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




 
                FORECLOSURE PREVENTION AND INTERVENTION:
                   THE IMPORTANCE OF LOSS MITIGATION
                     STRATEGIES IN KEEPING FAMILIES
                             IN THEIR HOMES

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

                             FIELD HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 30, 2007

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-81


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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 A. WILSON, Ohio              ADAM PUTNAM, Florida
ED PERLMUTTER, Colorado              MICHELE BACHMANN, Minnesota
CHRISTOPHER S. MURPHY, Connecticut   PETER J. ROSKAM, Illinois
JOE DONNELLY, Indiana                THADDEUS G. McCOTTER, Michigan
ROBERT WEXLER, Florida               KEVIN McCARTHY, California
JIM MARSHALL, Georgia
DAN BOREN, Oklahoma

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
           Subcommittee on Housing and Community Opportunity

                 MAXINE WATERS, California, Chairwoman

NYDIA M. VELAZQUEZ, New York         SHELLEY MOORE CAPITO, West 
JULIA CARSON, Indiana                    Virginia
STEPHEN F. LYNCH, Massachusetts      STEVAN PEARCE, New Mexico
EMANUEL CLEAVER, Missouri            PETER T. KING, New York
AL GREEN, Texas                      JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN B. MALONEY, New York         GARY G. MILLER, California
GWEN MOORE, Wisconsin,               SCOTT GARRETT, New Jersey
ALBIO SIRES, New Jersey              RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota             GEOFF DAVIS, Kentucky
CHARLES A. WILSON, Ohio              JOHN CAMPBELL, California
CHRISTOPHER S. MURPHY, Connecticut   THADDEUS G. McCOTTER, Michigan
JOE DONNELLY, Indiana                KEVIN McCARTHY, California
BARNEY FRANK, Massachusetts


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    November 30, 2007............................................     1
Appendix:
    November 30, 2007............................................    91

                               WITNESSES
                       Friday, November 30, 2007

Albon, Michaela, Senior Vice President and General Counsel, Home 
  Loans Division, Washington Mutual..............................    37
Arnold, LeFrancis, Vice Chair, Affordable Housing Committee, 
  California Association of Realtors.............................    72
Bates, Joseph C., Director, Santa Ana Homeownership Center, U.S. 
  Department of Housing and Urban Development....................    15
Blackwell, Brad, Executive Vice President, Wells Fargo Home 
  Mortgage.......................................................    39
Burnie, Evalyn, Leader, Los Angeles ACORN, accompanied by Richard 
  Castro, NeighborWorks America..................................    79
Cho, Hee Suk, Homeowner, Camarillo, California, accompanied by 
  Joshua Byung An, Korean Churches for Community Development, 
  serving as a translator........................................    68
Clark, Yolanda, President-Elect, Multicultural Real Estate 
  Alliance for Urban Change......................................    74
Deutsch, Tom, Deputy Executive Director, American Securitization 
  Forum..........................................................    41
Frisbee, Margaret, Pacific District Director, NeighborWorks 
  America........................................................    78
Heedly, William, Homeowner, Carson, California...................    67
Herrera, Pastor, Director, Department of Consumer Affairs, Los 
  Angeles County.................................................    21
Krimminger, Michael H., Chairman's Special Advisor for Policy, 
  Federal Deposit Insurance Corporation..........................    17
Lee, Karen, Homeowner, Los Angeles, CA...........................    44
Leonard, Paul, California Office Director, Center for Responsible 
  Lending........................................................    45
Peters, Heather, Deputy Secretary for Business Regulation, 
  Department of Business, Transportation, and Housing, State of 
  California.....................................................    19
Rogan, Sean, Director, Department of Housing and Community 
  Development, City of Oakland, California.......................    22
Samuels, Sandor, Executive Managing Director, Countrywide 
  Financial Corporation..........................................    35
Smith, Ed, Jr., Vice President, California Association of 
  Mortgage Brokers...............................................    70
Thomas, Anna M., Homeowner, San Pedro, CA........................    44
Twomey, Tara, Of Counsel, National Consumer Law Center...........    76
Villaraigosa, Hon. Antonio R., Mayor of Los Angeles, California..    12
Young, Hon. Anthony, City Council President Pro Tempore, San 
  Diego, California..............................................    10

                                APPENDIX

Prepared statements:
    Lantos, Hon. Tom.............................................    92
    Albon, Michaela..............................................    94
    Bates, Joseph C..............................................    99
    Blackwell, Brad..............................................   103
    Deutsch, Tom.................................................   108
    Frisbee, Margaret............................................   113
    Herrera, Pastor..............................................   121
    Krimminger, Michael H........................................   125
    Lee, Karen...................................................   141
    Samuels, Sandor..............................................   142
    Smith, Ed, Jr................................................   157
    Twomey, Tara.................................................   165
    Villaraigosa, Hon. Antonio R.................................   176
    Young, Hon. Anthony..........................................   188

              Additional Material Submitted for the Record

Waters, Hon. Maxine:
    Statement of the NAACP.......................................   190


                       FORECLOSURE PREVENTION AND
                      INTERVENTION: THE IMPORTANCE
                     OF LOSS MITIGATION STRATEGIES
                          IN KEEPING FAMILIES
                             IN THEIR HOMES

                              ----------                              


                       Friday, November 30, 2007,

             U.S. House of Representatives,
                        Subcommittee on Housing and
                             Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10 a.m., at 
the California Science Center, 700 State Drive, Los Angeles, 
California, Hon. Maxine Waters [chairwoman of the subcommittee] 
presiding.
    Members present: Representatives Waters and Green.
    Also present: Representatives Napolitano, Richardson, 
Sanchez, and Watson.
    Chairwoman Waters. This hearing of the Subcommittee on 
Housing and Community Opportunity will come to order.
    Good morning, ladies and gentlemen. I would like to start 
by thanking the California Science Center for once again 
allowing us to use this wonderful space for our subcommittee 
hearing, as they did last year.
    In addition to the hearing, you all should be aware that 
resources are being made available next door to assist 
homeowners who are in danger of foreclosure. Please stop by if 
you or somebody you know is facing problems making mortgage 
payments, and the good folks from Neighborhood Housing Services 
and others can work with you.
    I would also like to thank Congressman Al Green, from 
Texas--one of our most dedicated subcommittee members--for 
traveling all the way from Houston to join us today.
    And, finally, without objection, Representative Grace 
Napolitano, Representative Laura Richardson, and we will soon 
be joined by Representative Linda Sanchez, will all be 
considered members of the subcommittee for this hearing, and 
their opening statements will be made a part of the record. I 
would like to thank them for participating today. They are not 
members of the subcommittee, but they care so much about this 
issue that they wanted very much to be here and they are here. 
Thank you very, very much.
    Before we hear from our panels, I would like to explain 
briefly why we are having this hearing and what I hope to 
accomplish today. Hopefully, this will help the witnesses focus 
on their remarks and responses to members' questions. First, 
with respect to the ``why'' of holding this hearing, it would 
be arguably derelict of this subcommittee not to hold hearings 
regarding the subprime mortgage market and home foreclosure 
crisis.
    This issue is not only the biggest story in housing, in the 
whole housing world that this subcommittee operates in daily, 
it is currently the biggest economic story in the Nation, and 
perhaps the world. A field hearing in California is warranted, 
given that our State lies at the epicenter of the foreclosure 
wave. California's third quarter foreclosure rate of 1 filing 
for every 88 households ranks second highest among all States 
and reflects a near quadrupling of the number reported for the 
same period last year; 8 of the top 20 cities in foreclosure 
filings are in California.
    Clearly, then, there is no better place to gauge the 
response to date by public and private stakeholders than here. 
And the stakes could not be higher. Having watched the turmoil 
in the mortgage markets unfold over the past year, it has 
struck me that two assessments made at various points by key 
prognosticators inside and outside government have yet to hold 
true.
    The first such claim is anything along the lines of, ``This 
foreclosure crisis isn't as big as we thought it was, and we 
appear to have our arms around the magnitude of the problem.'' 
The second quote is, ``This problem in the housing finance 
sector is unlikely to have tremendous impact on the rest of the 
economy and threaten growth.'' Rather, at every step the scope 
of the crisis has proven to be larger than originally 
anticipated, including by the Department of Treasury and the 
Federal Reserve. And we have not yet reached the crest of the 
wave, as millions of adjustable rate mortgages are scheduled to 
reset over the next 12 months.
    Similarly, initial assurances that the problems of the 
mortgage market are unlikely to spill over into the rest of the 
domestic and global economy now seem wildly overoptimistic. 
Many of the Nation's largest financial institutions find 
themselves heavily invested in mortgage-backed securities of 
uncertain and declining value with extraordinary ripple effects 
being felt across the global financial markets.
    Former Treasury Secretary Lawrence Summers now puts the 
chances of avoiding recession at less than 50 percent, unless 
decisive action is taken. I take this warning very seriously, 
as I witnessed how the S&L crisis of the late 1980's 
contributed directly to the recession of the early 1990's, 
which in turn brought a 20 percent drop in California housing 
prices during my first 6 years in Congress.
    I would note, further, that the financial services industry 
now makes up nearly twice the share of gross domestic product 
compared to then, meaning an unredressed crisis in that sector 
is far less likely to be segregated from overall economic 
wellbeing today. So the magnitude and urgency of the crisis 
clearly merits a hearing.
    Let me proceed, then, to my second point, namely what we 
are trying to accomplish with this hearing. As a senior member 
of the Financial Services Committee, I have obviously been 
involved in the committee's many activities around the subprime 
crisis spearheaded by a very able chairman from Massachusetts, 
Chairman Barney Frank. However, the focus of many of our 
hearings and legislative activities has been on preventing the 
next crisis.
    The House recently passed H.R. 3915, the Mortgage Reform 
and Anti-Predatory Lending Act of 2007, which puts in place new 
Federal standards for loans designed to prevent ongoing abuses 
in the subprime market. While I remain concerned that the 
preemption provisions of this bill may inhibit States from 
taking on the pioneering enforcement role they assumed in the 
current crisis, there is no question that H.R. 3915 is a 
significant piece of prospective legislation.
    Today, though, I want to focus on the effectiveness of what 
is being done to address this crisis right now. To a large 
extent, such measures by Federal regulators and the major 
private sector stakeholders have had to take place under 
existing legal authority, though we in Congress have certainly 
encouraged them to interpret the authority so as to take bold 
rather than timid steps. This has included, for example, House 
passage of my FHA modernization bill, H.R. 1852, designed in 
part to make FHA insurance more available to assist currently 
distressed homeowners.
    Even before Senate and presidential action on this bill, 
HUD heard the signal of congressional intent and created the 
FHA Secure Program under its current authority to give the FHA 
a more central role in the current crisis. Simply put, the 
overarching question of the day is, how is it going? In other 
words, what has been the impact on the ground to actual 
borrowers of the various loss mitigation initiatives that we 
have heard about in Washington?
    This, of course, includes such national initiatives as FHA 
Secure and HOPE NOW Alliance between major mortgage servicers--
and NeighborWorks--and State efforts like the agreement 
announced by Governor Schwarzenegger a few days ago. I am 
especially focused on the rate at which distressed borrowers 
are receiving timely, effective loan modifications from their 
servicers.
    I have said from the beginning of the crisis that the 
mortgage servicers are the key to any solution. They are 
literally where the rubber hits the road in a system, where a 
homeowner's actual mortgage may be sitting in third tranche of 
a security held by an investor 6,000 miles away.
    I fully recognize that servicers face constraints on their 
actions, most obviously the pooling and servicing agreements 
that they have with their investors. They are under a fiduciary 
obligation not to just give away the store, and efforts to help 
a homeowner and avoid foreclosure, but not all homeowners are 
similarly situated in terms of the appropriate loss mitigation 
strategies.
    At the same time, however, I am concerned about reports 
that servicers have not been moving as quickly as they might 
under their current authority. Indeed, I fear we may have lost 
critical time as servicers and the Treasury Department and the 
Federal Reserve have only recently begun to concede that a 
plodding loan-by-loan renegotiating and reunderwriting process 
simply won't get the job done fast enough to stem this crisis.
    I understand that Secretary Paulson yesterday met with a 
number of the servicers represented here today to discuss this 
very issue, and I am interested to hear more about that meeting 
than may have been reported in the press today. To be clear, I 
enter this hearing with an open mind.
    I hope that servicers will tell me and the members of this 
subcommittee about any further obstacles to decisive action 
that this subcommittee might help with. And, further, that the 
reports we hear today from consumer groups, regulators, and 
homeowner witnesses, indicate things are moving in California 
at an appropriately rapid pace. But I would be less than honest 
if I did not share up front my concern that they are not.
    Even more distressing are reports that servicers profit 
from foreclosure fees far more than I think many of us 
suspected, adding to my eagerness to confirm that their actions 
underground in California are consistent with their reports to 
the full committee when it comes to engaging in effective loss 
mitigation strategies.
    Today's hearing, in turn, informed the subcommittee's 
legislative work in regard to mortgage servicers and loss 
mitigation. Indeed, during the markup of H.R. 3837, the Escrow, 
Appraisal, and Mortgage Servicing Improvement Act, Subcommittee 
Chairman Kanjorski and I agreed to focus on the question of 
whether some duty for servicers to engage in loss mitigation 
activities is called for and given current circumstances.
    With that, I would like to thank all of our elected 
officials who may be in the audience today. I know that 
Assemblyman Mike Davis is with us today. And I know that he is 
working on this very issue and will be having a hearing that is 
coming up, I believe, on December 8th. So we will share that 
information with our audience before we leave here today.
    With that, I would like to recognize Mr. Green, the 
Congressman from Houston, for his opening statement.
    Mr. Green. Thank you, Madam Chairwoman. I especially want 
to thank you for convening this most timely hearing, and I 
would like to, if I may, just thank you for what you have been 
able to do in just a few months as Chair of the Housing 
Subcommittee. In a very short period of time, Madam Chairwoman, 
I am grateful that you have taken on some of the pressing 
issues, including issues of 2/28s and 3/27s, issues that would 
allow persons to get fixed financing for 2 years, and then 
variable financing for 28 years, 3 years in the 3/27s and 27 
years of variable financing.
    I am mentioning these things because I want you to 
understand that I am appreciative that you have made a 
difference in the lives of people by virtue of being chair of 
this subcommittee. You have truly been the harbinger of help 
for the helpless and a purveyor of power to the powerless.
    And, friends, I think that even in subcommittee hearings 
like this it is appropriate to give an expression of 
appreciation to a Chair who is working tirelessly to make life 
better for the least, the last, the lost, and those who are 
trying to fulfill the American dream.
    So I come today, and I am honored to be here, with an 
understanding that Dr. Martin Luther King imparted to us. He 
reminded us that life is an inescapable network of mutuality, 
tied to a single garment of destiny. What impacts one directly 
impacts all indirectly.
    And that is why this subprime crisis is one that everyone 
must be concerned with. Those who say, ``Let them suffer. They 
made their beds hard, let them lay, let them lie, let them 
stay,'' friends, they are mistaken. This problem is not one 
that will be localized. There are many prime homes in areas 
where subprime loans have been made.
    And when the for sale signs are up, the value of property 
goes down. When the value of property goes down, taxes are 
smaller. When property taxes are smaller, schools, roads, and 
infrastructure don't get the repair that is needed. So you 
cannot conclude that because I did not get a subprime loan that 
may go into default that I don't have a problem. This is an 
American problem, and we all must be involved in the solution 
to the problem, especially the Housing Subcommittee and the 
United States Congress.
    If the President decides that he is going to call together 
some business persons and try to work out a system, a solution, 
I think that is wonderful. If the courts rule appropriately in 
certain cases, the Judiciary Branch of government, I think that 
is wonderful. But I think people expect the Housing 
Subcommittee to do what we are doing today, and that is to hold 
hearings to try to find out how we can be of assistance to 
homeowners across the length and breadth of this country.
    And when we do this, we are interested in not knowing that 
we have some catchy slogan, like ``Hope Now,'' which is a good 
one, and I don't want to demean the process, but I understand 
that people really want help now. HOPE NOW is a great way to 
impart a desire for people to continue, but the people that I 
talked to, they want help now. And they understand that the 
details are where you either are going to have more hope that 
will lead to help or you are going to find that you are stalled 
in a process that does not lend itself to your getting the help 
that you need.
    Again, this is not something that is isolated to any 
community or any given neighborhood. It is something that is 
happening across the length and breadth of this country.
    I also want to acknowledge and appreciate very much what is 
being said by members of the Administration with reference to 
their desire to be of help, but I do wonder if they are aware 
that we have already passed legislation through this 
subcommittee to do much of what they are saying they want 
Congress to do. And it may be time for people to become 
truthful and say they want certain aspects of Congress to act 
that have not acted, because this subcommittee has been moving 
tirelessly to make sure that homeowners will have the 
opportunity to keep their homes.
    So I look forward to hearing from the witnesses who are 
here today, and I assure you that I will have some questions 
that I think will be of interest to them and to me and to the 
constituents that I serve, given that we have about 2.5 million 
adjustable mortgages that will adjust by the end of next year, 
and that is about $600 billion. That is going to have a 
tremendous impact.
    The U.S. Conference of Mayors has indicated that at least 
1.4 million homes will enter into foreclosure next year. That 
is going to have a significant impact. The size of the problem 
is large, but it is one that we can manage. We only have to 
decide that we are willing to work together. This chairwoman 
has been willing to work with whomever will work with her, and 
I join her, and I look forward to hearing from the witnesses 
today.
    Thank you, Madam Chairwoman, for your time.
    Chairwoman Waters. Thank you very much. Thank you.
    Next, I would like to recognize one of my colleagues that I 
work very closely with--and we are so lucky to have such a 
wonderful group of elected officials in this overall area--
Grace Napolitano representing the 38th Congressional District.
    Mrs. Napolitano. Thank you, Madam Chairwoman. I will keep 
my remarks short and brief. But I echo Congressman Green's 
sentiments about Chairwoman Waters, because any time I have an 
issue on public service or on fairness and justice, I know I 
can call her and she is sitting right there next to me trying 
to fight for the ones who do not have a voice.
    This is something that affects the economy of the United 
States. It affects the heart of our people. People have a home, 
they have roots, they have the ability to educate their 
children, they have the ability to own businesses. This is 
economy. This is the future of what we have been striving for, 
and to lose it for many will be catastrophic.
    And we want to ensure that anybody who has an issue can 
understand that this Chair and this subcommittee has been 
putting forth the propositions, and hopefully they will get out 
of the Senate to be able to address what has been happening 
throughout the United States. And understand that a lot of what 
is--I have seen and heard is that foreign corporations are 
buying us up.
    We cannot afford to have them do that. Land is ours. It is 
our people. And as you can see, it is a very diverse America 
that we must continue to be able to support in moving forward 
to protect our families and our communities.
    So thank you for allowing me to be part of your hearing. I 
may not be able to stay the whole time, because I have other 
commitments, but this is a very serious matter for my area 
also, and I am sure for the rest of California and the Nation. 
And I thank you for your leadership and hope my colleagues will 
consider coming into my area some time within the not-too-
distant future, because we need to spread the word about what 
is really happening and how we can work together to address 
that.
    So thank you, Madam Chairwoman, and I am very happy to be 
here.
    Chairwoman Waters. Thank you very much.
    We will be joined shortly by Ms. Sanchez, who is on her way 
here and has been caught up in traffic. But next we are going 
to hear from one of our newer Members of Congress. We are so 
pleased and proud that Laura Richardson has joined us in the 
Congress of the United States of America. She hit the ground 
running, and she is focused on this issue. I think she may have 
cut short a trip that she was involved in to get back here, so 
that she could be at this hearing today.
    Thank you, Congresswoman Laura Richardson.
    I will recognize you for your opening statement.
    Ms. Richardson. Thank you, Chairwoman Waters, for holding 
this very important hearing today. Domestically, I cannot think 
of another topic that is more important to all of the citizens 
of California and the United States when you look at it 
nationwide than the current crisis that is occurring in the 
housing market.
    It was just less than 5 years ago that lenders across the 
country were recording record sales, and countless Americans 
were experiencing the joy of becoming new homeowners as they 
took out subprime loans and adjustable rate mortgages to 
finance their dreams. However, as the old saying goes, ``If 
something is too good to be true, it probably is.''
    Preying on wide-eyed aspirations of many low-income first-
time homebuyers, some lenders disregarded industry-wide lending 
standards for an opportunity to take advantage of a booming 
housing market that saw home prices increase dramatically at 
the turn of this century. With teaser rates that are now set to 
explode, the dream that many families set out to achieve has 
become, in less than 2 years, an absolute nightmare.
    The Center for Responsible Lending estimates that 8.4 
million neighboring homes in California will experience 
devaluation because of foreclosures in California. The same 
study reveals that the foreclosures can bring down the values 
of not only that person's home, but their neighboring area as 
well.
    As was stated by Representative Green, when you have the 
decrease in overall property value for a particular 
neighborhood, that reduces the tax base, and the local 
government then that depends upon those dollars is unable to 
adequately fund for police, firefighting services, garbage 
pickup, and public schooling. This clearly illustrates that 
this is a community problem that we are all affected by. It is 
painfully obvious that we cannot sit back and do nothing, not 
when the foreclosure crunch is being felt by more Californians 
than in any other State in the Nation.
    As I get ready to close, I would like to speak to you a 
little bit about my district. Statistics from the 37th 
Congressional District, which includes Watts, Compton, Long 
Beach, Carson, and Signal Hill, are alarming to say the least. 
Thirty-six percent of the loans originated in my district were 
subprime loans. One in five of these subprime loans will end in 
foreclosure.
    That means that the 37th Congressional District, of more 
than 225,000 surrounding homes, will be affected by the price 
declines as a result of these foreclosures. As a Member of 
Congress, we recently passed legislation, H.R. 3915, that was 
recently stated, but you need to know on something that I feel 
quite passionate about that if we were to look at this 
situation related to a disaster, similar to the recent fires or 
what happened in Katrina, stronger efforts probably would have 
been taken.
    And I am here to say that just because there is not a fire, 
just because there is not a flood, this must be addressed in 
our community.
    Again, I want to thank Congresswoman Waters. You should all 
know, sometimes when we are involved in local government you 
hear something that a person is a chair of a particular 
committee, and you may not understand the magnitude of that. 
Congresswoman Waters has had a long history of advocacy 
regarding many issues, but in particular of housing and the 
work that was done in Katrina was something that was needed. We 
are fortunate that she happens to represent us here in 
California, but she is spearheading this issue across the 
Nation.
    I am more than happy to stand with her and the other 
members of this subcommittee as we have this hearing to figure 
out what additional solutions can be brought forward to address 
this very serious problem.
    Thank you, Chairwoman Waters, for your leadership.
    Chairwoman Waters. Thank you so very much.
    The other member who will be with us today, working with us 
today, just arrived. And, again, as I said, we are so fortunate 
here in Southern California to have such strong advocates for 
people, for working people, for poor people, and such a 
representative is Ms. Linda Sanchez from the 39th Congressional 
District.
    Thank you so much for being with us today, and I will 
recognize you for an opening statement.
    Ms. Sanchez. Thank you, Madam Chairwoman.
    My apologies for my tardiness, but the traffic and the rain 
are a bad combination in Los Angeles.
    Chairwoman Waters. Yes.
    Ms. Sanchez. I am pleased to be here this morning, and I 
really want to thank Chairwoman Waters for organizing today's 
hearing and for inviting me to participate in it. Her 
leadership on this critical issue has been a key part of 
Congress' effort to develop solutions for working and middle-
class families who find their American dream at risk of 
becoming a nightmare.
    The subprime mortgage crisis has inflicted severe stress on 
our national financial system and has even triggered concerns 
in our global economy. Falling real estate prices and a 
reduction in the availability of loans are making it more 
difficult for overstretched homeowners to either refinance 
their way out of trouble or even to simply sell their homes.
    In 2006, 1.2 million foreclosures in the United States were 
recorded. That is almost double the number that existed in 
2005. By this year's end, foreclosures could reach the 2 
million mark, and statistics of this magnitude haven't been 
seen in this country since the Great Depression.
    The subprime mortgage crisis has hit our economy hard and 
will continue to spiral downward if we don't address it with 
swift and discernible action. If changes to the mortgage 
lending system are not made, an astounding $400 billion worth 
of mortgage defaults will occur in the United States between 
now and 2008.
    In my Congressional District alone, where 31 percent of 
home mortgages made in 2005 and 2006 are subprime loans, that 
means that one in every five of those families will likely 
receive a notice of foreclosure. One in every five. Challenges 
posed by the subprime mortgage crisis don't end with those who 
lose their homes.
    Even those who are fortunate enough to pay their mortgages 
on time and be able to maintain their homes will be affected. 
Foreclosures reduce property values of nearby properties and 
induce lenders to tighten credit, making borrowing credit more 
expensive even for those with good credit.
    Approximately 198,000 homes in my district face price 
declines amounting to about $2.4 billion in home equity loss 
due to the fallout from the foreclosures. So even if you don't 
have a subprime mortgage, don't think for a second that this 
crisis isn't going to affect you. We must all do what we can to 
help prevent additional foreclosures and to ensure that lenders 
no longer have incentives to lend carelessly to subprime 
borrowers with shaky credit.
    The Emergency Home Ownership and Mortgage Equity Protection 
Act of 2007, which I introduced in September along with our 
colleague, Brad Miller of North Carolina, is just one of the 
measures that we are working on in Congress to protect American 
families during this financially turbulent time. This bill 
would protect homeowners whose situations are so dire that they 
have no other option but to declare bankruptcy.
    This legislation would help at least 600,000 U.S. families 
and homeowners affected by the subprime lending crisis to avoid 
losing their homes as a result of foreclosure. It would allow 
bankruptcy judges to restructure home mortgage debt as they 
concurrently do for mortgages on investment properties, 
vacation homes, and family farms.
    Currently, the law allows bankruptcy judges to modify 
mortgages for families who are fortunate to own a second home, 
such as a vacation home or an investment property, but denies 
judges the ability to do the same for working class families 
whose only property is the home they live in. And that simply 
doesn't make sense to me, given that most Americans only own 
one piece of property, and that is the home that they live in.
    All homeowners should be treated similarly and have access 
to the full range of financial support and options available, 
whether they have multiple vacation homes or just one cozy 
cottage. The Emergency Home Ownership and Mortgage Equity 
Protection Act provides that relief and simultaneously lessens 
the pressure on the mortgage market and the broader economy.
    With even more subprime loans scheduled to reset at higher 
interest rates in the next 18 months, mortgage servicers and 
Congress must act now to prevent the current wave of 
foreclosures from turning into a tsunami of foreclosures.
    I want to thank all of our distinguished witnesses in 
advance for taking the time to be here, and I look forward to 
their testimony.
    I thank the gentlewoman, and I yield back the remainder of 
my time.
    Chairwoman Waters. Thank you very much. Thank you.
    Before I introduce our first panel of witnesses, I would 
like to thank all of you who have taken time to come here 
today, particularly in the rain. I had not expected such a 
turnout. You do me proud. Thank you very much. Give yourselves 
a big round of applause.
    Ladies and gentlemen, we are expecting the Mayor, Mayor 
Antonio Villaraigosa, to join us. He has a very tight schedule, 
and we will try and put him on as soon as he comes in the room.
    Now I would like to introduce our witnesses for the first 
panel: the Honorable Anthony Young, city council president pro 
tempore, from San Diego, California; Mr. Joseph Bates, 
Director, Santa Ana Homeownership Center, U.S. Department of 
Housing and Urban Development; Mr. Mike Krimminger, Chairman's 
Special Advisor for Policy for the Federal Deposit Insurance 
Corporation; Ms. Heather Peters, deputy secretary for business 
regulation, Department of Business, Transportation, and 
Housing, State of California; Mr. Pastor Herrera, director, 
Department of Consumer Affairs, Los Angeles County; and Mr. 
Sean Rogan, director, Department of Housing and Community 
Development, City of Oakland, California.
    I would like to thank all of you for appearing before the 
subcommittee today, and without objection, your written 
statements will be made a part of the record. You will now be 
recognized for a 5-minute summary of your testimony. I will 
start with the Honorable Anthony Young. Thank you for being 
here.

    STATEMENT OF THE HONORABLE ANTHONY YOUNG, CITY COUNCIL 
          PRESIDENT PRO TEMPORE, SAN DIEGO, CALIFORNIA

    Mr. Young. Thank you, Chairwoman Waters. And before I 
begin, I wanted to let you know how much I appreciate the work 
that you have done. The individuals in San Diego have 
recognized that, and they sent me to tell you thank you for all 
of your work. I have watched all of your careers, and I just 
want to say thank you for all the work that you have done.
    Chairwoman Waters. Thank you.
    Mr. Young. On behalf of the City of San Diego and the City-
County Reinvestment Task Force, I would like to thank you again 
for your invitation. We appreciate your interest in a topic 
which for the City of San Diego, the State, and the country is 
having a profound impact on people's lives and our economy. The 
impact is being felt by all segments of the population, 
including our military.
    In the first 9 months of this year, 15,582 homes have 
received notices of default from their lenders in San Diego 
County alone. Forty percent of those end up in foreclosure. 
Between January of 2007 and September, foreclosures have 
increased by 100 percent in San Diego County. We project this 
rate to increase and continue unabated for the next 2 years 
based on the volume of subprime loans dumped into the local 
market. And I say ``dumped'' onto our local market because the 
majority of those loans have come from mortgage brokers who are 
no longer in business.
    Over 70 firms in San Diego County in our region are 
either--have either gone bankrupt or are selling off over the 
past 2 years. We have been victimized by an industry that 
functions without regulations, with minimal supervisions, that 
can appear and disappear without penalty and without 
responsibility for the damage that they inflict on people's 
lives in this economy. It troubles me to think that our 
servicemen and women who are currently fighting and putting 
their lives on the line to protect our country are particularly 
being preyed upon.
    Historically, in San Diego, crises in the housing market 
are caused by a combination of external or economic factors. In 
this case, the foreclosure epidemic has been caused by 
unregulated funds from new State licensed mortgage lenders, 
most of whom are no longer in business as I said before, home 
mortgage brokers being paid double and triple commissions for 
subprime and predatory loans targeted to low-income, and 
particularly ethnic borrowers, lack of State supervision or 
authority to regulate interest rates and loan terms in the 
absence of supervision over Fannie Mae and Freddie Mac and 
their policies related to securities' purchase of subprime and 
predatory home loan products, and lack of national regulations 
related to securities, and leveraged finance obligations for 
Wall Street investments.
    The City-County Reinvestment Task Force, which I chair, has 
been following this issue for the last 2 years. We have filed 
comments on pending legislation with Federal bank regulators, 
the Banking and Finance Committee of Congress, the State, and 
directly to a number of major regulated financial institutions, 
many of them who actually sit on the Reinvestment Task Force 
that I chair.
    Seeing little if any action at any level has resulted in 
our adoption of local strategies to attempt to manage this 
serious economic problem. For the last year, this task force 
has held hearings in order to define the problem and engage in 
finding tangible solutions.
    We have created a list of recommendations that were 
presented and adopted by the City Council at the City of San 
Diego. Some of the recommendations and actions were to direct 
the City and county lobbyists to aggressively support Federal 
and State legislation which provides increased funding of 
nonprofits for foreclosure counseling, that establishes rules 
and regulations for unregulated mortgage companies and brokers, 
that the Reinvestment Task Force will work in partnership with 
nonprofits and State coalitions to negotiate with major lenders 
for reasonable workout programs and loan products for 
customers.
    And we recommend that the city, county, and State legal 
authorities develop an enforcement strategy for interdicting, 
reducing, and removing predatory mortgage lending practices in 
the region, including review of potential security violations. 
We also requested that the city and county establish an 
ordinance regarding inspection and monitoring of foreclosed 
properties for code violations and ongoing maintenance.
    That the FNMA and the Veterans Administration modify loan 
limits to compensate for the cost of housing in the San Diego 
market, which I also believe that is an issue here in Los 
Angeles. We encourage the FNMA and the Veterans Administration 
to develop specific foreclosure alternative products, including 
refinancing and engaging in aggressive marketing efforts to our 
veterans.
    Many of our communities are now sitting with vacant 
properties--five to six on a block--depressing the local market 
and inviting blight and criminal behavior to normally pleasant 
communities. Following the lead of a City just south of us, 
Chula Vista, which has been hit particularly hard, we have an 
ordinance that requires banks to maintain these empty, vacant 
properties under the threat of penalty. We want them off the 
market before they infect the vitality of communities that have 
had to struggle for years--over the years to become--
    Chairwoman Waters. I need you to wrap up.
    Mr. Young. I will.
    Chairwoman Waters. Thank you.
    Mr. Young. Yes, ma'am. Basically, what I would say to this 
subcommittee--and thank you for the time that you have allotted 
to me--is that this is a national problem, even an 
international problem. But I would also say that local agencies 
really have to be a part of this.
    Home counseling, aggressive marketing to individuals, 
letting people know that they do have options, and then one of 
the things I would say to this subcommittee is allow the use of 
CDBG funds that cities already have to be able to--to be used 
for the home counseling that is so important now.
    The last thing I would say, Ms. Waters--and thank you for 
giving me this extra time--is to also understand that there is 
going to be something happening after this. And there is a 
tsunami that Ms. Richardson talked about that we are in the 
middle of. But after the tsunami, there are some things that we 
should do, including finding opportunities for individuals to 
get back in their homes.
    Thank you for the opportunity to speak.
    Chairwoman Waters. Thank you very much.
    Mr. Young. I appreciate it.
    Chairwoman Waters. Thank you.
    [The prepared statement of Mr. Young can be found on page 
188 of the appendix.]
    Chairwoman Waters. Ladies and gentlemen, I mentioned that 
we would be joined by Mayor Antonio Villaraigosa. He is now 
here. We thank you for being here, Mr. Mayor. We know how 
concerned you are about this housing crisis that we have, so we 
will recognize you for the next 5 minutes.

 STATEMENT OF THE HONORABLE ANTONIO R. VILLARAIGOSA, MAYOR OF 
                    LOS ANGELES, CALIFORNIA

    Mayor  Villaraigosa. Madam Chairwoman, it is good to be 
here with you. Congressman Green, and Congresswomen Napolitano, 
Sanchez, and Richardson, it is good to be with all of you. 
Thank you for holding this hearing here in the City of Los 
Angeles. We believe that it is important to put a light on the 
widening crisis of home foreclosures here in the City. In the 
last year, we witnessed a dramatic rise in the number of 
foreclosures; 2007 has been the worst year on record here in 
the City of Los Angeles.
    In the first quarter of 2006, there were 115 foreclosures 
in the City of Los Angeles. By the first quarter of 2007, 
foreclosures had increased 6-fold with 716 families losing 
title to their homes. Since then, we have seen the crisis 
escalate in its scope and scale. Foreclosures rose to 850 in 
the second quarter and 1,177 in the quarter ending in 
September.
    Most alarmingly, we see the foreclosure crisis hurting 
people in our most economically vulnerable neighborhoods. In 
these neighborhoods, as was mentioned a few minutes ago, we are 
losing dozens of homes a day. The 10 zip codes with the highest 
foreclosure activity, notices of default, foreclosure notices, 
foreclosure sales, were located in either South Los Angeles or 
the Northeast Valley.
    We also see that the crisis has a distinct face. The vast 
majority are subprime loans. The loans with the highest rates 
of foreclosure have been made to African-American and Latino 
households. There is gathering evidence that the corrosive 
effects of the foreclosure crisis is spreading, and one of the 
most pernicious side effects of widespread foreclosures is the 
increase in broken windows and neighborhood blight caused by 
abandoned buildings.
    Already in Los Angeles, we are seeing an increase in the 
number of abandoned building referrals to the Department of 
Building and Safety and a rise in the number of nuisance 
building cases referred to our Abandoned Building Task Force. 
The crisis is simply too big for half-measures and tinkering at 
the margins.
    And I do want to take a moment to go off script and 
acknowledge the leadership of Congresswoman Waters on this 
issue. This is not an issue that the Congresswoman first raised 
during this mortgage lending crisis. I remember being with her 
some 5 or 6--maybe it was 7--years ago with ACORN talking about 
this issue here in South Los Angeles, and I want to acknowledge 
you for that effort over the years.
    As you well know, we need a concerted well-organized 
campaign to demand adequate resources to address the misery 
that has been caused to ensure that the needed reforms take 
place. For this reason, I am calling on fellow California 
mayors to join me in a coalition to demand State and Federal 
legislation to bring necessary resources to our communities and 
to reform lending practices.
    We did not cause this crisis, but we are on the front lines 
of it. Our constituents are the ones who have suffered because 
those who have had the power to stop fraud and predatory 
lending were asleep at the switch. A strong, collective voice 
is needed to make sure this never happens again, and together 
with my fellow mayors, I intend to raise that voice.
    We also need local lender accountability. For this reason, 
I will shortly convene a meeting of our City's largest lenders 
and mortgage servicers and create a program of local lender 
accountability. Lenders and mortgage servicers have signaled 
their desire to work with borrowers, and we believe that many 
of them are. However, we also believe that much can be done and 
much more should be done.
    As the crisis grows, the need for a streamlined, 
transparent process for loss mitigation will grow even more 
urgent. We need lenders to publicize their loss mitigation 
programs, and the criteria they use to decide how they can help 
distressed borrowers. We need lenders to tell us how they 
intend to manage foreclosed homes that are vacant, so that they 
do not contribute to urban blight.
    We need lenders to begin a meaningful discussion about 
creating a process to offer foreclosed properties to the City 
and to nonprofit organizations, so that these properties can be 
converted into community profit and affordable housing. Here in 
the City of Los Angeles, for 2 years running, and for the first 
time ever, we fully funded our Housing Trust Fund at $100 
million, half of that money dedicated to permanent support of 
housing for the homeless.
    We believe that it is incumbent on these mortgage lenders 
and banks to participate with us in an effort to convert this 
housing into affordable housing. We cannot allow these 
properties to be snapped up by speculators. What we need now is 
support for the foreclosure counseling and legal aid agencies 
that help home buyers at risk of foreclosure.
    Here in the City of Los Angeles, we have committed $100,000 
for foreclosure counseling, but as you know much more money is 
needed to expand these services. Incredibly, at the State 
level, these funds were cut to $2 million for the current 
fiscal year. An infusion of Federal funds specifically 
designated for foreclosure counseling and legal assistance 
would not only help to avert future predatory mortgages but 
also help avert foreclosure of mortgages that are currently at 
risk.
    For this reason, we strongly support the Mortgage Reform 
and Anti-Predatory Lending Act of 2007, and would urge 
immediate Senate passage of your bill. Furthermore, we have to 
address the needs of borrowers who are currently at risk of 
losing their homes, and we have to challenge the banking 
industry to accept their responsibility to be a part of the 
solution.
    Here in California, Governor Schwarzenegger is 
demonstrating what is possible. A recent agreement announced 
between his office, Countrywide, GMAC, Litton, and HomeEq 
should serve as a model for the entire Nation to follow. 
Working in partnership with the mortgage industry, the Governor 
is forging a commonsense solution. We intend to work with him 
to build on that here in the City of Los Angeles.
    Finally, I also want to acknowledge the work of assembly 
speaker Fabian Nunez and assembly member and chair of the 
Assembly, Committee on Banking and Finance, Ted Lu. The speaker 
and Mr. Lu have put together a much-needed package to address 
foreclosure prevention measures, banning such things as 
prepayment penalties, no documentation loans as well. Requiring 
that lenders consider the borrower's ability to repay the loan 
over the entire period is also crucial to protecting California 
borrowers.
    I am here today in support of this hearing, and intend to 
work with you, all of you. I have worked on many issues in the 
past on this very, very important issue.
    [The prepared statement of Mayor Villaraigosa can be found 
on page 176 of the appendix.]
    Chairwoman Waters. Well, Mr. Mayor, I would like to thank 
you so much for taking time from your busy schedule to be here 
today. Clearly, based on your testimony, you certainly know 
what is going on, and some of the proposals that you have just 
made and talked about are extremely important. You are 
absolutely correct. We need to get more money to the cities for 
counseling.
    We have $200 million that is in conference right now. The 
President is threatening to veto it. We hope not, because the 
cities just don't have enough money to allocate toward this 
counseling and educating of our citizens. The Honorable Anthony 
Young from San Diego recommended that we use more CDBG money to 
do it, but you are so limited in your CDBG money, and there is 
such competition for it until it would put a real strain on the 
City's use.
    We need new resources and new money, and we are going to 
fight for it. But we would hope that we get the message out 
there to encourage the President of the United States to sign 
the legislation that would put $200 million out into the cities 
very soon.
    I know that your time is limited. We thank you so much for 
appearing here today, and we look forward to working with you.
    Mayor  Villaraigosa. Well, thank you.
    Thank you, Chairwoman Waters. And I want you to know that 
on behalf of the City of Los Angeles, I recognize that though 
this hearing is being held here, if it is necessary for me to 
be with you anywhere, including Washington, D.C., on this issue 
I certainly am prepared and willing to join you in this effort 
to ensure that the Federal Government is responsible and 
assisting in this effort.
    Thank you very much.
    Chairwoman Waters. Thank you so much, Mr. Mayor.
    Mayor  Villaraigosa. Thank you.
    Chairwoman Waters. Ladies and gentlemen, I mentioned that 
we have such a strong group of Members of Congress in this 
area, and we are very blessed to have been joined by 
Congresswoman Diane Watson who is representing the 33rd 
Congressional District. Thank you very much for joining us 
today, Congresswoman Watson.
    We are going to move on with our witness panel, and then we 
will return to our members here to ask questions.
    I have something that I must do. There are so many rules of 
Congress when you run these committees. I must say that 
Representative Diane Watson will also be considered a member of 
this subcommittee for the duration of this hearing.
    Without objection, such is the order.
    We will move now to Mr. Joseph Bates, the Director of the 
Santa Ana Homeownership Center, U.S. Department of Housing and 
Urban Development.

 STATEMENT OF JOSEPH BATES, DIRECTOR, SANTA ANA HOMEOWNERSHIP 
    CENTER, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Mr. Bates. Thank you. Chairwoman Waters and the 
distinguished members of the subcommittee, thank you for this 
opportunity to testify today on the efforts made by the U.S. 
Department of Housing and Urban Development in the areas of 
foreclosure prevention and intervention. I am Joseph Bates, 
Director of HUD's Santa Ana Homeownership Center.
    The significant effects of foreclosure on our national 
economy and on the world markets brings us here today. Congress 
and the Administration have for some time been looking at 
legislative and regulatory options for minimizing foreclosures. 
At HUD, I can report that we are working on both in our efforts 
to mitigate the adverse effects of this market correction on 
borrowers.
    One of the strongest tools we have to protect both 
borrowers and markets is the Federal Housing Administration, 
FHA. As you may know, HUD helps individuals secure credit by 
providing mortgage insurance through a private sector 
distribution network that makes owning a home more affordable 
and safe, and, therefore, a reality for many borrowers who 
might otherwise go underserved.
    HUD Secretary Alfonso Jackson has stated in previous 
testimony before Congress that he has firmly believed for some 
time that many of those who ultimately entered the subprime 
market would have been better off with an FHA-insured loan. 
Many may still be eligible to refinance today.
    Although we cannot go back in time to ensure that each 
borrower had made the best decision when obtaining a mortgage, 
we can provide refinancing options to many subprime borrowers, 
and we can do more to help people make better decisions going 
forward through both innovative products and counseling 
support.
    This week HUD released informational video footage 
containing foreclosure prevention tips and information for 
homeowners who are struggling to pay their mortgage. Among 
other things, the video includes a list of 10 tips on how to 
avoid foreclosure. I suggest that anyone who owns a home or who 
is in the market to buy a home visit HUD's Web site at 
www.hud.gov for more information.
    Secretary Jackson has commented that the dramatic rise in 
single-family foreclosure starts is fueled in great part by the 
proliferation of subprime loan products, including hybrid ARMs. 
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. FHA 
Secure 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 resets to a higher rate. 
Through this very new program, over 800 FHA lenders are already 
using FHA Secure to rescue delinquent borrowers from the 
potential loss of their homes. Since September, more than 
100,000 conventional borrowers have applied for FHA Secure 
refinance loans.
    On October 10th, HUD Secretary Alfonso Jackson and 
Secretary of the Treasury Henry Paulson announced the HOPE NOW 
Alliance, an unprecedented alliance of the Nation's largest 
mortgage servicers, housing counselors, and real estate 
investors, all committed to one common goal--to help as many 
homeowners as possible avoid foreclosure and retain 
homeownership.
    One of the goals of the HOPE NOW Alliance was to develop 
and fund a nationwide advertising campaign to encourage 
delinquent borrowers to seek help through the 888-995-HOPE 
network of HUD-approved housing counselors. The 888-995-HOPE 
line is up and running with 122 experienced counselors 
nationwide. Another 50 are currently being trained and more are 
being recruited.
    Throughout this year, HUD staff and senior officials 
nationwide have sponsored and participated in more than 125 
homeownership retention events including fairs, targeted 
mailings, and joint task forces that reached a combined 
audience of 25,000. The Santa Ana Homeownership Center, in 
cooperation with the Southern California Congressional 
Representatives and HUD field offices have put together a 
series of seven town hall foreclosure summits to spread the 
word on foreclosure prevention.
    Participants besides HUD include Fannie Mae and Freddie 
Mac, the Federal Reserve Bank of San Francisco, the IRS, local 
congressional representatives, and representatives from Wells 
Fargo and Countrywide, both of whom are major local mortgage 
providers in California and participants in the FHA Secure 
refinance program.
    Attended by over 1,000 participants, these meetings have 
also featured on-the-spot housing counseling with HUD-approved 
counselors from 1 or more of our 15 Southern California 
nonprofit agencies employing an estimated 125 certified 
counselors. In addition to these town hall meetings, the Santa 
Ana Homeownership Center has attended several banking and 
Realtor conventions and meetings as part of our outreach effort 
to help publicize FHA Secure.
    The recent National Association of Realtors Convention in 
Las Vegas was attended by an estimated 5,000 Realtors who lined 
up at the FHA booth to obtain information on the work we do. As 
you can see, the Department has taken several steps to address 
foreclosures, but there is much work still to be done.
    Thank you for your time this morning, and I look forward to 
your questions.
    [The prepared statement of Mr. Bates can be found on page 
99 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Next we will hear from Mr. Mike Krimminger, Chairman's 
Special Advisor for Policy, Federal Deposit Insurance 
Corporation.

STATEMENT OF MICHAEL H. KRIMMINGER, CHAIRMAN'S SPECIAL ADVISOR 
       FOR POLICY, FEDERAL DEPOSIT INSURANCE CORPORATION

    Mr. Krimminger. Good morning.
    Chairwoman Waters. Good morning.
    Mr. Krimminger. Chairwoman Waters, and members of the 
subcommittee, thank you for the opportunity to testify on 
behalf of the FDIC. As you know, the rising level of 
foreclosures across America is of great concern to FDIC 
Chairman Sheila Bair. I would like to focus my oral remarks 
this morning on her plan for modifying the more troubling of 
these exotic mortgages known as 2/28 and 3/27 subprime hybrids, 
which are forcing many homeowners into default and foreclosure.
    As you know, poor lending standards and weak consumer 
protections are at the root of the problem. After a huge run-up 
in these 2- and 3-year adjustable rate loans that began after 
2003, they now make up more than half of the $1.3 trillion in 
subprime mortgage loans outstanding.
    Now, some 1.5 million or more of these loans will reset by 
the end of 2008, and another 375,000 will reset in 2009. 
Without a doubt, we are just now getting into the thick of the 
problem.
    California's exposure to subprime mortgages is especially 
significant. The large numbers of subprime hybrid ARM loans 
with approaching resets in California places many thousands, 
perhaps hundreds of thousands, of California borrowers at risk 
between now and December 2008. These borrowers had hoped to 
refinance their homes as prices rose to pay off the loans 
before reset and avoid crippling monthly payments.
    And let me point out one important fact: The lenders and 
investors also expected these borrowers to refinance the loans. 
No one expected them to pay the reset payments.
    Unfortunately, housing prices now are declining, closing 
off these options for many. California's subprime mortgage 
problems also are spreading, affecting home builders, suppliers 
and others, resulting in layoffs, lower tax revenues, and 
higher foreclosure rates. We believe that all of this calls out 
for creative solutions to keep people in their homes by 
restructuring their loans on a long-term and sustainable basis.
    Now, some of the borrowers who have the 2/28 and 3/27 
subprime loans will be able to refinance at better rates. 
Today, unfortunately, that is probably a fairly small number. 
Some others have been seriously delinquent, even at the starter 
rate, and even if their loans are modified there may be limited 
prospects for keeping their properties.
    Another group, however, has generally remained current. 
Chairman Bair's proposal focuses on this last group. Her 
proposal is simple and effective, but often misunderstood. It 
is this: For owner-occupied homes where the borrower is making 
timely payments, but clearly cannot afford the reset payments, 
we think those loans should be converted to fixed rate loans at 
the starter rate. At a minimum, the starter rate should be 
continued for a long-term sustainable period of 5 years or 
more. This could keep hundreds of thousands of people in their 
homes and stabilize our mortgage markets.
    Chairman Bair is urging loan servicers to do this in a 
streamlined way. Renegotiating the terms of the loans, loan-by-
loan, as some are doing, is costly and time-consuming. A 
standardized approach is urgently needed.
    We believe there is an emerging consensus among 
policymakers and servicers that this is the best way to start 
dealing with the subprime meltdown. For example, as you noted, 
Governor Schwarzenegger announced last week an agreement with 
four major subprime lenders to work with homeowners unable to 
afford escalating mortgage payments.
    In line with Chairman Bair's proposal, the servicers agreed 
to maintain the initial lower interest rate for subprime 
borrowers who occupy the homes, have made their payments on 
time during the starter period, and have proved they cannot 
afford payments at the higher reset rates. We support this 
agreement and believe it will spur other servicers to adopt 
this approach and speed up the pace.
    We also would urge the homeowners who cannot afford their 
mortgages to please contact their lenders or servicers as soon 
as possible to look for a workout solution before the reset 
date. I underlined that, because I think that is a critical 
factor in making sure that there is a relationship and a 
conversation between the homeowners and their servicers.
    Now, to the critics who say such a large-scale approach is 
untested and unworkable, we say these and other loan servicers 
are already doing it successfully. Not only is it feasible, the 
servicers say that it is saving them time and money and keeping 
people in their homes. We think that just about anything beats 
foreclosure, which, as you noted very accurately, runs down 
neighborhoods and costs up to half of the initial loan amount.
    Chairwoman Waters, the FDIC is committed to working with 
you to find solutions to the growing mortgage crisis, not only 
here in California but for all of those subprime borrowers who 
are living the American dream, but in need of better deals so 
they can continue to do so.
    Thank you very much.
    [The prepared statement of Mr. Krimminger can be found on 
page 125 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Next we will hear from Ms. Heather Peters, deputy secretary 
for business regulation, Department of Business, 
Transportation, and Housing, State of California.

  STATEMENT OF HEATHER PETERS, DEPUTY SECRETARY FOR BUSINESS 
    REGULATION, DEPARTMENT OF BUSINESS, TRANSPORTATION, AND 
                  HOUSING, STATE OF CALIFORNIA

    Ms. Peters. Good morning, Chairwoman Waters, and members of 
the subcommittee. My name is Heather Peters, and I am the 
deputy secretary for both business regulation and for housing 
for the State of California. I am also the chair of Governor 
Schwarzenegger's Interdepartmental Task Force on Non-
Traditional Mortgages.
    We appreciate the interest of the subcommittee, and the 
interest of the chairwoman in bringing the subcommittee here to 
California to hear this very important testimony today, because 
by all measures we can agree that California has been 
disproportionately impacted by the crisis in the housing and 
mortgage foreclosure arena.
    I commend the subcommittee for putting together such a 
distinguished panel of witnesses today, and for recognizing the 
multi-dimensional challenge that we are facing here and 
realizing that there is no silver bullet. To make an impact 
here, we need the cooperation of Federal, State, and local 
authorities, we need the cooperation of private lenders, 
brokers, servicers, and investors, and we also need the 
cooperation of the public, the consumers, and the homeowners 
who are losing their homes and losing the American dream. 
Together we can come up with solutions to this most daunting 
crisis.
    I will skip over the statistics in my testimony, because we 
can all agree that the magnitude of the problem has reached 
epic proportions. Governor Schwarzenegger is a man of action, 
not a man of words, and he agrees that we need help. Early this 
year, in January, he appointed me to unify leadership of our 
various departments in business transportation and housing that 
have various responsibilities for regulating aspects of the 
mortgage industry.
    In March of this year, we put together a task force to make 
sure that we were putting our best and our brightest together 
and getting us on the same page and moving forward. The task 
force consists of the department heads from our Department of 
Financial Institutions, which regulates banks and credit 
unions, the Department of Corporations, which regulates non-
depository lenders such as Countrywide, the Department of Real 
Estate, the Department of Real Estate Appraisers, the 
Department of Housing and Community Development, and CAL HFA.
    Very quickly we realized that regulation alone was not 
going to be able to solve this problem, and that there was a 
huge consumer component to this. So we added the leadership 
from State and consumer services agencies, Secretary Morin, as 
well as the Director of the Department of Consumer Affairs. We 
have all been working together very closely all year on this 
issue, and the subcommittee has asked us to address the factors 
that contributed to the crisis as well as what the State is 
doing about it.
    There are numerous factors. The first is the lack of 
affordability of housing in California, which has been a 
problem for us for many decades. According to the Building 
Industry Association, only 12.6 percent of the housing in 
California is affordable to income earners in the median income 
range; that is versus 42 percent nationwide. It has been a 
massive problem here.
    This year we have passed, and the Governor has signed, AB-
929, which increases the amount of affordable housing in 
California by raising the total debt the California Housing 
Finance Agency can carry by $2 billion. Additionally, the 
Housing Community Development Department is working diligently 
to implement the $2.85 billion housing bond that was passed by 
the voters in California last year, which is estimated to 
generate over 118,000 new affordable housing opportunities and 
rental opportunities.
    However, we cannot do this alone, and we need your help. 
The Governor has written to the leadership of both the House 
and the Senate, and he has urged increases in both the FHA and 
the GSE loan limits. Currently, the FHA loan limit is $362,790, 
and the GSE loan limit is $417,000. The median cost of a home 
in California is well over $500,000, reaching toward $600,000.
    Clearly, these programs are not relevant in California 
anymore. Unfortunately, the FHA loan volume in California has 
dropped from 109,000-plus loans to a mere 2,599 loans in the 
entire State of California. Now, that is a decrease, a loss of 
$13.6 billion in funding through FHA. Reform is crucial, and 
clearly the lack of safe, affordable financing through these 
programs in California has been a contributing factor to 
homeowners being forced to go through non-traditional 
financing.
    Chairwoman Waters. I need you to wrap it up.
    Ms. Peters. Additionally, we have passed regulations that 
are some of the strongest in the Nation, assuring that 
underwriting standards make sure that people can afford the 
loans they are getting into. We have a brand-new disclosure 
form in five languages that illustrates to the consumer very 
early in the process what the worst-case payment could be if 
all the resets adjust to their worst-case scenario.
    We have made appraisal fraud a crime. We have had the 
agreement referred to by the FDIC with the lenders that is a 
nationwide leader and is being picked up by the Federal 
authorities. And we work closely with them and applaud their 
efforts. We applaud the chairwoman for her leadership and 
reform in this area.
    And yesterday the Governor was in Riverside to announce a 
$1.2 million public outreach campaign. He will personally be 
involved in PSAs to reach out to homeowners to ask them to call 
the Hope Hotline, to call their lenders, that there is help 
available. But, unfortunately, more than half of the people who 
lose their homes to foreclosure never contacted their lender.
    Chairwoman Waters. Thank you very much.
    Ms. Peters. Thank you.
    Chairwoman Waters. Next, we will hear from Mr. Pastor 
Herrera, Director, Department of Consumer Affairs, Los Angeles 
County.

 STATEMENT OF PASTOR HERRERA, DIRECTOR, DEPARTMENT OF CONSUMER 
                  AFFAIRS, LOS ANGELES COUNTY

    Mr. Herrera. Good morning. I am Pastor Herrera, Jr., the 
director of the Los Angeles County Department of Consumer 
Affairs. And let me echo my congratulations to you, 
Congresswoman Waters, for really taking the initiative and 
leadership in this area. It is an issue that is on everyone's 
radar screen, whether it is here in California, in Washington, 
north or south of this country, and definitely we see that 
there is no end in sight.
    Here in L.A. County, we know that approximately 5,000 
notices of default are filed monthly, and that to me is 
staggering. That indicates that there is definitely a problem 
here in Los Angeles County, and it is probably reflective not 
only in California but throughout the country.
    I hope that my comments this morning will assist the 
subcommittee to develop some additional recommendations, and 
from a Department of Consumer Affairs perspective, an agency 
that deals with consumers day in and day out, a more consumer-
friendly business practices, not only in this area but other 
areas that impact consumers.
    I will summarize my comments today; my written comments 
have been submitted. The Department of Consumer Affairs here in 
Los Angeles County is very unique. It is, of course, supported 
and funded by the Board of Supervisors, and we are very proud 
of that, because unfortunately many, many communities do not 
have a Department of Consumer Affairs, which is their first 
point of contact when they may be victims of consumer fraud.
    We are very fortunate that we have a unit, a program, that 
is, the Real Estate Fraud and Information Program, which I will 
get into momentarily. But we also have an Identify Theft Unit, 
a Consumer Fraud Unit, an Elder Fraud Prevention and Education 
Unit, Small Claims Court, and also a Volunteer and Internship 
Program. And we serve over 750,000 consumers a year.
    Our Real Estate Fraud and Information Program does assist 
consumers and homeowners, particularly in the area of real 
estate fraud and information. It serves and helps them in areas 
such as foreclosure prevention, review and recorded documents, 
buying a home, reviewing refinance loan documents, and 
assisting first-time buyers. The Department also, and this unit 
in particular, accepts complaints for investigations and 
mediations. We receive complaints against foreclosure 
consultants, predatory lending, fraudulent recorded deeds, and 
refinance transactions.
    Last fiscal year, for example, our real estate unit 
assisted over 29,000 consumers with real estate fraud issues. 
Approximately 650 of those 29,000 of those homeowners needed 
assistance with a foreclosure problem. That was an increase 
over last year of 33 percent. Last year, the Department handled 
on a case-by-case basis 100 homeowners who were facing a 
foreclosure problem, and our Department was able to stay, 
delay, or cancel a property from being sold in a foreclosure 
sale.
    The Department's success rate was approximately 65 of those 
cases. Unfortunately, it was not 100 percent.
    Some of the other things that we do as far as prevention, 
we work very closely with the media, which is a very good 
outlet. In fact, 50 percent of our referrals to our Department 
come from the media. We also work with prosecutory agencies 
when we deal with a foreclosure consultant. We deal with legal 
services, nonprofits, and do a very, very good job here in Los 
Angeles County. We do speaking engagements, participate in 
community forums, and our Web site is also very, very 
definitely in tune with this issue.
    We have information on foreclosure, predatory lending, 
evictions, and we also have an opportunity for consumers to ask 
questions. Interesting enough, the inquiries for real estate-
related questions have increased by 85 percent. And that 
represents an increase of 85 percent; 35 percent were in the 
area of foreclosures.
     Chairwoman Waters. Could you wrap up your testimony, Mr. 
Herrera?
    Mr. Herrera. Very good. Of course, the challenges are 
funding, the challenges are how do we get homeowners to get 
information and seek counseling. And, of course, the other 
issue is financial institutions. They need to identify a point 
of contact in their organization, so that we can negotiate and 
resolve foreclosure type of issues. And, of course, we need to 
reach out to homeowners.
    Very quickly, some of the recommendations, pooling and 
servicing agreements limit sometimes the servicer's ability to 
engage in loss mitigation strategies. Other recommendations are 
in my written testimony.
    Chairwoman Waters. Thank you, and we will have all of your 
testimony in the record--
    Mr. Herrera. Thank you very much.
    Chairwoman Waters. --for review by all of the members.
    [The prepared statement of Mr. Herrera can be found on page 
121 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Mr. Rogan, director, Department of Housing and Community 
Development, the City of Oakland, California.

 STATEMENT OF SEAN ROGAN, DIRECTOR, DEPARTMENT OF HOUSING AND 
       COMMUNITY DEVELOPMENT, CITY OF OAKLAND, CALIFORNIA

    Mr. Rogan. Thank you, Madam Chairwoman, and subcommittee 
members. On behalf of Oakland Mayor Ron Dellums and the City of 
Oakland, I am happy to be here today to give testimony and 
speak to some potential solutions as we look forward to solving 
this foreclosure crisis.
    The City of Oakland has been greatly affected by 
foreclosures brought on in large part by the subprime lending 
practices. Record numbers of foreclosures are occurring weekly. 
Over 345 notices of default have been recorded in the month of 
October alone. East Oakland, made up predominantly of people of 
color and of low income, is currently experiencing a 14.9 
percent foreclosure rate.
    Lenders and investors have been unwilling to discuss 
workout options with borrowers. This is greatly impacting 
families and neighborhoods as foreclosure activity continues to 
grow. And additional consequence includes lenders foreclosing 
on rental properties and locking out tenants in good rent 
standing and with legitimate rental agreements.
    Immediate action is needed to curb the number of 
foreclosures and assist families who were given loans with 
terms that they either did not understand or did not qualify 
for. Actions that the City of Oakland would like to see 
implemented include the following: Extend time notices of 
default from 90 days to 150 days; extend time period for notice 
of trustee sales from 30 days to 60 days to allow more time for 
counseling and workouts; provide additional funding for 
counseling agencies to help work with borrowers facing 
foreclosures; and work with lenders and investors on rate and 
terms of mortgages, so that borrowers in good standing with 
pending interest rate hikes can continue mortgage payments at 
lower rates for up to 3 years.
    Additionally, future legislation should be written so that 
qualifying borrowers should be based on documented income and 
at a highest adjusted rate during the loan term, provide clear 
disclosure of any balloon payments or interest rate 
adjustments, and strengthen anti-predatory lending legislation. 
Interestingly enough, Oakland at one time had adopted anti-
predatory lending legislation, which was then overturned by the 
State. And we certainly question where we would be today if 
some of that legislation had in fact been implemented.
    Additionally, lenders and investors need to partner--and 
this has certainly been echoed throughout this testimony this 
morning--but the lenders and investors, in particular the Wall 
Street investors, need to partner with the local, State, and 
Federal Government to set guidelines and regulations so that 
borrowers and lenders and servicers know how to accomplish the 
workouts.
    And then, finally, as I was driving here this morning in 
the wonderful L.A. traffic, and I was speaking with a colleague 
of mine, he brought up an issue which really hasn't been 
discussed today, and I think it is important for the Members of 
Congress here today to hear.
    You know, an impact that affects these borrowers who have 
been foreclosed on is depending on the difference between what 
the bank collects and what their mortgage is, they end up with 
an IRS price tag in some instances $30-, $50-, to $100,000 that 
then gets stated as income. I certainly believe that with the 
folks here today that is an additional point that should be 
taken under consideration.
    Again, I thank you for your time today, and I am happy to 
answer any questions you may have.
    Chairwoman Waters. Thank you.
    I would like to thank all of our panelists for being here 
today, and we are going to start with our question period where 
our members will each be afforded 5 minutes to ask questions.
    I will begin. I would like to focus first on Mr. Mike 
Krimminger's recommendation, because I like what I hear. I 
don't know what took place in a meeting I think that was held 
yesterday on this very subject, but I am very, very interested 
in the idea that instead of trying to solve this problem one 
loan at a time that we can come up with a policy that would 
allow the servicers to automatically extend the reset period. 
Is that what you said?
    Mr. Krimminger. Yes. What Chairman Bair has recommended is 
to extend the starter rate period. Her preference was clearly, 
if the borrower can make--has been making payments at the 
starter rate, but cannot make the payments at the reset rate, 
extend the starter rate, for the life of the loan preferably, 
but certainly for a long-term period.
    Chairwoman Waters. For the life of the loan?
    Mr. Krimminger. Certainly for a long-term sustainable 
period that will give the borrower an opportunity to do the 
normal refinancing. Five-plus years might be an appropriate 
period to do that.
    Chairwoman Waters. That is very significant. That is very 
significant, because the folks who got in the ARMs and the 
adjustable rate mortgages received teaser rates, and those 
teaser rates were something they could afford. But then, when 
they reset and they quadruple, then they certainly cannot 
afford, and particularly if you are on a fixed income.
    Or even if you are working a regular job, your cost of 
living increases just don't increase that fast, and you are 
certainly going to lose that house. But if this is a 
recommendation that the reset be extended for a long period of 
time, or for the life of the loan, I really do think that is an 
absolute viable way by which to save these homes from 
foreclosure.
    I would like to say to Mr. Young, I appreciate your 
recommendation on CDBG. CDBG is those funds that we give to our 
local governments to help out in so many ways with poor people 
and working people and programs. And we are working hard to 
extend it. I heard your recommendation about the use of CDBG to 
be of assistance in counseling and education, and we will 
certainly take that into consideration.
    Mr. Young. Madam Chairwoman?
    Chairwoman Waters. Yes.
    Mr. Young. If I may, and the reason why I recommended CDBG 
initially, because at this point in time local agencies, local 
municipalities, that is really their only funding that they 
have at their disposal right now. And that is what we are doing 
at the City of San Diego, but we certainly do appreciate the 
opportunity to get additional monies to do that home financing.
    Chairwoman Waters. Well, we know that we have $200 million 
in conference that we are trying to get, but let us find out 
from our representative here, from Governor Schwarzenegger's 
efforts, she mentioned that there would be some funding 
perhaps, about $1.2 million, that would be used to help in this 
situation. Where does that money come from? When will it be in 
process? And who will have access to it?
    Ms. Peters. Great question. Thank you for asking. There are 
actually two sources of funding coming out of the State 
currently. Several months ago--I believe it was back in 
September, speaking of CDBG--our Housing Community Development 
Department issued a notice that $1.16 million in CDBG money 
that is flowing through the State, not directly from the 
Federal Government, would be made available for consumer 
counseling.
    Additionally, we put out an advisory quite along the lines 
that the councilman has already suggested, that some of the 
areas that receive funding directly from the Federal Government 
may likewise be able to reallocate some of the funds they have 
on hand. And our Department is happy to work with any local 
governments on how we can maximize the access to that.
    The second source of funding that I mentioned in my 
testimony was just announced yesterday by Governor 
Schwarzenegger. This is a $1.2 million campaign that is a 
public awareness campaign to get homeowners to call for help. 
And people are absolutely terrified. We have heard horror 
stories of homeowners who believe that they can be arrested for 
failing to pay their mortgage.
    Chairwoman Waters. So basically this is for public service 
announcements, for advertising.
    Ms. Peters. Right. And that is coming from our existing 
budgets within my departments at BT&H, and we are putting 
together a proposal today--
    Chairwoman Waters. That is great.
    Ms. Peters. --to expedite availability.
    Chairwoman Waters. While we are talking about that, could 
you explain to us the agreements that the Governor made to 
Countrywide, for example?
    Ms. Peters. Yes.
    Chairwoman Waters. What is it he asked them to do, and what 
have they agreed to do?
    Ms. Peters. Thank you for asking. The Governor announced 
with--an agreement with four of the major loan servicers--
Countrywide, GMAC, HomeEq, and Litton Loan Servicing--which 
together nationwide represent 25 percent of the subprime loans. 
They have agreed to reach out proactively to borrowers well 
before the loans reset.
    We are talking several months, maybe 6 months before the 
loans reset, to let them know that the reset is coming. They 
have agreed to streamline the process by which they determine 
whether the borrowers can afford that reset payment as the 
chairwoman mentioned, and, if they are unable to afford it, to 
fix the initial rate for a sustainable period of time.
    Now, there is more discussion to be--
    Chairwoman Waters. So basically--
    Ms. Peters. --had on the details of this.
    Chairwoman Waters. --basically what you are saying is early 
notice the reset is coming, and after you do that notice the 
homeowner will have an opportunity to get a workout and try and 
do a rearrangement of that loan. And did these four major 
subprime lenders agree that they would be involved in the kind 
of proposal that we just heard that would have to extend the 
low rate that they got in with?
    Ms. Peters. Yes.
    Chairwoman Waters. Will they--
    Ms. Peters. That is exactly what they have already agreed 
to.
    Chairwoman Waters. Is this in writing somewhere?
    Ms. Peters. It is on the Department of Corporations' Web 
site, which is--
    Chairwoman Waters. Okay. Good.
    Ms. Peters. --corp.ca.gov.
    Chairwoman Waters. Thank you.
    Ms. Peters. Additionally--
    Chairwoman Waters. Thank you very much.
    Ms. Peters. --there is an important element to that, which 
is accountability, because we hear a lot from consumer 
servicers, consumer counselors, that they talk the talk, but 
they are not walking the walk. The Department of Corporations 
will be releasing within this coming month the results of a 
survey of the lenders that quantifies exactly how many of these 
workouts they are doing, so that we can follow up. And if 
consumers are not receiving the help that the lenders have 
agreed to do, we want to hear about it, and we want them to 
call us.
    Chairwoman Waters. That is exactly what we are going to do, 
and we thank you for that.
     And, FHA, since in the bill that I introduced--and we got 
passed--we were very concerned about being able to use FHA to 
refinance. We are very proud about that possibility. Now, what 
is this Hope program that you are talking about? And what does 
it do?
    Mr. Bates. Well, the HOPE NOW Alliance is a grouping of the 
large lenders, Freddie and Fannie, four of the national 
intermediary counseling agencies, and others, to kind of 
develop a measured and appropriate response to the subprime 
problems. And the--
    Chairwoman Waters. I want to know specifically, because we 
want Fannie and Freddie really involved in this solution, but I 
have not heard anything specific about what they are going to 
do.
    Mr. Young. Well, the first thing is, of course, they have 
the hotline, and they have the housing counseling agencies in 
place.
    Chairwoman Waters. So they have a hotline and people can 
call and say, ``I am in trouble.'' And then, what are they 
going to do?
    Mr. Young. And then, they are working on trying to 
establish a standard for workouts or loss mitigation measures 
that would be taken in response to people's difficulties.
    Chairwoman Waters. Did you hear Mr. Krimminger's proposal?
    Mr. Young. Yes, I did.
    Chairwoman Waters. Can they adopt that?
    Mr. Young. I don't know whether they can adopt that.
    Chairwoman Waters. They can dispute that.
    Mr. Young. But I would be happy to get with the Chair on 
that.
    Chairwoman Waters. Would you get a copy of that proposal, 
since we are all here and working together? We have FHA, we 
have FDIC. You are talking to some of the same subprime 
lenders. Everybody should get on one track on this. There is no 
reason why we should have a Hope program that is talking about 
convening and getting them together.
    But, rather, you know, we should all do--and it should be 
substantial. We talk about a sustainable period of time. I like 
the idea of just converting that into a permanent long-term, 
30-year, 40-year loan so that we can make sure we can afford 
it. So you all get together. We will be following up with you 
to see if we can get everybody on the same track.
    Thank you all very much. This panel is dismissed.
    Excuse me. Before you go, you are not dismissed.
    We have questions from the other members. We have several 
other panels that we are going to do, but our members get a 
chance to ask you all questions today.
    Let us start with Mr. Green.
    Mr. Green. Thank you, Madam Chairwoman. As is usually the 
case, when the Chair finishes, there is not much left to be 
said.
    But I do want to make a couple of comments and make a 
couple of inquiries. Mr. Krimminger, I greatly appreciate your 
comments, but I do want to just remind you that, when you 
indicated no one expected the buyers to pay the adjusted rates, 
some of these lenders did. And let me explain why.
    Many of them had prepayment penalties that coincided with 
the teaser rate, which means that you are either going to pay a 
lot of money to avoid the adjusted rate or you are going to end 
up paying--with a prepayment penalty or you are going to pay 
the adjusted rate. Now, look, I appreciate what you have said. 
I just want to point that out--that not all of them were acting 
with the same amount of good faith as many of them were.
    Yes, sir.
    Mr. Krimminger. I would just say that we have certainly 
noted that there are prepayment penalties on some of the 
adjustable rate mortgages. In fact, many of the 2/28s and 3/27s 
do have prepayment penalties.
    Chairwoman Waters. Please talk right into the microphone. 
This is very important. This is about prepayment penalties.
    Mr. Green. And speak quickly, please, because my time is 
running.
    Mr. Krimminger. I will be very brief. We have certainly 
noted that many of the 3/27 and 2/28 mortgages have prepayment 
penalties.
    Chairwoman Waters. Can you hear him in the back? Okay. 
Bring it closer, and don't be shy. Speak up.
     Mr. Krimminger. We have noted that many of the 2/28 and 3/
27 mortgages do have prepayment penalties. Most expire just 
before the reset period, but we have certainly been very 
critical of some loans that do have prepayment penalties that 
extend out until just before the reset date.
    Mr. Green. Let me intercede quickly and say this. When you 
said ``just before,'' define ``just before,'' because usually 
that is about a month or two before, which doesn't give the 
person enough time--the buyer who is acting in good faith--to 
secure the kind of loan in the environment that we have now 
that will protect the buyer.
    Mr. Krimminger. And we fully agree with you.
    Mr. Green. Okay.
    Mr. Krimminger. We think that is far too short of a period 
of time. Chairman Bair has advocated that if you are going to 
have a prepayment penalty at all--and we would prefer not in 
the subprime market--then it certainly should expire 180 days 
before.
    Mr. Green. Okay. Now, after we go through the 3/27s, the 2/
28s, the prepayment penalties, the no-doc loans, the yield 
spread premium--yield spread premium, for those who don't know, 
that is the kickback that the originator gets for getting a 
person to take a loan that is higher in interest rate than they 
qualified for. Now, some people may not know this, but that 
kickback is legitimate, but we are working on that. The Chair 
is going to help us with that.
    But once you go through all of these things and steering 
into higher interest rates than people deserve, what it boils 
down to is people were qualified for teaser rates, and they 
were not qualified for the adjusted rates. And if that is the 
cause of the problem, and we have now about $600 billion at 
risk, we are talking about millions, possibly $2.5 million 
adjustable mortgages that are going to reset by the end of 
2008.
    I don't see how we can possibly manage the problem on a 
case-by-case basis. It really defies logic to think that we can 
do this on a case-by-case basis. It does. So now, if it defies 
logic to do it on a case-by-case basis, we have to find a way 
to transform Hope Now into Help Now. Really, that is what we 
have to do.
    And, Mr. Bates, no disrespect to you, I think you have 
articulated what is happening quite clearly. But what has to 
happen is what the chairwoman has suggested. We have to find a 
way for the lenders to acquire something called enlightened 
self-interest. Enlightened self-interest. And sometimes people 
have to be pushed to that point. On other occasions, they can 
acquire it by some sort of revelation.
    But, clearly, enlightened self-interest would dictate that 
they not let these properties go into foreclosure, and that a 
teaser rate is much better than no rate at all. And that is 
what we have--you have to take that message back, if you would, 
to the folk who can help us out and make a distinction between 
Hope Now and Help Now, or Help is on the Way because we are at 
a point now where help has to arrive.
    And, Madam Chairwoman, I thank you for allowing me the 
time, and I will yield back, given that we have so many 
members.
    Chairwoman Waters. Thank you very much.
    Congresswoman Grace Napolitano?
    Ms. Napolitano. Thank you, Madam Chairwoman, and I sit here 
with great interest. Since I don't sit on the subcommittee, a 
lot of it just goes over my head in terms of terminology, but 
let me tell you the result is the same. What I hear is a lot of 
talk about things we need to do, things we are going to be 
doing, but what is being done?
    Because this is not just something that happened yesterday, 
it has been happening for several years, and yet we are still 
not at a place, as you say, that we can turn around and say to 
our constituency, ``Okay. Here is where you can go. Call my 
office, call the City Council, call''--have you engaged the 
media, anybody? Have you talked to being able to have them be 
the purveyors of information to get people to know where the 
heck they have to go for assistance?
    You talk about CDBG. Does that need any legislative 
approval to be able to channel those funds? Or can it be done 
without having to go through the process of legislative 
approval? Then, we have Mr. Bates, and, again, you talk about 
tips, you talk about a Web site. Who the heck knows where to 
go? What if they don't have a computer? What about if they--you 
know, you talk about HOPE NOW, and I will submit some questions 
for the record, Madam Chairwoman, because I--
    Chairwoman Waters. Yes.
    Ms. Napolitano. --my time is short, and I have a lot of 
things I want to get out.
    The HOPE NOW, how many people are aware? You said that 
there were the tips. The Chair has not seen them, I have not 
seen them. At least we should be able to have this Financial 
Services Subcommittee know where it is, so we can impart that 
to our constituency, so they know where to go and how to access 
those services.
    But lo and behold, and I know you have a constraint funding 
issue, but please use what you have at hand--the media, the 
net, the public access channels, the Council of Governments, 
the COGs, all of those need to be partners in getting the word 
out to the constituents, because if we lose, they lose. If the 
subcommittee loses, the COGs lose. So unless we work together, 
all of it in tandem, then we are all just spinning our wheels 
separately.
    Financial servicers--have they been informed of some of 
those programs you are talking about? Because the Chair here 
says, ``I didn't know that.'' So somehow there is a disconnect 
within our own agencies to Members of Congress in the 
subcommittee. That is another one.
    Credit unions--what role can they play? Because they have 
at the local level a very strong sense of community, and they 
will help their own. But are we allowed--again, do we have to 
go through legislative approval to allow them to be able to 
help their local folks?
    I don't know. I am running out of breath here.
    Have all of you brought the financial institutions together 
and asked, ``When are you starting? Where are you starting? And 
how can we channel our folks, so they can get help through 
you?'' I mean, we talk great, and, I am sorry, the wheels of 
government move very slowly. But we need to move faster than 
that, and be able to put things on the table now, yesterday, 
not tomorrow, not next month, not next week, but now. That is 
something that is just missing in what I hear.
    Everybody has great ideas, and certainly since I don't sit 
on the subcommittee, I am grateful to be able to find out a 
lot. My area is devastated. I have three of my members working 
in real estate. I hear it from them, and I hear in my office 
people calling in and, ``Where do I go from here? What can I do 
to save my home?''
    But have we made an intense effort to be able to tell 
people, ``Don't wait until your date is set before you go for 
help?'' I have heard it in Washington, I have heard it in our 
circles, but I don't hear the people--how many of you--just 
give me a show, how many of you knew that? Anybody who is out 
there, how many of you actually knew that you could call your 
financial institution and ask for help prior to your reset 
date?
    There you go. They don't answer the phone. So how do we get 
the people who need to have the information ahead of the game?
    The lack of knowledge of where to go, institutions 
unwilling or unable to institute these expansion of the 
mortgage. Many are--about 5 or 6 years ago I held a predatory 
lending forum, and I was very concerned because in some areas 
there is that--was that practice very prevalent, and it was 
taking advantage of people who didn't know any better. So we 
brought it out, and we started putting it into the general area 
to allow people to vent.
    And I asked one of the lenders, ``Why don't you go to a 30-
year mortgage?'' He said, ``Oh, no, there is no difference 
between a 20- or 25- to 30-year mortgage.'' I replied, ``I beg 
your pardon, because that amount of money can help send 
somebody to school, to college. That amount of money can help 
somebody be able to move forward in education, and purchase, or 
a business,'' whatever. But they didn't want to do it.
    So have we changed that mindset of the lending institutions 
to expand those mortgages so people cannot lose their home, and 
then we don't have that impact at the local level of buildings 
that are going to the dogs.
    Chairwoman Waters. Thank you.
    Ms. Napolitano. Thank you very much, and I would like to 
submit questions for the record, Madam Chairwoman.
    Chairwoman Waters. Thank you very much.
    Congresswoman Richardson, for questions?
    Ms. Richardson. Yes, thank you, Madam Chairwoman.
    Ms. Peters, you spoke pretty boldly of saying our Governor 
is a man of action. Well, I am not too impressed with the 
movies and the machine guns and all of that, so I hope that 
some of what is being said today will in fact be translated to 
action.
    We heard Mr. Rogan here from the City of Oakland give some 
specific request, and I was wondering if you could take to our 
Governor, the man of action, asking him to do two of these 
points, and they were quite simple. Number one, to extend the 
time notices of default from 90 days to 150 days, and the 
second request was to extend the time period for notice of 
trustee sales from 30 to 60 days to allow for more time for 
counseling and workouts.
    So as our Governor is negotiating these private side 
agreements--and I could give you a whole dissertation on what I 
think about some of the private side agreements that have been 
done in the past--but as he formulates these with the lending 
institutions, if you could request that these two items be 
included as well.
    Ms. Peters. I will take that back to him, yes.
    Ms. Richardson. Thank you.
    My second comment is for Mr. Bates. I was quite alarmed 
when I read Ms. Peters' testimony that said that the access to 
FHA loans have decreased to such the amount that she stated. In 
fact, she said that they have dropped from 109,000 to just 
2,600, which represents in California a 98 percent decline. Do 
you know that to be true?
    Mr. Bates. With some caveats about the exact numbers, yes, 
essentially that is true as it pertains to forward mortgages, 
which is what we are talking about here. We do a fairly decent 
business in California on reverse mortgages, which are the home 
equity conversion mortgages which seniors can use to get equity 
out of their property. But in terms of forward--now we have to 
adopt the term ``forward mortgages,'' the standard mortgages 
people think of to buy a house or to refinance a house, yes, we 
have had a vast fall-off.
    Ms. Richardson. And why is that?
    Mr. Bates. Well, when it began in 2003, when I first 
started noticing it, I could attribute it almost entirely to 
the loss of refinance business. But then, it just kept going 
and going and going. And in conversations with our 
counterparts, part of it would be, well, FHA hasn't kept up 
with the market in terms of having flexibility. Some of its 
requirements were dated and not important anymore, and the 
mortgage limit issue.
    And so what happened I think is, as we became less and less 
a part of a lender's business, there might have been a tipping 
point to where they just didn't go to the trouble of doing any 
FHA business, even if there were many borrowers who still could 
get an FHA mortgage, even in California.
    Ms. Richardson. Are there any discussions to change that?
    Mr. Bates. Well, I think Chairwoman Waters has been very 
assiduous in pursuing FHA modernization, which is a big part of 
what the Administration I think is advancing, and I think is 
something that would be essential to bringing FHA back as a 
viable alternative in California, high-cost States like 
California.
    Ms. Richardson. Well, my request would be that you would 
take the message back that this hearing--we completely support 
the chairwoman of this subcommittee in requesting FHA to take a 
second look at their role in the marketplace. When you talk 
about a 98 percent decline, from the time that I have had an 
opportunity to become a homeowner, clearly when FHA was more 
involved with the average borrower, we didn't see some of these 
creative financing and some of these other issues.
    FHA I think took a greater responsibility to ensure that 
people were getting the right loans, and, if problems occurred, 
were I think better prepared to assist those borrowers as well. 
So clearly there has to be a better commitment to get back into 
this marketplace, because I think that you can assist in 
bringing the stability that our borrowers need. So that would 
be the message I would like to see brought back, that from this 
hearing the chairwoman has our complete support in asking for 
that change to occur.
    Mr. Bates. Thank you.
    Ms. Richardson. Thank you. I yield back my time.
    Chairwoman Waters. Thank you very much. Let me just say, if 
I may, for a moment, the whole idea of revitalizing FHA was to 
get it back in the business, Ms. Richardson. And what I really 
do believe happened is the financial institutions, the loan 
initiators, with the subprime market just forced them out of 
the market, because they came along with all of these exotic 
products.
    And basically what they said is, ``You can get in with this 
teaser rate.'' They were not vetting these qualifications to 
make sure people could afford them. They had no-doc loans, no-
documentation loans. FHA couldn't compete with a financial 
institution or a loan initiator that was saying, ``We will give 
you a loan without documenting your income.'' They couldn't 
compete with these teaser rates that would reset within, you 
know, 6 months or 2 years or so.
    So we are revitalizing FHA. We passed that bill out of 
committee off the floor, and I just don't know what is 
happening on the Senate side. Where is my bill?
    We understand they are working on it.
    I am told that they have hotlined it. It may not be the 
same version. Staff, let us get up to date with what is 
happening on the Senate side with our bill. That is extremely 
important.
    Yes, sir.
    Mr. Krimminger. Chairwoman Waters, I would just like to 
make one note that I would be derelict in not noting.
    Chairwoman Waters. Yes.
    Mr. Krimminger. For the benefit of the subcommittee, as 
well as members of the public, in responding to Congressman 
Green's questions about the prepayment penalties, I think one 
important thing to look at in terms of Chairman Bair's proposal 
for real modifications on a streamlined basis is that the 
prepayment penalty provision would not apply to the loan 
modifications.
    It does apply when you are talking about refinancing, but 
it would not apply to the loan modifications because you are 
not doing a prepayment of the loan. So I think that is an 
important thing to keep into consideration.
    Chairwoman Waters. Oh, very important.
    Mr. Krimminger. I think that is very important for the 
public to know as well, which is, again, I would re-urge, in 
response to your comments as well, Congresswoman, for the 
people to reach out to their servicers. I think that it is 
critical for them to do that in advance, so that something can 
be done before the reset, because obviously if they can't make 
the payments after reset, there are going to be dire 
consequences to their credit history and to other obligations 
they may have.
    Chairwoman Waters. All right. We are going to move on. Our 
constituents would reach out, if they thought it was going to 
do any good. Most people just don't believe the bank is going 
to be kind, that they are going to do anything for them, and I 
have not seen the same people who are initiating the loans 
doing the outreach to tell them to call. I am watching the ads 
every day, and I am going to ask some of our financial 
institutions about them.
    They are saying, ``Come on, we want to give you a loan.'' 
They are saying some of the same things they said that got us 
in trouble before, and I don't get it. So if they would spend 
some money advertising that they want people to call, so that 
before these loans reset, then people will feel a lot more 
comfortable in calling that telephone line that never answers. 
Okay?
    Thank you very much.
    All right. We will move on now to--Ms. Watson, thank you 
very much for being here today, and I know this is an issue you 
are very concerned about. You have 5 minutes for questioning.
    Ms. Watson. Thank you so very much, and I want to thank the 
chairwoman for calling this hearing. I cannot think of anything 
we could do during this period of time, but all come together--
at the local level, State level, and Federal level--to look 
into the fraud that has been perpetrated on this Nation through 
subprime and other gimmicks. And I want to say this--mine is 
more a statement than a question because I do have to go on--
but I pledge to work together with all of those who represent 
the public to do something from the top.
    What we haven't focused on is that these are gimmicks that 
come out of the financial institutions, and they change all the 
time. Someone sits in the back room and figures out how they 
can make a bigger profit and give back to their shareholders. 
So what we are doing is running after the caboose. We are 
trying to solve individual problems. We will never be able to 
do that. We have a whole list--and I am sure the chairwoman has 
it--of community agencies, that this hearing is to mitigate the 
loss in L.A. County, California.
    I want to go one step above that and into the Federal 
Government. I believe that the State ought to hold a conference 
and set up a commission that will look at all of the lending 
institutions. And we need to have some ground rules to prevent 
these kind of products from being perpetrated on those who are 
seeking the American dream. So I would propose that, because if 
there are a million people in this room, a million people have 
a different problem with how they are going to save their 
homes.
    And so what we have to do is go higher, and in the Federal 
Government we need to look at--we have all of these different 
agencies that intend to help homeowners avoid foreclosures. But 
we can be doing this year after year after year. Let us set 
some standards for the State of California, City of Los 
Angeles, the county included, and some Federal standards, that 
control the kinds of products that are offered to those who are 
seeking to buy property and to have their homes for a lifetime 
if they wish.
    So what I want to do is say to all of you presenters and to 
this panel, and the one that comes up after ours, I would like 
you to come together and look at ways the State of California 
can set up regulations for the kinds of financing of homes that 
come out of their various institutions.
    Then, I am going to ask the chairwoman to call us together 
where we can talk about some Federal guidelines that will cover 
all kinds of financial institutions that do home loans and that 
introduce products that really are perpetrated to make a profit 
and not necessarily there to keep people in their homes.
    And I want to say this in closing, that the American dream 
has to be supported by those who represent you. And if it is a 
real dream, it will become a reality. And the banks don't want 
your homes. What are they going to do? They want to sell them 
off, but they certainly are calling in your loans. You can't 
pay those increased payments. So we really need to deal with 
this at the top, we need to speak loudly and clearly to the 
institutions that finance these loans and tell them, ``We will 
not tolerate the fraud that has been perpetrated on those 
seeking to own homes and sustain their homes.''
    So with that, Madam Chairwoman, thank you so much for 
letting me sit with you these few minutes, and I am ready to 
join with all of us to protect not only our constituents but 
all people who seek the American dream. Thank you so very much.
    Chairwoman Waters. You are welcome.
    Ms. Watson. And what I would like to do is submit to you a 
proposal that we have to assist in the foreclosure. I will put 
it in writing and give it to you.
    Chairwoman Waters. Thank you. As you know, Congresswoman, 
we have H.R. 3915--
    Ms. Watson. Right.
    Chairwoman Waters. --that was introduced by our chairman 
and passed out of our committee. Did it pass on the floor? It 
passed on the floor. This is the Mortgage Reform and Anti-
Predatory Lending Act of 2007. You did support that. We had 
good support from our side of the aisle on this, and we took a 
lot of action in this bill on the Federal duty of care. And we 
have another title that set minimum standards for all 
mortgages. We have a signee securitizer liability, and on and 
on and on.
    The biggest fight with this bill was something called 
preemption, and this is always a big fight in Federal 
Government. Oftentimes, we will run into problems like the one 
that we have now on foreclosures. Some States have tougher laws 
than the Feds will ever have, because when you are dealing with 
the Feds, you are dealing with all of the States and all of the 
interest groups, all of the entities that are represented in 
Congress, and they come with different ideas.
    So we try to support the States when they have stronger 
laws, but I want you to know this is when the big boys roll out 
big time. They roll out big time with the money, with the 
lobbyists. Sometimes they hire two, three, four lobbyists to 
every individual who serves on the Financial Services 
Committee, and they back these efforts because what they would 
like to have are Federal laws that are basically minimum 
standards.
    They would like it to apply to everybody, and we are trying 
to preserve the right of States to be even tougher than the 
Federal Government would ever get. So it is an ongoing struggle 
and an ongoing fight that we have to engage in.
    Ms. Watson. Yes. And in response, that is why I would 
address Ms. Peters that you go back and carry the message that 
California always is in the lead. We go above those standards, 
and I think it becomes an obligation for the State to protect 
its homeowners. And so, again, I want to thank you, and we know 
we are kind of concentrating on Los Angeles, but we are dealing 
with a problem that is so overwhelming it means the loss of the 
American dream. So I commend you for those efforts, and we will 
work together to have better regulations and better laws.
    Chairwoman Waters. Thank you so very much.
    Ms. Peters. We have new regulations this year. We actually 
have new regulations this year in California that are some of 
the toughest in the Nation.
    Ms. Watson. Yes.
    Chairwoman Waters. Thank you very much. And we were waiting 
for Ms. Sanchez. I think she had to leave, and so now is the 
proper time to dismiss this panel.
    Thank you all very much for your participation.
    Thank you for responding today, and we anxiously await to 
see the results of Chairman Bair's recommendations. We think 
that is an answer.
    Okay. With that, let me introduce our next panel as they 
come forward. Let me just say that the Chair notes that some 
members may have additional questions for this panel which they 
may wish to submit in writing. So 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.
    Thank you very much.
    Panel number two consists of: Mr. Sandor Samuels, executive 
managing director of Countrywide Financial Corporation; Ms. 
Michaela Albon, senior vice president and general counsel, Home 
Loans Division, Washington Mutual; Mr. Brad Blackwell, 
executive vice president, Wells Fargo Home Mortgage; Mr. Tom 
Deutsch, deputy executive director, American Securitization 
Forum; Ms. Anna Thomas, a homeowner in San Pedro, California; 
Ms. Karen Lee, a homeowner in Los Angeles, California; and Mr. 
Paul Leonard, California office director, Center for 
Responsible Lending.
    Without objection, your written statements will be made 
part of the record. I will recognize each of you for 5 minutes. 
We are going to try and keep each of you to your 5-minute 
presentation. We would ask you to summarize and submit for the 
record, so that we can move on with all four of our panels 
today. And we are going to ask our members to keep their 
questions to 5 minutes, so that we can complete this in a 
timely fashion.
    I would like to welcome all of you who are serving on panel 
two, and we will start with Mr. Sandor Samuels, the executive 
managing director of Countrywide Financial Corporation.

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

    Mr. Samuels. Thank you, Chairwoman Waters. In addition to 
my position at Countrywide, I also serve as the chairman of the 
board--
    Chairwoman Waters. Let me see if I can get a little bit 
of--
    Mr. Samuels. Okay.
    Chairwoman Waters. --attention for you here. Some people 
are moving out, some people are moving in, and it is creating 
quite a bit of conversation. So if you will just hold your 
conversation to a minimum and quiet down, so that we can hear 
our panelists, I would appreciate it.
    For those of you who are standing back in the doorway on 
the side walls, we do have plenty of seats. Please feel free to 
occupy any of them.
    Thank you. We will start again with you, Mr. Samuels.
    Mr. Samuels. Okay. Thank you, Chairwoman Waters.
    Chairwoman Waters. You are welcome.
    Mr. Samuels. In addition to my position at Countrywide, I 
also serve as chairman of the board of Bet Tzedek Legal 
Services, and I am also on the board of the Los Angeles Urban 
League and the Housing Preservation Foundation.
    As you may know, I testified earlier this month before the 
full committee about the recent expansion of our foreclosure 
prevention efforts, a $16 billion home preservation program to 
assist as many as 82,000 Countrywide hybrid ARM customers 
facing unaffordable ARM resets, and about our ground-breaking 
partnership with the Neighborhood Assistance Corporation of 
America, or NACA, as well as with other consumer groups.
    Today I want to update you on our progress with those 
initiatives and provide additional information on our 
activities here in California. California borrowers represent 
about 17 percent of our almost 9 million customers. More than 
64 percent of our California borrowers are located here in 
Southern California. As the largest group in our servicing 
portfolio, California borrowers will benefit significantly from 
our home retention programs and will remain a major priority of 
our outreach efforts.
    Last week we endorsed the home retention principles 
announced by Governor Schwarzenegger. These principles are also 
consistent with those articulated by Treasury Secretary 
Paulson, FDIC Chairwoman Bair, OTS Director Reich, and other 
Federal banking regulators, calling for a systematic and 
scalable approach to home retention that is up to the 
challenges ahead.
    We believe that we are ready for these challenges and 
already can point to results that show loan modification 
activity is sharply increasing. Although the majority of our 
efforts will result from direct contact with our customers, 
nonprofit organizations are also critical to our efforts. On a 
national level, we recently entered into a groundbreaking 
partnership with NACA, as I mentioned. NACA has more than 30 
offices around the country, including two very effective 
branches in California, one here in Los Angeles and one up 
north in Oakland.
    In just 5 weeks since the partnership was announced, more 
than 177 home save solutions have been completed or are in 
process. The NACA partnership is a model that allows us to 
leverage the unique capabilities of some of the best nonprofit 
counseling agencies on the ground in many of the communities we 
serve. Countrywide also is working with the L.A. Neighborhood 
Housing Services. We participate in the Foreclosure Solutions 
Task Force and support home preservation fairs like the one 
being held here as we speak.
    We are collaborating with Lori Gay and the LANHS to expand 
our relationship and strengthen our ability to help more 
borrowers preserve homeownership and avoid foreclosure 
throughout the L.A. area. I look forward to providing you and 
the subcommittee with additional details on this collaboration 
in the near future.
    Countrywide also has sponsored homeownership preservation 
seminars in 30 communities around the country, including events 
in Anaheim, Fresno, Oakland, Ventura, and earlier this month in 
support of the ACORN event here in Los Angeles at the St. 
Vincent School. We plan to significantly expand these efforts 
in 2008.
    Most importantly, Countrywide's initiatives are producing 
results that help borrowers avoid foreclosure and preserve 
their homes. Congressman Green, we are providing help now.
    Through today, in 2007, Countrywide has helped over 55,000 
borrowers stay in their homes through loan modifications, 
repayment plans, and other home retention solutions, and we 
have about 100,000 borrowers in some stage of a workout 
transaction. To give you some sense of how our more recent 
initiatives and partnerships are paying off, in October we 
completed 11,000 home retention transactions, workouts where 
the family stays in the home.
    That is more than twice our previous monthly high. And more 
than 9,000 of these, 82 percent, were loan modifications, 
meaning that they involved a change to a loan's interest rate, 
principal balance, or maturity date, or a combination, designed 
to provide long-term affordable payments. By comparison, about 
28 percent of our workouts in 2006 involved loan modifications.
    These trends reflect not only the changing nature of the 
market, and the causes of loan defaults, but also the efforts 
of servicers, investors, and regulators, with substantial help 
from this subcommittee, to secure the needed clarifications of 
accounting standards and other barriers to ensure that loan 
modifications can be done whenever they present a better 
alternative to the mortgage holder than a foreclosure.
    In short, unlike what you may have read in the press, loan 
modifications have become a primary tool for keeping borrowers 
in their homes. I have offered a lot of statistics in my 
comments, but I also want to offer you two assurances. First, 
we understand that this is a human problem, not simply a 
numbers problem. Second, Countrywide readily acknowledges that 
these are dynamic times, and we fully understand that 
additional initiatives may be needed as events unfold.
    Thank you, Madam Chairwoman, for your leadership and for 
your continuing efforts to help borrowers sustain the dream of 
homeownership.
    [The prepared statement of Mr. Samuels can be found on page 
142 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Ms. Albon, senior vice president and general counsel for 
Home Loans Division, Washington Mutual.

STATEMENT OF MICHAELA ALBON, SENIOR VICE PRESIDENT AND GENERAL 
        COUNSEL, HOME LOANS DIVISION, WASHINGTON MUTUAL

    Ms. Albon. Thank you, Madam Chairwoman, and members of the 
subcommittee. My name is Michaela Albon, and I am senior vice 
president and general counsel of the Home Loans Division of 
Washington Mutual. I am pleased to be here today on behalf of 
WaMu to discuss our efforts in helping our borrowers find 
alternatives to foreclosure and the ways they can overcome 
financial obstacles to keep their homes.
    Clearly, the housing market is currently experiencing a 
sharp downturn. These events are painful for homeowners, 
lenders, investors, and our communities alike. This is 
especially true in markets such as California, which are coming 
off an extended period of rapid home price appreciation. 
Moreover, delinquencies and foreclosures are increasing as 
fewer borrowers are able to refinance or quick sale their way 
out of financial trouble.
    While California remains a key concern, as you have already 
noted, this is a national issue. Simply put, we view 
foreclosure as a last resort, and we work very hard to keep our 
customers in their homes and keep them as customers. We fully 
recognize that no party wins--in fact, all parties lose--if a 
lender is forced to foreclose.
    Our firm belief is that early intervention, as has been 
noted earlier today, combined with expanded options is 
instrumental to helping our customers avoid foreclosure. To 
that end, we are applying particular emphasis on reaching out 
to our adjustable rate mortgage customers at least 6 months 
prior to the first reset date through direct mail, dialing 
campaigns, and state messaging.
    Overall, we have sent almost 5 million pieces of outreach 
mail year-to-date and we will continue to work with our 
borrowers requesting assistance up until their reset dates and 
beyond. In April, we announced a $2 billion assistance program, 
which is focused on helping our subprime customers who are 
current in their payments but who are feeling the effects of 
this challenging environment. We are reaching out to our 
customers and encouraging them to contact us if they are 
concerned about making their new mortgage payment as a result 
of a payment adjustment on an adjustable rate loan or for other 
reasons.
    Our offers of assistance include refinancing or modifying 
their mortgage into a fixed rate loan at a discounted interest 
rate. To date, we have refinanced or modified approximately 
$720 million in loans, and we expect this number to increase 
sharply in the coming months. For those borrowers who have 
already become delinquent and are in need of additional 
assistance, we are offering expanded forbearance and loan 
restructuring plans, including permanent reductions in rate, 
extended terms, and even partial forgiveness of debt.
    To the latter end, WaMu has publicly supported the 
initiative to reduce or eliminate the income tax on forgiven 
debt. WaMu maximizes the opportunities to meet with our 
customers by reaching out to them via mail, phone, and 
personally inviting them to attend homeownership preservation 
events, even to the extent of offering $100 gift cards if our 
customers will attend and talk to us about their loans.
    These homeownership preservation events are held throughout 
the United States, in the homeowners' own communities, so 
borrowers may meet face-to-face with WaMu employees to work out 
a solution to keep them in their homes. WaMu recently 
participated in events held in Anaheim and Ventura, both of 
which were considered quite successful.
    With regard to the percentage of home loans currently in 
foreclosure, we do not publicly disclose this information, but 
we give borrowers every consideration as we work to assist them 
while making prudent lending decisions and adhering to investor 
and regulatory requirements.
    Despite the efforts of lenders and servicers to help 
borrowers avoid foreclosure, the industry does face challenges. 
It has already been noted today that the terms and the 
conditions of applicable pooling and servicing agreements, as 
well as tax law and accounting rules, determine the 
requirements regarding the loans we service on--to some extent 
the requirements regarding loans we service on behalf of 
securitizations and third party investors.
    Declining home values, subordination of junior liens, and 
securitized seconds are also impacting our ability to help some 
customers. Perhaps our biggest challenge, however, is simply 
reaching the borrowers who are most in need. If we can't reach 
them directly or indirectly, such as through community 
organizations, we cannot help them.
    In addition to WaMu's own efforts as a lender and servicer, 
we partner with local, regional, and national nonprofits to 
combine raising rates of borrower delinquency and default. We 
have found that these organizations can be very, very effective 
in reaching customers who may not feel comfortable contacting 
us directly.
    We are a member of the HOPE NOW Alliance that has been 
mentioned some this morning, and we recently participated in 
the HOPE NOW outreach efforts. And our employees, including 
myself, are active participants in all of the working groups, 
including the groups responsible for expanding and funding 
counseling initiatives as well as advancing our ability to do 
more workouts and loan modifications.
    The final area I would like to briefly cover today is our 
industry-leading measures we have taken to help borrowers 
through the ongoing origination process. In late September, 
WaMu co-sponsored a national conference on consumer education 
that was held at our training center in Seattle. In October, we 
introduced a requirement in our wholesale channel that we hope 
will soon become industry standard practice.
    Chairwoman Waters. Could you wrap it up for us, please?
    Ms. Albon. I am sorry?
    Chairwoman Waters. Could you wrap up your presentation?
    Ms. Albon. Yes. Basically, we have increased the 
disclosures that must be provided by brokers on loans that they 
broker to us, including more clear disclosure of their 
compensation.
    [The prepared statement of Ms. Albon can be found on page 
94 of the appendix.]
    Chairwoman Waters. Thank you very much.
    We have to move on Mr. Blackwell, executive vice president, 
Wells Fargo Home Mortgage.

 STATEMENT OF BRAD BLACKWELL, EXECUTIVE VICE PRESIDENT, WELLS 
                      FARGO HOME MORTGAGE

    Mr. Blackwell. Chairwoman Waters, and members of the 
subcommittee, thank you for the invitation to testify. I am 
Brad Blackwell, executive vice president of Wells Fargo Home 
Mortgage's National Sales Force.
    Chairwoman Waters, we commend your leadership on housing 
issues. Wells Fargo is proud to have spoken at numerous 
national forums of this nature, as we believe collaboration 
with you and other Members of Congress is critical. We, too, 
are concerned about foreclosures, particularly in parts of 
California where the market correction continues to depress 
housing prices.
    It is important to note that, culturally, Wells Fargo is 
committed to lifetime customer relationships. Our vision is to 
satisfy all of our customers' financial needs, not just their 
mortgage needs, and to help them achieve financial success. 
This includes ensuring all customers have access to and can 
sustain homeownership.
    Working with organizations like Los Angeles Neighborhood 
Housing Services, Operation Hope, the West Angeles Community 
Development Corporation, and the East Los Angeles Community 
Corporation, we have introduced a number of innovations to help 
homeowners, including conducting seminars to help borrowers 
review loan documents and training local lawyers to give aid to 
people facing foreclosure.
    In your congressional district alone, Madam Chairwoman, 
Wells Fargo has contributed over $19 million toward low- and 
moderate-income housing investments. When faced with the 
tension that can naturally exist between doing what is right 
for the customer and generating a profit, responsible lenders 
do what is right for the customer.
    Unlike many in our industry, Wells Fargo chose not to offer 
negatively amortizing option ARM products. In 2006 alone, these 
loans generated close to 40 percent of the industry's revenue. 
We know that having fair and responsible lending principles 
makes a difference. The subprime loans originated by Wells 
Fargo Home Mortgage have foreclosures half that of those not 
originated by our company.
    Our principles include focusing on the customer's ability 
to repay, providing information to make fully informed 
decisions, making only those loans that provide a demonstrable 
benefit to the customer, and doing all we can to keep people in 
their homes by providing experts, tools, and services that help 
customers manage their credit.
    While we believe we have made good decisions that align 
with our responsible lending and servicing practices, like most 
others we did not predict the extreme confluence of market 
events currently affecting customers. So we have stepped up our 
efforts to find more ways to help at-risk customers.
    Wells Fargo has weathered the current subprime crisis well, 
relative to our competitors, because we respect that what is 
good for consumers and what is good for investors are 
inextricably linked. Selling mortgages into the secondary 
market makes homeownership possible for millions, including 
minority and low-income consumers, and we are careful to avoid 
practices that could limit responsible access to funding.
    To ensure the future health of the housing industry, it is 
very necessary to preserve liquidity and capital from the 
secondary market. We must find a good balance between upholding 
investor obligations and meeting consumer needs.
    Since the vast majority of subprime loans we service are 
held by investors, an ongoing industry dialogue organized by 
the American Securitization Forum has helped us develop 
solutions that take into account our secondary market 
obligations. Over the past few weeks, we have been working 
closely with Treasury Secretary Paulson, the Federal banking 
regulators, and the ASF on more systematic solutions, as you 
have been discussing earlier, for segments of subprime 
consumers who share similar credit characteristics.
    Now, HOPE NOW, which Wells Fargo was instrumental in 
creating, is another great example of how industry and 
government have come together in nationwide solutions. This 
alliance harnesses the strengths of mortgage servicers' 
counselors to capital markets in the U.S. Government to help 
consumers get budget guidance.
    A critical component--and this was not discussed in the 
last panel--is encouraging customer contact, since it is the 
biggest obstacle we face in helping customers. HOPE NOW is 
already beginning to prove that when we come together and 
mobilize to help consumers we can have great impact.
    To gain further insights on the best ways to help more 
customers, we analyzed our 2007 subprime ARM servicing 
portfolio, considering the life of the loan and current market 
trends. About 3 percent of the 7.9 million real estate-backed 
loans Wells Fargo services are subprime ARMs that have or are 
expected to reset by the end of 2008.
     At this time, it appears we can find workable solutions 
for the vast majority, 80 to 88 percent. These customers will 
pay in full, they will refinance, manage the higher loan 
payment, or benefit from a workout solution. We either seek 
refinancing solutions or modify all loans for customers who can 
afford the modification and are willing to manage their 
mortgage payments. If a repayment or modification will not be 
successful for the customer, we turn to foreclosure avoidance 
options to protect the customer's credit standing.
    As the Nation's leading FHA lender, we appreciate 
Congresswoman Waters spearheading FHA reform in the House, as 
we believe this will provide yet another conduit for helping 
customers. Six months in advance of a reset, we contact 
borrowers.
    Chairwoman Waters. Could you wrap it up for us, please?
    Mr. Blackwell. Thank you. I will. And by working--so we 
make sure we contact those borrowers to see what we can do to 
help them with the reset.
    By working together, our industry, government, capital 
markets, consumer groups, and not-for-profit counseling agents 
can help people stay in their homes, and it takes the effort of 
all of them. Together, we must get all customers facing 
difficulty to call their servicers or credit counselor, and we 
must explore refinancing, modification, and workout options. We 
are there for the help of our customers.
    Chairwoman Waters. Thank you very much.
    Mr. Blackwell. And we thank you very much for your time.
    [The prepared statement of Mr. Blackwell can be found on 
page 103 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Mr. Deutsch?

 STATEMENT OF TOM DEUTSCH, DEPUTY EXECUTIVE DIRECTOR, AMERICAN 
                      SECURITIZATION FORUM

    Mr. Deutsch. Thank you, Madam Chairwoman. I am honored to 
be here on behalf of the American Securitization Forum, as well 
as the Securities Industry and Financial Markets Association.
    As indicated before, the ASF represents members, over 375 
members, including all of the major servicers in the 
securitization marketplace, all of the major originators, as 
well as the institutional investors, to purchase these 
mortgage-backed securities as well. Our mission and goals can 
be succinctly summarized as: first, providing good market 
standards and practices in this area; second, advocating on 
behalf of our members; and, third, providing a good education 
as to how securitization works and the different incentives 
market participants have.
    Before I address the specifics of the securitization 
process, and some of the many initiatives that we are working 
on right now, I would like to make one fundamental observation 
about the current mortgage market. That is, no one--no one--
benefits from foreclosures, not the mortgage servicers, nor 
pension funds, nor mutual funds or hedge funds who ultimately 
invest in these mortgage-backed securities benefit from 
foreclosures at all. It is often the costliest outcome for both 
the borrower as well as the investor in those mortgage-backed 
securities. And let me just put a placeholder in there and come 
back to that towards the end of my testimony.
    Fundamentally, the process of securitization, though, 
allows originators of consumer and commercial credit to pool 
hundreds of like obligations and securities, which often 
generates stable and predictable cashflows for the investors in 
those mortgage-backed securities as borrowers pay their 
principal and interest payments.
    Recent developments in the current subprime residential 
mortgage place has generated a number of significant concerns, 
and have impacted both the borrowers in those mortgage-backed 
securities as well as all of the securitization market 
participants. Given these market conditions, servicers of the 
mortgage loans, whether they are held in portfolio by the 
different banks, or whether in securitization trust, have 
redoubled their efforts, as you have just heard by all of the 
testimony from some of the servicers here, to help borrowers 
avoid foreclosure and minimize the losses to the securitization 
investors.
    This is a very key point. The securitization investors are 
the ones who keep capital flowing into this marketplace. 
Refinancing is the number one option for many borrowers in 
these homes, not everyone, and let me speak to a couple of the 
general tenets that we have been discussing through numerous 
discussions both with various industry participants as well as 
the various Federal regulators and the Administration.
    For many of those who are coming up on their reset date, 
and they have generally been current in their introductory 
mortgage payments, and have built up some equity in their home, 
refinancing opportunities continue to exist and to be 
accessible to borrowers even in the current marketplace. But 
for some borrowers with significantly impaired credit, or 
little equity in their home, these refinancing opportunities 
may not be available, and this is an area where the servicers 
as well as the industry have taken particular note and focus, 
especially over the last few months.
    For borrowers who have been able to stay relatively current 
in their introductory rate--again, showing their ability and 
willingness to pay in that current introductory rate--servicers 
are and will continue to employ the full tool kit of loss 
mitigation options, including, but not limited to, loan 
modifications to try to help that borrower to stay in their 
home, again coming back to the point. For those leaving their 
home, whether it is through foreclosure or even short sales, it 
is often not the best outcome for anybody in the securitization 
process.
    So let me just talk a little bit about the securitization 
pooling and servicing agreements that have been discussed a 
little bit today and get to some of the recent industry 
developments. As many of you are aware, all of the 
securitizations are covered by pooling and servicing agreements 
that are effectively the contract, if you can think about it, 
between the servicer and the investor of the mortgage-backed 
securities, various provisions that allow servicers to do a 
wide range and open up the full tool kit of what servicers can 
do.
    Given current market conditions, the American 
Securitization Forum has taken particular note of that. And as 
far back as June of this year, we instituted a statement of 
principles, recommendations, and guidelines for the 
modification of securitized subprime residential mortgage. That 
is attached to my testimony as Exhibit A.
    This document concludes that loan modifications--and this 
was back in June--that are in default, for subprime loans that 
are in default or for which default is reasonably foreseeable, 
an important serving tool as part of the full servicing tool 
kit to often help borrowers avoid foreclosure and remain in 
their homes.
    I would also like to note that the development of the ASF 
statement was a first and important step towards industry 
collaboration and coordinated solutions. Since the ASF and 
SIFMA have also been pleased to be involved with the HOPE NOW 
Alliance that was formed on October 9, 2007, under the 
leadership of Treasury Secretary Paulson and HUD Secretary 
Jackson, this HOPE NOW coalition again brings all of the 
counselors, servicers, investors, and other mortgage market 
participants to maximize the outreach to borrowers and to help 
develop industry solutions.
    On that same day, we also released a statement allowing for 
the reimbursement of borrower counseling expenses to be viewed 
as servicing advances, effectively Help Now. That is, that 
servicers can deduct out of securitization trust cashflows many 
of the expenses that they reimburse for counseling expenses, 
something we spent a great deal of time working with both 
servicers and investors to develop this.
    Finally, I believe that brings me to the work that we are 
currently working on now with Federal policymakers, including 
the FIDC, FASB, the Federal Reserve, the Treasury Department, 
and other Federal bank regulators to identify the loss 
mitigation obstacles and promote best servicer practices 
throughout the industry.
    Fundamentally, the ASF believes, and is continuing to 
pursue, streamlined methods of segmenting borrowers with 
various types of characteristics including loan-to-value 
ratios, credit scores, and, most importantly, payment history 
at the introductory rate. We believe that streamlining this 
approach by doing this very quickly, as servicers have been 
doing and working on over the last few months, will achieve 
very measurable outcomes and ultimately help even that many 
more borrowers stay in their homes.
    We are pursuing these efforts in great earnest, and hope to 
report out the progress of these efforts in the very near 
future.
    Madam Chairwoman, and distinguished members of the 
subcommittee, I thank you for the opportunity to participate in 
today's hearing. The ASF and SIFMA stand by to assist you.
    [The prepared statement of Mr. Deutsch can be found on page 
108 of the appendix.]
    Chairwoman Waters. Thank you very much, Mr. Deutsch.
    Now we will hear from some homeowners. First, Ms. Anna 
Thomas, a homeowner from San Pedro, California. Thank you for 
being here.

       STATEMENT OF ANNA THOMAS, HOMEOWNER, SAN PEDRO, CA

    Ms. Thomas. Thank you. Thank you. It is exactly a year ago 
that I got into a bad loan with Freemont Investment and Loan, 
almost to the day, and they did nothing to help negotiate or 
modify my loan. Over 6 months, I paid them $5,190.35 for my 
mortgage. I had help to do that. I had family members in my 
home, and I was able to do it for 6 months.
    And it turned out, towards the sixth month, I realized my 
family members were not there any longer, they had to go back 
to New York, and I could not make those payments. Freemont 
Investment and Loan would do nothing to help me. I heard 
mentioned today that the consumers don't know where to go, and 
I didn't know where to go either.
    I got a book, this Consumer Action Handbook. I found the 
Department of Consumer Affairs, their Real Estate Fraud Unit, a 
lady, Dawnnesha Smith called me right away to see how they 
could help. They got on the phone with Freemont--now, I had 
been negotiating with them for over 6 months now. They would 
not take any partial payments. They wanted me to sell my home.
    Investigator Gutierrez spoke with them at length on one 
particular day. She called me at work and said, ``I have been 
talking with them all day. I am sorry, they are not bending. 
You are going to--on the 16th of November, they will file 
foreclosure notice, and you are going to have to move out of 
your home. And as a matter of fact, within 72 hours you would 
have to vacate your home.''
    I was devastated at that news, and I felt the compassion in 
her voice. There was somebody that I was able to call. I don't 
know what she said to them, but she called me back 15 minutes 
later and said, ``Ms. Thomas, I am on a conference call with 
Freemont Investment and Loan, and this gentleman would like to 
speak with you.'' So within a 15- to 20-minute period, I went 
from devastation to elation. He told me he would modify my loan 
at 6 percent. Would I be able to pay them a fee of $5,190.35? I 
said yes, I would.
    I didn't have it then, 6 months ago. I don't really have it 
now either, but my friends and relatives got that money 
together. I sent it in to them, my payment now is approximately 
$3,700. I asked if they could put that $5,000 maybe onto the 
loan, so that I would not have to pay that money on the 16th of 
November, and then go back on the 1st of December now with 
$3,700, but that is another hurdle that I will have to make.
    I am here--hopefully other consumers will get in touch with 
our agencies, especially the Consumer Affairs Department and 
the people who helped me--perhaps they, too, can save their 
homes. I am a survivor of this foreclosure crisis. I am happy 
to say that at this point. Going forward, I have learned a lot 
of things, and I would like to thank you for having this panel 
and hopefully preventing this from happening to other people.
    Thank you.
    Chairwoman Waters. Well, you are so very welcome, and we 
thank you for being here.
    Ms. Karen Lee, also a homeowner, from Los Angeles. Thank 
you for being here today.

       STATEMENT OF KAREN LEE, HOMEOWNER, LOS ANGELES, CA

    Ms. Lee. Thank you. It is my pleasure to be here and share 
my story. I feel like I am one of the lucky ones, because I was 
not losing my home at the time I think I had--my health went 
down, so I had to quit work. My husband wasn't in the greatest 
health either, and he was on the verge of retiring.
    So we discussed what we would do, since we knew we didn't 
have a lot of money coming in, and we had refinanced before a 
couple of times for our children's education. So we, therefore, 
did not even consider what would happen to us once we retired 
or if something drastic like my health going down the tubes 
would affect our lives.
    I had been getting a lot of literature through the mail 
about reverse financing. I didn't understand it. There was a 
seminar that we attended, and we still didn't give it a lot of 
thought. But then, as the time got nearer for my husband to 
retire, then I started thinking, well, gee whiz, I am ill, my 
house note was $1,300 a month, and maybe to some people that is 
not a lot of money, but for us raised in South Central Los 
Angeles, it was a lot of money.
    So I couldn't imagine how, if something should happen to 
him, how I could get this money together if I should miss a 
payment or whatever. So we discussed it, and I am very pleased 
to say that we were happy with the decision that we made to go 
ahead on and do something about it before anything happened. So 
we went on and we applied. I have a new that is with the HUD 
Corporation, and he was instrumental in giving us advice and 
putting us with the right people to give us the right 
understanding, and now we can breathe easy and it is a good 
feeling.
    I appreciate you allowing me to come and share my success 
story.
    [The prepared statement of Ms. Lee can be found on page 141 
of the appendix.]
    Chairwoman Waters. Well, thank you very much.
    Mr. Paul Leonard,California office director, Center for 
Responsible Lending.

 STATEMENT OF PAUL LEONARD, CALIFORNIA OFFICE DIRECTOR, CENTER 
                    FOR RESPONSIBLE LENDING

    Mr. Leonard. Madam Chairwoman, thank you and the other 
members of the subcommittee for coming out today. I can't help 
but say the timing of this hearing couldn't have been better 
given the landscape that we are facing now, the Governor's 
intervention, the discussions that are happening in Washington 
around expanding the scale of modifications. It is critical.
    I am Paul Leonard, the director of the California office of 
the Center for Responsible Lending. We are a nonprofit, 
nonpartisan policy organization working to eliminate financial 
abuses in the marketplace. We work with a lot of other civil 
rights, labor, consumer groups. We work closely with the NAACP, 
and the National Council La Raza, at the national level as well 
as here in the State.
    We are also affiliated with Self-Help, which is a credit 
union, so we are a lender to people who have imperfect credit 
in North Carolina directly. And through a national lending 
program, we have bought some $5 billion and helped finance more 
than 4\1/2\ million homeowners and small businesses.
    I would be remiss if I didn't reiterate the fact that 
California really is the epicenter of the national foreclosure 
crisis. Last year we put out a report that projected there 
would be 2.2 million foreclosures as a result of subprime 
lending that occurred in 1998 and 2006. We estimated that close 
to 500,000 of those would be right here in California, and some 
45,000 here in L.A. County specifically.
    As others have mentioned, this is a problem that is 
disproportionately focused on minority communities and minority 
borrowers. Both African Americans and Latinos are much more 
likely than similarly-situated, similarly credit quality white 
borrowers to get high cost subprime loans and to experience 
foreclosures.
    You know, not too long ago the problem for homeownership 
lending used to be redlining, that minority folks couldn't get 
a lender to say yes to a loan. Unfortunately, the pendulum has 
swung way too far to the other end where the saying in the 
industry is is that if you could fog a mirror, you could get a 
loan, and the whole issue is now not about whether you can get 
a loan but how much you are going to pay for it and what the 
terms of those loans are.
    And, unfortunately, far too many people got into loans that 
they fundamentally are not going to be able to repay, and that 
the lenders didn't evaluate their ability to repay beyond the 
initial starter rate period and didn't verify their income as 
to determine their ability to repay.
    The costs of this are staggering, not just for the 
borrowers, for whom it is a tragedy for them to lose their 
homes, but also for the neighbors, as several of the members 
mentioned. We have done some analysis. Here in L.A. County, we 
estimate that 3 million homeowners will experience price 
declines in their homes totalling some $31 billion as a 
result--specifically as a result of foreclosures that are 
happening to their neighbors.
    And as others have mentioned also, the problem is going to 
get worse. We are going to see a spike in subprime ARM 
borrowers who are facing resets for the first time over the 
next 12 to 18 months. Unfortunately, for the last 6 to 9 
months, we have heard a lot of what I call ``happy talk'' from 
the lenders, promises of efforts to reach out, staff up their 
loss mitigation efforts, contact borrowers and offer a full 
range of loss mitigation tools, including loan modifications. 
Unfortunately, that rhetoric has often been hollow.
    Moody's did a survey of the largest servicers in the 
country a couple of months ago, and they found that only 1 
percent of borrowers at reset were getting modifications. And 
when we have scratched below the surface and looked at the 
types of modifications that are being provided, often they are 
of a very short-term nature, not the long-term affordability 
that Chairman Bair is seeking in her approach to loan 
modifications.
    Now, why isn't this happening despite the obvious economic 
appeal and the point that Mr. Deutsch made that nobody really 
benefits from foreclosures? Well, we think there are a few 
reasons. One is that the financial incentives for the servicers 
may very well be mismatched with the incentives of the 
investors. There was a recent quote in an Inside Mortgage 
Finance from a Deutsche Bank official who said, ``Just this 
week, servicers are generally disincented to do loan 
modifications because they don't get paid for them, but they do 
get paid for foreclosures.''
    This official went on to indicate that it costs servicers 
between $750 and $1,000 to complete a loan modification. So we 
have to dig beneath the surface and really get into the guts of 
these operations to understand where the financial incentives 
are internally, even if the outcomes of foreclosures are 
clearly worse off for investors and for borrowers.
    There are other issues. Clearly, the servicers haven't had 
the capacity to deal with the wave of folks who are facing 
problems. There are potential lawsuits from investors that are 
tying the hands of how many modifications, at least that the 
lenders suggest that they can do. And, finally, there are some 
complicated incentives with many loans that have second 
mortgages, which make it difficult to offer these loan 
modifications.
    Well, what is needed to make this work? I think there 
really are three things. First of all, we wholeheartedly 
endorse the proposal put forward by Chairman Bair to 
essentially identify quickly and in a streamlined fashion those 
borrowers who are not going to be able, who are current and 
occupying their homes, current at the time of reset and aren't 
going to be able to afford it. And let us just, as she said, 
get on with it, convert these loans to the starter rate for the 
life of the loan.
    I would also point out that we should expand the universe 
of those folks who are affected, because there are many people 
who have already passed their reset date and who have fallen 
behind on their loans but were current before, and they have 
fallen behind on their loans because they couldn't afford this 
reset that they have already experienced. Those folks, too, 
should be included in the universe that we are looking for for 
this streamlined, simple modification process.
    The second thing that I think is really, really important 
is there has to be transparency about who is going to qualify 
for these streamlined modifications. I have talked to a lot of 
housing counselors and borrowers who you have already heard 
today have trouble finding the right person, have trouble 
knowing what their clients are eligible for in terms of a loan 
workout, and so we have to make it simpler and easier to 
understand for borrowers and for the lenders alike.
    And perhaps most importantly, we need regular reporting of 
data, because right now--Madam Chairwoman, you know, you were 
intimately involved in the effort to get--expand the Home 
Mortgage Disclosure Act, which has shed a light on and provided 
a real democratization of data around home lending practices.
    We need similar data collection right now for the servicing 
activities, so that we can know and measure the lenders up to 
the standards that they have set for themselves, that if they 
are providing the long-term affordable loan modifications that 
they are talking to, they will make this data--readily make 
this data available for you and me and everybody else to see, 
so that we can know that people's homes aren't being lost.
    Two final points that I think are important to sort of 
level the playing field to help current borrowers. One is Ms. 
Sanchez's proposal for bankruptcy reform. It is a critical, 
critical component, because right now, as she said, the first 
home mortgage is the only asset that a bankruptcy judge can't 
rework the terms of their loan.
    Second home, vacation home, a nice yacht, or an RV, even 
credit card debt, all can be restructured in a bankruptcy 
process. First home mortgages isn't one of those items. And if 
we don't do that--if we do that, we are actually giving the 
borrowers a whole lot more leverage in their ability to 
negotiate with their lenders today.
    The one final point I want to say is requiring mandatory 
loss mitigation activities on behalf of the lenders, 
establishing some requirements as are required by FHA today 
that would require lenders to reach out and document their loss 
mitigation efforts before they came move to foreclosure we 
think would be a strong Federal policy that should be adopted. 
Thank you very much, and I am happy to answer your questions.
    Chairwoman Waters. Thank you very, very much.
    Thank you very much.
    Again, I would like to thank all of the panelists for their 
testimony. It was indeed tremendously informative, and we have 
a few questions to raise of our panelists.
    Let me just say to the lending institutions who are here 
today that I know oftentimes you don't feel comfortable coming 
to these kinds of hearings, and particularly when it is chaired 
by Maxine Waters. You think you are going to get beaten up.
    And we don't want to do that. We want to make you feel as 
comfortable as we possibly can, but we have to ask you some 
tough questions. The first question I would like to ask is 
something you alluded to, Ms. Albon. Can each of you tell me 
how many foreclosures are in your portfolios? Let me start with 
Countrywide. What is the total amount of foreclosures that you 
are working with at Countrywide? How many foreclosures have you 
had?
    Mr. Samuels. Could you start with someone else? Let me just 
review--
    Chairwoman Waters. All right. We will start with WaMu.
    Ms. Albon. Yes. We do not publicly disclose that data, so 
I--
    Chairwoman Waters. I am sorry. Would you please give her 
the microphone?
    Ms. Albon. We do not publicly disclose that data, so I do 
not have it with me today.
    Chairwoman Waters. All right. I know that you said that. I 
just wanted to get it into the record, because we have to talk 
about what we do about that.
    What about Wells Fargo?
    Mr. Blackwell. Wells Fargo's foreclosures currently 
represent .66 percent of our portfolio.
    Chairwoman Waters. What is that--
    Mr. Blackwell. That was as of the end of the third quarter.
    Chairwoman Waters. What is that in raw numbers?
    Mr. Blackwell. I am sorry. I don't know that number.
    Chairwoman Waters. Okay.
    Mr. Blackwell. We have--
    Chairwoman Waters. Okay.
    Mr. Blackwell. --roughly 7.9 million loans in our 
portfolio.
    Chairwoman Waters. All right.
    Mr. Samuels. Ours is .89 percent of our portfolio of almost 
9 million.
    Chairwoman Waters. Almost 9 million?
    Mr. Samuels. Yes.
    Chairwoman Waters. All right. For Wells Fargo, do you 
have--do you own other companies that initiate loans for you? 
Any other--do you own any other banking or mortgage companies 
that do loan initiation for you?
    Mr. Blackwell. Thank you, Chairwoman Waters. I think I 
understand the question.
    Chairwoman Waters. Yes.
    Mr. Blackwell. Do we own any separate companies, not under 
the--
    Chairwoman Waters. Yes.
    Mr. Blackwell. --Wells Fargo umbrella--
    Chairwoman Waters. Yes.
    Mr. Blackwell. --that originate mortgages?
    Chairwoman Waters. Yes.
    Mr. Blackwell. The answer to that is no. We do originate 
loans under the Wells Fargo Home Mortgage name, and under the 
Wells Fargo Financial name. Both are wholly-owned subsidiaries. 
Wells Fargo Home Mortgage is actually a unit of Wells Fargo, 
and Wells Fargo Financial is a wholly-owned subsidiary.
    Chairwoman Waters. Are all of your loans initiated by loan 
officers that work in these entities?
    Mr. Blackwell. If you mean are all of our loans originated 
as in the loan officer takes the loan application--
    Chairwoman Waters. Yes.
    Mr. Blackwell. --the answer to that is no. We have--and our 
primary origination source is retail, in which loan officers 
take the loan applications. But we also have a wholesale unit 
which originates loans through mortgage brokers who can deliver 
loans to us. And we have a correspondent unit that buys loans 
from mortgage bankers, and those three units all do mortgages 
for Wells Fargo.
    Chairwoman Waters. What percentage of your loans, your 
subprime loans, are originated by mortgage brokers?
    Mr. Blackwell. I am sorry. I don't have that information. I 
can tell you that more than half of our loans were originated 
through our retail channels, but I do not have the percentage 
of loans that were done through our wholesale channels.
    Chairwoman Waters. What about you, WaMu?
    Ms. Albon. We also do business through licensed brokers, 
and a large percentage of our subprime loans that we currently 
service were originated through mortgage brokers, and then some 
were purchased from sellers.
    Chairwoman Waters. What percentage again?
    Ms. Albon. I don't have that number on me, but I can go 
back and get that information.
    Chairwoman Waters. Can either of you tell me--can you trace 
whether or not your foreclosures are more tied to or related to 
the loans that were initiated by your banking operation or by 
the operations of the mortgage brokers and the mortgage 
bankers, others that were initiating for you?
    Ms. Albon. We would internally have that data.
     Chairwoman Waters. Well, I know you would have it 
internally, but can you tell me?
    Ms. Albon. I do not have it with me right now.
    Chairwoman Waters. But is this something that you can 
publicly disclose?
    Ms. Albon. I will go back and check on that.
    Chairwoman Waters. Yes, sir.
    Mr. Blackwell. I apologize. I don't have the exact numbers, 
but I do know that the performance of our portfolio originated 
directly by our loan officers is better than that originated by 
mortgage brokers that delivered in to us.
    Chairwoman Waters. At any point in time leading up to this 
crisis, did you know and understand that?
    Mr. Blackwell. I do not have the answer to that personally.
    Chairwoman Waters. Okay. Let me just move on to Mr. 
Deutsch. Mr. Deutsch, did you say what I heard Mr. Leonard say? 
Was it true that you said that the servicers don't get paid for 
doing the workouts on foreclosures?
    Mr. Deutsch. I am sorry. As much as I would like to have 
the resources of Deutsche Bank, I think that is who he was 
referring to, not Tom Deutsch.
    Mr. Leonard. That is correct.
    Chairwoman Waters. Oh, okay.
    Mr. Leonard. It was a Deutsche Bank official that--
    Chairwoman Waters. Oh, okay.
    Mr. Leonard. --I was quoting.
    Chairwoman Waters. All right. I am sorry.
    Mr. Leonard. Not Mr. Deutsch.
    Chairwoman Waters. I just saw Deutsch there, and--
    Mr. Leonard. You have seen one Deutsch, you have seen them 
all I think.
    Chairwoman Waters. That is right. That is right. So but 
since you are an expert in this area, is this a problem?
    Mr. Deutsch. Could you repeat the question?
    Chairwoman Waters. The question is, because you understand 
and know you are the forum, and you have under your umbrella 
all of these servicers, have you heard or have you learned that 
they do not get paid for doing workouts? That it is too costly, 
it is too time-consuming, that it is not--you don't have any 
incentives for doing these kinds of modifications or workouts. 
Have you heard that said before?
    Mr. Deutsch. I have heard that said before, and personally 
having, for better or for worse, drafted many of these pooling 
and servicing agreements, quite familiar with many of the 
provisions that are applicable, I guess I would respond I guess 
with two notes. Is that, first, the servicer does have an 
incentive to continue servicing and not foreclose or create 
some sort of short sale arrangement, because they are 
continuing to receive a servicing fee for servicing that loan 
ongoing.
    So if they were to--to say that they are not paid to 
actually do a loan modification misses the point that they will 
continue to receive a servicing fee for servicing that loan 
going forward.
    Secondly, is that they--
    Chairwoman Waters. No, no, we understand that.
    Mr. Deutsch. Sure.
    Chairwoman Waters. We understand that if they continue to 
service the loan they are going to get paid. So that is the 
incentive for wanting to service rather than--well, you said 
it. If you do the workout, and it stays on the books, then you 
do get paid for it. So what point were you making, Mr. Leonard?
    Mr. Leonard. I was simply sort of reiterating this comment 
from my friends at Deutsche Bank as opposed to Mr. Deutsch 
that--
    Chairwoman Waters. Yes.
    Mr. Leonard. --that, in fact--that from this person's 
perspective that the incentives were not necessarily aligned 
and moving in the direction of making sure that the servicers 
were going to be striving for to deliver modifications rather 
than foreclosures. And combined with the risk of investor 
lawsuits and other complications, the default may very well 
still be easier to do--to accept a foreclosure, have the loan 
off the books, than it is to go through the effort of doing a 
workout.
    Chairwoman Waters. Mr. Deutsch, are you guys worried about 
liability? Is there something that needs to be done to relieve 
you of that concern of liability based on the contracts that 
you have with the investors?
    Mr. Deutsch. Absolutely, liability has been raised as an 
issue, and I would respond with two notes, is that servicers 
have indicated a concern if they do too few loan modifications 
that investors and mortgage-backed securities could sue them 
for that, but they have also noted--servicers--in the same 
breath that if they do not enough loan modifications that 
investors could also sue them for not doing enough loan 
modifications, because they haven't modified to an extent that 
would maximize the net present value of the trust.
    Chairwoman Waters. They could be. Do you know of any 
servicers who have been sued?
    Mr. Deutsch. I am not personally aware of lawsuits that 
have been filed. Most of those would be private litigation that 
I--
    Chairwoman Waters. But in a forum where you are looking to 
make sure that you strengthen the industry and protect your 
investors and do the work that they--you would know whether or 
not there was a rash of--
    Mr. Deutsch. Certainly, there has been, as far as I am 
aware, no rash of suits as of yet. But I would note that it 
is--there is always litigation risk. Absolutely. But that is--
    Chairwoman Waters. In life.
    Mr. Deutsch. --life in the capital markets.
    Chairwoman Waters. Yes.
    Mr. Deutsch. Servicers, when they sign up for these 
agreements, they do have to take those risks, the risks 
associated with--
    Chairwoman Waters. Have you made available--maybe my staff 
would know--a copy of these kinds of service agreements that 
are worked out between the investors and the servicers? Have 
you seen these kinds of agreements?
    Mr. Leonard. My colleagues have reviewed these pooling--a 
sampling of these pooling and servicing agreements, as well as 
many other Wall Street firms that have reviewed them and--
    Mr. Deutsch. Ms. Waters, I might note you can go to the 
sec.gov Web site, and within that Web site is a filing of all 
pooling and servicing agreements on publicly-issued securities, 
so you can look at any particular issue through that Web site.
    Chairwoman Waters. Thank you. And I would instruct my staff 
to do that. We are going to gather those and take a look at 
them and see what you are talking about.
    One last thing. You mentioned that in these workouts that 
we are still trying to find, you know, all of these workouts 
that have been done.
    Mr. Deutsch. Sure.
    Chairwoman Waters. But one of the things you look at is 
whether or not there is impaired credit.
    Mr. Deutsch. Correct.
    Chairwoman Waters. Now, don't forget these are workouts 
that are being done by people who have already been extended 
credit.
    Mr. Deutsch. Correct.
    Chairwoman Waters. They got into a teaser loan.
    Mr. Deutsch. Correct.
    Chairwoman Waters. So did the credit become bad after they 
gave them the loan, or when did they have such bad credit that 
they can't do a workout to remedy the risk that they are now 
involved in?
    Mr. Deutsch. Sure. I might distinct out between credit and 
payment on their mortgage payment. I think it--
    Chairwoman Waters. Well, they have been in this for 6 
months.
    Mr. Deutsch. Okay.
    Chairwoman Waters. They got a teaser rate.
    Mr. Deutsch. Okay.
    Chairwoman Waters. They are in for 6 months. It is going to 
reset. Are you saying the credit went bad in 6 months?
    Mr. Deutsch. No. What we would--what we are proposing, and 
through I think all of the different proposals that you have 
heard, both from Chairman Bair as well as others, is that if 
they are current in their introductory rate, and their credit 
hasn't taken a significant or drastic slide, that they would be 
eligible for either refinancing when they come up upon their 
reset, or that upon that reset they would receive a loan 
modification.
    Chairwoman Waters. So you do support Chairman Bair's 
recommendation to freeze the ARMs at the starter rate?
    Mr. Deutsch. I think there is a lot of nuances associated 
with that statement.
    Chairwoman Waters. Well, just the general idea. Do you 
support that?
    Mr. Deutsch. As a general idea, the American Securitization 
Forum has come out in our statement in June noting that loan 
modifications are extremely important and should be done on a 
loan-by-loan basis. But let me quality that. By streamlining 
the process of evaluating the borrower characteristics--and 
there is many different metrics that can be done to make that a 
very efficient and fast process, and I think over the--in the 
very near future you will see the industry working hand in hand 
with the Federal regulators--
    Chairwoman Waters. Well, let me just say that we are way 
past 101 Loan Modifications. It is too slow, it is too time-
consuming, the consumers are not getting the information, we 
don't see the kind of outreach that we are hearing about today. 
Chairman Bair has a proposal to say, ``Let us do it in a 
significant way. Let us just come up with an agreement that we 
are going to freeze these ARMs at a starter rate.'' You are 
telling me you are not prepared to say you support that today?
    Mr. Deutsch. I think one could--
    Chairwoman Waters. Yes or no.
    Mr. Deutsch. One--
    Chairwoman Waters. I want to be nice.
    Mr. Deutsch. I agree. I think the statements that Chairman 
Bair has made have indicated on a specific basis that loan-by-
loan analysis, even under her proposal, still needs to be done 
on a loan-by-loan basis, but that systematic criteria can be 
used. I think they are the exact same approach, but different 
nuances in the words have made them seem as if they are 
different approaches.
    Chairwoman Waters. Well, I would hope that at some point in 
time our subcommittee, and perhaps our entire committee, is 
going to make it very clear where we stand on the idea, and we 
are not going to nuance it. We are going to want some real 
action.
    I know I have taken a lot of time here, but you are 
extremely important to solving this problem. And I have been 
wanting for us to get to you guys to see what you were doing, 
what you were initiating. I am concerned about the liability 
issue, and I am concerned about any other obstacles to doing 
these workouts that would freeze these ARMs.
    And so we have a lot of work to do, as I can see, but you 
could be very helpful in helping us to understand how best to 
do it, and supporting a real proposal by which to get it done.
    Now, having said that, I am going to wrap up, so that my 
colleagues can get their questions in. How many of you in your 
outreach, not your national town hall meetings, but you know--
Countrywide, for example, you hold most of your paper, is that 
right?
    Mr. Samuels. Yes.
    Chairwoman Waters. So you are doing your own servicing, is 
that right?
    Mr. Samuels. Yes, ma'am.
    Chairwoman Waters. So your people are sending out the 
notices every month?
    Mr. Samuels. We are not only sending out notices, but we 
are also calling.
    Chairwoman Waters. When the notice goes out, for whatever 
reason, on that loan, what is your organized systematic way of 
making sure that everybody is getting an invitation, either 
notifying them that--
    Mr. Samuels. Right.
    Chairwoman Waters. --the loan is going to reset--
    Mr. Samuels. Right.
    Chairwoman Waters. --or that they are in trouble already 
and come in and they can get a modification consideration?
    Mr. Samuels. As I mentioned, we have several notices that 
go out--180 days, 90 days, 45 days--before the reset. And we do 
several things on the notice. We say, ``If the interest rates 
at the date of the reset are what they are today, this is what 
your payment would be.'' So somebody could see, compare what 
their existing payment is, to the payment reset. And we say, 
``If you have an issue with what is going--you know, with this 
reset, please call us, please call the Housing Preservation 
Foundation, NeighborWorks,'' you know, one of those 
organizations.
    And we also call--we also call these borrowers, because 
sometimes when an envelope comes, as you know, we get a lot of 
junk mail. When an envelope comes, sometimes people may not pay 
attention to it. So in order to try to make sure that people 
are aware of the coming reset, we also make phone calls.
    Chairwoman Waters. You made an arrangement with a nonprofit 
organization to help you to do what?
    Mr. Samuels. Yes. That is--well, we have a number of 
arrangements, but the one that I think you are referring to 
is--
    Chairwoman Waters. NACA?
    Mr. Samuels. Yes, the Neighborhood Assistance Corporation 
of America.
    Chairwoman Waters. What is that arrangement?
    Mr. Samuels. The arrangement that we have there is where 
people come to NACA. What NACA does is they do counseling.
    Chairwoman Waters. How do they get to NACA?
    Mr. Samuels. They get to NACA a variety of ways. they--
well, we are actually doing some advertising, are going to be 
doing some advertising.
    Chairwoman Waters. How much money have you put into paid 
ads?
    Mr. Samuels. To paid--
    Chairwoman Waters. On television. You know, the same kind 
of ads where you say, ``Come to Countrywide and get this 
loan.''
    Mr. Samuels. Right.
    Chairwoman Waters. How many of those have you done that 
say, ``Come to Countrywide and get this loan modification?''
    Mr. Samuels. We haven't done any of that yet.
    Chairwoman Waters. Well, that is what I thought. And not 
only have you not done any, but you are still spending money on 
ads to say, ``Come and get this loan,'' and you are still doing 
direct mailings. And those mailings look like some of the same 
mailings that went out prior to this crisis that has created 
this problem. I don't get it.
    Mr. Samuels. Well, Congresswoman, we are still--we still 
want to make loans to people who can qualify for loans, and we 
think that that is still important.
    Chairwoman Waters. No. We want you to do that.
    Mr. Samuels. Yes.
    Chairwoman Waters. Except we don't want you to do it the 
same way that you have done it. It was described here earlier 
that we were at a time and point, in minority communities in 
particular, where we were redlined. And we worked awfully 
hard--awfully hard--to open up these doors.
    Now we are being accused of not being appreciative, that we 
opened up the doors and you allowed us to get all of these 
loans, and it is not your fault that we are defaulting. 
However, everybody has to take some blame in this, and 
certainly the initiators have to take some blame in this, 
because what you did was you extended exotic products to people 
who thought they were able to realize the American dream and 
get a loan. They didn't understand these exotic loans and these 
teaser rates and these interest only and these no-doc loans.
    And what I think I see is you are still advertising and 
soliciting on these exotic products.
    Mr. Samuels. No, we are not doing that. That is not--we are 
not doing that anymore, no.
    Chairwoman Waters. What are you doing in your solicitations 
that is different?
    Mr. Samuels. Well, we are not doing--we are not doing 2/28s 
and 3/27s anymore. So these products--our subprime, you know, 
we are--our subprime products have been very, very 
significantly reduced from what they were. But I want to--
    Chairwoman Waters. Do you have a way that you can document 
how many modifications you have done?
    Mr. Samuels. Yes. In fact, I have--I think we have been--
    Chairwoman Waters. Is it public information?
    Mr. Samuels. Yes, absolutely. And we have been very--I 
think of all the lenders, we have been very, very forthcoming 
in terms of how many we have done. And it is in our written 
testimony, and I have also mentioned it in--
    Chairwoman Waters. So you have made 18 million phone calls.
    Mr. Samuels. Yes.
    Chairwoman Waters. And you have done what with 30,000? Did 
you do workouts? Did you do successful workouts?
    Mr. Samuels. We did 50--
    Chairwoman Waters. Did you talk with 30,000 people? What 
did you do?
    Mr. Samuels. We have done--since the beginning of the year, 
we have done 55,000 workouts, meaning people stay in their 
homes. It is not--we do not include--
    Chairwoman Waters. Does your workout include a 
modification?
    Mr. Samuels. Yes. Of the--
    Chairwoman Waters. All of these have been--
    Mr. Samuels. No, not all of them have been modifications. 
There are other--
    Chairwoman Waters. So you talked with some people--
    Mr. Samuels. But there are other kinds of workouts that 
are--
    Chairwoman Waters. Yes, there are. There are a lot of them. 
There are some that result in modifications and some that 
don't.
    Mr. Samuels. Yes. And in October--
    Chairwoman Waters. How many modifications have come out of 
this 18 million phone calls?
    Mr. Samuels. Well, I will tell you, in October we have done 
11,000 workouts, and 9,000 of those 11,000 were modifications.
    Chairwoman Waters. Okay. All right. I said I wasn't going 
to get too tough with you guys, but, you know--
    Mr. Samuels. And we are prepared to be very open with the--
you know, our figures as to--
    Chairwoman Waters. Okay.
    Mr. Samuels. --what we are doing in terms of our--
    Chairwoman Waters. Okay.
    Mr. Samuels. --workout transactions.
    Chairwoman Waters. I do appreciate that. This is such a 
serious problem.
    Mr. Samuels. Yes.
    Chairwoman Waters. And so many homeowners are at risk. We 
recognize and appreciate that the industry is in business to 
make money. We don't deny that, and that is okay. But we cannot 
be in a situation where we find that people have gotten 
involved over these exotic products and these loans, and they 
are going to lose the homes. Everybody tells us it is not in 
the investor's best interest. Everybody tells us it is not in 
the lending institution's best interest.
    Mr. Samuels. That is correct.
    Chairwoman Waters. Then, why don't we just fix it.
    Mr. Samuels. We are trying.
    Chairwoman Waters. Why don't we--
    Mr. Samuels. Yes.
    Chairwoman Waters. --do something that is significant. For 
example, I bet you, Countrywide, you spend millions of dollars 
on ads on television. Put some of the money into soliciting 
people to come back to you and get these workouts. Think about 
it. You don't have to answer me, but just think about it.
    With that, let me just move on. I can't ask another 
question.
    Congressman Green, they belong to you.
    Mr. Green. Thank you, Madam Chairwoman.
    Does everyone agree that there were some lenders who took 
advantage of borrowers? If you agree that there were some, 
would you raise your hand, please, so that we can have you on 
record? Okay. Some lenders who took advantage of borrowers.
    All right. Now, if you did not raise your hand then, raise 
your hand now. That way we will--so everybody agrees.
    I ask this because when you ask a person to go back to the 
person that took advantage of you, sometimes it is difficult to 
negotiate that when you are saying, ``Come back to me, and I am 
going to help you now.'' Well, maybe you are, and maybe you 
aren't, is what happens in the minds of many people.
    And I am not saying that you--do not personalize it. I am 
trying to give some notion of why people are not rushing back 
to the place where they perceive that they got into trouble. 
Why would you run back to trouble? People just don't do that.
    Let us examine a couple of things. Is it better to allow 
the borrower who can afford the teaser rate, but who cannot 
afford the adjusted rate, to maintain the loan with a teaser 
rate? If you think it is better to allow the borrower who can 
afford the teaser rate, meaning he or she can continue to pay 
that rate, but they cannot afford to pay the adjusted rate, to 
let that borrower keep that teaser rate and stay in that home. 
Is it better to do that? Is that the better thing to do? If you 
think it is, raise your hand, please.
    Okay. Everybody seems to agree. Now, if you think that is 
the better thing to do--and I don't want to just pick on one 
person, but Mr. Deutsch, why did you have such difficulty with 
the chairwoman's question? Because that is in essence what she 
is asking. Why can't you simply allow borrowers who can afford 
the teaser rate, but cannot afford the adjusted rate, to keep 
the adjusted rate?
    Mr. Deutsch. We absolutely agree with your statement. The 
issue is determining whether or not they can afford the reset 
rate or not, and that is not an easy thing to do.
    Mr. Green. Can I give you one example of how you can find 
out whether they can afford it?
    Mr. Deutsch. Sure.
    Mr. Green. They go into foreclosure. That is a pretty good 
indication.
    Mr. Deutsch. Absolutely.
    Mr. Green. People don't want to lose their homes. So at the 
point that they start to go into foreclosure, because what we 
want to do now is get to people before they get there, but 
clearly when they get there that is pretty good evidence that 
they can't afford it. So why not, at that point, at least 
suggest that, ``Let me let you keep this teaser rate and keep 
this home.''
    Mr. Deutsch. I guess the answer is if you don't do any kind 
of determination whether they can afford it or not, you go back 
to a characterization of a categorical loan modification, that 
everyone would get a loan modification--
    Mr. Green. I understand.
    Mr. Deutsch. --across the board.
    Mr. Green. I understand. But, look, let us assume now that 
you have done your due diligence. After due diligence, are you 
saying then that you would do this? This has--
    Mr. Deutsch. Absolutely.
    Mr. Green. After due diligence.
    Mr. Deutsch. Absolutely.
    Mr. Green. Okay. Now, let us examine the statement that no 
one benefits from foreclosures. The real question is, who 
really loses in foreclosures? Because we keep saying no one 
benefits, and that seems to give some air of comfort to certain 
institutions. But the question is, who benefits?
    You are familiar with PMI, correct, sir?
    Mr. Deutsch. Correct.
    Mr. Green. And you are familiar with MIP.
    Mr. Deutsch. MIP mortgage? Oh, correct.
    Mr. Green. Okay. Do you agree that MIP and PMI are designed 
to help the lender become whole in the event of a foreclosure?
    Mr. Deutsch. I am not sure I could make a firm--
    Mr. Green. Wait a minute. Hold on. Let us examine that now. 
Why does one acquire PMI? What is the purpose of it?
    Mr. Deutsch. One is to provide additional insurance to--
    Mr. Green. And what does that insurance do?
    Mr. Deutsch. It guarantees that to a certain extent some of 
the equity associated with that hump.
    Mr. Green. And who does it guarantee benefit?
    Mr. Deutsch. The guarantee ultimately would benefit the 
mortgage investor.
    Mr. Green. Would that be the lender, the investors?
    Mr. Deutsch. The institutional investors.
    Mr. Green. Okay. So if they have the benefit of PMI, do you 
agree that they are not going to be the big losers in this 
process? Because that is what PMI does. It helps them to avoid 
losing money. That is what MIP does. So when we continue to 
say, ``No one really benefits,'' we really are overlooking the 
fact that there are some who are not going to be the big 
losers. The big losers are the borrowers.
    The lenders get the benefit of MIP and PMI. The borrowers 
do not. Isn't that true?
    Mr. Deutsch. Well, they do benefit, but they don't benefit 
to the full extent of the principal amount.
    Mr. Green. Well, let us examine that statement. Doesn't 
that depend on where you are in the loan process, in your 
repayment process?
    Mr. Deutsch. I think--
    Mr. Green. For example, if you didn't--if you put down 10 
percent, and you have a certain amount of equity in the 
property, when the lender forecloses, you get to sell the 
property, you get the benefit of PMI/MIP. So you do get pretty 
close to being whole in terms of your principal when you add 
those two together, if you have some equity in the property.
    Mr. Deutsch. I think the definition of ``some equity'' 
might be a concern there, because PMI oftentimes only covers, 
say, 10 percent of the equity.
    Mr. Green. Okay.
    Mr. Deutsch. Loss severities oftentimes on a foreclosed 
home will reach 60 percent, 40 percent.
    Mr. Green. Okay. All right. Then, let us take it this way. 
This will be my final question in this area, one more thing. Do 
you agree that the borrower walks away with zero while the 
lender or the investor walks away with something?
    Mr. Deutsch. They can walk--the lender does walk away with 
the principal, but it is usually somewhere in the range of, 
like I said, something along the 60 percent of the principal 
that may have extended to that borrower.
    Mr. Green. And to some extent, as was indicated by the 
gentleman--what is your name, sir? I am sorry. I can't see it.
    Mr. Leonard. Mr. Leonard.
    Chairwoman Waters. Mr. Leonard.
    Mr. Green. Okay. Mr. Leonard, there are some conflicts in 
this process that will cause one element of the process to 
conclude that it is not to my advantage to foreclose right now, 
whereas another might conclude it is to my advantage to 
foreclose right now. Is this true?
    Mr. Deutsch. Again, there are--you would have to provide 
additional details and color. Again, it is very difficult to 
make a determination--
    Mr. Green. Okay.
    Mr. Deutsch. --on all of the different borrowers.
    Mr. Green. Let us go to one more real fast. The credit 
rating agencies--do you agree that there may be some conflict 
of interest as it relates to credit rating agencies in that 
they are paid by--who are they paid by? You tell me.
    Mr. Deutsch. Credit rating agencies are often paid by the 
issuers of the mortgage-backed securities.
    Mr. Green. Okay. And who are they rating?
    Mr. Deutsch. They are often rating the issuance of those 
mortgage-backed securities.
    Mr. Green. Is that the same person who is paying them?
    Mr. Deutsch. It is.
    Mr. Green. And is it to their advantage, just to the 
average person, to give a rating that will be pleasing, if you 
will, to the person who is making the payment or the entity 
making the payment?
    Mr. Deutsch. We don't believe so.
    Mr. Green. You don't believe so. You don't believe that the 
person who is paying you dearly would like to have a favorable 
report from you?
    Mr. Deutsch. Absolutely not. And the rationale for that is 
that investors in these mortgage-backed securities--and, 
remember, the American Securitization Forum represents the 
institutional investors in these mortgage-backed securities. If 
you rate something once, or you rate something twice, or you 
rate something three times, in each of those times those 
ratings were incorrect. Institutional investors may lose some 
confidence in those ratings. So if you do that over an extended 
period of time, your word effectively is not your bond.
    Mr. Green. In fact, that is what has happened.
    Mr. Deutsch. There has been. Some of--
    Mr. Green. But that is what has happened in this market, 
because they rated those bundles higher than they should have 
and many of them are now paying a price for that, because their 
credibility is on the line. That is how we got into this.
    Chairwoman Waters. Would you please discuss, if you will, 
this moment, the tranches?
    Mr. Green. The tranches, yes.
    Chairwoman Waters. They were securitized, and they were 
placed in these tranches. Some of them were worse than others, 
and the investors took them. Why?
    Mr. Deutsch. I am sorry. Took what?
    Chairwoman Waters. They took the bundle--mortgage-backed 
securities that were placed in tranches. And as I understand 
it, the tranches were good, bad, and not so good mortgages. And 
the investors took the not so good ones along with the good 
ones. Is that right?
    Mr. Deutsch. Absolutely. It is a fundamental premise of 
mortgage-backed securitizations is that you want to create 
different variations of risk. Over 90 to 95 percent of all 
mortgage-backed securities are AAA rated. Those are oftentimes 
the tranches that pension funds or that mutual funds will 
purchase. But lower-rated tranches effectively are tranches 
that will receive part of the waterfall effectively, is that 
once the higher ones are paid off, then the lower tranches will 
be paid.
    The reason mortgage-backed securitization works very well 
is it is able to divide up the risk. Pension funds--
    Chairwoman Waters. In the lower-rated tranches, were the 
high credit risks persons who had impaired credit?
    Mr. Deutsch. No. Those tranches are based on the entire 
pool, not on any particular borrower in that pool.
    Mr. Green. But if you have a tranche A as opposed to a 
tranche F, and let us assume that A is a better rated tranche--
    Mr. Deutsch. Correct.
    Mr. Green. --if you have a tranche A as opposed to a 
tranche F, which is more likely to accept foreclosure as a 
remedy?
    Mr. Deutsch. Neither. Neither benefit from foreclosure.
    Mr. Green. No, no, not benefit. I said accept the 
foreclosure.
    Mr. Deutsch. Which is more likely?
    Mr. Green. Yes.
    Mr. Deutsch. I think you would have to ask that 
institutional investor.
    Mr. Green. But would not the person in tranche A--well, let 
me ask this way. Would the person in tranche A have a greater 
amount of benefit in a foreclosure than a tranche F?
    Mr. Deutsch. I think there are different incentives for 
different investors along--
    Mr. Green. But let us just talk about money as the 
incentive.
    Mr. Deutsch. Sure.
    Mr. Green. The money from a tranche A foreclosure is larger 
than the money from a tranche F.
    Mr. Deutsch. No, because all of the funds are pooled into 
the same entire pool. So the tranche A, you could argue, that 
over the extended period of the actual security, which extends 
anywhere from 15 to 30 years, say, depending on the amount, the 
length of the loans that are backing that security, so over 
those 30 years, the net present value of having that mortgagee 
paying the entire amount, over time both class A and class F 
would benefit from that borrower continuing to pay and stay in 
that home.
    Mr. Green. Madam Chairwoman, if I could have just 30 
seconds. But let us talk about an immediate foreclosure we are 
talking about within this period of time where you have the 
teaser rate, and then you move into the adjusted rate that you 
cannot pay.
    Mr. Deutsch. Right.
    Mr. Green. All right. In that period of time, the tranche A 
holder, does the tranche A holder benefit to a greater extent 
than the tranche F?
    Mr. Deutsch. In that period of time?
    Mr. Green. Yes. Because that is really what we are talking 
about. That is the period of time we are talking about.
    Mr. Deutsch. I think a more appropriate way would say that 
they suffer less loss--
    Mr. Green. Okay. They suffer less loss. All right. I will 
adopt your terminology.
    They suffer less loss. Okay. If they suffer less loss than 
the tranche F, do you agree that the person who is holding the 
tranche F, that this person may have some conflict when you are 
trying to decide whether you should do this, and you are 
talking to your investors. The modifications, as the Chair has 
indicated, that is when you run into these conflicts, because 
they have different levels of interest. Do you agree?
    Mr. Deutsch. They have different levels of interest, but I 
would you to the American Securitization Forum statement in 
June of 2007, where we specifically addressed this issue. It is 
that servicers, when they service mortgage loans, they are 
serving for the net present value of the entire trust. They are 
not, and should not, be looking to the implications on any 
individual class within that trust.
    Mr. Green. No, but the servicers, in doing due diligence, 
they will consult with the investors. Servicers don't just do 
this without consulting investors. True?
    Mr. Deutsch. They have their pooling and servicing 
agreements.
    Mr. Green. Well, you just talked about lawsuits a minute 
ago.
    Mr. Deutsch. Sure.
    Mr. Green. Now, do you think servicers are doing this 
without consulting investors?
    Mr. Deutsch. Absolutely. Servicers do talk to the investors 
who are purchasing those.
    Mr. Green. Okay. That is when they get the intelligence 
that we just talked about.
    Mr. Deutsch. Sure. But they have a contractual obligation 
to service in the best interest of all of the security holders, 
not any individual tranche.
    Mr. Green. The chairwoman has given me the proper 
terminology: tranche warfare.
    Have you heard of that term?
    Mr. Deutsch. I have heard that term used--
    Mr. Green. The various tranches in mortgage-backed 
securities resist loan modifications that might disparately 
affect their particular slice of that security. That is what we 
have been talking about.
    Mr. Deutsch. Sure.
    Mr. Green. So we have to be careful when we say, ``No one 
benefits.'' While that may be true, there are some who benefit 
a little more than others, or some who don't suffer as much as 
others. Do you agree?
    Mr. Deutsch. Well, I think, again--yes, absolutely I agree.
    Mr. Green. And that is what is creating a lot of--all I am 
trying to get you to do is help people to understand why it is 
difficult for the foreclosure to take place, for--excuse me, 
for the modification to take place. Do you agree that is a part 
of the difficulty?
    Mr. Deutsch. I think that has been raised, the 
consideration, and that there are some servicers who have 
expressed that concern. But again, going back to the point I 
made to Ms. Waters earlier, is that at the end of the day 
servicers do take litigation risks. They are--
    Mr. Green. All right. Let me just close with this. If you 
are familiar with the tranche discussion that we just had, 
raise your hand, if you understand tranches and you are on this 
panel and you understand tranches? Okay. Now, those of you who 
understand tranches, let me ask you, do you agree that these 
various level of tranches do provide difficulty, cause 
difficulty in trying to modify these loans? If you do, raise 
your hand.
    Yes, sir.
    Mr. Blackwell. It is a complicated issue. Is there--
    Mr. Green. I understand.
    Mr. Blackwell. I barely understand tranches, I will tell 
you that, but it is a complicated issue. What I will say is 
that it is very important for us all in this room to ensure 
that we preserve not only homeownership of those who own homes, 
but those who will in the future.
    Mr. Green. Sir, we passed that when we had opening 
statements, so we are with you there.
    Mr. Blackwell. Okay.
    Mr. Green. But no--no disagreement. What we are trying to 
do now is get some intelligence out that we have acquired about 
what is really happening with these investors and how these 
investors are sometimes at odds with each other over what 
should be done, and that is what creates a problem with 
restructuring some of these loans. Do you agree with that?
    Mr. Blackwell. What I will say is it is very important that 
we get the investors on the same page with the lenders in the--
    Mr. Green. I agree. But to get them on the same page by 
implication means that they are not on the same page. Do you 
agree with that?
    Mr. Blackwell. Yes.
    Mr. Green. Okay. That is what we are talking about. They 
are not on the same page.
    Mr. Samuels, do you agree that many of them are not on the 
same page?
    Mr. Samuels. Well, no, I agree with what Mr. Deutsch said 
about the fact that as a servicer we have an obligation to try 
to maximize the total return on that security. And so whether 
you are tranche A or tranche F, we are trying to maximize the 
present--the net present value of the cashflows on that total 
security. How it gets distributed is a function of the--
    Mr. Green. Do you agree that a servicer does not have the 
authority to dispose of the loan as he--as the servicer sees 
fit without consulting the investor?
    Mr. Samuels. It depends on the pooling and servicing 
agreement.
    Mr. Green. Okay. But do you agree that most of those 
agreements would require the investor have some input?
    Mr. Samuels. Some of them do, and some of them give 
delegated authority.
    Mr. Green. Let us talk about most. Most lawyers don't write 
agreements so that the investor does not have some input. Do 
you agree?
    Mr. Samuels. Oh, well, I don't know. I can't--I don't know 
the answer to whether most do.
    Mr. Green. Okay.
    Mr. Samuels. Mr. Deutsch could probably answer that better 
than I can.
    Mr. Deutsch. Thank you, Sandy. I am going to remember that.
    Mr. Green. All right. Thank you, Madam Chairwoman.
    And, listen, I thank all of you for your kindness in trying 
to help us to get this information out. Thank you very much.
    Chairwoman Waters. Thank you very much, Mr. Green.
    All right. Ms. Richardson? Before you start your question, 
let me just say that Councilman Bernard Parks, who is very 
interested in this issue, just came in. Thank you very much.
    Mr. Parks, we appreciate your being here.
    Ms. Richardson?
    Ms. Richardson. Yes. Thank you, Madam Chairwoman.
    A couple of questions. Regarding Countrywide and some of 
the questions that were asked, it was stated that you make 
approximately 18 million phone calls. Of those 18 million 
calls, 55,000 were workouts, and of that 29,000 were loan 
modifications. What happened to everyone else?
    Mr. Samuels. Well, don't forget that these are calls made 
to people who are 30 days down, 60 days down, so it is not--you 
know, we make collection calls, and so we remind people that 
they have, you know, payments that are due, and so not all of 
the calls: (a) relate to people who are, you know, in distress; 
and (b) not all of them are answered. And so we oftentimes have 
to make multiple calls before we contact the borrower.
    Ms. Richardson. Well, according to your testimony, you made 
18 million calls, and I think you reached 2.2 million, which is 
approximately a little more than 10 percent. I wouldn't call 
that good. I wouldn't rate that as being good, 10 percent.
    Mr. Samuels. Well, I mean, we can only do as well as the 
person on the other end of the line.
    Ms. Richardson. Well, no, that is if you are only relying 
upon phone calls.
    Mr. Samuels. Well, no, we are not.
    Ms. Richardson. Or DVDs.
    Mr. Samuels. We are not only relying on that. We are also 
relying on the mail, etc.
    Ms. Richardson. Okay. You are kind enough to actually share 
your information, so I want to make sure that we are not, you 
know, overly on your end. So I would like to hear a little more 
from Ms. Albon and Mr. Blackwell. My concern is--and the 
chairwoman also alluded to this as well--what are you doing 
beyond the phone calls and beyond the mail?
    I have talked to constituents who, when they are in this 
particular situation, they are not only receiving mail from 
you, they are receiving mail from a hundred other people who 
are suggesting that they consider working with them to resolve 
their funding problem. So beyond the mail, and beyond the phone 
calls, what specifically are you doing to help your borrowers?
    Ms. Albon. Well--
    Ms. Richardson. Besides processing a default.
    Ms. Albon. We understand. We are very active with HOPE NOW, 
Neighborhood Housing Works, other--even ACORN in some areas, 
trying to work with them to help reach a lot of these 
customers. We have funded some of--as I believe Countrywide and 
Wells have--funded some of the national advertising of the Hope 
foreclosure prevention effort. And we are finding that to be 
very successful.
    Ms. Richardson. Okay. With all due respect, you know, you 
have talked about HOPE NOW and Neighborhood Services, and on 
and on and on. There are over 10 million people alone in Los 
Angeles, over 10 million, and so to expect that those three or 
four organizations that you are referring to--ACORN, and so 
on--are reaching the millions and millions of people who are 
out there is just not adequate. It is not sufficient.
    So what we are looking for is a greater commitment, an 
additional commitment, exploring other things, whether it is 
going to a person's home. These are things that might be a 
little expensive, but as we have all talked about the expenses 
are bearing upon everyone--you as a provider and also the 
borrower as well. So are you doing visits?
    Ms. Albon. Yes.
    Ms. Richardson. Have you invested--for example, as the 
Congresswoman said, it is quite clear that there are specific 
pockets of areas that are having a higher incidence than 
others. So are you doing ads? Just like you are advertising for 
people to utilize your loans, are you doing ads in those 
particular areas to reach out to those particular borrowers and 
say, ``Hey, if you happen to be reading such and such paper, or 
on such and such television, or cable,'' or, etc., what other 
aggressive things are you prepared to do to reach out to the 
borrowers?
    Ms. Albon. We are actually using--contracting with 
servicers to go out to the borrowers' homes, knocking at the 
door, leaving flyers if they are not available. We are really 
using all of those different types of efforts.
    Ms. Richardson. So would you say out of your borrowers who 
are in this particular position, 100 percent will receive 
contact by a visit?
    Ms. Albon. Probably not 100 percent, and we are still 
having trouble reaching more than 50 percent in terms of 
actually getting them to engage with us.
    Ms. Richardson. So if you are only reaching 50 percent, and 
yet you can reach them to get payments, or at least prior to 
this situation, what other steps do you plan on taking to 
increase that amount?
    Ms. Albon. That is constantly under consideration, and I 
can go back and get more detail on that. But we are constantly 
looking at new ways to do a better job of reaching our 
customers.
    Ms. Richardson. Okay. Well, what I heard from this 
subcommittee, the chairwoman requested that you consider 
looking at some of your advertising dollars that you are 
spending in terms of reaching out for people, that you consider 
using those advertising dollars in more creative ways specific 
to these communities, not advertising dollars to the world, to 
the United States, but to these specific communities.
    We are also asking that you consider visits, etc., so you 
explore those. There were also a few other recommendations that 
were given that we would like the three of you to consider, and 
I would like to hear the possibility of you accepting them. One 
would be extending the time notices of defaults from 90 days to 
150 days. The second would be extend time periods for notice of 
trustee sales from 30 days to 60 days.
    And then, something Ms. Thomas mentioned that I have heard 
quite a few constituents talk about, and that is is that there 
is an unwillingness to accept partial payments. So let us say 
you get on the phone with someone, and you begin to talk to 
them about doing a workout or whatever.
    Unless they are prepared to pay the $20,000, and until a 
final workout or loan modification is done, there is an 
unwillingness to accept partial payments. So that would be also 
a consideration for you to review with your appropriate 
companies--
    Ms. Albon. Okay.
    Ms. Richardson. --of allowing partial payments while you 
are going through this modification period, so that instead of 
someone being $20,000 behind at the end, maybe they are only 
$10,000 behind. So then we don't have this instance where they 
are having to spread $20,000 over the next 3 months, which they 
cannot afford.
    The other point would be, if I understood the gentleman 
from Countrywide, you are not using outside agencies, 
creditors, to collect, is that correct?
    Mr. Samuels. I am sorry. What was that?
    Ms. Richardson. Are you using--are any of you, your three 
companies, utilizing outside agencies to collect these funds?
    Mr. Samuels. No, we have our own--we have our own 
collection groups.
    Ms. Richardson. Mr. Blackwell?
    Mr. Blackwell. Yes, the same. We do all our collecting 
ourselves.
    Ms. Albon. I will get that information. I am not 100 
percent sure that in every pocket of the country, it is on 
staff, but I will check on that.
    Ms. Richardson. Okay. So if it is on staff, some of the 
things we are hearing from constituents is that in addition to 
the amount that they are owed, the back payments of their 
previous months, additional fees are also being accumulated 
that they are being told that they have to pay in order to 
participate in these loan modifications. Does that apply if it 
is internal within your own organization?
    Mr. Blackwell. The only fees that we charge are fees that 
we incur through the process, and so I am not--I guess we would 
have to get into specifics, and I am not sure I am familiar 
with all of them.
    Ms. Richardson. Do you know how much those fees come to on 
average?
    Mr. Samuels. No, I don't.
    Ms. Richardson. Okay. Because--
    Mr. Samuels. But they are not loan modification fees. I 
mean, we don't charge for a loan modification, if that is what 
you are referring to. I mean, it could be that if someone is 
going through foreclosure, there are fees that you have to pay 
to newspapers, you know, for advertising or to attorneys in 
some States, you know, things like that. But there is not a fee 
for a loan--you know, to engage in a loan modification, there 
is not a fee.
    Ms. Richardson. Okay. So even if a person has defaulted to 
the extent of 5 or 6 months, or whatever, you are not requiring 
additional fees, is that correct?
    Mr. Samuels. As I said, we are not requiring--if we are 
doing a workout with them, yes, that is correct.
    Ms. Richardson. Okay. All right. My last and final question 
has to do with we really are looking for a commitment. Some of 
the solutions when I heard Mr. Leonard speak, it sounded very 
similar to what I hear in my district, and that is a lot of the 
solutions that you are proposing are just simply other 
alternatives to pay, whether it is spreading out of 5 months or 
6 months, but very few are situations of--where I read in some 
of your testimonies of offering forgiveness of debt, extending 
the amount that is owed over a longer period of time--for 
example, more than 6 months.
    So our constituents, oftentimes we are going to need other 
creative means to be expressed, and I don't feel to the 
satisfaction that you are exploring all of those to the extent 
that you could. So I would be looking for further action beyond 
what has happened to this date.
    Chairwoman Waters. Okay.
    Ms. Richardson. And you will get back to the chairwoman 
about the other request? Thank you very much.
    Chairwoman Waters. Thank you very much.
    This panel is now dismissed. Let me say to the homeowners 
who were here today, thank you for spending the time. I 
understand that you really needed to leave a little bit 
earlier. I wasn't aware until recently, the last few moments, 
that you were staying past the time that you need to leave in 
order to go to work.
    I am interested in my staff following up with you, Ms. 
Thomas, even though it appears that you got some help. I am 
interested in the $5,000 fee that you paid, and I don't know 
where that came from, who it is that--doing a modification or a 
workout for you. So I am going to ask my staff to follow up 
with you, because I would like to see what is being done.
    I thank all of you for being present here today. Mr. 
Deutsch, we are going to spend a lot of time on servicers. We 
think you can do a lot more. So I would hope that your Forum 
would provide the leadership to help us understand how to do a 
lot more, and I wish you would embrace Chairman Bair's proposal 
without reservation, because it seems to me we could get a lot 
done that way. But we thank you for being here.
    I think we are going to extend an invitation to you to come 
to Congress, perhaps not only in a hearing setting but maybe in 
a caucus setting, where we can delve more into what you do. We 
are going to review service agreements. We are going to 
understand a lot more about them, so that we can get a better 
feeling of what you can and what you cannot do, and this whole 
liability question.
    But I want you to leave here knowing that I think my 
colleagues will agree with me we are interested in resets with 
the initial amount of the mortgage continuing through the life 
of that loan. We are really interested in that. Okay?
    Thank you all very much.
    Without objection, your written statements will be made a 
part of the record.
    We will now move on to panel number three. Some of our 
members may have additional questions for this panel, which 
they may wish to submit in writing. So 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.
    Panel three, if you will come forward, I will begin the 
introductions. Again, your written statements will be made a 
part of the record, and you will be recognized for a 5-minute 
summary of your testimony.
    Mr. William Heedly, homeowner, Carson, California; Ms. Hee 
Suk Cho, homeowner, Camarillo, California; Mr. Ed Smith, Jr., 
vice president, California Association of Mortgage Brokers; Mr. 
LeFrancis Arnold, vice chair, Affordable Housing Committee, 
California Association of Realtors; Ms. Yolanda Clark, 
president-elect, Multicultural Real Estate Alliance for Urban 
Change; Ms. Tara Twomey, of counsel, National Consumer Law 
Center. Is that ``Twomey?''
    Ms. Twomey. ``Twomey.''
    Chairwoman Waters. All right. Thank you. Ms. Margaret 
Frisbee, specific district director, NeighborWorks America; and 
Ms. Evalyn Burnie, leader, Los Angeles ACORN. So we have a big 
panel here on this fourth panel.
    We want to thank all of you for coming, and we are going to 
start with Mr. Heedly. Is that the correct pronunciation? He is 
not here yet. Okay. He is here. There he is. How are you doing?
    Mr. Heedly. I am doing fine.
    Chairwoman Waters. We are going to start with you.
    Mr. Heedly. Okay.
    Chairwoman Waters. Thank you very much. Would you pull the 
microphone right up and share your testimony with us?

   STATEMENT OF WILLIAM HEEDLY, HOMEOWNER, CARSON, CALIFORNIA

    Mr. Heedly. First of all, I would like to thank you, 
Chairwoman Waters, and this subcommittee for inviting me, you 
know, to tell my story.
    Chairwoman Waters. Yes.
    Mr. Heedly. In March of this year, I was put into a loan. I 
was tricked into a loan by a guy that I know who I thought was 
a Realtor, because he had done two loans for me before. I 
thought I was in a fixed loan, but come to find out, I was in 
an ARM loan. And after we signed the papers and the deal went 
through, it wasn't like the original deal, because he called me 
and told me, ``Hey, this is not a friendship call. This is a 
business call. It is time to refinance.'' I said, ``Well, okay, 
if we can--if you can get my payments down, if you can pay my 
car off, then we can go, we can go with it.'' Okay. So about 2 
weeks down--2 or 3 weeks, he had gave me a call and said that 
he had paid my car off, but he probably couldn't get the loan 
down--I mean, get the mortgage down, that it would probably go 
up $100 or $200.
    So me and my wife, we talked about it, and we agreed to go 
along with it, because, you know, like we had dealt with him 
before, and we trusted him. I know him. You know, I know him, 
and I didn't think he would do something like this.
    Okay. So when the notary came out, he called me and told me 
that he wouldn't be able to be there for the notary and to just 
go on and sign the papers. Everything is, you know, like how we 
had discussed. Okay. So it was my fault that I signed the 
papers without him being there. I admit to that.
    But after we got the coupons, you know, the mortgage and 
things, come to find out I have a second--a first and a second. 
Then, I have three choices to pay--the max, minimum, or the--I 
mean, the max, median, or the minimum. All I am able to pay is 
the minimum, which makes my interest goes up. So I went to him 
and I talked with him, and I asked him what could he do, you 
know, so he said, ``Well, let me look at the paperwork.''
    I said, ``Well, look, man, you know, I am trying to find 
out what the deal is he put me in, and I was in an ARM.'' And 
the--I mean, the prepayment penalty is $13,000. ``Why don't you 
pay the $13,000, and then I can get somebody else to 
refinance.'' He didn't want to do that. So, you know, I was 
listening--the way I got some help, I was listening to Front 
Page.
    And they were talking about a meeting that they were having 
at Homeless Church, and I went to the seminar and I don't--I 
filed a complaint against this guy with the State Department of 
Real Estate Complaints, and I found out he doesn't even have a 
license. Operation Hope had called me, and I talked with Anne 
Marie, and she really was trying to help me, and she referred 
me to Dorothy Herrera, and here I am now.
    So, I am not in foreclosure, you know, but I want to try to 
do something about it before I get to foreclosure. And my 
mortgage is double, is upside down, and I feel so hopeless. You 
know, I need some help.
    Chairwoman Waters. Thank you very much, and I am glad you 
came today. And we will see to it that you get some assistance.
    Mr. Heedly. Okay.
    Chairwoman Waters. And I will move on to our next 
presenter, Mrs. Hee Suk Cho, and she has a translator with her. 
Thank you.

  STATEMENT OF HEE SUK CHO, HOMEOWNER, CAMARILLO, CALIFORNIA, 
 ACCOMPANIED BY JOSHUA BYUNG AN, KOREAN CHURCHES FOR COMMUNITY 
              DEVELOPMENT, SERVING AS A TRANSLATOR

    Mr. An. Hi. This is Mrs. Cho, and I am going to be her 
translator. I am from KCCD, and I represent Korean Churches for 
Community Development, and we work for the Korean community to 
resolve these housing issues.
    As of now, the problem has not been resolved, and she is 
actually considering many options, including bankruptcy. She 
came to testify as to how she got into this. Back in August of 
2005, she purchased a townhouse for $518,000 with a 10 percent 
downpayment. Because of her language barrier, she went to a 
Korean-speaking licensed broker.
    The agreement was that she would make a total payment of 
$1,500 a month. That loan included no penalty and $100 
increments once a year for the next 5 years. Then, the broker 
told her that she could refinance within 2 years. So she was 
making a $1,500 a month mortgage payment.
    She was making payments to WMC Mortgage Company, and then 
in January 2006, a bill came from Countrywide. The bill 
included four options. First, to make a payment, and one of the 
options had $1,451 that is going to be added to the principal. 
So she contacted the original--the Korean broker, and then the 
broker told her to just make the option three payment, which 
now is the minimum payment and don't worry about it.
    So the payment used to be $1,500. Now the minimum payment 
is $2,736, and that is--she didn't know it at that time, but 
now she knows that it is a negative amortization, and $1,400 is 
being added to principal every month. So she continued to make 
that minimum payment of $2,700 for about a year. Meanwhile, 
because her payment jumped so high she was having very 
difficult time making a payment, so she looked for different 
sources to refinance but was not able to find anyone to 
refinance her loan.
    One thing that she found out through, you know, other 
sources is that she has been refinanced, and that included 3 
years of prepayment penalty. So she was very confused at the 
time, so she went back to the Countrywide office and confirmed 
that the loan had been refinanced without her knowledge.
    She confirmed that the signature had been forged without 
her knowledge, and she couldn't really do anything, because of 
penalties and because of high payments. She looked for help 
from the lawyer, but--and the lawyer told her that it is likely 
a fraudulent case and she could win the case, but she was very 
reluctant to hire a lawyer because of high cost, and the time 
that it takes for them to process and make the case.
    In the midst of all these troubles, there was another loan 
agency that approached her and claimed that if she signed the 
paperwork to give up her rights for the house to them, they 
would let her live in the house with her children and make a 
rent payment to them. She signed it.
    At the time, she thought she was making the right choice, 
because she wanted to save the house and live in that place 
with her children. But, still, she was very confused and not 
sure what was going on, so she found an ad in the local 
newspaper about KCCD. That is how she came to KCCD and asked 
for help.
    Through KCCD, she learned that the loan agency that 
approached her was fraudulent, so she actually canceled that 
contract with them. And we are still now trying to solve the 
problem. She is at a point where she is going to make decisions 
for bankruptcy or foreclosure for anything.
    I would like to say after this hearing, we are going to 
actually go meet with the Countrywide personnel to help her 
situation, to talk about it. And she is really desperate right 
now. She wants to get an answer today. If not, she is going to 
just go crazy.
    Thank you.
    Chairwoman Waters. Thank you very much. And let me just say 
to you, Ms. Hee Suk Cho, that we certainly sympathize with you, 
and we are very sorry that you have been placed into this kind 
of a situation. And I wish that the Countrywide representative 
was still here. Are you here? Okay, fine. You have this case? 
You hear what she is saying? We need you to move on this very 
aggressively right away.
    My staff will follow up with you to make sure that we do 
everything that we can to help this consumer who has obviously 
been defrauded. All right? Thank you very much.
    Mr. An. Thank you.
    Chairwoman Waters. Staff, will you follow up with this? 
Thank you.
    Ms. Cho. Thank you.
    Chairwoman Waters. We have that information.
    All right. We are going to move over to Mr. Ed Smith. And I 
should wait until the time for questions, but I have been 
hearing so much about these options that people are being 
given. Do you want to pay a little? Do you want to pay a lot? 
Or do you want to pay the minimum amount? I never heard of that 
before. So if you in your testimony could help us understand 
that, I would appreciate it very much.

    STATEMENT OF ED SMITH, JR., VICE PRESIDENT, CALIFORNIA 
                ASSOCIATION OF MORTGAGE BROKERS

    Mr. Smith. Absolutely. Thank you so much for giving us the 
opportunity to speak before this panel and yourself. You have 
been a very good supporter of our organization, and we hope we 
bring value to that relationship.
    Like I said, my name is Ed Smith, and I am the vice 
president of government affairs for the California Association 
of Mortgage Brokers. We represent the top 15 percent of 
licensed originators in California. We have criminal background 
checks, we have DOJ checks, we have pre-education, post-, and 
continuing education requirements. We are licensed originators 
in the State of California. We represent approximately 4,800 
members.
    Today is one of the days that we really are happy to be 
able to bring value to our relationship in the process of 
explaining and working with homeowners such as Mrs. Cho here. 
From what she just articulated, it sounds like she also needs 
to talk to the California Department of Real Estate, because it 
sounds like some criminal--
    Ms. Peters. I just gave her my card.
    Mr. Smith. Okay. Oh, I didn't know. I didn't know Heather 
was back there. Because it sounds like some criminal activity 
has occurred. I wanted to bring just a few statistics to the 
table before I talk about our preserving homeownership 
initiative, but I also--and I will also explain to you what 
that option ARM, negative amortization loan is, if you give me 
the time.
    At the end of the fiscal year of June of 2007, the 
California Department of Real Estate initiated 9,103 
investigations which resulted in 1,382 licensed denials. Those 
are individuals who are trying to get in our business but were 
denied at the point of application. Of those investigations, 
507 resulted in license suspensions and revocations for 
individuals in our business who have done things such as 
enumerated here with Ms. Cho.
    So I just want to applaud the California Department of Real 
Estate, BT&H, Ms. Peters, for being very aggressive in 
following up on these complaints.
    To give you a little bit of background about negative 
amortizing loans, which is--you will hear some of the time 
called K-option ARMs. This is the typical type loan that has 
been utilized in the last couple of years as a financing 
technique, as a direct result of the high cost of 
homeownership.
    What that negative amortization really means is that there 
are four payment options, which gives an option of the minimal 
payment which is due on the loan, which in many cases, in all 
cases, is not the minimum amount due just for the interest on 
that loan that month. So each month when an individual makes 
payment option number one, which is called the negative 
amortizing payment, there is an arrearage. There is a shortfall 
of interest that is not being paid on the balance of the loan. 
This is being added to the balance of the loan on a monthly 
basis. So, effectively, you are losing every month. You are 
adding on to your principal every month.
    Typically, payment option number two is an interest only 
payment, which is if you make that payment your balance will 
remain the same, you will not grow, but you will not also do 
any principal reduction. That is the interest only feature of 
payment option number two.
    Number three is typically a 30-year amortized payment, and 
the number four in certain cases is a 15-year amortized 
payment. What we are seeing here in the last couple of years is 
this product has been a very predominant product used in the 
marketplace, because it got people into homes that they really 
couldn't afford. Many of those products were utilized with 
stated income and also using 100 percent financing with no 
downpayment, no downpayment whatsoever.
    So when the market came down, values are declining, your 
balances on your loans are rising, and when those interest 
rates hit a certain percentage that is prescribed in your loan 
documents, usually 115 percent of the original loan balance, 
that loan recasts to a fully amortized payment at whatever the 
rate is at that time. This is what we call payment shock. This 
is what is killing consumers in this country, and especially in 
California, because we are such a high cost area here.
    This kind of dovetails into the high cost issue. Many of us 
realize that in California you cannot buy a property for under 
$417,000. This is one of the reasons why these products have 
been so prevalent with interest only, negative amortization, 
and some of the other exotic products that are out in the 
marketplace.
    We would encourage you to look at raising California and 
have it--raising California's loan amounts and loan limits to 
be in a high cost area, Southern California as a high cost 
designated area, to put liquidity back into the marketplace so 
we can have sustainable, long-term loans. This is a critical, 
critical cog of the wheel to this problem.
    If we kind of move into what we are doing, Congressman 
Green mentioned a little earlier, what are we doing about going 
back and reaching back? Many people don't go back to the same 
people that they had problems with. I am proud to say that our 
association is built of small businesses. We are mortgage 
brokers who live, work, worship, and work with the communities 
that we live in.
    We create long-term relationships to sustain our 
businesses, and we are actually, through our preserving 
homeownership program, are going right back into those 
communities that we serve, that we did business with, and 
actually explaining and working and trying to come up with 
workable solutions to keep people in their homes as a result of 
a reset or as a result of a loan product that is no longer 
palatable for that individual for whatever reason it is.
    We are the first organization that are loan originators 
that actually have created that program. We work with the 
Department of Consumer Affairs. We actually go out and do town 
hall meetings, and we work in those communities where people 
are losing their homes right now. We go back and we deal with 
these individuals, and we don't run away from them after we do 
business with them.
    This program has been a success throughout the State of 
California. We have 19 chapters, approximately 4,800 members, 
we have meetings throughout the State on an ongoing basis, and 
we partner with other nonprofit organizations and ourselves and 
other legislators to reach back into those constituents' 
neighborhoods and work with those legislators to try to bring 
some type of relief back to the communities to keep people in 
their homes.
    We have heard a whole lot of talk today about the results 
of the inactivity or not being able to have--consumers not 
being able to have regress once they call their loan servicers. 
I don't want to beat that up. We already know that there is a 
problem when people reach out to their loan servicers.
    I am very proud today to see that the major loan servicers 
in this State are actually reaching back and proactively saying 
what they say they are going to do, and let us wait and see if 
they are going to do it. We are actually doing it. We are 
experiencing the same problems as those consumers do when they 
reach the telephone.
    [The prepared statement of Mr. Smith can be found on page 
157 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Mr. LeFrancis Arnold, it is good to see you.

 STATEMENT OF LeFRANCIS ARNOLD, VICE CHAIR, AFFORDABLE HOUSING 
         COMMITTEE, CALIFORNIA ASSOCIATION OF REALTORS

    Mr. Arnold. It is very nice to be here, and I want to thank 
you, Congresswoman Waters, and members of the Housing and 
Community Opportunity Subcommittee for inviting me today to 
speak on behalf of the California Association of Realtors on 
the issue of foreclosure prevention and intervention.
    My name is LeFrancis Arnold, and I am the owner and broker 
of LeFrancis Arnold Consulting, a Lynwood, California, firm 
specializing in all aspects of real estate, including FHA 
loans. I have been a member of the California Association of 
Realtors and the National Association of Realtors for over 30 
years. I have been privileged to serve on a number of policy 
committees at both organizations.
    The California Association of Realtors is the largest State 
trade association in the country, with over 200,000 members. 
CAR's members are the front line of California's real estate 
market and have witnessed firsthand the devastating effects 
that mounting foreclosures could have on families and a 
community. Over the last 2 years, the California housing market 
has experienced a significant correction, from a peak level of 
sales for both 2004 and 2005 of 625,000 existing home sales 
have declined to an expected 350,000 this year.
    At the same time, the rate of foreclosures in the State has 
gone from historic lows to return of the high experienced in 
the mid-1990's. Personally, I have seen more than a 40 percent 
decline in my business while peers in other parts of the State 
has experienced even greater declines. Many people have asked 
me, what is the cause of this downturn?
    With more than 30 years in the business, I can tell you no 
one single factor is to blame, and, therefore, no one single 
solution will help ease the current market downturn. Instead, a 
broad-based approach must be taken where all players in the 
real estate industry do their part, including Realtors.
    Now, more than ever, Realtors are working to keep families 
in their homes and maintaining strong communities. As a first 
point of contact for home buyers, often it is the Realtors that 
homeowners turn to for help when in trouble. However, every 
situation is unique, and, unfortunately, foreclosure is 
sometimes unavoidable.
    As the market began its current downturn in 2006, CAR began 
taking aggressive steps to provide the best tools to our 
members, including large pools of recently licensed Realtors in 
California who have never been through a market like this. Many 
of these agents have never performed a short sale, communicated 
with lenders on behalf of troubled homeowners to work out a 
loan on a REO, or sold a foreclosure property.
    As such, now CAR offers both short sale and foreclosure 
classes to members and non-members. CAR sponsors and applauds 
Governor Schwarzenegger's lenders and servicers who have 
recently worked out an agreement for the fast loan 
modification, subprime mortgages as such. Proactive efforts 
such as these are an example of what is needed to stem the tide 
of foreclosure and ease the current turn down.
    Let me share this with you, in my experience of 30 years, 
we have been through this. We have been through similar 
situations like this when the interest rates went up in the 
1980's. Lenders must change their policies so that borrowers 
are not required to be delinquent on their mortgage payment 
before a troubled loan can be worked out.
    Many of my fellow Realtors have described frustration when 
contacting lenders on behalf of homeowners who realized that 
they would not be able to make their mortgage payment when 
their loans reset. The homeowner must be in delinquency before 
loan workout can be discussed. Additionally, lenders must 
address the current staff shortage in loss mitigation 
departments which are presently overwhelmed.
    For the government's part, the Senate needs to pass, and 
the President must sign legislation to reform government 
housing programs intended to keep America's housing market 
stable. That includes FHA and GSE reform. Increased FHA and GSE 
loan limits in high cost areas, better homeowner opportunities 
for the American veterans, mortgage debt cancellation relief, 
and subprime mortgage reform that balances strong consumer 
protection with the need to maintain a flow of capital to the 
housing market.
    In closing--
    Chairwoman Waters. Okay.
    Mr. Arnold. --I would like to tell the subcommittee a story 
about a family of four who lost their home. This family was 
working with their agent and their lender's loss mitigation 
department to get a short sale approved by the investment firm 
who purchased the loan.
    When the short sale was finally approved, it turned out 
that the investment firm's foreclosure department had also 
approved the foreclosure sale. This is a simple example. They 
ended up losing their home. Lack of communication between the 
Mitigation Department and the Foreclosure Department. These are 
ongoing problems. That family lost their home.
    These are issues that we have to deal with, and we need to 
deal with them now. I want to thank you, Congresswoman Waters, 
for having this hearing here in Los Angeles, because California 
at this point is the foreclosure capital of the country.
    Thank you.
    Chairwoman Waters. Thank you very much.
    Now we will hear from Ms. Yolanda Clark, president-elect, 
Multicultural Real Estate Alliance for Urban Change.

STATEMENT OF YOLANDA CLARK, PRESIDENT-ELECT, MULTICULTURAL REAL 
                ESTATE ALLIANCE FOR URBAN CHANGE

    Ms. Clark. Thank you, Chairwoman Waters, and members of the 
Subcommittee on Housing and Community Opportunity for allowing 
me to testify at this hearing on foreclosure prevention and 
intervention.
     My name is Yolanda Clark, and I am president and broker of 
Golden Path Real Estate and Home Loans. I am also president-
elect of the Multicultural Real Estate Alliance for Urban 
Change, and have been president or vice president of several 
other organizations.
    There are four points that I wish to convey to this 
subcommittee today. The rippling effects of foreclosure are far 
more devastating than just to the homeowners or the lender; it 
affects the entire community. A large sector of the economy is 
hurting. Foreclosures are affecting both the consumer and the 
real estate community. What problems are perpetuating the 
situation? And what should be done to resolve the problem?
    The foreclosure crisis is not just a borrower and lender 
problem. Closed escrows in California were down 38.9 percent in 
September, and 40.2 percent in October. Brokers and lenders are 
being forced to reduce their staff, overhead, and some are 
going out of business. It has produced a trickle-down effect 
impacting all real estate affiliate businesses. Escrow, title, 
appraisals, termite companies, home warranty, home inspection, 
construction workers and developers are but a few of these 
businesses, not to mention the loss of revenue and fees 
generated to governmental agencies by closed transactions.
    Foreclosures have affected the local market by loss of 
equity. August to September was both the largest month-to-month 
percentage decline on record and the first year-to-year decline 
in more than 10 years. The impact of foreclosure affects all 
tiers of the property--of the market, I am sorry--including the 
high end. Well-qualified borrowers were affected by the lack of 
funds available for jumbo loans.
    Problems or obstacles have been encountered in trying to 
assist homeowners in foreclosure prevention, which was 
discussed earlier today. Difficulties in getting a lender on 
the phone and the loss mitigation department, lenders are 
further devaluating properties by cutting appraised values 
established by certified appraisers.
    I understand that the lenders must protect themselves in 
this market, but they are producing two negative results: One, 
clients and neighborhoods are being robbed of hard-earned 
equity; and, two, lenders are cutting appraised values more in 
lower income and minority neighborhoods.
    This affects seniors trying to get reverse mortgages, 
property owners trying to refinance, and the home buyer 
stability--desirability to purchase in devaluated 
neighborhoods. In other words, who wants to buy a home in a 
neighborhood that is going to be worth less than what you paid 
for it? Lenders have outsourced loss mitigation services as 
well as other related real estate services to foreign 
countries, further perpetuating job losses and the situation.
    What tools or resources do we need in order to overcome 
these obstacles? Education is one of the most important things 
that need to be accomplished. Education of the public should be 
provided by counselors that are licensed real estate 
professionals who understand the ramifications of what they are 
teaching or what they are saying to the client, and who are 
able to give a more complete picture of the total real estate 
process from understanding the types of loans available to 
foreclosure proceedings to evaluating the property.
    Although there are some really good licensed homebuyer 
counselors who have never purchased, listed, or sold, the 
licensed practicing real estate professional has more of a 
first-hand, in-depth experience and fully understands the 
mechanics of home-buying. Misinformation can hurt the consumer 
rather than help them.
    Financial and programmatic resources are needed to provide 
education and counseling to prevent foreclosure. Incentives are 
needed to assist lenders in working out pre-foreclosure 
solutions, thereby taking a positive, proactive approach to 
preventing foreclosures. All persons originating mortgages 
should be licensed, not just the companies. All legislation 
should be binding on all originators, regardless of the 
governing department.
    Originators for non-licensing entities can simply go to 
another institution and start the same thing over again. There 
is no accountability.
    Correct terminology should be used. There is a difference 
between a notice of default and a foreclosure proceeding, 
because there are sometimes workout programs available and they 
don't always result in a foreclosure.
    Public service announcements should be made. Legislation 
should be done as well. Legislation intervention is necessary.
    In conclusion, I just wanted to say that buyers and sellers 
cycle have always been a part of this business, but right now 
it is more crucial than it has been in all of my 20 years of 
real estate, and that is because there are so many simultaneous 
things--factors affecting the market, not just non-prime loans 
but unemployment, outsourcing. There are a lot of factors that 
are affecting this.
    Chairwoman Waters. Thank you very much.
    Ms. Clark. Thank you very much. I appreciate it.
    Chairwoman Waters. You are certainly welcome.
    Ms. Twomey?

  STATEMENT OF TARA TWOMEY, OF COUNSEL, NATIONAL CONSUMER LAW 
                             CENTER

    Ms. Twomey. Good afternoon, Chairwoman Waters, and members 
of the subcommittee. Thank you for inviting me to testify. My 
name is Tara Twomey, and I am an attorney, currently of 
counsel, with the National Consumer Law Center, and a lecturer 
at Stanford Law School.
    Before moving to California about 3 years ago, I was 
clinical instructor at the Legal Services Center of Harvard Law 
School where my practice focused primarily on foreclosure 
prevention and predatory lending litigation. I testify here 
today on behalf of the National Consumer Law Center as well as 
the low-income clients that we assist and represent.
    As you already know, we have a foreclosure crisis in this 
country that is real, it is big, and it is growing. Its 
magnitude currently dwarfs the response from the financial 
services industry. Loan modifications, which are one of several 
loss mitigation tools, have been identified as one of the 
preferred strategies for addressing the rising tide of 
foreclosures, but in practice they do not appear to be 
happening in any significant numbers.
    The recent measures, which will freeze interest rates for 
certain California homeowners, are a significant step in the 
right direction. However, the length of time for the proposed 
freeze is unspecified. Clearly, the agreement did not 
contemplate permanent modifications to those loans, and instead 
we believe is merely a ``kick the can'' approach to solving the 
foreclosure crisis. To be sure, it will provide some immediate 
relief to some people, but it is not a long-term solution.
    It is well known that creating a long-term solution will 
require overcoming some structural barriers inherent in today's 
mortgage market. Some of these barriers we have already talked 
about today--constraints in the pooling and servicing 
agreements, mismatched interest of borrowers, servicers, and 
holders, and the tranche warfare which pits investors against 
other investors and servicers.
    But from the homeowner's perspective, the first hurdle to 
loss mitigation is getting a live person on the phone--getting 
a live person on the phone that can provide reliable 
information and who can make a decision about the homeowner's 
loan. You have heard from the servicers today that contact with 
the consumer is key.
    Well, that is important, but if borrowers are caught up in 
a maze of voicemail and bounced around from one department to 
another, and receive contradictory information, as was just 
spoken about a few minutes ago, from servicer representatives, 
that is not helpful to borrowers. And borrowers deserve 
something better. They deserve--loan servicers need to find a 
way to provide timely, consistent, and competent information to 
borrowers about their own loans.
    Today, I would also like to urge the subcommittee and other 
Members of Congress to look beyond the rate reset problem. 
While rate resets pose a substantial hurdle for many borrowers, 
there is another group of distressed borrowers who has received 
much less attention. These homeowners have not been subject to 
payment shocks or adverse life events, but, rather, have been 
saddled with unaffordable loans from the moment the loan was 
originated.
    These families are defaulting on their mortgages not 
because of the teaser rate, because in these cases the--it is 
because the teaser rate in these loans are 9 or 10 percent, or 
sometimes even higher, the teaser rate. These families are 
defaulting on their mortgage loans because their monthly 
payments for principal, interest, taxes, and insurance exceeds 
60 percent of their gross--or even 70 percent of their gross 
income.
    A successful loan modification strategy for these borrowers 
will take more than temporary or even permanent freezes of 
their adjustable rates. These homeowners will need interest 
rate reductions. They will need principal reductions or some 
combination of the two in order to realize the goal of 
affordable and sustainable homeownership.
    NCLC supports an approach that would combine the automatic 
loan modifications for certain classes of loans as well as--in 
addition to case-by-case measures to reach those for whom 
automatic measures are either insufficient or for those who are 
not eligible for the automatic modifications.
    In addition to requiring servicers to implement reasonable 
loss mitigation measures, it is important to nip in the bud 
abusive practices in the loan modification process. For some 
time now, homeowners and consumer advocates have struggled with 
servicers who have no interest in helping families stay in 
their homes. Rather, in the interest of maximizing profits, 
servicers have engaged in a laundry list of bad behavior that 
has exacerbated foreclosure rates.
    The nature of the loss mitigation process makes the 
disparities in bargaining power between the homeowner and the 
servicer even greater than the disparities in the origination 
context. This provides fertile ground for abuse. Currently, one 
of the most pernicious practices is to include a broad waiver 
of claims provision in the loan modification agreement. Upon 
execution of the agreement, the borrower waives all claims that 
they have, or may ever have, related to the loan.
    In a forbearance agreement that I recently reviewed, the 
waiver language also required borrowers to specifically waive 
their rights under California Civil Code Section 1542. That 
section was enacted to protect parties from waiving unknown and 
unforeseen claims in general release provisions. That kind of 
broad release language is simply inappropriate in the context 
of a loan modification. The practice should not be allowed to 
flourish.
    In conclusion, loan modification is a strategy that can be 
used to limit the devastating consequences of skyrocketing 
foreclosure rates. There are challenges to implementing this 
strategy at a scale commensurate with the foreclosure problem. 
These challenges are significant, but not insurmountable.
    We hope that the subcommittee and Congress will act to make 
sustainable loan modifications a viable option for millions of 
homeowners who will face foreclosure in the coming years.
    Thank you very much.
    [The prepared statement of Ms. Twomey can be found on page 
165 of the appendix.]
    Chairwoman Waters. Thank you.
    Ms. Margaret Frisbee, Pacific district director, 
NeighborWorks America.

   STATEMENT OF MARGARET FRISBEE, PACIFIC DISTRICT DIRECTOR, 
                     NEIGHBORWORKS AMERICA

    Ms. Frisbee. Thank you, Chairwoman Waters, and 
Congresswoman Richardson. My name is Margaret Frisbee, and I 
serve as district director, Pacific District, for NeighborWorks 
America. I appreciate the opportunity to appear before you 
today to talk about the efforts we and our partners are making 
to help stem the tide of foreclosures, especially in 
California, and most particularly L.A.
    By way of background, NeighborWorks America was established 
by Congress in 1978 as the Neighborhood Reinvestment 
Corporation. The Corporation receives Federal appropriated 
funding out of the Transportation, HUD, and related agencies' 
appropriations subcommittee. The Corporation's board of 
directors is made up of the heads of the Federal financial 
regulatory agencies and the Secretary of HUD.
    The primary mission of NeighborWorks America is to expand 
affordable housing opportunities and to strengthen distressed 
communities across America, working through a national network 
of local, community-based organizations known collectively as 
the NeighborWorks Network. Our network includes about 249 
nonprofits serving close to 4,500 communities in all 50 States. 
They operate in our Nation's largest cities and in some of its 
smallest rural communities.
    Here in California, there are 18 NeighborWorks 
organizations, including the LANHS, which as we speak is 
working in the next room, along with other partners, providing 
counseling to people who have been coming in all day looking 
for help with their mortgage problems. I know we are talking 
about trying to get to a large answer, but right now all we 
have is one-to-one counseling. That is the only thing we can 
do, and it is very time-consuming.
    Local NeighborWorks organizations provide a wide variety of 
services that reflect the needs of their neighborhoods and 
communities. They have provided homeownership counseling to 
more than 500,000 families, assisted nearly 150,000 families of 
modest means to become homeowners, and just in this past year 
generated about $4 billion in direct investment in distressed 
communities.
    But today I would just like to highlight a few things that 
we are trying to do in response to the precipitous rise in 
foreclosures. NeighborWorks America has a 30-year history of 
facilitating lending to non-conventional borrowers. From our 
experience, we know that the best defense against mortgage 
delinquency and foreclosure is education and counseling before 
the borrower begins shopping for a home and selecting a 
mortgage product.
    We also know that homeowners' odds of success are increased 
even further when they have access to post-purchase counseling 
and homeowner education. We have been closely tracking the loan 
performance of the many low-income families assisted by these 
organizations over the years, and we can report that they are 
10 times less likely to go into foreclosure than subprime 
borrowers, and even 4 times less likely to go into foreclosure 
than FHA borrowers. So counseling is the key.
    Our commitment to quality homeownership extends far beyond 
our network. We have our NeighborWorks Center for Home 
Ownership Education and Counseling, and the NeighborWorks 
Training Institute, and we have become the Nation's largest 
trainer of housing counseling professionals.
    We saw the problem of foreclosures coming over 4 years ago, 
not just in California but in other parts of the country. With 
the strong support of our Board, we created the NeighborWorks 
Center for Foreclosure Solutions. It is an unprecedented 
partnership between nonprofit financial mortgage and insurance 
sectors, and you have heard that name today--the Hope Hotline. 
Well, that is the hotline that we are now working with with the 
Homeownership Preservation Foundation.
    We are trying to get the word out about this Hope Hotline, 
and it is--we are working with the Ad Council, and we would 
like it if everybody knew about it, but unfortunately they 
don't. The service is available 24/7 to provide callers with 
high quality, telephone-based assistance in English and in 
Spanish, but individuals needing more intensive service are 
then referred out to a NeighborWorks organization or another 
HUD-approved housing counseling agency.
    Our basic message through the Hope Hotline is that nothing 
is worse than doing nothing. In addition to the Hope Hotline, 
many of our local NeighborWorks organizations are also 
counseling delinquent homeowners every day. These organizations 
have stretched their budgets, redeployed staff, and worked 
hundreds of extra hours, all to address the real very threat 
that pending foreclosure is causing in communities across the 
country.
    We are actively training hundreds of counselors on 
foreclosure intervention at our national training institutes, 
but now we are trying to bring them out regionally. We have one 
scheduled here in L.A. in January, and we expect to have many 
more in the coming year. We know we have to get more counselors 
on the ground.
    I am going to skip all of the statistics. We just simply 
know that it is really bad out here, and so what we have are 14 
local NeighborWorks organizations in California offering 
aggressive homeownership preservation services. Eleven of them 
are using the Hope Hotline. They have generated--17,800 calls 
have come in from California in the past year, making it by far 
the largest number of calls of anywhere in the country.
    [The prepared statement of Ms. Frisbee can be found on page 
113 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Ms. Frisbee. You are welcome.
    Chairwoman Waters. Next we will have Ms. Evalyn Burnie, 
leader, Los Angeles ACORN. Thank you for being here.

    STATEMENT OF EVALYN BURNIE, LEADER, LOS ANGELES ACORN, 
    ACCOMPANIED BY MR. RICHARD CASTRO, NEIGHBORWORKS AMERICA

    Ms. Burnie. Good afternoon, and thank you for this 
opportunity to testify about the importance of effective loss 
mitigation strategies in keeping families in their homes.
    I, Evalyn Burnie, am a member of ACORN. I am a member of 
the California State Chapter, and ACORN stands for Association 
of Community Organizations for Reform Now, the national largest 
grass-roots community organization of low- and moderate-income 
families consisting of 350,000 members organized in 850 
neighborhoods, in cities--more than 100 different cities across 
the United States.
    Thirty-seven thousand of these members live in California. 
I am an example of someone who almost got caught up in the 
current wave of foreclosures, in a large part because I was a 
victim of a predatory mortgage broker. But I am here today to 
discuss what ACORN is doing about the current foreclosure 
crisis.
    Community-based housing counselor agencies, such as our 
sister organization ACORN Housing Corporation, have begun to be 
more aggressively--to more aggressively provide specialized 
post-purchase assistance to distressed borrowers, including 
delinquency counseling and foreclosure prevention. The effect 
of the delinquency counseling depends on the willingness of the 
servicer to engage in reasonable loss mitigation, often 
including loan modification that typically involves changing a 
loan from an adjustable rate to a fixed rate, or changing other 
terms to enhance affordability.
    This is essential. This is the first step in keeping 
families in their homes. We believe that some lenders may be 
willing to announce some major initiatives to assist delinquent 
borrowers such as contacting borrowers several months before 
their rate adjusts, or, more importantly, offering a fixed rate 
alternative using a good affordability standard to modify 
unaffordable loans.
    We have also held foreclosure prevention workshops, fairs 
across the country, which individual lenders and servicers have 
agreed to attend and worked with at-risk customers and loan--on 
loan modifications. Here in L.A., hundreds of people have 
attended these workshops and received assistance to avoid.
    In conclusion, ACORN is committed to ensuring that low- to 
moderate-income residents are protected from the dangers of 
predatory lending. Based on our experience, we would like to 
make the following policy recommendations. One is city, county, 
and States should identify neighbors at great risk from growing 
numbers of foreclosures and the vacant properties that also 
often result and should implement emergency action to help 
prevent the decline of these neighborhoods.
    Congress should pass legislation to protect families 
against predatory mortgage lending and foreclosure rescue 
scams. Congress should also pass legislation that would reform 
the Bankruptcy Code to allow judges to modify mortgage loans on 
primary residence for borrowers applying for bankruptcy.
    Last, Congress should approve funding for HUD-certified 
housing counseling organizations such as ACORN Housing 
Corporation that provide foreclosure prevention services to 
borrowers. And that is really important. Lenders, servicers, 
and investors should aggressively modify unaffordable loans to 
prevent foreclosures.
    Thank you for giving me this opportunity to testify, and I 
will be happy to answer any questions that you have.
    Chairwoman Waters. Thank you very much.
    Thank you very much. We will take the next few minutes, Ms. 
Richardson and I, and ask a few questions of you. We thank you 
for having been here.
    Some of the recommendations that you made are 
recommendations that we are pursuing in Congress already--the 
increase of the loan limits for sure, and some other things 
that you have said to us.
    Let me just raise a few questions. First, Mr. Heedly, we 
need to assign someone from our office to get together with 
you, so we can unravel what has taken place and where you are 
and see what we can do to give you some assistance. And we will 
do that. I hope that we have taken that information.
    Let me return--well, also, we have already said that we are 
going to assist you with Countrywide and do everything that we 
can to get you out of what looks like a very complicated and 
difficult situation, Ms. Hee Suk Cho.
    Mr. Smith, you have heard some of the statements that have 
been made about who initiated some loans, and the mortgage 
brokers have to take some responsibility in the initiation of 
some of these exotic products. But you have also said that your 
organization only deals with licensed brokers, that you do not 
have unlicensed brokers in your organization. Is that correct?
    Mr. Smith. That is correct. We have approximately 20 
members who were grandfathered in that were registered and 
licensed under the Department of Corporations, and our 
executive board of directors, which I am part of, are reviewing 
that now to determine if in fact those members will still be 
allowed to be a member. They are not voting members.
    Chairwoman Waters. So could you tell me, if you know, how 
many unlicensed brokers do we have in California?
    Mr. Smith. That is the $64,000 question. There are three 
regulatory--
    Chairwoman Waters. Describe them to us. Who are they?
    Mr. Smith. There are three regulatory regimes within 
California, us being licensed by the Department of Real Estate, 
the Department of Corporations has lenders that are--the 
companies are licensed, but the individuals that work there are 
not licensed. For example, Countrywide is licensed by the 
Department of Corporations. In many instances, individuals that 
work for these companies may have part-time jobs. I am not 
saying that they are not competent, but they don't go through 
the rigorous tests and have the fiduciary responsibility that 
we do as licensed brokers in California.
    There is an interdepartmental task force now that has been 
created as a result of Senate Bill 385 that is working through 
the process to identify the number of employees that work for 
these companies that are only licensed as companies but not 
individual licensees.
    Chairwoman Waters. What was the third? Did you--
    Mr. Smith. And the third one is the Department of Financial 
Institutions in California, which handles the State-chartered 
banks and credit unions, which I believe there are 
approximately 127 in California.
    Chairwoman Waters. So you are saying they have unlicensed--
    Mr. Smith. They are not required to have a license either.
    Chairwoman Waters. Repeat who is not required to have a 
license again.
    Mr. Smith. The Department of Financial Institutions, which 
are your State-chartered banks and credit union employees. 
Those are the individuals that sit in front of a customer, do 
loans, but they are not required to have a license such as us 
under the regime of the California Department of Real Estate, 
in addition to the Department of Corporations, such as your 
Countrywide. Those are your consumer finance lenders.
    Chairwoman Waters. Do you support legislation that would 
require all brokers to be licensed?
    Mr. Smith. We wholeheartedly support that legislation, 
which is in H.R. 3915. We believe, from the California 
Association of Mortgage Brokers, that every individual who sits 
in front of a customer in this State, and the United States, 
should have a registration and a license and be competent in 
handling the biggest financial transaction of most people's 
lives.
    Chairwoman Waters. And we agree with that.
    We heard from you some of the actions that you are taking 
to help us deal with this crisis. Do you support Chairman 
Bair's recommendation that we continue for the life of the loan 
the initial rate that the consumer, the borrower, was given?
    Mr. Smith. In concept, I agree. This is personally. This is 
not from the California Association of Mortgage Brokers. We 
don't have an official position. But personally, as a 24-year 
veteran of doing residential home loans in San Diego County, I 
believe that creating sustainable, long-term products that help 
create generational wealth for families is the way to go.
    Chairwoman Waters. So basically, what you are saying is 
that the recommendation by Chairman Bair could help solve this 
problem.
    Mr. Smith. It could be the first step to creating long-term 
stability for a family who has the ability and demonstrated 
willingness to make a payment to be able to count on what they 
have to pay every month to budget for their family.
    Chairwoman Waters. There is one other aspect of that I 
would like to focus on, and that is this. It was said, I think 
today by one of our presenters here, that some people should 
have the ability to get in this program for this long-term 
sustained loan, but others should not. Why don't we just do it 
for everybody?
    Mr. Smith. I think that everyone should have the 
opportunity to have a home. I think that is the American dream. 
The reality of it is that some individuals are not financially 
prepared for the responsibility of owning a home. But I 
disagree with the fundamental construct that you don't have an 
opportunity to try.
    I think if we legislate product, we are going to lock out 
people and stymie growth and reduce homeownership rates in 
California and the United States. I believe that everyone 
should have the opportunity to own a home. And given that--with 
that--
    Chairwoman Waters. If you got into this loan with a teaser 
rate, and you go for a workout, and say the teaser rate was one 
that would reset in--I guess they reset any time--6 months, a 
year. Do you believe that a person could have damaged their 
credit so bad, even though they have paid the teaser rate, but 
now they cannot afford the rate that will reset, that they 
should be denied a continuation of the teaser rate because 
somehow their credit has gone bad?
    If they can afford the teaser rate, they can pay the teaser 
rate, we are talking about the workout that would allow them to 
continue to do that, should they be allowed to have that 
opportunity? If they can't do the teaser rate, then perhaps 
they should be foreclosed on. But what is it in this 6-month 
period, or this 1-year period, about their credit that would 
cause one to say, ``Sorry, you can't maintain the teaser 
rate''?
    Mr. Smith. I have a fundamental disagreement with that 
construct. Currently, under the FHA and VA rapid refinance or 
streamlined refinance process, there is no credit requirement 
if you can demonstrate that you had successful payments the 
previous 12 months. So that is an argument right there that a 
person may have credit problems, but they have demonstrated an 
ability to make a payment and they are awarded a loan.
    Chairwoman Waters. You heard what was said by the Forum 
here today relative to that, and taking a look at the credit 
background that may not qualify one to continue with the teaser 
rate. That is something that we want to try and get at based on 
what I have heard here today.
    Mr. Smith. I think we could get a deeper dive on that. 
Quite frankly, any loan is better than no loan. A teaser rate 
is better than no rate, as the Congressman said earlier.
    Chairwoman Waters. Yes. All right.
    Mr. Smith. I firmly agree with that.
    Chairwoman Waters. Okay.
    Mr. Smith. And we have that in process already under the VA 
and FHA regime currently.
    Chairwoman Waters. All right. Thank you very much.
    Ms. Clark, you told us something that I didn't know. You 
said they are outsourcing loss mitigation activities. To where, 
offshore? And what do they do? What do they do when India calls 
your home? I mean--
    Ms. Clark. You can't get them on the phone.
    Chairwoman Waters. How do they do this?
    Ms. Clark. They have been doing this for a while. Even 
title is outsourced to foreign countries. That is why you can't 
reach a lot of the lenders, because they are not available. 
They are not here.
    Chairwoman Waters. Okay. I hear what you are saying. So we 
have this outsourcing. But I am a homeowner, and I am about to 
be delinquent, or I have become delinquent, and you have loss 
mitigation that will help me to understand that I have a 
problem, and some way that I can work this out, so that I can 
get caught up, or what have you. How does this outsource entity 
from someplace else help me to do that?
    Ms. Clark. That is the problem. When you try to reach these 
people, you can't. And that is what is perpetuating the 
situation.
    Chairwoman Waters. Ms. Twomey?
    Ms. Clark. But they all--
    Chairwoman Waters. Go ahead. I am sorry.
    Ms. Clark. But from my understanding, they set up shell 
companies that are here in the United States, but the actual 
people who are answering the phones are not here.
    Chairwoman Waters. Okay.
    Ms. Clark. They are in foreign countries.
    Chairwoman Waters. Do you know anything about this, Ms. 
Twomey?
    Ms. Twomey. Yes. I think what has been represented is 
accurate. As a matter of fact, oftentimes when loans go into 
default, the servicing rights are transferred to a default 
servicer, so there is actually another entity that comes into 
play when loans go in default. So, the number of different 
entities that borrowers have to deal with in the process can be 
fairly overwhelming.
    And as was already mentioned, actually getting a live body 
on the phone is one thing. I think the other thing that happens 
is there are two different departments usually. There is 
collections, and there is loss mitigation, and usually people 
start at collections.
    And the goal of the collections department is to collect 
money, not to do a loan workout, and so getting--working your 
way up the chain to get to the loss mit department, and then to 
find someone in the loss mit department who can actually make a 
decision about your loan is a real hurdle, I think, for a lot 
of borrowers.
    Chairwoman Waters. So let me just ask about a concept that 
may be applicable to what we are talking about here. I can 
recall for years they have created in cities one-stop shops. 
And these one-stop shops were basically for businesses, what is 
good for business. We should have a one-stop shop to keep them 
from having to run all over city government for licensing and 
this, that, and the other. We should be talking about a one-
stop shop for this situation of doing workouts.
    Ms. Twomey. I think that is an excellent idea, and 
especially if there is a third party at the one-stop shop that 
can help the borrower figure out--one of the things I mentioned 
was the bargaining disparity that we have when you have a 
distressed homeowner trying to save their home and a servicer 
that makes all of the decisions. And a third party being 
involved in that would be helpful in helping the borrower to 
navigate that process. That, of course, requires more funding 
to be able to do that.
    Chairwoman Waters. Do you have a contract with any of these 
financial institutions?
    Ms. Twomey. No, we don't do specific--
    Chairwoman Waters. Mr. Leonard, do you have a contract?
    Mr. Leonard. No, we do not.
    Chairwoman Waters. You do, Ms. Frisbee.
    Ms. Frisbee. We don't have a contract--
    Chairwoman Waters. No.
    Ms. Frisbee. --with financial institutions. We--
    Chairwoman Waters. Your money is directly from the Federal 
Government to do this kind of work. So the contracts that have 
been worked out with some nonprofits, as was mentioned today, 
does not include any of you in the room today. Did they ask 
you? Does anybody come to you and say, ``We would like to do a 
contract with you''? No?
    Ms. Twomey. Not that I am aware of.
    Chairwoman Waters. ACORN, do you have a contract?
    Ms. Burnie. I don't believe so, no.
    Chairwoman Waters. ACORN may be working on some of them?
    Mr. Castro. Richard Castro, NeighborWorks America.
    Chairwoman Waters. Please state your name and who you 
represent.
    Mr. Castro. NeighborWorks America.
    Chairwoman Waters. So NeighborWorks has a contract?
    Mr. Castro. With one of our organizations. They are all 
autonomous. NeighborWorks organization in Sacramento is 
NeighborWorks Home Ownership Center Sacramento, and they are 
working on a contract with HomeEq.
    Chairwoman Waters. Okay. Thank you very much.
    I am going to turn the questioning over to Ms. Richardson.
    Ms. Richardson. Thank you, Madam Chairwoman.
    Mr. Smith.
    Mr. Smith. I hope you feel better.
    Ms. Richardson. Thank you. Your mortgage brokers that are 
part of your association, have they received information about 
some of the products that are available, modifications, workout 
scenarios, things like that, so if they have people that they 
have worked with to get these loans come to them, do they have 
this information readily available of what some of the 
options--maybe they could recommend that they followup with 
these various providers?
    Mr. Smith. Yes, we do. Our advisors--and what--and our 
Preserving Home Ownership Initiative Program, the individuals 
are licensed brokers, and they have gone through training. Ms. 
Mary Harmon is our consumer--is our community services chair, 
who is the director of that program.
    Myself and her and several other members of our association 
have been trained by Freddie Mac through the Credit Smart 
Program, and we are abreast of all of the different loss 
mitigation techniques and programs that are available. So when 
we sit down with a customer, we can effectively advise them in 
the right direction to go based on current practices and 
programs that are available.
    Ms. Richardson. Not a specific department, but are all of 
your brokers aware of those options?
    Mr. Smith. I am sorry. Say that again.
    Ms. Richardson. All of your individual members, are they 
aware?
    Mr. Smith. I couldn't say that all of them would, but I can 
tell you that information is readily disseminated on a regular 
basis from our State organization, and that they have access to 
that information via the web and by telephone from our State 
organization.
    Ms. Richardson. And with the licensing that takes place, 
how much of it is spent actually talking about foreclosures?
    Mr. Smith. Well, we say licensing--that is two different 
regimes. I think I misunderstand your question.
    Ms. Richardson. When your members take a test to have a 
license, of that test component, how much of it would you say 
covers actual foreclosures?
    Mr. Smith. I haven't renewed my license in the last couple 
of years, but the continuing education requirements by the 
Department of Consumer Affairs is changing. There is a 40-hour, 
I believe, consumer protection piece that has different 
modules, and consumer protection is one of the items that this 
would come under.
    Ms. Richardson. Madam Chairwoman, that might be something 
we want to consider. I did something similar with this with the 
Department of Motor Vehicles. It was looking at the various 
licensing departments and requiring that a larger portion be 
spent in terms of actual counseling and understanding the 
foreclosure side, what the termination options are, etc., that 
that be a part of the licensing program itself, because they 
have to increase the amount that they provide.
    Mr. Arnold, your real estate agents who are members of the 
California Real Estate Association, would you--how many of them 
do you think know about specific options that some of these 
providers have?
    Mr. Arnold. Well, not a lot of them. In fact, so many of 
them are new licensees, and so CAR has--we are teaching 
foreclosure prevention as well as counseling. We have added two 
classes to that this year because of the fact that so many 
people are foreclosing. So we have to educate our members.
    And, really, one of the problems that we see is the fact 
that these members have never experienced a market like this. 
Most of the Realtors have come in over the last 5 or 6 years. 
We have doubled the amount of licensees that we have had, and 
so not--not like myself that has experience in loss mitigation, 
foreclosures, and short sales.
    They don't know it. But CAR, because we are a trade 
organization, we want to educate our membership, so we do 
have--currently have classes and we have had it at--I believe 
at NAR, we had it at our CAR meeting, so we are consistently 
talking about this, so we can educate our membership.
    Ms. Richardson. Okay. Mr. Smith?
    Mr. Smith. I would like to dovetail off his answer. I have 
some information that may be able to give a little bit more 
global perspective of it. As of fiscal year June of 2007, there 
are currently 537,038 licensees in the State of California; 
147,171 are brokers, 389,867 are sales persons that are 
licensed persons like myself. Approximately 31,000 of those 
brokers are engaged in mortgage activities in the State of 
California.
    Ms. Richardson. Okay. And then, Ms. Clark, Ms. Twomey, Ms. 
Frisbee, and Ms. Burnie, we are fortunate enough--I want to say 
thank you, that some of the earlier panelists actually stayed 
to hear the continuing testimony, so we appreciate that. Do you 
have any suggestions that you could provide to these providers 
themselves, the financial institutions? And I see the 
Governor's office is also still here as well. Any suggestions 
you could give to them of how we could better outreach to the 
direct consumer themselves?
    When I hear things like making 18 million calls and we have 
reached 2.2, that is 10 percent, that is not great. So of the 
people that you are interacting with, what would you recommend 
that they consider in terms of their outreach to increase that 
number?
    Ms. Twomey. I am happy to respond, Congresswoman. I think 
one of the problems is that there is this outreach that is 
going on, but, as I said before, when the consumer calls back, 
they can't get anywhere. And so I am not sure where the 
disconnect is, but it seems to me what we are hearing is, ``I 
called my servicer, and I ended up in voice mail. And I called 
them,'' you know, however many times, or ``I couldn't get 
someone to give me information.'' And so I think the outreach 
is good if the back end of the piece is there, which is when 
the person actually responds to the outreach there is someone 
there that can answer the questions that the borrower has.
    Ms. Richardson. And how do people know how to reach you, 
your organization?
    Ms. Twomey. Our organization works primarily with legal 
services organizations, government agencies, and private 
attorneys who are representing low-income homeowners. And we 
have published a series of books on consumer issues.
    Ms. Richardson. Anyone else want to respond?
    Ms. Frisbee. Yes. We just feel that the lenders have to be 
more flexible. They have to really tailor their work to the 
individual situation. We are finding that people are calling a 
little bit earlier, but usually, you know, they are already 60 
days behind and they are just told, ``There is nothing we can 
do.'' So this has to change.
    Ms. Burnie. I am happy with the testimony that was brought 
out today, but I just think that we need more funding and more 
ways to bring the information to the community.
    Ms. Twomey. I want to add one more thing, which is I think 
this week the OTS recently announced that it was going to offer 
financial incentives for servicers to do workout arrangements, 
and that would potentially deal with some of the problems that 
we heard earlier about the costs that servicers incur in trying 
to do workouts, and then sometimes passing those costs along to 
the borrowers. And so maybe a proposal like that would help 
incentivize servicers to actually contact those borrowers and 
then do loan workouts with them.
    Ms. Richardson. Madam Chairwoman, I just want to say--I 
think this is our last panel, so I wanted to take this 
opportunity to thank you again for having this hearing here. I 
think there is no better place than California to get a sense 
of what is happening in the wave across the United States. We 
applaud your efforts and look forward to working with you to 
resolve this issue.
    Thank you.
    Chairwoman Waters. Well, thank you very much.
    I would like to thank all of our members who participated 
today, and, Ms. Richardson, I would like to thank you for 
staying through our last panel here. I would like to thank all 
of our panelists. I would like to thank our citizens who came 
to learn more about this and find out what we can all do 
collectively.
    I would just like to say to our panelists and to our 
homeowners that I am attempting to approach this in a 
thoughtful manner. I am attempting to try and determine what we 
can do working with the financial institutions and the loan 
initiators. I must say that I am not happy with what I am 
hearing as of today has been the response.
    I am not happy with the pace of the response. I am not 
happy with our Federal regulators. And I do not think that you 
are going to see a lot of money coming from the government to 
encourage servicers to do the right thing.
    One of the things I do not wish to do is to get in a 
running battle with the financial institutions, with the 
servicers, nor do I wish to be in the additional position of 
not only doing my legislative work, but doing organizing. The 
financial institutions, these loan initiators better step up to 
the plate or we are going to put a lot of heat from the street 
on them.
    As I have come to understand about the banking community in 
particular is one thing they don't want is a crowd outside the 
door demanding anything. But if we have to do that, we are 
going to have to do that. This crisis is overwhelming and 
scary, and it really should not be happening. We all have 
responsibility in this, and I accept my responsibility as a 
Member of Congress.
    As a Member of Congress, we should demand more of our 
regulators. They should see this stuff coming down the pipe. 
There is no way that we are spending the amount of money that 
we are spending on all of these agencies that are supposed to 
be doing oversight and auditing, and all of this, and they 
didn't know that these exotic products had hit the street.
    So the Federal Government, Members of Congress, loan 
initiators at every level, no matter where you are, should have 
seen this. This stuff enriched a lot of people on the front 
end. A lot of people made money, and the investors are sitting 
back there just waiting to rake it all in. And so everybody has 
to take responsibility on this, and we may have to step outside 
the box to make it happen.
    I thank you for participating. I thank you for all that we 
have learned today from you, and we have some additional 
legislative possibilities here based on the information that we 
have received. Let me just say that I will note that some 
members may have additional questions for this panel, which 
they may wish to submit in writing. And 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.
    Let me also say that the following organizations and 
individuals have submitted written statements which shall be 
included in the record: the NAACP and our distinguished 
colleague, Mr. Lantos, who was unable to join us today. These 
statements, without objection, will be made a part of the 
record.
    I am reminded that we have assistance that is available in 
the next room. Some people who have come today have already sat 
with some of our nonprofit organizations that are taking the 
information. Ms. Frisbee, you had mentioned that. They are 
still available as we close down this panel today, and we would 
encourage anybody who is in the audience who would like to have 
some assistance to please avail yourself of the opportunity 
that is being offered.
    Also, we would like you to help us get the word out. They 
can call our office. They can call the office of any of our 
members who are participating. We will have information about 
the nonprofits that have some arrangements. Those who don't 
have arrangements that just do this work, we will make that 
information available to everyone.
    I want to thank you, and this hearing is concluded. Thank 
you very much.
    [Whereupon, at 3:25 p.m., the hearing was adjourned.]


                            A P P E N D I X



                           November 30, 2007


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