be modified, but for those that are actually 
doing the modifications, it is counterintuitive. It is 
counterintuitive for someone whose experience is in collecting 
money, collecting as much money as they can, to give a break 
like this. It is counterintuitive for a collecting mentality to 
become a modification agent.
    Another problem is the staffing level. The servicing 
companies have to staff up, these are individual transactions 
for the most part, although there are some alternatives that I 
can discuss later, if you want. They have to be adequately 
staffed.
    The other set of obstacles would be the agreements with the 
investors. And to our surprise and a pleasant surprise, the top 
10 servicers told us that recently, as of early September, they 
had worked through most of those pooling arrangements obstacles 
and that they think they have the authority to make these 
modifications, as they should, because it is in the interest of 
the investor to get more money through modification and less 
money through foreclosure.
    We in Iowa have tried something, and so far it is working, 
it is called the Iowa Hotline. I went on before the press in 
early September and announced the Iowa Hotline. We hired the 
Iowa Mediation Service, which coincidentally was the 
organization that did the mediation for us in the farm crisis, 
to be the facilitator, to answer the calls from the hot line. 
If you are in danger of foreclosure, you call this hot line. We 
work with them and support them and at least for a while, we 
fund them. The reaction was enormous.
    Keep in mind that there are 30,000 subprime loans in Iowa, 
they say about 8 percent are in foreclosure, that is 2,400. In 
less than 2 months, as of yesterday, there had been 2,700 
calls. Not all of them are in subprime, some of them are prime, 
but we, sort of, at least for now, have dealt with the contact 
problem in Iowa.
    When we got done in September with this good discussion, we 
said, well, I quoted Ronald Reagan, ``trust but verify.'' We 
wanted to develop a way they would give us the numbers that 
indicated that this is working and we are pretty close to 
coming up with a system of reporting to us that won't be 
onerous, but that will be effective in terms of demonstrating 
that this is being done, because we are very serious about 
this. I mean, we have done very little press on this project, 
as AGs and banking regulators, we put an enormous amount of 
time in. Our whole goal is to save the avalanche of 
foreclosures, much like we did in Iowa with farm foreclosures 
in the 1980's.
    Let me tell you what we are doing is complimentary with 
what HOPE NOW is doing and what everybody is doing, the basic 
reason for that is there is more work for all of us. HOPE NOW 
can't do it all, we can't do it all, the community groups can't 
do it all. In fact, together we maybe can't do it all, but we 
at least have a chance because of the contact problem, because 
of the working through the modifications. The Iowa Mediation 
Service wants to get in contact with people, get the 
information and then work with the servicers to achieve this 
modification, to achieve that equilibrium that I talked about.
    We have developed this great relationship with the banking 
regulators. We are working very closely with them and we are 
working with the servicing industry. We are getting feedback 
privately from them that they are glad we are doing this, it is 
helpful, it is helpful with the investors and with everybody.
    So what I am saying is that this is something that can be 
done, we have seen it done before. It takes an enormous amount 
of work; it takes everybody working together. One little word 
of caution, one or two of the servicers started to say to us 
well, maybe we don't want to be part of your project because we 
have HOPE NOW. That is a big mistake, these are complimentary 
operations, we should work together, we should share 
information. We have already shared a lot with the Feds as we 
have gone along. At our July meeting the FDIC was there, and we 
gave them information from our September meetings. We are in 
this together, we are in it for the long term. We know the 
obstacles and we want to work with everybody and want to avert 
this foreclosure avalanche.
    [The prepared statement of Mr. Miller can be found on page 
70 of the appendix.]
    The Chairman. Thank you. Next is the chief executive 
officer of NeighborWorks America, Mr. Wade.

    STATEMENT OF KENNETH D. WADE, CHIEF EXECUTIVE OFFICER, 
                     NEIGHBORWORKS AMERICA

    Mr. Wade. Thank you, Mr. Chairman, and distinguished 
members of the committee. We are pleased to be able to be here 
and share with you some of the things that we are doing to help 
address this critical crisis out here on the foreclosure issue.
    NeighborWorks America has been working on the foreclosure 
issue for well over 4 years now. We saw the problem coming 
principally because we have this network of community based 
organizations that were telling us that they were beginning to 
see people show up at their doorstep in various stages of 
foreclosure.
    These, by and large, were consumers who did not have the 
benefit of pre-purchase counseling by anyone, let alone members 
of our own organization. And in many cases, were in loans that 
were originated by nondepository or nonconventional lenders. 
And so as we began to look at the problem, we decided we needed 
to do something in a more concerted way to respond to that 
challenge.
    We have submitted testimony in written form that outlines 
all of the things.
    The Chairman. Without objection, it will be made a part of 
the record.
    Mr. Wade. Thank you. So rather than go through that in 
detail, I want to concentrate on three of the main things we 
are concentrating on in order to make a contribution to this 
problem.
    Now I would want to say that clearly we feel that the best 
solution is getting consumers good pre-purchase counseling on 
the front end. By and large, more than anything else, we have 
seen that make a critical difference between consumers who can 
do well with homeownership and create a sustainable opportunity 
for themselves and their families, versus those consumers who 
don't have the benefit of that.
    We have helped over 150,000 families achieve the dream of 
homeownership over the past 12 years. When we look at the loan 
performance of the consumers that we have helped, and by and 
large, these consumers are nonconforming customers, low- and 
moderate-income people in all the neighborhoods that we care 
about, those consumers perform 10 times better than subprime 
loans on average, 4 times better than FHA loans, and on par 
with prime loans. So I think we can serve this customer base 
and we can serve them well if we do a lot on the front end.
    But that notwithstanding, obviously we have this crisis 
ahead of us, or that we are in the middle of, and we felt we 
had to respond to it. So we have stepped up to train counselors 
in foreclosure prevention and delinquency prevention.
    In 2006 and 2007, we have trained more than 2,429 housing 
counselors from all over the country, some at our national 
training venues, but in many cases, we have taken our 
foreclosure prevention training on the road and gone to local 
communities all over this country working with State housing 
finance agencies, lenders, and the like in order to deliver 
counseling to community-based organization who are out there on 
the front line working with consumers everyday. And we expect 
that in 2008, we will probably be able to train an additional 
4,300 counselors from community-based organizations.
    In addition to that, we are supporting local coalitions and 
efforts, we are working with folks in Ohio, Maryland, Illinois, 
Georgia, Missouri, Massachusetts, Wisconsin, California, Texas, 
South Carolina, New York, New Jersey, Alabama, Florida, 
Connecticut, Pennsylvania, Michigan, Tennessee, Arizona, 
Washington State, and Kansas. And we are looking for more 
opportunities to support local efforts. I think, as Mr. Miller 
said, there is a lot of activity going on at the local level, 
of people responding to address this crisis and we are doing 
all we can to support those local efforts.
    Then in addition, we are very pleased to be able to have a 
national public awareness campaign that we are doing in 
collaboration with the Ad Council. That effort is being 
supported by a number of lenders and services that we have been 
working with over the past 4 years. And we are pleased to be 
able to say that we launched this public awareness campaign 
precisely because of the challenge of being able to reach 
borrowers who go to foreclosure.
    As you know, you have heard the data, over half of 
consumers who go to foreclosure every year have no contact with 
their lender, they don't respond to the letters, the phone 
calls, and all of that outreach. We thought a more targeted 
outreach effort to reach those consumers would be one way that 
we can make a contribution. So we have worked very closely with 
lenders and servicers to identify when the ads were developed 
at risk borrowers, we field-tested the ads, and they were 
developed by a professional ad firm in order to reach the 
consumers who are in trouble.
    In addition, we partnered with the Homeownership 
Preservation Foundation, which established a toll free hotline. 
We felt that was a great call to action in order to support a 
public awareness campaign, because obviously you need to call 
them to do something. And so the 800 number, the 1-888-995-HOPE 
number that the Housing Preservation Foundation developed is 
what we are supporting.
    We launched our public education campaign in June. We have 
had since that time 3,576 broadcasts on broadcast TV, 8,119 
radio spots, and again these ads were both in English and 
Spanish. In July alone, we feel that these ads have reached 
almost 3 million households, and we are very optimistic that 
the numbers that we are going to get for August and September 
and October will even exceed these.
    We know that clearly is not sufficient, given the scale and 
scope of the problem, and so we are working with a broad range 
of community-based and other national organizations. We had a 
meeting the other day with Fannie Mae and Operation Push with 
Reverend Jackson. He has agreed to customize some of the ads 
and distribute them to the thousand churches that he has in his 
thousand church campaign.
    We have local elected officials who have been able to 
customize the ads so we would offer that opportunity to reach 
consumers in their markets. And we are working with well over 
193 community groups in total all over the country doing the 
grassroots outreach to reach consumers through churches, door 
knocking and all other kinds of means, including the media 
outlets that I think the consumers who are most affected with 
this problem utilize.
    We are very encouraged by the HOPE NOW Alliance, we have 
been participating in that effort. We think the Treasury 
Secretary and the HUD Secretary adding their voice and their 
good office to bring us together and operate in a more 
coordinated way is going to go a long way toward helping us 
make more impact and to have more success in addressing this 
very challenging problem.
    So let me stop there and I thank you for the opportunity 
for allowing us to just share a little bit about what we are 
doing.
    [The prepared statement of Mr. Wade can be found on page 
116 of the appendix.]
    The Chairman. Thank you. Let me interrupt at this point. 
Something has come up, and I have to leave a little bit early. 
I had previously asked the gentlewoman from Wisconsin, whom I 
knew was going to be available this morning, to take over for 
me. She will be doing this at some point.
    I do want to make one announcement at this point. We work 
closely with the Conference of State Bank Supervisors on a 
number of issues, and also work with attorneys general, and 
they inform me that they are also trying to develop 
measurements, metrics and that they have found some of the 
people in the industry not responsive to their effort to get 
together. I would like to urge people in the industry who might 
on a slow Friday be paying some attention to this to work with 
them.
    We have found the Conference of State Bank Supervisors to 
be very important. And I should note that if the legislation 
that we are going to be acting on, on Tuesday goes through as 
we intend, there will continue to be--in fact, there will be an 
increased role, we hope, for State bank supervisors. One of the 
things we are trying to do is to encourage the States to step 
in, all of them, and regulate mortgage originators who, in many 
cases, have not been regulated. So we see a vigorous role for 
the States and we think it would be very helpful.
    Mr. Marks, I have to tell you, I read over your testimony, 
and I will not accept the testimony in which you make remarks 
about other institutions. The reason I say this, we will be 
glad to take that in writing, after they have a chance to 
respond. As you know, we had some conversations with 
Countrywide, we welcome what you have accomplished, you and 
Countrywide, it is a very important model for people and we 
want that there. Criticisms of other institutions are currently 
legitimate, but I would ask you to hold those off until we can 
get responses and put them in the record at the same time. So 
we are going to focus on the very significant positive 
accomplishments you have.
    We get contradictory views from other institutions, so I 
would like to hold those off at this point, focus on that. 
Clearly, there is an openness here, but before we put it in the 
record, ask the institutions that you criticize to give their 
response, you can respond, we want to promote that dialogue. So 
please let us have your testimony on the work that you and 
Countrywide and other policy recommendations that you have, 
please go forward.

STATEMENT OF BRUCE MARKS, CHIEF EXECUTIVE OFFICER, NEIGHBORHOOD 
               ASSISTANCE CORPORATION OF AMERICA

    Mr. Marks. Thank you for allowing us to be here and for 
having this hearing. I am not going to talk about the process 
or the outreach, but I do want to respond to one thing that you 
said, Congressman, to start out is that I think what the issue 
is is that you need to hold all the entities out there 
accountable. And so you hear a lot of things about we are 
modifying this or doing that and we can name names, and I 
respect what you are saying so we wouldn't go through naming 
names.
    But clearly, we hope you will follow through and make sure 
you will ask these institutions that we have identified to say 
how many loans are they modifying and what the interest rate 
is.
    The Chairman. Let me give you an example, when you last 
testified, you did have some very critical things to say about 
Countrywide. Countrywide responded and said well, some of them 
weren't accurate. I assume you have now been working with 
Countrywide and maybe that helped. I don't want to do that 
again where we do it seriatim.
    As far as following up, yes, that is why I asked Mr. Steel 
and stress we are beyond the point where we want to hear about 
what people plan to do. We want to hear some numbers and we 
will continue to ask for those in a specific way, so why don't 
we proceed now.
    Mr. Marks. Let us talk about real solutions. Let us not 
just talk about process. Let us not talk about outreach, let us 
talk about real solutions that are going on. And so let us talk 
about the most effective real solution that is out there and 
that is the NACA Countrywide agreement.
    And as good as it sounds, it is extraordinary in what it 
does, because it is a solution that is based on the borrower, 
not on the lender. It is based on what the borrower can afford 
and that is what has to happen. All the focus needs to be on 
you have to look at the borrower, what they can afford and to 
adjust their payments accordingly.
    We have heard a lot of discussions in the past about the 
answer to it is the refinancing of loans, but the fact of the 
matter is is that prices are not there, the loan-to-values are 
not there, and prices are plummeting. So that is going to knock 
out a lot of people to refinance.
    Debt-to-income ratios, that is going to knock out a lot of 
people in terms of what they are able to in terms of 
refinancing. And lastly, the payment history will eliminate a 
lot of people. So the answer to this huge crisis is not that we 
are going to be able to refinance a lot of people out of their 
subprime or predatory loans, we should try to do our best, but 
that is not going to be the answer or the solution.
    The fact of the matter is the other piece we keep talking 
about outreach and getting a hold of the homeowners, if there 
is it no real solution out there, we are not doing a favor to 
those homeowners. We are not really providing a solution if the 
lenders are not willing to do the right thing to restructure 
the loans to make them affordable over the long term.
    Let me talk about specifically the NACA-Countrywide 
agreement. Homeowners would go through the NACA process, where 
we look at the individual characteristics of the borrowers and 
we provide a framework and standardization to provide an 
unprecedented Home Save solution for tens of thousands of 
homeowners.
    Step one, they complete a mortgage questionnaire on our Web 
site at www.naca.com. Step two, they attend a workshop to learn 
about the process and the options. Step three, most 
importantly, they meet with a mortgage consultant who works 
with the homeowner to see them through the process. Step four, 
the homeowner is referred to a NACA underwriter, who then takes 
over their application. Step five, it is completed, and it is 
submitted to the lender. It is through a state-of-the-art Web-
based software program that is a purely paperless process.
    Now let's talk about the options for the homeowners. This 
is based on the terms of the loan and what the homeowner can 
afford. And there is a cascade of options that are as follows.
    Option one, the payment plan, and that is appropriate for 
people who have an affordable loan, affordable terms, and they 
have a short-term crisis. So you put a payment plan together 
where someone becomes current over 12 months.
    Option two, modification. Modification is where there are 
affordable terms, affordable interest rate, a more serious 
crisis, and the loan can't be resolved in 12 months. The 
arrears are put onto the loan, and it is reamortized over the 
existing term.
    Option three, refinance. People can refinance through the 
NACA program, and it is the best deal out there, bar none. It 
is 100 percent financing. There is one mortgage product. There 
are no fees, no prepayment penalties, and no points. And it is 
always at 1 percent below the best rate. So today's rate, 30-
year fixed, is 5.375 percent. We have committed a billion 
dollars, $1 billion, to refinance people out of their subprime 
or their predatory loan.
    Option four, and this is the incredible aspect of the NACA-
Countrywide agreement, is the restructuring of loans. This is 
the most powerful tool for homeowners to save their homes.
    We evaluate what the homeowner can afford. First, you look 
at the net income. Then, from the net income, you deduct the 
required liability payments, the homeowners' housing expenses, 
and $200 for unforeseen expenses. The result is a payment that 
the borrowers can afford, so you fix that payment. And then you 
have two variables: You have the interest rate; and you have 
the outstanding mortgage amount. You reduce those back into 
that affordable payment.
    And what has happened is that, on the first day, the first 
day of the NACA-Countrywide agreement, over 25 homeowners, just 
on the first day, their loans were restructured to an interest 
rate between 5 and 6 percent. They were saving $300, $1,000, 
$2,700 a month for that. And we didn't have the problem with 
the investors.
    I want to finalize or talk about the investors. We keep 
hearing that the investors are saying no, that they can't do 
it. The fact of the matter is that Countrywide will look at the 
pooling-of-servicing agreement, and we will say, ``What is the 
most favorable interpretation of the pooling-of-servicing 
agreement for the borrower,'' and then we interpret that. And 
if the investor says no, they give us the specific information 
to allow us to have a discussion with the investor. And, 
clearly, we would want to make it clear to them that it is 
better to restructure than to foreclose.
    And the fact of the matter is--one final thing--
    Ms. Moore of Wisconsin. [presiding] Mr. Marks, I am sure 
that the question period will be an opportunity for you to--
    Mr. Marks. And we have not had one time where an investor 
has said no.
    [The prepared statement of Mr. Marks can be found on page 
62 of the appendix.]
    Ms. Moore of Wisconsin. Okay. Thank you. I am unable to 
yell like Mr. Frank. So thank you very much for your testimony.
    Mr. Longbrake?

  STATEMENT OF BILL LONGBRAKE, ANTHONY T. CLUFF SENIOR POLICY 
           ADVISOR, THE FINANCIAL SERVICES ROUNDTABLE

    Mr. Longbrake. Thank you, Mr. Chairman. My name is Bill 
Longbrake, and I am pleased to be here on behalf of HOPE NOW 
Alliance to talk about this significant joint industry and 
nonprofit national initiative that has been organized to reach 
out to at-risk borrowers to help prevent foreclosures.
    I would like to thank all the members of the committee for 
your support for the national 1-888-995-HOPE hotline counseling 
program of the Homeownership Preservation Foundation. And since 
we are on C-SPAN, I am advertising this number, so I will 
repeat it one more time: 1-888-995-HOPE. This is part of our 
expanded HOPE NOW Alliance. The hotline is available to any 
homeowner today, and it will be promoted more in the future by 
efforts that the Alliance is putting together.
    HOPE NOW brings leading servicers, counselors, investors, 
and other mortgage market participants together to create a 
unified, coordinated plan to reach and help as many at-risk 
homeowners as possible. HOPE NOW builds on the active 
individual efforts that are being made by servicers to contact 
and assist their borrowers, as well as the ongoing work by 
nonprofits such as Mr. Wade's NeighborWorks of America and the 
Homeownership Preservation Foundation, which runs the HOPE 
hotline.
    HOPE NOW will maximize and expand on all outreach efforts 
that are currently by made by servicers and will work to reduce 
obstacles and to create solutions to help homeowners in 
trouble. We will do this through enhanced efforts to contact 
at-risk borrowers, increased access to nonprofit counseling, 
and better coordination between servicers and nonprofits to 
increase positive outcomes for borrowers and avoid 
foreclosures.
    Our members are working on six initiatives, and we are 
doing this collaboratively. This is not something that is 
limited just to the organizations that are listed; we are open 
to all comers. And we take to heart Chairman Frank's remarks 
about working with CSBS, with attorneys general, and with other 
organizations.
    Our first initiative is outreach. You have heard quite a 
bit. There is a poster over here that is the letter that will 
go out on November the 19th. I have an updated number; we 
expect now to send that to 250,000 homeowners. And we expect to 
repeat that letter at regular intervals after that.
    Why the letter is important--it is not going to be the be-
all and end-all. There is no one solution that works for 
everything; there need to be multiple solutions. But what we 
know is that when a servicer sends out a letter, the response 
rate is only around 3 to 5 percent. When it comes out under a 
not-for-profit organization's logo, that percentage goes up to 
a 25 percent success rate, so a very significant improvement.
    As Mr. Wade mentioned, we are continuing public service 
announcements through the Ad Council and radio spots, and that 
will continue.
    The second effort is to build capacity for counseling. We 
are working to increase the capacity of the national 1-888-995-
HOPE hotline and in-person counselors to receive, triage, 
counsel, refer and connect borrowers to servicers.
    Now, we haven't advertised that number as aggressively as 
we would have liked to, because we were concerned that we might 
get a flood of calls before we had trained counselors in place. 
As Mr. Wade said, there are 122 currently. By the end of the 
year, we expect that number to have been increased to 250. And 
we certainly would welcome participation in advertisement of 
that number.
    The third effort involves improving coordination and 
cooperation between servicers and counselors. We are developing 
ways to make it easier and more efficient for counselors to 
reach the right people and servicing in loss mitigation 
departments and to facilitate decisions to assist borrowers and 
to improve the information counselors have to give servicers, 
so that they can make more informed decisions about what 
options would work best for each at-risk borrower.
    The fourth effort includes better measures to report on 
progress. The Alliance is establishing methods for reporting on 
the number of borrowers reached and the outcomes of this 
outreach, how many people we are helping, and how they are 
being helped. We will measure outcomes, for example, 
refinancings, reinstatements, and other types of resolutions, 
so that we get a good sense of the types of things that seem to 
be working best.
    Fifth, we are working on improving technology. We will use 
existing technology tools and software to develop new means to 
improve the interaction between counselors and servicers to 
assist borrowers. So all of this is intended to shorten the 
timeframes for turnaround.
    Finally, the sixth effort has to do with funding. We are 
working to develop a sustainable funding model that will 
provide support for telephone and in-person counseling efforts. 
It will require funding contributions from servicers, 
investors, and funding for counseling from the Federal 
Government to cover those borrowers whose loans were not 
originated or serviced by a member of the Alliance. And that 
includes, now, some bankrupt companies.
    All of these efforts are intended to assist borrowers who 
have the willingness and wherewithal to remain in their homes 
but need a little help to do it.
    Modifications, which have been mentioned frequently, will 
not always be the best solution. As Mr. Marks pointed out, 
there will be cases where a work-out is not feasible. Possibly 
a short sale or a deed in lieu might be the best solution, but 
even those alternatives may not be optimal.
    Mr. Chairman, we believe this national cooperative effort 
will produce positive results and will help more at-risk 
homeowners.
    In closing, I want to reiterate the most important message 
of this effort. It is critical for homeowners in trouble to 
reach out for help. We are going to do all we can to encourage 
that and make that easy to do. Studies have found that 50 
percent of borrowers who go into foreclosure never contact 
their lender. We hope to reduce that substantially.
    The HOPE NOW effort is intended to contact as many at-risk 
borrowers as possible, but we need help from leaders like 
Members of Congress to do that. Anything you can do to get the 
word out that borrowers should contact their servicer or 
resources like the HOPE hotline would be valuable and welcome.
    [The prepared statement of Mr. Longbrake can be found on 
page 52 of the appendix.]
    Ms. Moore of Wisconsin. Thank you so much.
    Mr. Samuels?

   STATEMENT OF SANDOR SAMUELS, EXECUTIVE MANAGING DIRECTOR, 
               COUNTRYWIDE FINANCIAL CORPORATION

    Mr. Samuels. Thank you, Madam Chairwoman.
    I am executive managing director of Countrywide Financial 
Corporation. We have been a consistent and long-standing leader 
in developing innovative approaches to foreclosure prevention.
    Experience tells us that successful efforts to avoid 
foreclosure are the result of partnerships. One of the most 
essential partnerships is between the borrower and the 
servicer. We encourage our borrowers to call us the very first 
time they anticipate problems. We can work with the borrower 
and offer real solutions.
    We recently announced the major expansion of our 
foreclosure-prevention efforts, a $16 billion home preservation 
program to assist as many as 82,000 Countrywide customers who 
are facing or have had a payment reset, with affordable 
refinance and loan modification options. This is an extension 
of our robust home preservation program and investment in 
borrower outreach.
    Let me quickly summarize some of our more notable efforts.
    Countrywide has expanded our capacity to contact and be 
contacted by borrowers. During 2007, we increased the number of 
employees in our home retention division from 2,000 to 2,700. 
Total operational spending in the home retention function is 
expected to grow by more than 45 percent between 2006 and 2008.
    In September alone, our home retention division made almost 
9 million call attempts to reach delinquent borrowers, had 
nearly a million phone conversations with borrowers about their 
payment difficulties, and mailed over 700,000 personal letters 
and cards to borrowers. We include helpful information in 
borrowers' monthly statements and repeatedly attempt to reach 
our borrowers both by phone and by mail.
    We provide notices 180 days, 90 days, and 45 days prior to 
the payment reset, reminding borrowers that they have an 
upcoming rate and payment adjustment. The notice provides an 
estimate of the new payment based on current interest rates and 
encourages borrowers to call us or a counseling agency if they 
anticipate financial difficulties.
    Also to reach our borrowers, Countrywide has sponsored 
home-ownership preservation seminars in 30 communities across 
the country, and we plan to expand those efforts in 2008. There 
is, in fact, one coming up this weekend in Los Angeles.
    Partnerships with nonprofit organizations are critically 
important to expanding our ability to deliver home retention 
solutions to our borrowers. We recently entered into a ground-
breaking partnership with the Neighborhood Assistance 
Corporation of America, headed by my friend here, Bruce Marks. 
By working together, homeowners will have a waterfall of 
options, as Bruce described, ranging from payment plans to 
modifications to restructurings. We are excited to work with 
NACA and their unique counseling model that, as Bruce said, 
focuses on what is affordable for the borrower.
    We are a founding sponsor of the Homeownership Preservation 
Foundation's HOPE initiative, a national foreclosure prevention 
counseling program that assists borrowers in all markets. I am 
proud to serve on the board of that organization. And we also 
work with Mr. Wade's organization, NeighborWorks America.
    We are also partnering with more than 40 other community 
organizations across the country. We are co-branding joint 
communication letters and advertisements to our borrowers with 
many of these groups. Finally, we have joined with others in 
the industry to increase our capacity to help borrowers avoid 
foreclosure through the HOPE NOW program that you just heard 
about.
    Countrywide's initiatives are producing results that help 
borrowers avoid foreclosure and preserve their homes. So far in 
2007, Countrywide has refinanced more than 31,000 subprime 
borrowers into prime, fixed-rate loans. In addition, we have 
helped nearly 40,000 borrowers stay in their homes through loan 
modifications, repayment plans, and other home retention 
solutions. We are currently working with more than 63,000 
customers in various stages of the work-out process.
    Even better evidence of the progress that we have made 
comes from our home retention division, a phone call I got last 
night. They told me that in October, over 11,000 home retention 
transactions occurred, almost double the previous monthly high. 
These are transactions that keep people in their homes.
    In September 2007, loan modifications accounted for more 
than 60 percent of our completed work-outs, compared to 28 
percent of all work-outs in 2006. In short, unlike what you may 
have read in the press, loan modifications have become a 
primary tool for keeping borrowers in their homes.
    Countrywide readily acknowledges that these are dynamic 
times and that additional initiatives may be needed as events 
unfold.
    I want to take this opportunity to thank Chairman Frank for 
his leadership in clearing barriers to helping our borrowers 
stay in their homes.
    I have offered a lot of statistics in my comments, but we 
understand that this is a human problem, as we saw at our press 
conference last week when we announced the NACA-Countrywide 
initiative. It is the stories of the borrowers that we heard 
from at that press conference and many like them that keep us 
focused on our commitment to preserving homeownership.
    Thank you very much.
    [The prepared statement of Mr. Samuels can be found on page 
91 of the appendix.]
    Ms. Moore of Wisconsin. Thank you.
    Boy, have I been waiting for this moment for a long time.
    I would like to yield to my colleague and friend and very 
active member of this committee, Mr. Green of Texas.
    Mr. Green. Thank you, Madam Chairwoman. And I must say the 
chair looks good on you, or maybe you look good in the chair.
    Friends, Mr. Marks has presented what I consider to be the 
most effective means of helping that I have heard so far. Now, 
if there is something better than what he has said available--
and I don't mean to single him out--I just want to tell the 
truth. You know, there is something about the truth; they say 
it can get you free. Maybe we can free a lot of people here 
with this.
    Is there anything better than what Mr. Marks has said, in 
terms of restructuring to affordable homes, affordable loans? 
Is anything better than that concept?
    Okay.
    Now, Mr. Samuels, you said that at Countrywide, you have 
$16 billion committed to helping people. Is that correct?
    Mr. Samuels. Well, it is a $16 billion initiative, yes.
    Mr. Green. Okay, now, would this $16 billion initiative 
complement what Mr. Marks has talked about? Because he said he 
had $1 billion, and you said $16 billion.
    Mr. Samuels. They are two different things.
    Mr. Green. Yes. Right. So you are $1 billion into helping 
the way Mr. Marks would like to have it done and $15 billion 
someplace else?
    Mr. Samuels. No, those are two different things. I think 
Mr. Marks's $1 billion relates to refinance programs that he is 
involved with with other lenders.
    Our $16 billion is focused on people who are either facing 
resets or have already faced the resets and how we are going to 
help them if they are facing financial distress.
    Mr. Green. How much are you committing to the kind of 
restructuring that Mr. Marks--
    Mr. Samuels. The fact is that, you know, we haven't put a 
dollar figure on it, because it is simply going to be the 
borrowers that Mr. Marks and NACA refer to us. We don't--
    Mr. Green. I have a better question. Here is a better 
question. Mr. Marks refers to you, correct?
    Mr. Samuels. Yes, sir.
    Mr. Green. If he refers people that have been vetted, 
properly vetted through his channels, and they need 
restructuring to an affordable loan--
    Mr. Samuels. Yes. Yes.
    Mr. Green. Do I need to define ``restructuring to 
affordable loan?''
    Mr. Samuels. No, sir.
    Mr. Green. Okay. If they need restructuring to affordable 
loans, will you restructure each of these persons vetted 
through his process into an affordable loan?
    Mr. Samuels. Yes, that is the agreement that we have.
    Mr. Green. Sir, I want to compliment you, but before I do 
it, I have to ask you one more question.
    Mr. Samuels. Please.
    Mr. Green. Because sometimes what I hear isn't always what 
people say.
    Are you saying that 100 percent of the people vetted 
through his process who need restructuring into an affordable 
loan will receive that restructuring? And sometimes when people 
finish, I don't know whether they said ``yes'' or ``no,'' so 
could you kindly say ``yes'' or ``no?''
    Mr. Samuels. That is going to be difficult because I do 
need to explain. It is ``yes,'' with an explanation.
    I just want to make sure that you understand that, as a 
servicer, we have investor requirements, so that any reasonable 
restructuring that Mr. Marks brings us--and so far, we have 
seen only reasonable restructurings--we are going to do those.
    If somebody has brought to us--and we don't expect this to 
happen--where they have a $200,000 loan and it is 8 percent, 
and Mr. Marks or his group comes to us and says, ``We need to 
restructure this loan by cutting the loan amount in half and 
reducing the interest rate to zero,'' that is not a loan that 
we are going to be able to restructure.
    Mr. Green. Let's assume that Mr. Marks maintains his 
sanity, and assuming that he does and that he continues to be 
the same Mr. Marks, who appears to be quite cantankerous if you 
want me to be honest with you--really.
    Mr. Samuels. We have not found that to be the case.
    Mr. Green. I happen to like cantankerous people, because 
they provide a certain vision of reality that some folks just 
don't provide.
    So, now, assuming that he maintains his current 
disposition, you are telling me you will be refinancing--or you 
will be restructuring to an affordable rate all of these loans?
    Mr. Samuels. Yes.
    Mr. Green. Sir, I compliment you on what and your business 
folks will be doing. I compliment you. But I also want to 
assure you that I plan to hold your feet to the fire.
    Mr. Samuels. I understand.
    Mr. Green. Now that you have declared. Because, I assure 
you, if this does not come to fruition as articulated, I would 
be among the avant garde to call to your attention that you 
have not honored your comments that you have made today, your 
commitment that you have made today.
    Mr. Samuels. I would look forward, sir, to coming to you 
and having you shake our hands because we have had such a 
successful initiative, such a successful partnership with NACA 
and Mr. Marks.
    Mr. Green. Thank you.
    Now, Mr. Miller--
    Mr. Marks. And if I can add, sir, just one thing?
    Mr. Green. All right, but I am going to have to let you add 
with the caveat that I may intercede. Go right ahead, sir.
    Mr. Marks. Yes, Countrywide needs to be complimented, 
because they stepped out front when no one else would step out 
front.
    But there are three things that I think you need to add to 
what they are doing: They don't look at the loan-to-value, so 
these loans could be under water. They don't look at the debt-
to-income ratio. And they don't look at the payment history.
    So you are able to get to very low fixed rates without 
having to deal with those limitations that prevent the 
refinancing of loans out there. So they should absolutely be 
complimented, and we should focus on getting other people, 
other lenders to get to the Countrywide standard.
    Mr. Green. All right.
    Now, Mr. Miller, is what we have just heard the kind of 
enlightened self-interest that you were calling to our 
attention earlier?
    Mr. Miller. Exactly. Exactly. It is certainly one way to 
get there.
    Mr. Green. Now, hold on, Mr. Miller. I have to ask you a 
question. You said ``one way.'' Earlier I said, is there a 
better way? Is there a better way than having the opportunity 
to restructure into an affordable loan? Because those are some 
important words that Mr. Marks used and Countrywide has 
adopted. So is there a better way, a sensible, better way to do 
this?
    Mr. Miller. Not that I know of. Not that I know of, that is 
out there.
    Mr. Green. All right. So we are clear that this seems to be 
the best paradigm that we are aware of that is sensible.
    Now, Mr. Wade, you have been involved at the grassroots 
level helping a lot of people. My question to you is, have you 
had access to the NACA-Countrywide paradigm? Have you had 
access to that paradigm?
    Mr. Wade. No. This program was just announced the other 
day. So, other than what I have seen in the press, I don't have 
any other information on it.
    Mr. Green. All right.
    Then, Mr. Samuels, is this paradigm exclusive? We have a 
contract here, but is it exclusive such that it cannot be 
embraced by others who would want to help with this 
enlightenment process?
    Mr. Samuels. We know that our competitors are really of 
like mind with us, in wanting to keep people in homes. And I am 
very confident that many of them would embrace--
    Mr. Green. Well, I don't see Mr. Wade as a competitor. I 
want to talk about people like Mr. Wade.
    Mr. Wade, is it fair to call your organization an NGO?
    Mr. Wade. Yes.
    Mr. Green. Okay. You are with an NGO. Are you for-profit or 
not-for-profit?
    Mr. Wade. We are a not-for-profit, created by Congress, 
actually.
    Mr. Green. Okay. So what I am trying to find out is--and 
not to the detriment of what Mr. Marks is doing, because he has 
worked out something that I think is great, if he is the person 
who actually worked it out.
    But what I want to find out is, is this something that an 
NGO can work with you on, as well? If not, I understand. But I 
want to find out how far can we go with this, because we may be 
on to something.
    Mr. Samuels. We could certainly work with them. The 
question is--well, let me just compliment NACA and say that one 
of the reasons we entered into this agreement is because we 
were very impressed with their capabilities. And a lot of what 
they do is similar to what we do: How we evaluate the borrower; 
how we see what they can afford; how we look at investor 
requirements; and things like that. It is a process.
    The thing that we don't do that they do is the counseling 
component, which is very critical to this process. We liked 
what they do. The question is whether the other groups--
    Mr. Green. Can replicate it.
    Mr. Samuels. Yes.
    Mr. Green. And there is also a certain level of trust 
involved in this. You work with people, and you get to know 
them.
    Mr. Samuels. That is correct.
    Mr. Green. Now, Mr. Marks, are you amenable to sharing your 
knowledge and your technique with NGOs and working with NGOs to 
bring others into the fold?
    Mr. Marks. Absolutely. Absolutely. The goal is the NACA 
process; it is not NACA. And that is exactly right, we want to 
create this as a standard for other lenders and other not-for-
profits. And we are a not-for-profit, as well.
    The need is tremendous out there. The devastation is huge 
and is getting worse. Absolutely, sir, we want to work with all 
the organizations out there to get everybody to that level, to 
that standard. Absolutely.
    Mr. Green. Well, the chairwoman has been more than generous 
with the time, so I will yield to her now. And if there is a 
second round of questioning, I will be here for it.
    Madam Chairwoman, I yield back.
    Ms. Moore of Wisconsin. Thank you, Mr. Green.
    I can see that the committee has been joined by the 
distinguished gentleman from California, Mr. Brad Sherman. And 
the Chair would now yield to him.
    Mr. Sherman. I thank the gentlewoman, the real Gwen Moore.
    I would like to address this to all the panelists. When a 
lender forecloses, is that usually a profitable transaction, 
good for business?
    Mr. Miller. The short answer is no.
    Mr. Samuels. It is a very unprofitable transaction, yes.
    Mr. Sherman. Well, let's get everybody to chime in on this 
one. Go down the line.
    Mr. Wade. Absolutely, it is not.
    Mr. Sherman. Mr. Marks?
    Mr. Marks. No, it is not. But it is much more profitable 
and reasonable if they can restructure loans and get a 
reasonable return after the no return that would happen on a 
foreclosure.
    Mr. Sherman. So, generally, the foreclosure is one of the 
worst options?
    Mr. Marks. Absolutely the worst option.
    Mr. Sherman. The worst option.
    Mr. Marks. And a short sale and a deed in lieu of is not a 
work-out. It is just working someone out of their home; it is 
not a solution.
    Mr. Sherman. In effect, a deed in lieu is a foreclosure by 
another means. And you just said it is not profitable. I guess 
a deed in lieu saves a little transaction cost, so it is 
infinitely better than a very bad solution--no, not 
infinitely--infinitesimally better than a very bad solution.
    Mr. Marks. I see it as the same thing.
    Mr. Sherman. Okay.
    Next witness?
    Mr. Longbrake. And I would say foreclosures are never the 
best solution. Sometimes they are a solution, because there 
will be a circumstance that a homeowner simply does not have 
the financial means or wherewithal to be able to be a 
homeowner. They might be better off as a renter.
    Mr. Sherman. Mr. Samuels?
    Mr. Samuels. Yes, I agree. I want to make clear that the 
numbers that I gave about our work-out process, our 
transactions, do not include deeds in lieu and short sales that 
we have done.
    The numbers that I have given are what we call home 
retention solutions. These are solutions that allow people to 
remain in their homes. That is what we are focused on.
    Mr. Sherman. Moody's, I believe, issued a survey that most 
servicers had modified only 1 percent of their service loans 
that experienced a reset during the early months of 2007.
    Mr. Samuels, does it make sense to say that a certain 
percentage of all loans that are resetting should be adjusted, 
when, many times, the loan is working just fine? The person can 
afford it. I mean, there are some ARMs out there. There are 
some people who are not losing their jobs. There are some 
people out there able to afford their mortgage payments. Not 
everybody is calling my office and saying they are about to 
lose their home.
    Mr. Samuels. That is true, Congressman Sherman. The 1 
percent figure is very misleading. By using as the base all 
hybrid ARMs facing a reset in January, it assumes that most 
borrowers are going to go delinquent shortly after the payment 
reset. And this is far from accurate. For example, we tracked 
all of our 2/28 hybrid ARMs that were still outstanding and due 
for reset in January of 2007. In September, a full 9 months 
after the initial payment reset, 43 percent of those borrowers 
had paid off their loans, fully 82 percent--
    Mr. Sherman. So you are saying 43 percent have either sold 
their homes or refinanced and paid you off. Okay.
    Mr. Samuels. Correct. And 82 percent had either paid off or 
were current. Of the remaining loans that didn't pay off, 70 
percent were current. Only 11 percent of those loans were three 
or more payments behind. So if we use these loans as the base, 
and then look at our modification data, the loan modification 
percentage would be closer to 20 percent. So you can do a lot 
of things with numbers.
    Mr. Sherman. I thank you, sir. The Moody's report says 
basically 1 percent are being renegotiated or recast. And if I 
understood you correctly, about 11 percent of the loans are 
delinquent?
    Mr. Samuels. Sir, 11 percent of the loans that were in our 
study, the 2/28s that reset in January that were still on the 
books, about 11 percent of those were 90 days or more 
delinquent.
    Mr. Sherman. So basically, then, of the pool that are 
significantly delinquent represent about 11 percent of the 
pool. The renegotiates represent about 1 percent of the pool, 
and if I do the math right, it is very roughly 1 out of 10 
loans that are significantly--
    Mr. Samuels. It is actually 20 percent.
    Mr. Sherman. I am missing the math here somewhere.
    Mr. Samuels. I am a lawyer, Congressman. I don't do math. 
But it is 20 percent. The modifications were 20 percent.
    Mr. Sherman. There must be a number missing from this. But 
in any case, it is a significant portion of those that are 
seriously in arrears.
    I will ask the other panelists whether--Mr. Marks, do you 
see the other major servicers recasting 10 or 20 percent of the 
loans where there is a reset of the ARM and a serious 
delinquency, or do you see them doing a much smaller portion of 
that?
    Mr. Marks. It is a very good question because we have to 
redefine our terms. When you hear the word ``modification,'' I 
think you have to ask the question: Are they reducing the 
interest rate and/or the outstanding mortgage amount to what 
the homeowner can afford? Because when you hear 
``modification,'' many times across the board, what that is, it 
is increasing the mortgage payment by taking the arrearage, 
adding it onto the outstanding mortgage amount and recasting 
the loan. So--
    Mr. Sherman. They are counting it as a modification if the 
monthly payment goes up?
    Mr. Marks. Yes. A lot of times that is how they are 
counting it. So we need to be very clear on the question: Are 
you reducing the interest rate, are you reducing the 
outstanding mortgage amount, are you reducing the payment to 
what the homeowner can afford? Because a lot of times, across 
the board--I am talking about the industry, not any one 
particular lender or servicer--that is how they are defining 
that. So it is very important.
    Mr. Sherman. I understand what you are saying. What if you 
had a circumstance where they lower the payment but not the 
interest rate? That leads to negative amortization. It occurs 
to me that we may have boom economic times. We may have a new 
President, a new economic policy. And we may see a circumstance 
where a lot of people are talking about the decline. All of a 
sudden they are selling their homes for half-million-dollar 
profits 6 or 7 years from now. And one wonders whether that 
bonanza should be shared with the lender or not, and there are 
good lenders and bad lenders.
    Where do you come out on a recast that does not cut the 
interest rate but does cut the payment?
    Mr. Marks. One other question that has to be asked is if 
the interest rate is reduced, is it going to be permanent or 
just for a short term? The answer to the second part is that we 
encourage a soft second. If the lender is going to do the right 
thing and reduce the outstanding mortgage amount or take a hit 
on that, then you can put on a soft second so they share the 
equity if the prices go up and someone sells that house for a 
profit. So we are in support of that.
    The other question that you asked was, are the other 
players doing it? And while the chairman asked us not to name 
names--even though we will put it up on our Web site at 
NACA.com--the other players out there, the bottom 10, the fact 
of the matter is very few--the biggest servicers out there are 
not adhering to the Countrywide standard on the restructuring, 
and we see it as a responsibility of Congress and the 
regulators to force those other lenders to do that, because 
they are playing you. They are playing you because they are 
saying they are modified, they are saying they are doing it in 
large numbers, but they are playing you out there, because they 
are not telling you the truth and you have to ask, with all due 
respect, the specific questions of each one of them. And just 
like when the oil company executives came to the Senate and 
they swore they were going to tell the truth, you should get 
them up here to give you specific answers. Thank you.
    Mr. Sherman. Thank you for your shy and retiring approach. 
I think it is Mr. Miller who seems to be indicating a 
tremendous desire--
    Mr. Miller. Let me just jump in here for a second. It has 
been the experience of the attorneys general and the banking 
regulators that the whole modification restructuring process 
has gotten off to a slow start. There are a lot of reasons for 
that. I discussed some of those obstacles earlier. Now is 
really the crucial time. We sense in our discussions with them, 
we sense the results from our hotline project that I described 
earlier, that the companies now are starting to make at least a 
little progress, some companies, certainly on modification. 
This is the crucial time.
    And that is why it is so important--the data that the 
attorneys general and the bank regulators are in the process of 
getting from the major servicers in the subprime market. We 
want to make sure that we know that this process is taking 
place on a significant scale, not just on a few examples. So we 
are in this for the long haul, the HEs and the banking 
regulators. We are working with the company, we have good 
relationships, we have good dialogue, we have the Iowa 
experiment to sort of show if it is working or not, and we will 
stay on this and try to make sure it works and try to make sure 
that everybody knows whether it is working or not.
    Mr. Sherman. It is a little more difficult than it looks to 
sit up here and figure out what questions to ask, and this 
hearing isn't as much fun as the hearing that Mr. Marks has 
suggested, in that we only have one lender and he is the guy 
that you are saying some nice things about, and you envision 
something more akin to the fun Representative Waxman had with 
the tobacco executives. In order to have that work most 
effectively, we are going to need to frame the right question.
    Representative Waxman could ask the question: Does tobacco 
cause cancer? This is a murky area. And it seems to me there 
are two or three different ways to phrase the question: How 
many of your borrowers are in trouble? And the question: What 
percentage of those are you really trying to help?
    So I would ask each of you to try--and I know Sandy has--I 
mean, this involves numbers, Sandy, but you have lots of help--
to come up with a question first: What should be the 
denominator? That is to say, how should we define the number of 
folks with ARMs that are resetting or other difficult to deal 
with loans and then, more importantly, the numerator. Because 
some of you might say, have you cut the interest rate by at 
least 50 basis points? Some of you might think it is okay if 
they just cut the interest rate 25 basis points. Have you cut 
the principal by at least 10 percent? Or have you cut the 
principal to only a de minimis amount?
    I would see these questions go in writing to the lenders 
before they come here, because these are such complex questions 
that if we had the executives here, they could say, gee, I 
don't know, I will get back to you. And that deprives us of all 
the fun. So I would hope you would work with us, and I think 
there might be different approaches. One of you might take a 
definition of working with a borrower that says, cut the 
interest rate by at least this, and no soft seconds, and no 
participation; others of you might have a lower definition.
    But what the country wants to know is, of the folks who are 
in trouble, how many are getting significant help from the 
financial services industry and how many are being told to pay 
or move?
    So I look forward to that--I see one witness with his hand 
up.
    Mr. Longbrake. Congressman, may I make a comment? I am 
representing the HOPE NOW Alliance that brings together 
servicers, not-for-profits, and other entities, and we are 
there to accelerate doing the right thing, to bring the best 
ideas to the table, and get the industry to follow through. So 
we would welcome Mr. Marks' questions being directed at the 
HOPE NOW Alliance as well.
    Mr. Marks. If I can add just one more thing, there is too 
much discussion on outreach and process. There is just too 
much. We know the solutions. We don't have to create more 
solutions. We have the solutions.
    But you are exactly right, Congressman. Exactly right. Ask 
the very specific questions, very specific. It is really 
straightforward, it is very straightforward: What interest rate 
did you reduce the borrower's interest rate to? Is it fixed? 
And how many have you done? Because if you look at the 
denominator--because with a Countrywide NACA agreement, we are 
not limiting it to subprime or whatever, it is everybody out 
there who has an unaffordable mortgage. Because if we get into 
a debate around what is considered subprime or predatory or 
whatever, we will be here for--
    Mr. Sherman. When you say ``unaffordable,'' somebody could 
have gotten a 5 percent, fixed 30 year loan, but they lost 
their job, or they are in the hospital, and it is now 
unaffordable for them. It is hard to blame the lender for that.
    Mr. Marks. And those are separated. But when the mortgage 
pushes someone into a point where they cannot afford that 
payment, those are the people who would go through the NACA 
process. What we stayed away from was a long discussion on how 
we define different types of loans because different people, 
well-intentioned people, have a different determination or 
valuation of that.
    But what you are saying is exactly correct. Get those 
executives here, please. Get them to stand up, under oath, and 
ask them those specific questions. How many have you done? And 
please don't let them get away with process. Don't let them get 
away with best of intentions. Hold them accountable.
    Mr. Sherman. I do want to agree with you that sending out a 
letter to every borrower saying, ``We love you, please call 
us,'' doesn't do any good unless that is the first step in a 
good process.
    Mr. Marks. The people don't trust the lenders.
    Mr. Sherman. I saw Mr. Wade with his hand up. I realize I 
am taking more than my time, and the chairwoman will cut me off 
pretty soon.
    Mr. Wade. I just want to add, the whole focus of the call 
center hotline is precisely to create solutions at the 
borrower's ability to pay. Historically, that is how we have 
created homeownership for over 20 years, at the borrower's 
ability to pay. You use a variety of tools. You have to use a 
variety of tools to get there. And in some cases, local 
jurisdictions have developed rescue funds to help people who 
have been temporarily out of work. People use those as a way to 
bridge that gap.
    So there are a variety of things that you can do to help 
address that, and I think, clearly, loan restructurings are a 
key part of that. I would agree with Mr. Miller that the 
industry has been not as quick to come to that as they could 
have.
    One other thing about the short sales and deed in lieu, 
again if we are doing this in a way that serves the consumer, 
there are consumers who make the decision that they no longer 
want to live in that house, so we help them facilitate a 
graceful way out of that. As you know, there are many consumers 
who are in situations where there has been job loss, their jobs 
have been exported somewhere else. They want to move somewhere. 
Other than giving them a graceful way to avoid a foreclosure, 
oftentimes a deed in lieu or short sale is the best way to do 
that for a consumer.
    So while it is not a panacea, it is one tool that consumers 
opt for when they make the decision that they no longer want to 
be a homeowner in that house, in that community.
    Mr. Sherman. Yes, I would comment that when the borrower is 
in trouble, that may have something to do with the loan or it 
may have something to do with other things in their life. There 
are people who had terrible loans, who were ripped off, who 
were steered into the wrong thing, but they just got a couple 
of promotions, and they can afford to make the payments. And 
there are people who got great loans, but they lost their jobs, 
and now they are troubled. It will be difficult for us to 
define what are the troubles that we regard as the financial 
services industry is responsible for and which are the ones we 
should hold the rest of the economy in trouble for when we 
don't have health coverage for people, when so many jobs are 
being exported, etc.
    One last question, and perhaps only a couple of witnesses 
will comment on this, is how effective has this committee and 
this Congress been already in jawboning the industry into doing 
the right thing? You have been on the other end of that jawbone 
so you are probably the best person to respond.
    Mr. Samuels. That is correct. As I mentioned in my remarks 
and the written testimony, I wanted to thank and commend 
Chairman Frank and this committee for doing a lot to remove 
many barriers. They have been very helpful on the investor 
issue, on the accounting issues with FAS 140 and there has been 
a lot of discussion about how to be better in terms of solving 
this problem. I think that a lot of what you have seen recently 
is a direct result of those efforts, and I think there was a 
meeting last week in Boston where there was a lot of good 
discussion, again a lot of good ideas. And it is not just this 
committee it is other governmental agencies. General Miller 
convened groups of attorneys general, very constructive, very 
good discussions. And we are not just talking process at these 
meetings, we are talking solutions, we are talking about ways 
to make sure that if we can, we will keep people in their 
homes.
    Ms. Moore of Wisconsin. I think this is really a good sign 
it is time to move on. Any time we start thanking the 
chairman--
    Mr. Sherman. May I add one thing?
    Ms. Moore of Wisconsin. Thanking the chairman and 
complimenting the chairman, that is a good sign that we need to 
move on.
    Mr. Sherman. Some of us want our provisions included in the 
bill and should not fail to take this opportunity to praise the 
chairman again and again.
    Ms. Moore of Wisconsin. As I said, we are praising the 
chairman. I think that is a good demarcation line, because he 
would not tolerate it at this point. All right.
    I would yield myself time right now and I would like to 
start with the attorney general from Iowa. I was in Waterloo 
last weekend and I saw board-ups of these gorgeous homes and I 
felt very, very sad about that. You said you had some success 
in reaching consumers by reaching out to them.
    I want to ask you, number one, did you do it via 
television, and then using the bully pulpit of the attorney 
general's office? You talked about a tremendous success rate in 
getting people to respond to your 800 number. Is it because you 
used television and you used the insignia of that office rather 
than, say, these mortgage rescue folks that people may have 
encountered?
    Mr. Miller. Well, we used the insignia or credibility of 
the office, plus, as you would describe in your terms, the free 
media. What happened, I think, is that over time--and I think I 
am right--the Iowa Attorney General's Office has developed a 
good record and a lot of credibility in the consumer area 
generally, that we are seen as the fighter and protector of 
consumers.
    When we came forward with this hotline, after having done a 
fair amount of work generally on this issue in Iowa and with 
other States, and having a good reputation, and the problem 
being severe when we came forward and did basically a media 
announcement, a lot of TV coverage, newspaper coverage, that 
this hotline was available, what the purpose was, and we had 
this enormous response.
    Ms. Moore of Wisconsin. Thank you, sir.
    Mr. Wade, you have indicated that you have done a lot of 
outreach, a lot of media, and you are a congressional creature. 
So I am asking you now, do you feel that you have enough 
resources to meet the challenge of reaching out to people? Do 
you need more money from Congress, or are you in a position to 
galvanize these resources from other partners in the Hope Now 
Initiative?
    Mr. Wade. We are looking for resources from all quarters in 
order to, obviously, support this work.
    Ms. Moore of Wisconsin. So what amount of money do you 
think you need in order to meet the challenge? Can you come up 
with a number that you would need in order to meet the 
appropriate outreach goals?
    Mr. Wade. Well, we have supported what is currently before 
Congress, and that is anywhere from an appropriation of--and I 
guess it is in conference--but anywhere from maybe $50- to $200 
million more dollars to go towards community-based 
organizations that are there working with consumers every day. 
We think that would be a great contribution there.
    But we also think the lending community needs to be a 
player as well. And as you heard, they are looking for a way to 
develop a method where they can compensate community-based 
groups on a per-customer basis for those consumers that are 
being assisted. So we think those two sources will go a long 
way toward solving the challenge of--the resources needed--
    Ms. Moore of Wisconsin. $50 to $200 million.
    Mr. Longbrake, do you think with the Financial Roundtable, 
that this would a really good starting point for jump-starting 
what has been a slow start in doing this, just go and get the 
roundtable together and say, you know, you can start out by 
anteing up? Or have you done that?
    Mr. Longbrake. Madam Chairwoman, that is exactly what we 
are doing. We actually had our members ante up many, many 
months ago for the public service advertising campaign that is 
both radio and television. We are asking all the members who 
are listed in the 17 members are being--signing contracts to 
reimburse for counseling.
    Ms. Moore of Wisconsin. Are they reluctant to do it? 
Because we hear, like from Mr. Marks, for example, that there 
are some recalcitrants in the community.
    Mr. Longbrake. We are talking to them and strong-arming 
them.
    Ms. Moore of Wisconsin. All right. My time is waning, so I 
really want to--Mr. Samuels, I will have to tell you that I am 
so disappointed that you aren't a numbers person, that you are 
a lawyer, because I am not necessarily a numbers person either, 
and I went to bed with this beautiful colored copy of your 
chart.
    Mr. Samuels. Yes, ma'am.
    Ms. Moore of Wisconsin. And I was reminded of the testimony 
that we had earlier from the Treasury Department that when you 
consider stuff like divorce and death and loss of income, that 
usually accounts for 1.7 percent of baseline foreclosures that 
occur every year.
    So, you know, I have to wonder when you say that you have 
put an extra $16 billion into dealing with this catastrophe, 
but in looking at your testimony, I can only account for, like, 
$16.2 billion worth of loans that you say were in trouble. I 
have to wonder, really--and I think Mr. Sherman sort of pointed 
to it, about the numerator and denominator, what exactly was 
your exposure with loans? You claimed that only 1.3 percent 
were due to payment adjustments.
    Mr. Samuels. Correct.
    Ms. Moore of Wisconsin. What does income curtailment mean?
    Mr. Samuels. It is loss of job, your income is reduced.
    Ms. Moore of Wisconsin. So 59 to 60 percent of the loans 
that Countrywide was servicing were due to job loss versus 
these horrible products?
    Mr. Samuels. That is right. I mean, the foreclosures--this 
is a chart of reasons for foreclosures. Okay? So the universe 
is for loans that are foreclosed upon.
    Ms. Moore of Wisconsin. Wait a minute. Back up. Help me 
understand this now, because I am not--because like I said, I 
went to bed--this chart was so confusing to me. Are you looking 
at the chart I am looking at?
    Mr. Samuels. I am not sure which chart you are referring 
to, ma'am.
    Ms. Moore of Wisconsin. This was mind-boggling to me. We 
have heard that foreclosures are just a fact of life, that some 
people are just deadbeats, whatever reason, that people lose 
jobs all the time, they are divorced all the time, that you 
underwrite knowing that 1.7 percent are going to fall into this 
category. And you are telling me that Countrywide had 59 
percent--well, including income curtailment was 59 percent. 
Illness was another 13 percent. Divorce was 7.3 percent. 
Somebody help me with the math. What are we up to so far? And 
so--
    Mr. Samuels. Right. That is right.
    Ms. Moore of Wisconsin. So most of these things were not 
due to Countrywide offering products like these resets. Because 
according to this chart--
    Mr. Samuels. And most people up to now have not been 
foreclosed upon because of resets. We haven't seen a lot of 
resets. I think we are going to see more in the future. We are 
going to see more in 2008--we are seeing some in 2007. We will 
see some in 2008 and 2009.
    Ms. Moore of Wisconsin. So Countrywide did not offer 
predatory loans or seriously subprime loans. And you put $16 
billion in and you have helped--$16.2 billion, and you have 
serviced--
    Mr. Samuels. No, no, no. The two numbers don't foot.
    Ms. Moore of Wisconsin. I know, because I went to bed 
thinking this doesn't make sense.
    Mr. Samuels. They are not related. Because of the $16 
billion, they fall--as the written testimony explains, they 
fall into three different brackets. One is to help refinance 
people who can refinance, who are facing resets. And a lot of 
these loans, the hybrid ARM loans, the 2/28 loans, what happens 
with many of these people is that they get into these loans, 
they make their payments, and then we refinance them into prime 
loans.
    One of the things I describe is that we did 31,000 of those 
up to now, this year, where we took subprime borrowers who were 
in subprime loans, these 2/28s or 3/27s, and we refinanced them 
into a prime fixed-rate loan.
    Ms. Moore of Wisconsin. These were only 1.3 percent of your 
portfolio, right?
    Mr. Samuels. 1.3 percent of the portfolio?
    Ms. Moore of Wisconsin. These subprime hybrid loans. I 
mean, because what you said was--the illness was 13 percent.
    Mr. Samuels. No. This is the number of foreclosures. These 
are the reasons for loans foreclosed upon. What I am talking 
about are loans that are still out there, current. They are 
still making their payments. Those are not--
    Ms. Moore of Wisconsin. Okay. All right, all right. Okay. 
So, Mr. Marks, you work very closely with Countrywide and, you 
know, from your perspective, they are just the greatest or most 
honest brokers in this. And I am not asking you to disclose any 
proprietary information, but as you work with restructuring 
these loans, is it your experience as well that most of them 
are due to the--really, incompetence of the borrower as opposed 
to terrible products that Countrywide put forward? And I 
apologize that you are the only lender here, but, you know, 
according to you, Mr. Marks, these are--you know, from what I 
can gather--and I did read your testimony until I just couldn't 
stay awake looking at this chart any longer. Is that your 
experience, that Countrywide just was an unlucky lender, and 
they didn't have these terrible products for the most part?
    Mr. Marks. No. In the industry, the industry, you have many 
of the players out there, whether it is Citigroup, Wells 
Fargo--
    Ms. Moore of Wisconsin. No, you are not supposed to name 
names. The chairman told me that.
    Mr. Marks. If you are saying that these products are out 
there in the industry but you tell me, Congresswoman, that if 
you have a lender out there who is willing to restructure loans 
at 5 and 6 percent, whatever it takes for that homeowner to 
stay--
    Ms. Moore of Wisconsin. Mr. Marks, here is what I am 
asking. Stop. I am not Mr. Frank. Let me ask you this, because 
I am not going to yield myself much more time. What I want to 
know is in your work with Countrywide--the only lender that is 
here and I feel that this is fair game because they are in a 
position to talk back--has it been your experience that they 
joined a group of lenders, joined people in the industry that 
had yeoman numbers of products that were horrific, bad, these 
2/28s for consumers that has created these problems--and, you 
know, to their credit, they are putting money into solving the 
problem, they are working with NACA to do it--that, in fact, 
there is some culpability on their part, even though they are 
addressing it, for putting these products out in the first 
place? Is that your observation?
    Mr. Marks. There is culpability on all the lenders.
    Ms. Moore of Wisconsin. Including Countrywide.
    Mr. Marks. Every one of them. Every one of them are out 
there. This was the industry. People in the industry 3 years 
ago, 4 years ago, knew that it was only a matter of time when 
these loans would go into default. This is not news.
    Yes, it came up in February, but this was known. These 
loans were structured to fail across the board, and that, yes, 
Countrywide is doing the right thing. We think the job of 
Congress is to get the other lenders to step up--
    Ms. Moore of Wisconsin. Okay. Well, good. Because I was 
misled by this chart. And you have just confirmed for me, Mr. 
Samuels, that I was one of the people misled by this chart 
thinking, my God, 60, 70, 80, or 90 of these people who are in 
trouble are in trouble because they had bad circumstances in 
their lives versus terrible products.
    Mr. Samuels. May I? First of all, this chart involves 
reasons for foreclosures. So we are talking about the universe 
of people who have been foreclosed upon, not a large number, 
okay? This is just percentages of people who had suffered 
foreclosures.
    I want to address a couple of points if I may. First of 
all, the people who have lost their jobs or got sick or, you 
know, one of the borrowers passed away--
    Ms. Moore of Wisconsin. 1.7 percent of baseline of people 
that this happens to every year? According to the Treasury. I 
am just going by--
    Mr. Samuels. Our experience is that it is obviously a lot 
higher number of people who face foreclosure, who suffer 
foreclosure because of those reasons. It is not because of 
their incompetence, it is because of life events.
    What happened is now you have a life event and you have no 
way out because your property value has gone done. It is 
tough--you know, the loan-to-value ratio that you have is too 
high or credit has tightened. So there is an inability now to 
fix a problem--or there is less of an ability to fix a problem 
than there may have been 4 or 5 years ago. But 5 years ago, if 
somebody took out a 2/28 loan and made those payments, then 3 
years ago we would have refinanced them into a fixed-rate prime 
loan. And that happened all the time. There are thousands and 
thousands of borrowers for whom that was a success story.
    Ms. Moore of Wisconsin. Okay. So I am going to yield now to 
Mr. Green, because I have gone on now too long and I just--so I 
heard what you said. You don't necessarily see a 2/28 loan as a 
predatory loan. You are just saying that stuff happens, and so 
now kind of the stuff hit the fan.
    Mr. Samuels. What I would say is if somebody was put into a 
2/28 loan and told, this is your interest rate for the next 30 
years, yes, that is a predatory loan. But the 2/28 loan by 
itself is not a predatory loan.
    Now, I will say also that one of the things that we have 
discussed with NACA and with other groups and that we are doing 
ourselves is that if somebody finds that they cannot afford 
that reset, they need to come to us; we will work with them so 
that they can keep their home. That is what the $16 billion is 
for. We will be working--
    Ms. Moore of Wisconsin. Thank you, Mr. Samuels. I will 
yield to my colleague, Mr. Green.
    Mr. Green. Thank you. And might I just remind the 
chairwoman that the Chair can never exceed the time limit.
    Quickly, let me do this. For edification purposes, so 
people will understand that Countrywide may not be unlike other 
lenders, did Countrywide engage in a no doc loan process? Did 
you have some no doc loans?
    Mr. Samuels. Yes, we did.
    Mr. Green. Did you have some interest only loans?
    Mr. Samuels. Yes.
    Mr. Green. 3/27s?
    Mr. Samuels. Yes.
    Mr. Green. 2/28s?
    Mr. Samuels. Yes.
    Mr. Green. Prepaid with penalties coinciding with teaser 
rates?
    Mr. Samuels. When you say coinciding with teaser rates--
    Mr. Green. A teaser rate for 2 years, prepaid with penalty 
for 2 years?
    Mr. Samuels. Yes. Prepayment penalty for the time of the 
introductory payment, yes. Not extending beyond that.
    Mr. Green. Right. No escrow accounts?
    Mr. Samuels. We have escrow accounts.
    Mr. Green. But did you have some loans with no escrow 
accounts?
    Mr. Samuels. We have some loans with no escrow accounts. 
There are some States that don't allow it.
    Mr. Green. These are all of the things that have created a 
great amount of consternation for us here in Congress.
    Look, there are some more. I just wanted to give you a 
short list. But here is where I am with you. You know, 
sometimes we see the error of our ways. There are times when we 
approach this thing called ``enlightened self-interest.'' And I 
am just assuming that you have now had the benefit of seeing 
that there is a better way to do business as it relates to this 
market at this time. And I again salute you for it because you 
have made a giant step in what I believe to be the right 
direction.
    I think that there is some argument that can be made that a 
3/28 or a 2/27 is inherently invidious. There is an argument 
that can be made for it, especially when you get into the 
subprime area, I think there is an argument. But that argument 
aside, because I think these debates are things that are at a 
more lofty level, and what I want to do today is find out how 
we can replicate what you are doing, because I see this based 
upon what you said.
    Now, everybody has said to me that there is, you know, no 
better way to do this than to have affordable loans--to 
restructure to affordable loans. And I think this is a great 
paradigm. So let me come back to it.
    Other than will, is it the general consensus of this group 
that the way can be found to do what Countrywide is doing? Is 
it a matter of will or is it a matter of way? Countrywide seems 
to have found the way and seems to have the will to implement 
this.
    Is that pretty much the case in the industry as you see it, 
or do we have some other--we don't want to get into names--but 
some other financial institutions that may have some other 
circumstances? For example, maybe they have tranches that are 
different from Countrywide's tranches. I haven't done any kind 
of comparative analysis, so maybe I don't know. Maybe they have 
investor contracts that differ greatly from the ones that 
Countrywide will have.
    So maybe this is something that our member from the 
Financial Services Roundtable can address, because you have a 
survey of information that you can share. Do the other members 
of the industry have problems that Countrywide doesn't have? 
Are they in a position different from Countrywide, such as they 
cannot do what Countrywide is doing?
    Mr. Longbrake. Congressman, let me just respond to that, if 
I may. There should be no reason why any member in the industry 
should have different responses than Countrywide has had. That 
is what the Hope Now Alliance has had. It is to bring members 
of the industry together to come up with these kinds of shared 
solutions.
    Mr. Green. Yes, sir. If I may coin a phrase, the ``hope 
now'' is great. But I hear Countrywide and NACA talking about 
``help now.'' And help now is really what a lot of folk are 
looking for. And by the way, I am extracting from the pool of 
folks who need help, those who will just want to refinance 
where they can get a better rate they really can afford to pay.
    My assumption is that the paradigm we are talking about is 
one that will vet out persons who are just trying to take 
advantage of what appears to be an opportunity, when they can 
afford to pay what they committed to pay. No one should be 
allowed to simply avoid a deal that they made. If you made a 
deal, you ought to honor your commitment. You really should.
    But now if you are in a position that you can't afford to 
do it, and we have a large pool of people who are in that 
position, then maybe they can get some consideration. I assume 
that these are the people that Mr. Marks is finding a way to 
vet and get to Countrywide.
    So with that said, the ``help now'' model is one that--the 
one I am talking about, Mr.--is it Mr. Longbrake?
    Mr. Longbrake. Yes, sir.
    Mr. Green. Mr. Longbrake, what about the Help Now model 
that I assume that the Hope Now will metamorphose into?
    Mr. Longbrake. The Help Now model is--first of all, you 
have to get--remember, Mr. Marks, step one was contact with the 
borrowers. You have to get them in, and then you go ahead and 
begin to assess, and ultimately you get to a solution that 
works for their situation. So we are working on the first step 
right now. This is to get contact, get them to the servicer, 
develop a solution.
    What Mr. Marks has developed is a very sophisticated 
solution that is a case-by-case that goes right to the 
specifics of each individual borrower and their capacity to 
pay. It is an affordable solution. And that is a worthy end 
point to get to as quickly as possible.
    Mr. Green. Thank you. And by the way, I want to thank you 
for being here on behalf of the Financial Services Roundtable. 
I understand that there is a desire to be helpful, and what I 
am trying to do is find out if we can replicate what 
Countrywide has given us today. We don't have the other lenders 
here to ask them personally or directly. So we speak through 
you, and I appreciate what you have said.
    Coming back to Countrywide now, the 3/28s and 2/27s, do you 
plan to continue with that product to the same extent that you 
have had it in the marketplace, or is this one of those 
questions that you are not in a position to answer?
    Mr. Samuels. No. I am in a position to answer. Underwriting 
guidelines have tightened significantly, as you are probably 
aware. And so these products are generally not available 
anymore.
    Mr. Green. Good. I will tell you--
    Mr. Samuels. Sir, I really would love to have the 
opportunity to meet with you and to discuss this issue at 
greater length.
    Mr. Green. I appreciate it. And I promise you, we can have 
that opportunity. I am amenable to the discussion. Mr. Marks?
    Mr. Marks. Sir, if I can ask--all your questions are right 
on. The one thing that is in the agreement that has had a 
tremendous impact, even more than we had recognized when we 
initiated the agreement, and that is the transparency issue. 
And the transparency is that you hear from a lot of servicers 
out there, ``I would love to do it but the investor says no,'' 
because it is all in tranches and all that.
    So let me read to you what we are doing: If a NACA home 
safe solution is denied by Countrywide or investor insureds or 
other third party, Countrywide shall provide the following in 
writing:
    The specific investor agreement reference identification, 
investor trustee contact information, investor reason for 
denial, the relevant sections on the investor pooling servicing 
agreement, and the opportunity to appeal the investor's 
decision based on the borrower's risk of default without 
adhering to the NACA home safe solution. If the denial is not 
based on the requirements of the applicable investor, the 
justification for such denial.
    Because Countrywide is doing the right thing out there and 
they shouldn't be held responsible when an investor says no. 
But that gives the transparency out there that says, who are 
these people pulling the levers behind the curtain saying no? 
And our experience to date is that they really don't exist, 
that these investors are very willing to restructure the loans, 
and that they are used as this excuse by a lot of other 
servicers out there not to restructure the loans. And that 
transparency has had a huge impact.
    Ms. Moore of Wisconsin. That is a great place to end the 
hearing.
    Just a moment. The Chair notes that some members may have 
additional questions for this panel which they may wish to 
submit in writing. Without objection, the hearing record will 
remain open for 30 days for members to submit written questions 
to these witnesses and to place their responses in the record.
    And with that, this hearing is adjourned.
    [Whereupon, at 12:49 p.m., the hearing was adjourned.]


                            A P P E N D I X



                            November 2, 2007
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