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



 
    GROWING MORTGAGE FORECLOSURE CRISIS: IDENTIFYING SOLUTIONS AND 
                            DISPELLING MYTHS

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


                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   COMMERCIAL AND ADMINISTRATIVE LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 29, 2008

                               __________

                           Serial No. 110-169

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov



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                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
MAXINE WATERS, California            DANIEL E. LUNGREN, California
WILLIAM D. DELAHUNT, Massachusetts   CHRIS CANNON, Utah
ROBERT WEXLER, Florida               RIC KELLER, Florida
LINDA T. SANCHEZ, California         DARRELL ISSA, California
STEVE COHEN, Tennessee               MIKE PENCE, Indiana
HANK JOHNSON, Georgia                J. RANDY FORBES, Virginia
BETTY SUTTON, Ohio                   STEVE KING, Iowa
LUIS V. GUTIERREZ, Illinois          TOM FEENEY, Florida
BRAD SHERMAN, California             TRENT FRANKS, Arizona
TAMMY BALDWIN, Wisconsin             LOUIE GOHMERT, Texas
ANTHONY D. WEINER, New York          JIM JORDAN, Ohio
ADAM B. SCHIFF, California
ARTUR DAVIS, Alabama
DEBBIE WASSERMAN SCHULTZ, Florida
KEITH ELLISON, Minnesota

            Perry Apelbaum, Staff Director and Chief Counsel
                                 ------                                

           Subcommittee on Commercial and Administrative Law

                LINDA T. SANCHEZ, California, Chairwoman

JOHN CONYERS, Jr., Michigan          CHRIS CANNON, Utah
HANK JOHNSON, Georgia                JIM JORDAN, Ohio
ZOE LOFGREN, California              RIC KELLER, Florida
WILLIAM D. DELAHUNT, Massachusetts   TOM FEENEY, Florida
MELVIN L. WATT, North Carolina       TRENT FRANKS, Arizona
STEVE COHEN, Tennessee

                     Michone Johnson, Chief Counsel

                    Daniel Flores, Minority Counsel


                            C O N T E N T S

                              ----------                              

                            JANUARY 29, 2008

                                                                   Page

                           OPENING STATEMENT

The Honorable Linda T. Sanchez, a Representative in Congress from 
  the State of California, and Chairwoman, Subcommittee on 
  Commercial and Administrative Law..............................     1
The Honorable Chris Cannon, a Representative in Congress from the 
  State of Utah, and Ranking Member, Subcommittee on Commercial 
  and Administrative Law.........................................     2
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, Chairman, Committee on the 
  Judiciary, and Member, Subcommittee on Commercial and 
  Administrative Law.............................................    45
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Ranking Member, Committee on the Judiciary.    46

                               WITNESSES

The Honorable Jack Kemp, former Secretary, United States 
  Department of Housing and Urban Development, Washington, DC
  Oral Testimony.................................................    50
  Prepared Statement.............................................    52
Wade Henderson, Esq., President and CEO, Leadership Conference on 
  Civil Rights, Washington, DC
  Oral Testimony.................................................    56
  Prepared Statement.............................................    58
Mr. David G. Kittle, CMB, Chairman-Elect, Mortgage Bankers 
  Association, Washington, DC
  Oral Testimony.................................................    64
  Prepared Statement.............................................    66
Dr. Mark M. Zandi, Ph.D., Chief Economist and Cofounder, Moody's 
  Economy.Com, West Chester, PA
  Oral Testimony.................................................   109
  Prepared Statement.............................................   111
Ms. Faith Schwartz, Executive Director, HOPE NOW Alliance, 
  Washington, DC
  Oral Testimony.................................................   119
  Prepared Statement.............................................   121
Mr. John Dodds, Director, Philadelphia Unemployment Project, 
  Philadelphia, PA
  Oral Testimony.................................................   136
  Prepared Statement.............................................   139
Mr. James H. Carr, Chief Operating Officer, National Community 
  Reinvestment Corporation, Washington, DC
  Oral Testimony.................................................   143
  Prepared Statement.............................................   145

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable Chris Cannon, a 
  Representative in Congress from the State of Utah, and Ranking 
  Member, Subcommittee on Commercial and Administrative Law......     3
Material submitted by the Honorable Chris Cannon, a 
  Representative in Congress from the State of Utah, and Ranking 
  Member, Subcommittee on Commercial and Administrative Law:
    Article from The Wall Street Journal, titled ``A Mortgage 
      `Tweak' We Don't Need,'' dated January, 9, 2008............    11
    Prepared Statement of the Honorable Richard K. Armey, 
      Chairman, FreedomWorks.....................................    13
    Prepared Statement of the American Bankers Association.......    17
    Letter in opposition of H.R. 3609, the ``Emergency Home 
      Ownership and Mortgage Equity Protection Act''.............    32
    Dear Colleague Letter from the Chairman and Ranking Member of 
      the Committee on Financial Services........................    34
    Testimony of Frank Keating before the Senate Committee on the 
      Judiciary..................................................    35
Prepared Statement of the Honorable Steve Chabot, a 
  Representative in Congress from the State of Ohio, and Member, 
  Committee on the Judiciary.....................................   164


    GROWING MORTGAGE FORECLOSURE CRISIS: IDENTIFYING SOLUTIONS AND 
                            DISPELLING MYTHS

                              ----------                              


                       TUESDAY, JANUARY 29, 2008

              House of Representatives,    
                     Subcommittee on Commercial    
                            and Administrative Law,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:04 p.m., in 
room 2141, Rayburn House Office Building, the Honorable Linda 
T. Sanchez (Chairwoman of the Subcommittee) presiding.
    Present: Representatives Conyers, Sanchez, Johnson, 
Lofgren, Watt, Smith, Chabot, Cannon, Keller, Franks, and 
Jordan.
    Staff present: Susan Jensen, Majority Counsel; Zachary 
Somers, Minority Counsel; and Adam Russell, Majority 
Professional Staff Member.
    Ms. Sanchez. This hearing of the Committee of the 
Judiciary, Subcommittee on Commercial and Administrative Law 
will now come to order.
    I will recognize myself for a short statement.
    We are undoubtedly in the midst of an economic crisis 
fueled by the subprime mortgage meltdown and falling home 
prices. Both the Administration and Congress are seeking 
solutions to stem this crisis.
    Last year the House passed comprehensive reforms that would 
prospectively set higher standards for the mortgage lending 
industry. We have already provided relief for homeowners with 
respect to the tax consequences of cancellation of indebtedness 
through a bill signed into law last December. And both the 
House and Senate are currently considering economic stimulus 
packages.
    Additionally, last month the Judiciary Committee reported 
H.R. 3609, the ``Emergency Home Ownership and Mortgage Equity 
Protection Act of 2007,'' legislation that I introduced with 
Congressman Brad Miller. We worked with Chairman Conyers and 
our colleague on the other side of the aisle, Steve Chabot, to 
amend the bill in a bipartisan fashion.
    About the same time, Treasury Secretary Paulson announced a 
voluntary plan by which servicers and others in the mortgage 
industry could temporarily freeze the interest rates for 
certain homeowners who are current on certain mortgages and who 
have specified FICO scores.
    And the financial services industry is promoting a program 
that is intended to proactively reach out to homeowners in 
financial distress.
    What is clear is that the complexity of the mortgage crisis 
requires all of these responses, and perhaps even more 
aggressive solutions. Today's hearing will provide an 
opportunity for us to consider how some of these responses will 
address the crisis and to dispel the untruths about the Miller 
legislation with this Conyers-Chabot compromise.
    Experts predict that the worst is still ahead, as a large 
majority of subprime borrowers will face a 40 percent or 
greater increase in their monthly mortgage payments, once their 
initial teaser rates expire and their fixed interest rates 
reset into higher variable rates early this year.
    People are losing their homes, and neighborhoods have gone 
from vibrant to desolate. It is my hope that today's hearing on 
the subprime issue will aid us in our examination of the 
possible solutions to this mortgage mess and demonstrate the 
need to act quickly to resolve this issue.
    Accordingly, I very much look forward to hearing from our 
witnesses today and appreciate their efforts in helping us 
respond to this crisis.
    At this time I will now recognize my colleague, Mr. Cannon, 
the distinguished Ranking Member of the Subcommittee, for his 
opening remarks.
    Mr. Cannon. Thank you, Madam Chair. This is in fact the 
third hearing that I think we have had on this issue, and so I 
would ask unanimous consent to make my statement available for 
the record. And in addition to that, I have a series of items 
for the record.
    One is a Wall Street Journal article today called ``A 
Mortgage `Tweak' We Don't Need.'' The second is the testimony 
that would have been given by Mr. Dick Armey, if he had been 
here today. The third is a statement on behalf of the American 
Bankers Association dated today.
    In addition to that, we have a letter that is from a series 
of associations, beginning with the American Bankers 
Association, the American Financial Services Association and 
several others. We have a letter on the HOPE NOW Alliance from 
Congressman Frank and Congressman Bachus. And then this is 
testimony from Frank Keating in 1991 in the Senate Judiciary 
hearing on cramdowns of home----
    If we could have those admitted to the record, I would 
appreciate that.
    Ms. Sanchez. Without objection, so ordered.
    [The prepared statement of Mr. Cannon and the information 
follows:]
 Prepared Statement of the Honorable Chris Cannon, a Representative in 
 Congress from the State of Utah, and Ranking Member, Subcommittee on 
                   Commercial and Administrative Law

















   Article from The Wall Street Journal, titled ``A Mortgage `Tweak' 
                We Don't Need,'' dated January, 9, 2008




    Prepared Statement of the Honorable Richard K. Armey, Chairman, 
                              FreedomWorks








         Prepared Statement of the American Bankers Association






























 Letter in opposition of H.R. 3609, the ``Emergency Home Ownership and 
                    Mortgage Equity Protection Act''




   Dear Colleague Letter from the Chairman and Ranking Member of the 
                    Committee on Financial Services


Testimony of Frank Keating before the Senate Committee on the Judiciary




















    Mr. Cannon. And with that, I would yield back in the hopes 
that we have a hearing that moves very quickly. This is the 
biggest panel, I think, we have ever had, or had in the last 12 
years. And hopefully, we can move through it quickly.
    Thank you, Madam Chair. I yield back.
    Ms. Sanchez. I thank you, Mr. Chairman.
    And at this time I would now like to recognize the 
distinguished Chairman of the full Committee, Mr. Conyers, for 
an opening statement.
    Chairman Conyers. Thank you very much.
    The reason the panel is so large, Mr. Cannon, is that the 
subject matter is so complex and requires at least this many 
people, and maybe more. And I want to thank you very much for 
having been with us on all of this.
    And I want to thank the Ranking Member as well, Lamar 
Smith, for allowing us at the last moment to join Subcommiee 
Chair Sanchez and I in inviting James Carr to be added to the 
already lengthy panel.
    I am always happy to see all my friends here, starting with 
the person who probably doesn't need universal health care, 
although he has a bad cold, Jack Kemp. Our days go back to the 
Martin Luther King era and the struggles that we had 
congressionally, which I will never forget. Wade Henderson, 
leading the Leadership Conference on Civil Rights, and all of 
the rest of you.
    I was just in Detroit over the last weekend, at Wayne State 
University, where we had this same kind of hearing, and because 
of James Carr's presentation, I was so pleased that the 
minority would join the Chair and I to invite him to this 
hearing. And he was able to make it, after changing his 
schedule.
    Now, we are working on a stimulus package. A stimulus 
package is like taking a garden hose to a 10-alarm fire and 
wondering why we aren't winning the battle. And there are lots 
of good things in it and it is well intended--maybe it will 
send a signal and all that.
    But what this is--the problem, as I see it--is that we are 
dealing with a subject matter that has more potential 
cumulative financial damage than all the problems of the Great 
Depression in 1929, plus all of the financial dislocations that 
we have seen in the ``dot com'' bubble, and the scandals of 
Enron, Adelphia, WorldCom and others.
    Here this little adjustable mortgage rate problem is now 
shaking world markets globally, not just on Wall Street. This 
thing is moving with far deeper implications than any of us 
could imagine.
    Now, as usual we congratulate people who are putting on 
band-aids and have been trying to do the best they can. And it 
is not the job or the jurisdiction of this Committee to go into 
the entire depth of the financial dislocation that is going on, 
but the biggest problem is not to recognize that it is there.
    And so it is in that spirit that I am so proud that this 
little old Subcommittee number five in Judiciary, which gets 
all the heavy lifting of the whole Judiciary Committee, is once 
again saddled with this huge responsibility. And I am very 
proud that all of you could come and lend your talent and that 
all of our Committee--Cannon has never seen so many witnesses; 
I have never seen so many Members at a Subcommittee hearing 
before.
    Thank you very much.
    Mr. Cannon. So much for the hope, Mr. Chairman, of a quick 
hearing. [Laughter.]
    Ms. Sanchez. I thank the distinguished Chair of the full 
Committee for his opening statement.
    And I would now at this time like to recognize Mr. Smith, 
the distinguished Ranking Member of the full Committee, for his 
statement.
    Mr. Smith. Thank you, Madam Chair.
    Before I make my statement, I, too, would like to recognize 
our former colleague and a former vice presidential candidate, 
Jack Kemp, who is here today. I regret that on this particular 
issue we are not on the same side, which also reminds me that I 
might have missed an opportunity yesterday when our Chairman 
called and wanted to add a friend as a new witness today, Mr. 
James Carr. I should have asked that we dropped a witness at 
the same time, but I missed my chance. But nevertheless, I 
appreciate someone with his credibility and stature testifying 
today, Jack Kemp.
    Madam Chair, when the Committee last looked at subprime 
mortgages, the Administration and Congress had recently 
undertaken several initiatives to address the growing concern 
surrounding this issue.
    The secretary of treasury's plan, or HOPE NOW, had just 
been announced. The House had passed bipartisan tax relief to 
help homeowners benefit fully from debt forgiveness. The 
Federal Housing Administration's Secure program was taking 
hold, increasing FHA's flexibility to offer refinancing. And we 
had passed legislation to modernize the FHA, Fannie Mae and 
Freddie Mac.
    Against that backdrop it was clear that we needed to allow 
time for these measures to work before considering the dramatic 
step of rewriting key longstanding terms of the bankruptcy 
code. There continue to be developments we should monitor.
    The HOPE NOW program appears to be gathering a considerable 
head of steam. It is already making good on its promise to help 
troubled homeowners. The subprime mortgage crisis, meanwhile, 
has touched off instability, not only in our markets, but 
around the globe. Fears of recession in our economy have 
heightened.
    Key policymakers are responding to these broader economic 
developments. The message from Fed Chairman Ben Bernanke has 
been that what the economy needs to do to hold off a further 
downturn is liquidity, liquidity, liquidity.
    A group of bipartisan leaders in the House of 
Representatives and the Administration have negotiated an 
economic stimulus package based on similar principles. The 
stimulus is designed to inject liquidity into the market 
immediately. This directly responds to the housing crisis by 
increasing the lending flexibility of the FHA, Fannie Mae and 
Freddie Mac.
    One thing, though, hasn't changed since we last met. That 
is the law of economics. What they told us then, they tell us 
now. Turning existing primary residence mortgage contracts into 
bankruptcy will inevitably contract liquidity. Mortgage 
interest rates will rise. Other lending terms will become more 
restrictive. Lending will decrease. New homeowners and those 
who can still refinance will be hesitant to do so, although it 
is their home related spending that we desperately need to fuel 
our economy.
    It is precisely the opposite of what the market needs. It 
is the economic equivalent of throwing cold water on a freezing 
man. It will undercut the Paulson plan. It will undercut the 
stimulus package. It will undercut FHA reform. It will undercut 
our economy.
    So again, we should refrain from making changes to the 
bankruptcy laws. Other better measures are taking hold. The 
stimulus package will soon add to that hold. Our legislative 
efforts must strengthen the housing market, not weaken it.
    I look forward to hearing from all of today's witnesses.
    And, Madam Chair, before I yield back the rest of my time, 
I do want to say to the Chair that several Members may be 
leaving almost immediately to go to the House floor for 
consideration of the FISA bill that we are considering there as 
well. And I yield back. Thank you.
    Ms. Sanchez. I thank the gentleman.
    Without objection, other Members' opening statements will 
be included in the record. And without objection, the Chair 
will be authorized to declare a recess at any point in the 
hearing.
    I am now pleased to introduce our distinguished witnesses 
for today's panel.
    Our first witness is Jack Kemp. Mr. Kemp is the founder and 
chairman of Kemp Partners, a strategic consulting firm helping 
clients achieve both business and public policy goals.
    Mr. Kemp was the Republican Party's vice presidential 
candidate for the 1996 campaign. From 1989 to 1993, Mr. Kemp 
served as Secretary of Housing and Urban Development, and 
before his appointment to the cabinet, he represented the 
Buffalo area and western New York in the United States House of 
Representatives from 1971 to 1989.
    Mr. Kemp spent 13 years in professional football, playing 
quarterback for the San Diego Chargers and the Buffalo Bills. 
He co-founded the AFL Players Association and was elected 
president for five terms. Mr. Kemp served on the board of 
Habitat for Humanity and is chairman of Habitat's National 
Campaign for Rebuilding our Communities.
    We want to welcome you here, Mr. Kemp, especially in light 
of the fact that you are not feeling well.
    Our second witness is Wade Henderson. Mr. Henderson is the 
President and CEO of the Leadership Conference on Civil Rights, 
LCCR, and counsel to the Leadership Conference on Civil Rights 
Education Fund. The LCCR is the Nation's premier civil and 
human rights coalition.
    Mr. Henderson is well known for his expertise on a wide 
range of civil rights, civil liberties and human rights issues. 
Since taking the helm of the LCCR in June 1996, Mr. Henderson 
has worked diligently to address emerging policy issues of 
concern to the civil rights community and to strengthen the 
effectiveness of the coalition.
    Prior to his role with the Leadership Conference, Mr. 
Henderson was the Washington Bureau Director of the National 
Association for the Advancement of Colored People, the NAACP. 
In that capacity he directed the governmental affairs and 
national legislative program of the NAACP.
    Mr. Henderson was previously the Associate Director of the 
Washington national office of the American Civil Liberties 
Union, the ACLU, where he began his career as a legislative 
counsel and advocate on a wide range of civil rights and 
liberties issues.
    Mr. Henderson also served as executive director of the 
Counsel on Legal Education Opportunities, CLEO. Mr. Henderson 
is the Joseph L. Rauh, Jr., Professor of Public Interest Law at 
the David Clarke School of Law of the University of the 
District of Columbia and the author of numerous articles on 
civil rights and public policy issues.
    Welcome, Mr. Henderson.
    Our third witness is David Kittle. Mr. Kittle is chairman 
elect of the Mortgage Bankers Association and president and 
chief executive officer of Principle Wholesale Lending, 
Incorporated, in Louisville, Kentucky.
    He started with the American Fletcher Mortgage Company and 
became the top loan originator before moving to management in 
1986. In 1984, Mr. Kittle opened his own company, Associates 
Mortgage Group, Incorporated, and sold it in January of 2006.
    He is a former chairman of MORPAC, MBA's political action 
committee, a former vice chairman of the MBA residential board 
of governors, and is a member of MBA's advisory committee. Mr. 
Kittle is also a member of the Fannie Mae advisory council.
    Welcome, Mr. Kittle.
    Our fourth witness is Faith Schwartz. Ms. Schwartz is the 
executive director of HOPE NOW Alliance, a coalition of 
nationwide servicers, lenders, investors, counselors and other 
mortgage market participants working together to help owners in 
distress. Ms. Schwartz previously served as HOPE NOW's project 
manager.
    Prior to joining HOPE NOW, she was senior vice president of 
enterprise risk and public affairs at Option One Mortgage 
Corporation, a subsidiary of H&R Block, Incorporated. Ms. 
Schwartz has also served as the chair of the Mortgage Banking 
Association's nonconforming credit committee in both 2005 and 
1996.
    Prior to joining Option One Mortgage Corporation, Ms. 
Schwartz was director of sales national lending for Freddie 
Mac. From 1995 to 1997, Ms. Schwartz was chief operating 
officer for Fieldstone Mortgage Company. She was also executive 
vice president at TMC Mortgage Corporation from 1991 to 1995.
    Ms. Schwartz began her mortgage banking career at Dominion 
Bankshares Mortgage Corporation in 1983, where she served as 
vice president of secondary marketing for wholesale purchase 
programs.
    We want to welcome you, Ms. Schwartz.
    And you guys are a little bit out of order, but I would 
like to introduce our fifth witness, Mr. Mark Zandi.
    Dr. Zandi is the chief economist and co-founder of 
economy.com, which provides economic research and consulting 
services to corporations, governments and institutions, 
maintaining one of the largest online databases of economic and 
financial time series.
    Dr. Zandi's recent work includes the study of the outlook 
for national and regional housing market conditions, the 
determinants of personal bankruptcy, the location of high 
technology centers, and the impact of globalization and 
technological change on real estate markets.
    In addition to being regularly cited in The Wall Street 
Journal, The New York Times, Business Week, Fortune and other 
leading publications, Dr. Zandi also appears on ABC News, Wall 
Street Week, CNN and CNBC.
    Welcome, Dr. Zandi. Nice to have you here in person.
    Our sixth witness is John Dodds. Mr. Dodds has been the 
director of the Philadelphia Unemployment Project since its 
founding in 1975. The Philadelphia Unemployment Project, PUP 
for short, is both a membership organization and an advocacy 
organization for the unemployed and low wage workers.
    PUP has focused on preventing mortgage foreclosures since 
the recession of 1981-82 and has been a leading advocate for 
programs and policies to help preserve homeownership. Its 
sister organization, the Unemployment Information Center, is a 
HUD approved housing counseling agency that handles hundreds of 
delinquency and default cases each year.
    Under Mr. Dodds' leadership, PUP counts among its 
achievements campaigns that have led to, among other things, 
the Nation's first state foreclosure prevention program in 
Pennsylvania, the expansion of health care for the uninsured in 
the Commonwealth of Pennsylvania and city of Philadelphia, an 
innovative reverse commute project for inner city workers, 
increases in the state minimum wage, programs to protect income 
homeowners from real estate tax foreclosures and reductions in 
legal fees to families facing foreclosures.
    Welcome to our panel, Mr. Dodds.
    Our final witness is James Carr. Mr. Carr is the chief 
operating officer for the National Community Reinvestment 
Coalition, an association of 600 local development 
organizations across the Nation dedicated to improving the flow 
of capital to communities and promoting economic mobility.
    Mr. Carr is a visiting professor at Columbia University in 
New York and George Washington University in Washington, D.C. 
Prior to his appointment at NCRC, Mr. Carr was senior vice 
president for financial innovation, planning and research for 
Fannie Mae Foundation and vice president for research at Fannie 
Mae.
    He has also held posts as assistant director for tax policy 
with the U.S. Senate Budget Committee and as a research 
associate at the Center for Urban Policy Research at Rutgers 
University. Mr. Carr has appeared on numerous television 
stations, as a frequent radio talk show guest, and was a 
recipient of the 2003 Community Impact Award from the National 
Organization of Black County Officials.
    Again, I want to thank you all for your willingness to 
participate in today's hearing. Without objection, your written 
statements will be placed into the record, and we would ask 
that you limit your oral testimony to 5 minutes.
    You will note that we have a lighting system in front of 
you. When your time to speak begins, you will see the green 
light. Four minutes into your testimony, you will receive a 
yellow warning light that you have about a minute to summarize 
your testimony. And alas, when the light turns red, your time 
has expired. If you are mid-thought when the red light comes 
on, we will allow you to finish your final thought before 
moving on to our next witness.
    After each witness has presented his or her testimony, 
Subcommittee Members will be permitted to ask questions, 
subject to the 5-minute limit.
    With all the ground rules now established, I will invite 
Mr. Kemp to please proceed with his testimony.

TESTIMONY OF THE HONORABLE JACK KEMP, FORMER SECRETARY, UNITED 
STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, WASHINGTON, 
                               DC

    Mr. Kemp. Thank you, Madam Chair. I am going to stay within 
5 minutes of getting through my testimony.
    Thank you for so kind an introduction. Congressman Conyers, 
thank you for your long-time friendship.
    Oh, no wonder I couldn't hear myself.
    Thank you, again, John, for your kind words. It has always 
been an honor to work with you.
    And to my friend, Chris Cannon, good to see you.
    And it is a particular pleasure to be next to a very dear 
friend, a great patriot, and a wonderful devotee of and 
advocate for civil rights and social justice in our country. 
Wade Henderson and I worked together arm in arm for the D.C. 
voting rights bill, and I want to tell him personally and 
publicly how much I appreciate his courage and tenacity on 
behalf of people who sometimes don't have a voice.
    I think that is who I am speaking for today--people who 
don't have a voice in this great issue over stimulus. I really 
appreciate the Conyers-Chabot Emergency Home Ownership and 
Mortgage Equity Protection Act. I know it has been called the 
most dangerous thing that we could be doing right now. And I 
would find it dangerous if we don't do something like this.
    I am not here as an expert on bankruptcy jurisprudence, but 
as a former Member of the House, HUD secretary, a long-time 
advocate for homeownership for all Americans as a real tool to 
strengthen our communities, our economy, while building wealth 
and assets for low and working families.
    Madam Chair, I don't need to tell you about the role 
homeownership plays in our society. It embodies the American 
dream. It represents an invaluable economic asset for millions 
of families.
    A strong housing market has been a principal engine for our 
Nation's economic growth, contributing the development of 
stable and thriving communities, broadening the tax base, and 
obviously allowing for rising employment opportunities.
    Today's housing recession is, as you said and Chairman 
Conyers said, extremely serious. In perspective the overall 
economy is still growing, though slowing down. The subprime 
mortgage meltdown exists today because there was an abundance 
of liquidity and I believe fed by the Federal Reserve Board 
keeping interest rates too low for too long, and thus causing a 
housing bubble.
    When Ben Bernanke came in, he took a 1 percent overnight 
cost of money, the Federal funds rate, to 5.25 in 16 straight 
steps, and all of a sudden those adjustable rate mortgages in 
the prime and subprime area were absolutely causing balloon 
payments that have wiped out the value of people's homes.
    At the end of last year, I was approached by a coalition of 
consumer advocacy and homeownership advocates and 
organizations, who asked that I consider supporting this 
bipartisan legislation as it was amended right here in this 
Committee.
    As you know, having served as President Bush's HUD 
secretary and serving in Congress, I believed that 
bipartisanship alone is not the singular ingredient for good 
policy. However, in this case I salute the Chairman and 
Congressman Chabot and all the Members of the Committee who 
support this legislation for striking what I think is a right 
balance.
    When I was the secretary of HUD, we fought against economic 
pessimism every day in an effort to spread the American dream 
of homeownership, particularly for moderate and low-income 
families. Homeownership, especially among people of color, has 
risen to historic levels, and they have got a long way to go.
    In just the last 5 years, 2.5 million to 2.8 million 
families bought their very first home. Now, the subprime 
mortgage crisis is threatening to roll back this progress, and 
I can tell you flat out, if we can possibly do it, I want to 
keep people in their homes. That is the purpose of my 
testimony, and, I believe, this bill.
    This bill will have more impact on these home owning 
families than any other option currently on the table, in my 
opinion. I see estimates that as many as 600,000 homeowners 
might be eligible, as well as preventing about $72 billion of 
wealth that would be lost to families who would be affected by 
virtue of their home being in a location near a foreclosed 
home.
    Given the severity of this national crisis, allowing a 
judge to modify in bankruptcy court, I believe, is the right 
thing to do. The bill is targeted at only subprime and non-
traditional ARM mortgages and would be available for only 7 
years after it is enacted in order to mitigate against the next 
waves of rising interest rate resets.
    I believe it is narrowly tailored and an appropriate remedy 
for homeowners and the right thing for the Congress to do. Now, 
some lenders' representatives--and I have got great respect for 
them, some here and some around this country; I worked with 
them in all 4 years of HUD--have claimed that H.R. 3609 would 
drive up interest rates and harm the securities market.
    Now, there may be a legitimate reason why some of this 
country's biggest and largest banking institutions would oppose 
this legislation. But those reasons are not it. There is no 
data that support the contention that bankruptcy changes being 
contemplated in Congress would do either. H.R. 3609, as you 
well know, applies to existing loans only. Therefore, by 
definition it could not affect future interest rates, because 
it would not apply to future loans.
    Now, there have been decades of experience in which 
bankruptcy courts have been modifying mortgage loans on family 
farms in Chapter 12, commercial real estate in Chapter 11, 
vacation homes, condo loans, investor properties in Chapter 13, 
with no ill effects--no ill effects on the credit in those 
submarkets.
    Ms. Sanchez. Mr. Kemp?
    Mr. Kemp. I am sorry.
    Ms. Sanchez. Your time has expired. I will allow you to 
summarize your final thought.
    Mr. Kemp. Let me summarize. As I wrote in a recent Los 
Angeles Times op-ed, bankruptcy law is widely off kilter in how 
it treats homeowners and homeownership. And I believe, Madam 
Chair, this is a legitimate, logical way to provide health and 
help for more than 600,000 homeowners.
    Thank you very much for your hospitality.
    [The prepared statement of Mr. Kemp follows:]

             Prepared Statement of the Honorable Jack Kemp








    Ms. Sanchez. Thank you, Mr. Kemp. I appreciate your 
summarizing as quickly as possible. I know that you are not 
feeling well, so if you would like to leave the panel, you have 
the indulgence of the Chair to do so at this time.

  TESTIMONY OF WADE HENDERSON, PRESIDENT AND CEO, LEADERSHIP 
           CONFERENCE ON CIVIL RIGHTS, WASHINGTON, DC

    Mr. Henderson. Chairwoman Sanchez, Ranking Member Cannon 
and Members of the Subcommittee, I am Wade Henderson, president 
of the Leadership Conference on Civil Rights. Thank you for 
inviting me to discuss solutions to the growing national 
epidemic of home foreclosures.
    Before I begin my formal remarks, Madam Chair, I want to 
digress for a moment to thank you and, most importantly, Mr. 
Conyers, Mr. Chabot, Mr. Watt and leaders like Secretary Kemp 
for your extraordinary effort in last year's reauthorization of 
the Voting Rights Act.
    The Voting Rights Act is one of the most important civil 
rights bills of our time, and the overwhelming support for its 
reauthorization is proof positive that the protection of civil 
rights is not a partisan issue. It is a national issue. And it 
is in that spirit that I come before you today.
    Now, there is a great deal that can be said about what led 
to the Nation's foreclosure crisis, what impact it will have, 
and what could have been done to prevent it, and what our best 
options are now for moving forward. I am pleased to focus today 
on one of the best of those options.
    At the outset I want to say that the Leadership Conference 
fully supports the version of H.R. 3609 that was approved by 
the full Committee, and I want to thank the sponsors for your 
leadership. H.R. 3609 offers a strong, yet pragmatic step that 
will save hundreds of thousands of families from losing their 
homes.
    For the past several years, when I have testified or 
otherwise talked about the need for changes to our Nation's 
mortgage finance system, I have usually spent much of my time 
explaining what was going wrong and what the likely consequence 
would be for individual homeowners, the communities in which 
they live, and the economy at large. I obviously don't need to 
spend much time on that anymore. I think most Americans get it 
now.
    Subprime lending, which can and should be used in a 
responsible way to create new homeownership opportunities for 
persons with impaired credit, was instead shamelessly perverted 
through recklessness, greed and unrealistic expectations. 
Dealing with it and with the havoc sweeping through the entire 
housing sector requires swift, multi-faceted and compassionate 
action.
    We certainly want the industry, with the Administration's 
support, to do its share. But at the same time, individual 
homeowners and our economy as a whole cannot afford to wait for 
an industry that collectively created the mess, and is now 
being devoured by it, to take the lead in cleaning it up.
    For several reasons we believe that using bankruptcy 
proceedings to avert foreclosures is one of the most important 
and timely steps Congress can take to deal with the foreclosure 
crisis.
    One key advantage, especially as we face growing questions 
about the economy, is its cost. Because bankruptcy 
modifications do not involve public funds, H.R. 3609 will not 
give the appearance of a bailout or create moral hazard. And 
because bankruptcy comes at a heavy cost, monetary and 
otherwise, it does not let borrowers off the hook.
    I should note parenthetically that many lenders have 
recently come to recognize the value of obtaining bankruptcy 
protection, which makes it ironic that borrowers cannot do the 
same.
    At the same time, H.R. 3609 will benefit other homeowners 
and our economy. Every home that gets saved from foreclosure or 
from abandonment by borrowers expecting foreclosure, which is 
another growing problem, helps protect the value of neighboring 
homes, slowing a vicious cycle that leads to even more damage 
to affected communities.
    Needless to say, empty houses are more than just eyesores. 
They also drain local government resources and undermine public 
safety. Now, while the bill will not save every home, it will 
greatly help control the bleeding, protecting communities from 
even more harm.
    I would hope that every Member of Congress would recognize 
the value of that result, but I can't help but notice that it 
is now the Subcommittee's third hearing on this bill and that 
you have taken the unusual step of holding this one after the 
Committee's markup, which can only mean that there are still 
some very serious misunderstandings about H.R. 3609 that must 
be addressed.
    The opposition to the bill is especially frustrating, 
because it generally comes from industry representatives, who, 
despite best efforts of civil rights and consumer groups, have 
long been reluctant to acknowledge the full extent of the 
problem we are facing.
    As late as October, the industry told the Subcommittee, 
even after the problems with unsustainable loans had become 
painfully obvious to the public, that foreclosures are mostly 
the result of ``unemployment, divorce or illness, and not the 
loans themselves.''
    Last year's rapid growth in foreclosure rates speaks for 
itself, and it is unsettling to wonder if the industry 
posturing might have delayed efforts to mitigate that growth.
    Opponents of the bill also argue that the industry is 
working to reduce foreclosures through the use of loan 
modifications and repayment plans. But without a doubt, I am 
glad that many lenders and servicers recognize that there are 
serious problems and are taking steps to save homeowners from 
their mortgages.
    I see the light has come on, so I will summarize.
    Ms. Sanchez. I will allow you to finish your final thought.
    Mr. Henderson. Thank you.
    Let me say that this bill is such an important step, such a 
modest step, and such a fundamental protection for the rights 
of homeowners and the communities in which they live. We are 
happy to provide our full support for the enactment of this 
legislation.
    Thank you, Madam Chair.
    [The prepared statement of Mr. Henderson follows:]
                  Prepared Statement of Wade Henderson












    Ms. Sanchez. Thank you, Mr. Henderson, for your testimony.
    And I note that we have been joined by Mr. Chabot from 
Ohio, not a Member of the Subcommittee, but interested enough 
to come and sit in on today's proceeding.
    So thank you for your attendance.
    With that, I will invite Mr. Kittle to provide us with his 
testimony.

  TESTIMONY OF DAVID G. KITTLE, CMB, CHAIRMAN-ELECT, MORTGAGE 
              BANKERS ASSOCIATION, WASHINGTON, DC

    Mr. Kittle. Madam Chair, Ranking Member Cannon, thank you 
for the opportunity to appear before you again.
    I am pleased to discuss the solutions to the situation in 
the mortgage market and to help dispel some myths relating to 
the Emergency Home Ownership and Mortgage Equity Protection 
Act.
    It is a myth that allowing cramdowns of mortgages will be a 
cost-free and easy way to help homeowners. We expect that H.R. 
3609 will cost your constituents hundreds of dollars a month 
and thousands of dollars a year. Passage of this bill will 
encourage homeowners to file for bankruptcy, an expensive and 
invasive process. Instead of encouraging homeowners to seek 
bankruptcy, Congress should focus on ways to keep people out of 
bankruptcy and in their homes.
    There are very real and severe consequences for consumers 
who declare bankruptcy. Bankruptcy is a long, arduous and very 
public and expensive process, costing thousands of dollars in 
legal costs. Even when people file for bankruptcy, almost two-
thirds of them are unable to fulfill the terms of their 
repayment plan.
    Filing bankruptcy will allow a federally appointed trustee 
to scrutinize the consumer's every expenditure. Additionally, 
bankruptcy stays on a consumer's credit report for 10 years, 
making it difficult to acquire future credit, buy a home, car 
or insurance, and in some cases, even obtain employment.
    If bankruptcy judges are allowed to independently change 
the terms of a signed mortgage contract, lenders will face new 
uncertainty as to the value of the collateral, the home. To 
account for the new risk, lenders will be forced to require 
higher down payments, higher cost at closing, and higher 
interest rates, pushing the dream of homeownership beyond the 
reach of millions of families.
    As you know from my previous testimony, we estimate that a 
change in the bankruptcy law, allowing cramdowns in the future, 
may increase interest rates across the board by at least 1.5 
percentage points for those seeking to buy a home or refinance 
their existing mortgage.
    In Los Angeles County, California, for example, where the 
average home price is about $360,000, a homeowner's monthly 
payment at 6 percent for a 30-year fixed rate mortgage is 
roughly $2,100 per month. However, if H.R. 3609 were enacted, 
holding everything else constant, the homeowner could pay an 
additional $358 every month, an annual increase of over $4,200.
    It is a myth that this legislation will actually be 
positive for the mortgage industry. Despite the changes made in 
the bill by Congressman Chabot, the legislation continues to be 
retroactive. The result of a retroactive bill will be a 
devaluation of the current loan and mortgage servicing 
portfolio. This will have an immediate and severe impact on the 
mortgage market, as companies book the diminished value of 
their loans and servicing rights.
    Rates will certainly have to rise to offset the anticipated 
losses. Some companies will not survive. The writedowns and the 
markets will go through another period of severe instability.
    It is a myth that the total cost of foreclosure is greater 
than that of the risk of bankruptcy. Lenders often have 
mortgage insurance to protect themselves against losses. The 
FHA program is one kind of credit enhancement. Bankruptcy voids 
these credit enhancements in the amount of the cramdown. The 
lender will have to absorb the increased risk, which will 
ultimately pass on to the consumer in the form of higher prices 
or more restrictive lending terms.
    It is a myth that the preference given to primary 
residences is simply a loophole. Congress acted deliberately to 
increase the flow of capital to homebuyers. The House acted 
with broad support when it passed the final version of the 
bankruptcy code in 1978. The Supreme Court supported this 
provision with a specific defense from Justice Stevens in 1993.
    Finally, Congress should not encourage Americans to walk 
away from their debts. Bankruptcy is a final resort and should 
be sought only by the most extreme circumstances. At a time 
when the mortgage market is already experiencing a serious 
credit crunch, this bill threatens to increase costs to 
consumers, destabilize the mortgage market and result in injury 
to the overall economy.
    We urge Congress to finish work on the stimulus bill, 
modernize the FHA and pass a predatory lending bill that 
provides uniform protection for all consumers. Congress should 
not change the bankruptcy laws and increase costs on every 
borrower seeking a new mortgage.
    Thank you for the opportunity to appear before you again, 
and I look forward to answering your questions.
    [The prepared statement of Mr. Kittle follows:]
                 Prepared Statement of David G. Kittle


























                              ATTACHMENTS




























































    Ms. Sanchez. Thank you for your testimony, Mr. Kittle.
    At this time I would invite Dr. Zandi to present his oral 
testimony.

    TESTIMONY OF MARK M. ZANDI, Ph.D., CHIEF ECONOMIST AND 
        COFOUNDER, MOODY'S ECONOMY.COM, WEST CHESTER, PA

    Mr. Zandi. Thank you, Mr. Chairwoman. Thank you for the 
opportunity today.
    I just want to say that my views are my own. They are not 
those of the Moody's Corporation. I will make a half dozen 
points in my remarks.
    First, the Nation's housing mortgage markets are suffering 
an unprecedented downturn. The last time I spoke before this 
Subcommittee, the market was bad. It has gotten measurably 
worse. Activity peaked 2.5 years ago, and since then home sales 
have fallen approximately 35 percent. Starts are down nearly 50 
percent and house prices by 8 percent.
    Two-thirds of the Nation's housing markets are experiencing 
substantial price declines, with double digit declines 
throughout Arizona, California, Florida, Nevada, the Northeast 
corridor and the industrial Midwest.
    Second, residential mortgage loan defaults and foreclosures 
are surging, and without further significant policy changes, 
will continue to do so through the remainder of the decade. 
Falling housing values, resetting adjustable rate mortgages, 
tighter underwriting standards and weakening job markets are 
conspiring to create an unprecedented mortgage credit problem.
    According to very accurate data based on consumer credit 
files, there were 450,000 first mortgage loans in default to 
the first step in the foreclosure process as of year-end 2007. 
This equates to some 1.8 million defaults at an annualized 
pace. Even mortgage loan modification efforts increase 
measurably in coming months, I expect almost three million 
defaults this year and next. At least two million homeowners 
will likely lose their homes.
    Third, the severe housing downturn and surging foreclosures 
are weighing very heavily on the border economy, which may very 
well experience a recession this year. Regional economies, such 
as California, Florida, Nevada, much of the Midwest, parts of 
the Northeast, which together account for one-half of the 
Nation's GDP, are in my judgment already in or very near 
recession.
    The unraveling of the housing mortgage markets continues to 
undermine the fragile global financial system, as Congressman 
Conyers points out. Estimates of the mortgage losses global 
investors will bear range as high as $500 billion. These losses 
that have been publicly recognized now total about $150 
billion.
    Losses on construction and land development loans made by 
the banking system to homebuilders are sure to increase 
measurably, and the credit problems in other consumer loans are 
rising rapidly, particularly in those parts of the country in 
recession due to the housing recession.
    Fourth, while policymakers' efforts to date in responding 
to the mounting problems in the housing and mortgage markets 
and broader economy are helpful, they may very well prove 
inadequate. Since this past summer, the Federal Reserve has 
aggressively lowered rates. The Administration and Congress are 
quickly working toward a substantive fiscal stimulus package.
    Policymakers are also working to shore up the housing and 
mortgage markets in several ways, the most notable including 
increasing the GSE's mortgage loan caps and the Treasury 
Department's effort through HOPE NOW to facilitate mortgage 
loan modifications and establishment of mortgage repayment 
plans for struggling homeowners.
    Recent studies conducted by the MBA and Moody's Investors 
Service based on information provided by mortgage loan 
servicers through last fall indicate that hard-pressed 
homeowners are indeed receiving some increased relief. The 
Moody's study found that 3.5 percent of subprime ARM loans that 
reset in the first 8 months of this year had been modified. 
This is up from only 1 percent in an earlier survey conducted 
by Moody's.
    Despite these improvements, given the still substantial 
impediments to loan modification efforts, they are unlikely to 
increase sufficiently to forestall an unprecedented number of 
foreclosures through the remainder of this decade with the 
consequent negative repercussions for the broader economy.
    Tax, accounting and legal hurdles have been overcome, but 
large differences in the incentives of first and second 
mortgage lien holders and various investors in mortgage 
securities are proving to be very difficult.
    While the total economic benefit of forestalling 
foreclosure is significant, these benefits do not accrue to all 
of the parties involved in determining whether to proceed with 
a loan modification. Moreover, given the overwhelming number of 
foreclosures, servicers are also having difficulty 
appropriately staffing the modification efforts.
    It is also important to consider that for loan 
modifications to occur under the Treasury plan, many borrowers 
will have to produce more financial information than they did 
when they obtained the original loan. More than half of the 
subprime loans in 2006, for example, were stated income loans, 
for which borrowers were not required to produce a W-2 or tax 
return, and they will be reluctant to do so now.
    There are thus a number of significant impediments to the 
effective implementation of the Treasury plan via HOPE NOW, 
suggesting that at best an estimated quarter million borrowers 
will actually benefit from loan modifications.
    Thus, while HOPE NOW is a laudable effort, it should not 
forestall passage of legislation, H.R. 3609, to provide hard-
pressed homeowners facing foreclosure more protection in a 
Chapter 13 bankruptcy. If HOPE NOW is successful in helping 
many borrowers, then these borrowers would not avail themselves 
of the opportunity to avoid foreclosure in Chapter 13 provided 
by this legislation. However, if HOPE NOW is not sufficiently 
successful, which may very well be the case, then this 
legislation will prove invaluable.
    Thank you.
    [The prepared statement of Mr. Zandi follows:]
                  Prepared Statement of Mark M. Zandi
















    Ms. Sanchez. Thank you, Dr. Zandi.
    At this time I would invite Ms. Schwartz to give her 
testimony.

   TESTIMONY OF FAITH SCHWARTZ, EXECUTIVE DIRECTOR, HOPE NOW 
                    ALLIANCE, WASHINGTON, DC

    Ms. Schwartz. Thank you, Chairman Sanchez and Ranking 
Member Cannon. I appreciate having the opportunity to testify 
today.
    As you know, my name is Faith Schwartz. I am the executive 
director of the HOPE NOW Alliance. I want to tell you how the 
HOPE NOW Alliance is making real progress in an unprecedented 
joint industry and nonprofit national initiative to reach out 
to at-risk borrowers and find solutions to prevent 
foreclosures.
    The HOPE NOW Alliance is a broad-based collaboration 
between credit and homeownership counselors, lenders, 
servicers, investors and housing trade organizations, where we 
have gotten together to achieve the real results and reaching 
more at-risk borrowers and providing positive solutions to 
avoid foreclosure.
    HOPE NOW now includes 25 national loan servicers that 
comprise over 90 percent of the subprime market and a vast 
majority of the prime market. We have strong participation from 
respected nonprofits like NeighborWorks America and the 
Homeownership Preservation Foundation with its network of 
trained counselors, and we are adding and expanding that 
network of nonprofits.
    While this is a voluntary effort, and it has certainly been 
created at the urging of the secretary of the treasury and 
Alphonso Jackson of HUD, I must say that once you are a member 
of HOPE NOW, you need to adhere to principles that are adopted 
by HOPE NOW. I will just mention a few of those in light of our 
time.
    One of the early principles adopted was that everyone has 
to reach borrowers at risk in adjustable rate loans before the 
loans adjust at a minimum of 120 days prior to that adjustment. 
In addition to that, they must define the terms of the mortgage 
and all the options they would have if they cannot afford the 
adjustment.
    Maybe the most notable principle that I think will have a 
dramatic effect on how loan servicers and consumer credit 
counselors and housing counselors communicate is every lender 
has agreed to create a 1-800 number, a fax and email that is 
assigned to just third-party housing counselors. This is a big 
step forward so that there is better communication and 
efficiency of how third parties can help borrowers at risk get 
right into the servicing shops.
    Additionally, today we are releasing a set of numbers for 
all servicers direct for the consumers to have--all 800 numbers 
for all 25 servicers--and that is attached to our testimony, so 
that in all of your offices, you will have a way to reach all 
these loan servicers, if your constituents call.
    A major challenge is that the borrowers who are in trouble 
are reluctant to call their servicers, and historically, one 
out of two loans that went to foreclosure were never in contact 
with their loans servicers. That statistic is changing. HOPE 
NOW is part of that, as are many of the other efforts that have 
been going on for some time to risk borrowers at risk.
    HOPE NOW has an aggressive monthly direct mail outreach 
campaign to at-risk borrowers. It is a very targeted campaign 
for those servicers who had had no contact with borrowers, 
despite numerous attempts to reach them. In November, HOPE NOW 
sent about 220,000 letters out to borrowers, and early response 
shows 16 percent of those borrowers responded.
    Through January, we will see close to 700,000 letters sent 
to these most at-risk borrowers who otherwise would go to 
foreclosure, and we are encouraged by the early results of the 
most at-risk population.
    For the November result, 21 percent of those who received a 
letter in November improved or maintained their delinquency 
status by making at least a payment. Forty-three percent of 
those who responded are in some sort of active loan mitigation 
or modification efforts. None of these borrowers had been in 
contact with their servicers prior to the outreach.
    We are also actively providing nonprofit counseling to 
homeowners through our 888-995-HOPENOW hotline that is run by 
the Homeownership Preservation Foundation. This hotline has 
been in existence since 2003, and it has ramped up 
significantly this year, and you will hear some statistics of 
how they are manning the hotline and getting borrowers back 
into the servicing shops.
    It is having a dramatic impact. Since the hotline's 
inception in 2003, 373,000 borrowers have called this hotline. 
In 2007 alone 245,000 calls have been made into the hotline, 
and those calls resulted in more than 83,000 homeowners being 
counseled in 2007.
    Call volume in 2007 alone has increased tenfold in December 
from the beginning of 2007. By February 1st, we will have 400 
housing counselors assigned to this hotline to help man the 
line and keep capacity and all of the activity in line to 
accommodate all the calls.
    Last night President Bush cited HOPE NOW in the State of 
the Union address, and Secretary Paulson and HUD Secretary 
Jackson have urged homeowners in trouble to call the hotline. 
All of this attention does give more opportunity for borrowers 
to reach the servicers.
    Ms. Sanchez. Ms. Schwartz, your time has expired.
    Ms. Schwartz. Oh, no. Okay.
    Ms. Sanchez. Final thought, or----
    Ms. Schwartz. Well, I would like to speak to some of the 
metrics, and you will see on the board to my left we are going 
to measure all the metrics going forward. We now comprise the 
majority of the subprime market and the prime market at that 
point, so I think we are going to have some very good 
statistics to share with you and be transparent about all our 
results. We look forward to it.
    [The prepared statement of Ms. Schwartz follows:]
                  Prepared Statement of Faith Schwartz






























    Ms. Sanchez. Thank you.
    As you will notice, we have had a series of buzzers go off 
that has signaled to us we have votes pending across the 
street. Since we have about 6 minutes to get across the street 
to vote, we are going to stand in recess. When we return from 
votes, we will hear the testimony of Mr. Dodds and Mr. Carr. So 
we are in recess. Thank you.
    [Recess.]
    Mr. Johnson. [Presiding.] Okay. This hearing is now called 
back into order.
    And before we get started, I would like to, by way of 
unanimous consent, include the following documents into the 
record. Number one, a statement by the Honorable John Conyers, 
the Chair of the full Committee. It is dated January 29th. Also 
I want to include an article out of the Detroit Free Press 
dated January 29, 2008, entitled, ``Will the State Stay Third 
in Foreclosure Rate?'' referring to the State of Michigan.
    Also, a statement of the National Association of Consumer 
Bankruptcy attorneys dated January 29, 2008, entitled, 
``Hearing the Growing Mortgage Foreclosure Crisis: Identifying 
Solutions and Dispelling Myths.'' Also a study by Professors 
Adam J. Leviten and Joshua Goodman from Georgetown University 
Law Center dated January 28, 2008, entitled, ``The Effect of 
Bankruptcy Stripdown on Mortgage Interest Rates.''
    Also to be included in the record would be a chart that is 
from AlixPartners, page 13, that depicts an overview of the 
subprime lending industry. And last, but not least, a statement 
from the Center for Responsible Lending, a rebuttal to the ABA 
bipartisan House Resolution 3609. It is dated January 28, 2008.
    And that having been accomplished, we will now resume our 
testimony. Now, we will go Mr. John Dodds.
    Mr. Dodds?

 TESTIMONY OF JOHN DODDS, DIRECTOR, PHILADELPHIA UNEMPLOYMENT 
                   PROJECT, PHILADELPHIA, PA

    Mr. Dodds. Thank you for having me today. I am John Dodds 
from the Philadelphia Unemployment Project. Our organization 
has spent many, many years working on protect homes of 
homeowners. We work directly with people facing foreclosure. We 
have worked in Pennsylvania. We have the only state foreclosure 
prevention program in the country, which has helped over 40,000 
families save their homes.
    Recently, I was in Cleveland, Ohio, looking at doing a tour 
there. I can tell you it was a very appalling situation, the 
number of abandoned properties everywhere we looked, properties 
being stripped of aluminum siding off the walls sold for 
scrap--very, very depressing.
    And there we have in front on the subprime problem. Their 
foreclosures have already started. Properties are going for 
$14,000 a year, if people will buy them in those neighborhoods. 
And people can't even sell a house for that amount.
    We are trying to stay out ahead of that in Philadelphia. We 
are doing a little better there. I am thinking the whole 
country would want to stay ahead of that. We don't want to see 
these subprime loans turn into foreclosures and abandoned 
property.
    We have two million subprime loans that are going to reset 
in the next 18 months, and the question is how do we keep these 
loans performing? I think that is what everybody wants--to see 
these loans perform--and we think that they ought to be 
modified, that the terms are not affordable for people. Very 
often people were sold a bill of goods, or maybe they over 
promised or whatever, but it is bad for the entire economy for 
these loans to go bad and to foreclose with the kind of numbers 
we could see.
    So also, in Philadelphia we have many, many neighborhoods 
were over half of the loans are subprime. Now, we right now do 
not have too much abandonment. If these loans go through in the 
next 18 months, we could see many, many abandoned properties, 
which will deteriorate the property values of the homeowners 
that haven't lost their homes, too. Abandoned properties 
obviously bring down values quickly.
    So affordable loan modifications is what we think needs to 
happen, but it is not going to happen to scale, and I want to 
tell you why. We work with homeowners every day. One thing is 
that mortgage companies have had a long history of basically 
being collectors. They collect bills. If you don't pay, 
somebody calls you and says, ``Pay, or else.''
    Now, we are trying to switch to a different mentality. We 
are going to do loss mitigation. We are going to work this out. 
We have found that this is very difficult. We have homeowners 
that are not being offered affordable deals at all. In fact, 
they are being offered deals--double payments, things like 
that, when people can't afford.
    I have with me today Janice Freeman, who was with Wells 
Fargo. She got behind in her mortgage. No deal was offered. She 
ended up in a bankruptcy.
    Ms. Freeman, do you want to stand up?
    She ended up in a Chapter 13 bankruptcy, because she didn't 
know what else to do. She was told, ``Forget it. You have got 
to pay everything, or else.'' She got into bankruptcy.
    Bankruptcy doesn't work right now. This is why this 
legislation is important. She paid her lawyer over $2,400 over 
a period of time to get into bankruptcy. Her payment was raised 
from $1,147. She had to pay another $400 a month, because she 
couldn't pay her mortgage, so they put her in a plan in which 
she would pay the mortgage plus $400 plus the lawyer.
    She ended up three different times she got behind. The 
lawyer had her file again, $350 each time. Now, she only owed 
$3,500 when she got into this situation. Now her bankruptcy is 
dismissed.
    We are working with her right now to get a loan 
modification. That is what she should have had--terms that she 
can afford. This is what this legislation would do, which would 
put people in a situation where bankruptcy would actually 
change the terms so they can afford it. Bankruptcy right now 
just makes you pay your current mortgage plus, which people 
can't do.
    The other thing is people get put into payment plans, 
payment plans that they can't afford at all. They should be 
getting--once again, I think what HOPE NOW is hoping for, and 
many of us are hoping for is--loan modifications that make 
sense.
    But Janice Lee, who is also here, was offered double 
payments. She finally got herself into--after a very aggressive 
young woman--she finally got a decent payment plan. It is good 
for 6 months. At the end of 6 months, she has got a $10,000 
balloon payment. There is no way she can make that payment.
    So what we think has to happen is loan modifications have 
to happen in large scale. We just don't think it is possible in 
the terms that we have. In the next 18 months, the lending 
companies are not going to be in a position to do these. These 
are time consuming. They have to collect all kinds of data--pay 
stubs, bills, and so forth.
    We had a nice time with Countrywide, where we are working 
with the top executives. They offered us a pipeline to get our 
things done quickly. We sent down about a dozen loans--
Countrywide Mortgage delinquent mortgages--and a month letter 
people are starting to get sheriff sale notices. They are 
starting to get foreclosure notices.
    We called Countrywide. We have a special hotline for 
advocates. We are advocates. We called, and they said, ``You 
know what? None of your papers have gotten through imaging 
yet.'' They are all in imaging, meaning they hadn't been 
copied, so nobody had even looked at one of the documents a 
month later.
    I think that that is what is going to happen all over this 
country, as this tidal wave of foreclosures comes through. And 
even to the good-hearted lenders that are trying to work this 
out, there is going to be a volume problem, and I think we are 
going to see that. And we are seeing that, and that is what we 
are seeing, that the people aren't getting these done.
    Then where are they going to go? They are going to lose 
their homes. Or there will be a safety valve. We think that 
this legislation will be a safety valve. 3609 will be a safety 
valve, so at that point, when they are in foreclosure, that 
they can go file a bankruptcy, and then the judge will be able 
to modify the terms to make them affordable.
    One thing that----
    Mr. Johnson. All right, Mr. Dodds, your time has expired. 
Very sorry.
    Mr. Dodds. Okay. Well, thank you. So we think it is a 
problem, and this is a solution, not the only solution, to a 
real world problem that is not going to get fixed by just talk.
    [The prepared statement of Mr. Dodds follows:]
                    Prepared Statement of John Dodds








    Mr. Johnson. Thank you.
    Mr. Dodds. Thank you.
    Mr. Johnson. All right.
    Mr. Carr?

 TESTIMONY OF JAMES H. CARR, CHIEF OPERATING OFFICER, NATIONAL 
       COMMUNITY REINVESTMENT CORPORATION, WASHINGTON, DC

    Mr. Carr. Good afternoon.
    Mr. Johnson. Good afternoon.
    Mr. Carr. On behalf of the National Community Reinvestment 
Coalition, I am honored to participate in the hearing today.
    Regional economic downturns, speculation on skyrocketing 
home values, and widespread and unfair and deceptive mortgage 
lending practices have combined to create the perfect 
foreclosure storm in America. Common to all three of these 
contributing factors is the reality that effective regulation 
of the markets would have greatly limited the foreclosure 
damage we are currently experiencing.
    Moreover, unfair and deceptive practices contributed to the 
other foreclosure related stimuli. By offering products, for 
example, based on inadequate underwriting, and often combined 
with fraudulent or otherwise inappropriate appraisals, these 
loans gave the illusion of affordability to millions of 
families and also in the process helped to create the housing 
bubble.
    It would be difficult to overstate the significance of the 
collapse of the subprime market and its attendant foreclosure 
crisis. The damage goes far beyond its direct effect on the 
families who are losing their homes. The negative fallout is 
impacting heavily the communities in which those foreclosures 
are heavily concentrated, the national economy and 
international markets.
    As a result, homeowners across the country are now paying 
for the extraordinary failure of regulation of the subprime 
market, regardless of whether they had anything to do with a 
subprime loan. Both the Administration and the Federal Reserve 
Board have concluded that unfair and deceptive practices 
contributed to the collapse of the subprime market.
    The Federal Reserve has proposed rule changes pertaining to 
subprime mortgage lending that address almost every aspect of 
the lending process. It is a clear statement of the extent to 
which lending abuses had become prevalent. Those rules address 
issues ranging from the ability to repay loans, verification of 
income, marketing practices, prepayment penalties, servicing 
abuses, excessive broker fees and many other issues.
    Their proposed rules are a good start. More needs to be 
done to address this issue to purge it fully from the market. 
Moreover, legislation is needed to forcibly address the housing 
related institutions that are not covered by the Federal 
Reserve.
    The foreclosure crisis threatens the long-term stability of 
the housing markets and the U.S. economy. Failure to stabilize 
the housing markets would compound and make worse an economic 
downturn, and a severe economic downturn would presuppose more 
families to foreclosure.
    Further, the deterioration in home prices threatens the 
most significant asset held by the typical American household. 
As a result, at a time when working families are worried about 
stagnant wages, loss of employment benefits, rising health care 
and energy costs, and ballooning consumer debt, failure to 
mitigate further the deterioration of home equity could create 
greater anxiety among the American public and a further loss of 
consumer confidence that of course would be very harmful for 
the economy.
    There are several initiatives that have been discussed 
already--FHA Secure and the HOPE NOW hotline. These initiatives 
are essential, critical to addressing this problem, but for 
reasons for which I would be pleased to discuss in Q&A, these 
initiatives by themselves are not substantial enough. 
Basically, it is the scale of the problem and the types of 
solutions that are being offered.
    As a result, the bankruptcy bill that is being discussed 
today, H.R. 3609, would be an important added feature to help 
homeowner who are immediately at risk of losing their homes. 
Importantly, how they got there helps to justify the change in 
legislation, and that is the reality that many of those loans 
are predicated on unfair and deceptive practices. So as a 
result, unwinding them is not unfair to the lending 
institutions that put those consumers at jeopardy in the first 
instance.
    In the interest of time, I will conclude by saying as 
Harvard University professor Elizabeth Warren pointed out, and 
she is the person who coined the term ``exploding mortgages,'' 
families have had better consumer protection buying a toaster 
or microwave oven than purchasing a home.
    The time has come to help consumers who have been 
financially damaged by failed regulatory policy in the mortgage 
arena. That fix will not be cost free. There will be pain, and 
it needs to be shared.
    Equally, the time has come to eliminate predatory lending 
practices from the housing markets once and for all. The 
American public deserves better.
    Thank you.
    [The prepared statement of Mr. Carr follows:]
                  Prepared Statement of James H. Carr







































    Mr. Johnson. All right. Thank you, Mr. Carr.
    Now we will----
    Mr. Cannon. Mr. Chairman, may I ask unanimous consent to 
include the statement of Mr. Chabot in the record?
    Mr. Johnson. Sure.
    Mr. Cannon. Thank you.
    Mr. Johnson. Without objection.
    [The prepared statement of Mr. Chabot follows:]
 Prepared Statement of the Honorable Steve Chabot, a Representative in 
Congress from the State of Ohio, and Member, Committee on the Judiciary








    Mr. Johnson. Now we will move to questions, and I will take 
the first few questions, and then I will turn it over to my 
friend, Mr. Cannon.
    Mr. Henderson, some have likened the predatory lending 
practices in the subprime mortgage industry as the 21st 
century's version of redlining. What are thoughts about that 
assessment?
    Mr. Henderson. Mr. Chairman, there is some truth in that 
observation, although I think it is important, even in 
examining the subprime market, that not all subprime lenders 
should be criticized for the current state of affairs.
    Subprime lending played an important role in providing 
credit opportunities for individuals with impaired credit. The 
difficulty we are witnessing today, however, is not because of 
the existence of subprime lending.
    It is subprime lending run amok without adequate regulation 
and an abandonment of communities by conventional lenders, a 
failure of regulators like the Office of Thrift Supervision, 
the comptroller of the currency and the Federal Reserve to do 
what it needed to do to ensure that there was a balance of 
credit opportunity that included both conventional lenders and 
subprime lenders, where appropriate.
    So the combination of factors that we are witnessing today 
that led to this difficulty was the existence or creation of 
new products without appropriate supervision or regulation and 
extending credit to individuals who clearly did not have the 
ability to pay and averting the gaze of lenders from 
circumstances that should have been an adequate warning that 
the loans that they were advancing were problematic from the 
outset. And it is that combination of factors that has produced 
the results we are witnessing.
    And one last point. The bankruptcy bill that Mr. Conyers 
and Mr. Chabot have introduced is a modest step that is 
intended to inject a pragmatic reality in allowing hundreds of 
thousands of borrowers to adjust their circumstance without 
doing violence--without doing violence--to the entire mortgage 
lending industry. And that is an important part.
    Mr. Johnson. Thank you. I will note, and I would ask for a 
response from anyone on the panel, the notion that subprime 
mortgages have been marketed to persons with credit scores high 
enough to qualify for conventional loans with far better terms 
and that it appears that there is some evidence that minorities 
who could have qualified for the cheaper prime loans instead 
were steered into the subprime loans--if anyone would care to 
speak on that issue.
    Mr. Carr?
    Mr. Carr. The disproportionate reliance of subprime loans 
with minority communities has been known for years. The State 
of North Carolina, for example, instituted an anti-predatory 
lending bill as far back as 1999, and so there is a cacophony 
of research that tracks this.
    The Federal Reserve study showed--I believe it was 2006--
that of all subprime mortgages outstanding, 55 percent of loans 
to African Americans were subprime and 45 percent to Latinos 
were subprime. A study last year--I believe it was in the third 
quarter--showed that a substantial share of borrowers in the 
subprime market actually had credit scores--I think it was over 
60 percent--that would qualify them for prime mortgages.
    And so this issue of steering is something that has been 
known for years within the housing industry. It has been 
documented extensively, and it is well known, and it is one of 
the major concerns with respect to unfair and deceptive 
practices within the industry.
    And I might add that we are already beginning to see the 
damage to African American households disproportionately as a 
result of the foreclosure crisis. Between the second quarter of 
2004 and 2007, the homeownership rate for African Americans 
fell by more than 2.5 percentage points, compared to just .06 
for non-Hispanic white households.
    This is a very distressing circumstance, given the fact 
that African Americans already have a homeownership rate which 
is considerably below that of non-Hispanic white households.
    Mr. Johnson. All right. Thank you.
    And I would also point out for the record that a study by 
the Consumer Federation of America has found that nationwide, 
women are 32 percent more likely to receive subprime loans than 
men.
    My time just about being expired, I will not yield to my 
friend from what state?
    Mr. Cannon. From Utah.
    Mr. Johnson. Utah.
    Mr. Cannon. But would you mind yielding to the gentleman 
from Florida, since he doesn't have to stay for this hearing, 
and I probably do. If we can let him take his 5 minutes, he can 
go do other things. Then I will take mine later on.
    Mr. Johnson. All right. Certainly.
    Mr. Cannon. Thank you.
    Mr. Johnson. Sir, you have 5 minutes.
    Mr. Keller. I thank the gentleman for yielding.
    There is no question that people are hurting right now, and 
a time when families are paying higher costs for mortgages, 
health insurance and gasoline, I think it is morally wrong that 
we ask them to pay even more of their money in higher taxes and 
then turn around and use that on wasteful earmark projects.
    We have seen progress just today in passing an economic 
stimulus plan in the House of Representatives, and yesterday 
President Bush wisely called for a crackdown on wasteful 
earmark spending in his State of the Union address.
    This afternoon we are looking at the third prong, the home 
mortgage crisis. And the issue before us seems to be should we 
allow contracts to be modified by the bankruptcy courts? Those 
folks who are proposing this in their testimony say this is 
really the one solution these people have facing foreclosure, 
and they need relief.
    The other folks on our panel have testified that this will 
actually hurt first time homebuyers, because it will result in 
higher down payments and higher interest costs, and we should 
instead go with volunteer programs like HOPE NOW and FHA 
Modernization. They point out that there is a reason the 
current law for over 100 years has not allowed judges to 
rewrite these home mortgages.
    So let me try to take a balanced approach and get to the 
bottom of this.
    Let us start with you, Mr. Kittle. I have on my credit card 
a rate of about 9.5 percent, but my home mortgage is about 5.5 
percent. There is a reason that we pay a higher cost in credit 
cards. Is that correct?
    Mr. Kittle. It is.
    Mr. Keller. And the main reason is the credit card is 
unsecured, whereas the home mortgage is secured.
    Mr. Kittle. That is correct.
    Mr. Keller. And if we allow these mortgages to be 
rewritten, I know that you have some concerns that this will 
result in higher down payment costs for first time homebuyers. 
Is that right?
    Mr. Kittle. Yes, sir. It is.
    Mr. Keller. Give us an idea. Are we looking at a 20 percent 
requirement for some down payments? Or what do you anticipate 
here?
    Mr. Kittle. I can give you some precedent, some history.
    Mr. Keller. Okay.
    Mr. Kittle. In 1978, when the bankruptcy law was 
rewritten--actually the last time--it then included in that 
legislation investment loans. In 1978, you are the single-
family residential owner occupied in an investment loan for the 
same price. After that legislation, you must have a 25 percent 
down payment, your interest is as much as three-eighths percent 
higher, and your fees and/or could be as much as a point and a 
half more in discount points. That is because cramdown is 
available on those types of loans.
    Mr. Keller. So you are--and I got that number from the Wall 
Street Journal--are you concerned the home down payments could 
be as high as 20 percent requirement?
    Mr. Kittle. We are concerned. Exactly.
    Mr. Keller. And from your earlier testimony, you mentioned 
your concern that interests rates for these first time 
homebuyers may go up to a percent and a half.
    Mr. Kittle. That is correct. A percent and a half higher. 
Yes, sir.
    Mr. Keller. You also mentioned a concern about higher 
closing costs. I wasn't sure what you were getting at there. 
Does that mean more in origination fees?
    Mr. Kittle. Adding on additional fees because of the 
additional risk.
    Mr. Keller. Do you have a percent or estimate of what you 
would see in terms of higher closing costs?
    Mr. Kittle. If it neared the example that I just gave you 
could be as much as a point or a point and a half in discount.
    Mr. Keller. Okay.
    Now, Ms. Schwartz, you have testified that historically 
about half of the people facing foreclosure didn't even bother 
to call their lender to renegotiate. Is that correct?
    Ms. Schwartz. That is a well-known historic number.
    Mr. Keller. Now, are you seeing some changes to that 
pattern, now that we have the HOPE NOW program in effect? And 
what changes are you seeing?
    Ms. Schwartz. Well, we are seeing a number of changes. We 
are introducing the third parties so that homeowners have 
someone to talk to, an advisor to go to, if they don't care to 
go to the servicer for whatever reason that might be. And 
through the HOPE hotline, an extensive outreach effort, both 
outbound and inbound, we are seeing a major shift in that 
number. And we will be reporting on that throughout the year.
    Mr. Keller. It seemed like a very meritorious program. The 
criticism comes from the other side a little bit that it is 
purely voluntary. And so what do you say to the person who is 
facing foreclosure, and his particular lender doesn't 
participate in HOPE NOW or have similar standards, and so he 
feels that the bankruptcy option is his only option? What do 
you say to that person as a remedy?
    Ms. Schwartz. Well, I can only speak for the servicers that 
are part of HOPE NOW, which is a vast majority of lenders in 
the subprime market servicers.
    Mr. Keller. Okay.
    Let me ask Mr. Kittle that same question. What about the 
person facing foreclosure, and his particular lender doesn't 
participate in the HOPE NOW type of standards and practices? 
What do you say to that person as a remedy?
    Mr. Kittle. Well, most all of the servicers that are 
members of the Mortgage Bankers Association--all of them, as a 
matter of fact--are linked on our home loan learning center. We 
give the borrower a direct link to that servicer. MBA will help 
contact the servicer for the borrower, but we will send them to 
HOPE NOW and encourage them. And you will contact that 
servicer, even though they are not a member.
    Ms. Schwartz. Oh, absolutely. The HOPE NOW hotline is for 
everyone to call. And it is prime borrowers, subprime 
borrowers. That is out there. It is in the public domain.
    Mr. Keller. Mr. Chairman, let me just say my time is 
expired. I will yield back, but if I had more time--and 
hopefully some other people do--I was going to ask Dr. Zandi to 
give the opposite on all those questions. So I was trying to be 
balanced about it, but my time has expired.
    Mr. Johnson. Thank you.
    I would now turn to Mr. Mel Watt from North Carolina.
    Mr. Watt. Thank you, Mr. Chairman.
    I actually will pick up in a similar vein, because, as many 
of you know, I have been talking for the last 3 or 4 years with 
the lender and borrower consumer community, trying to work out 
the appropriate balance on the new predatory lending bill that 
the House passed. And one of the things I have found is that 
quite often we talk past each other and don't really listen to 
what people are saying. And we do it to our detriment.
    One of the issues that I raised in the very, very first 
hearing on the original bill that got amended through the 
compromise with Mr. Chabot that we reported out was that there 
is some possibility, as Mr. Kittle indicated, that we could be 
incentivizing people to take the easy route and go into 
bankruptcy. I think that personally would be a devastating blow 
to people, if they took that easy route.
    After that hearing, I invited the lender community to give 
me some ideas about how we might be able to remove that what 
might be a perverse incentive for people to go into bankruptcy. 
And the lending community decided that it could stop this 
bankruptcy bill as an alternative to trying to improve it to 
address the concerns.
    So I am still trying to figure out how to remove the 
perverse incentive. I don't condemn the HOPE NOW project. It is 
a wonderful project for the people who are able to take 
advantage of it. But there are some people who are not going to 
be able to take advantage of the HOPE NOW project, and there is 
a group of people at the end of the day who won't have any 
alternative other than bankruptcy.
    And what I am trying to find is how we can limit the impact 
of the bankruptcy cramdown provision to just that group of 
people, because I have seen the adverse impact that going into 
easy bankruptcy, or being talked into easy bankruptcy, can have 
in the business community, in our community as minority 
individuals. And so I want to focus on that a little bit.
    One idea might be to create a gatekeeper, who would make a 
really serious determination about whether bankruptcy was in 
fact the only option available to save somebody's home for him. 
One might be to create a series of findings that a bankruptcy 
judge might have to make regarding this being the only 
alternative available.
    Mr. Carr, you seem to be shaking your head. You probably 
have thought about this, because you know how terrible it is 
for people to end up in bankruptcy as a first resort, rather 
than as a last resort. Talk to me about how we can remove, 
possibly, that perverse incentive for people to end up in 
bankruptcy, because I heard what Mr. Kittle said. I have heard 
what the concerns are about the bill, and I am concerned about 
it, too.
    Mr. Carr. Absolutely. I think Mr. Kittle raises a very 
important point, and I think it is worth just going back to the 
previous question to say I don't know that the objections--it 
certainly is not in the community in which I travel.
    I was just at a meeting with 14 of the largest lenders 
yesterday. The issue isn't that the plans are voluntary. It is 
what is it that the private market can realistically offer as a 
loan modification that actually restructures the loan and makes 
it permanently affordable? And that is the challenge. And most 
of the modifications that are happening are not doing that.
    While it may be true that the private market led the way in 
getting us into the problem, the Federal Government has to lead 
the way in getting us out. And that would lead to give 
refinancing options that currently don't exist to consumers so 
that they don't do bankruptcy, which no family optimistically 
looks forward to claiming bankruptcy. But if that is the only 
choice that they have, relative to some type of loan 
modification or payment plan that simply tides them over for 
another 6 months or 12 months or 18 months, it is not a 
permanent restructuring.
    And I just want to conclude by saying it is important in 
this environment that we figure out that housing problem, 
because the same estimates on interest rates one could generate 
if the housing market continues to deteriorate. And in that 
light, I think every one of us is on exactly the same page. The 
question is how do we get consumers into long-term affordable 
loan products that don't come back to recreate this problem in 
another year, year and a half, or 2 years from now?
    Mr. Johnson. Thank you, Mr. Carr.
    Mr. Watt. Mr. Chairman, let me just make one final comment 
on this point, because I think HOPE NOW is great. I think 
raising the FHA limit is great. All of these things really are 
tools that need to be in the toolbox, but at the end of the 
day, there is going to be a group of people who don't have any 
alternative to bankruptcy. And they need to have a tool also.
    So if we could figure out a way to limit this bill and the 
impact of this bill only to those people as a last resort, I 
don't know why the lender community would want to fight that, 
as opposed to going to foreclosure, selling it, selling the 
house at 50 percent or 20 percent of the value, as opposed to 
getting 80 percent or whatever the bankruptcy judge thought was 
a reasonable cramdown figure.
    And that nobody in the lender community has been able to 
explain to me. It is a no-brainer. I yield back. And having 
asked that question a number of times, I have yet to get an 
answer.
    Mr. Johnson. Thank you, Congressman Watt.
    We will now proceed with questions from Mr. Cannon.
    Mr. Cannon. Thank you, Mr. Chairman.
    And Mr. Watt is keenly aware of the fact that we agreed 
that this is the question. I think it is a hard question to 
answer, Mr. Watt.
    But what I am hearing you say, Mr. Carr, is essentially you 
don't think that the private sector can do it or could respond 
quickly enough, and so you support this bill because it brings 
great pressure to bear on the private industry to act. Am I 
reading that right?
    Mr. Carr. Well, not really. I support the bill, because I 
think it is an important channel for consumers who, if they 
don't have access to this bill, will simply lose their homes, 
because the modifications aren't going to help them.
    But I am further saying that we need something that is 
larger than just this bankruptcy bill as well and the programs 
that are mostly focused on the voluntary reworking of the 
mortgages. What is not available is a source of refinancing 
that is large enough for this estimated two million or so 
homeowners who are heading into foreclosure.
    And I have some recommendations that I can put on the 
table, but a lot of think tanks, for example, have been talking 
about reinstituting a homeowners loan corporation, for example, 
that was established during the Great Depression for a 
foreclosure crisis that is analogous to now. There are ways we 
could do that without establishing a new institution.
    I am just simply saying I don't think that the private 
sector can alone completely resolve this problem.
    Mr. Cannon. Ms. Schwartz?
    Ms. Schwartz. Yes, I would just like to maybe make one 
slight clarification. It is daunting, but I think we are making 
real progress.
    One thing the American Securitization Forum did to help the 
process and get to more borrowers, more homeowners, swiftly, 
quickly and efficiently was to have one scalable solution for 
the current borrowers, who are currently paying, have the 
willingness and capacity to repay, before their reset. And that 
guidance that was issued.
    And also a comfort letter offered by the SEC so that 
services could proceed on behalf of investors to modify loans 
scalably will start to make a big impact on the future 
foreclosures that are cited in the many studies. And that is 
one of the reasons that it was done.
    Secondarily, everyone can redeploy their resources to the 
loan-by-loan delinquent borrowers who need it desperately to 
see what is the cause for the delinquency. Sometimes it is 
unemployment, or sometimes there has been a disruption, or 
perhaps it was the reset that caused it. But whatever those 
reasons, then they will redeploy all those resources. And yes, 
it is loan-by-loan, but they have to know what is going on, 
because that is the servicing agreement with the investor.
    Mr. Cannon. Ms. Schwartz, do you think that the private 
sector can respond in this program quickly enough to solve the 
problem generally?
    Ms. Schwartz. I am not sure we are the only solution, but I 
can tell you the industry is going across the board with 
nonprofits and investors, and they are all at the table, and we 
are doing our best to do what we can to slow down and modify 
these loans and stop these foreclosures. So we think it is a 
huge effort, and it is going to show great impact. We already 
have seen them.
    Mr. Cannon. Let me direct a question to Mr. Henderson and 
Mr. Dodds, because they are sort of on the front lines here.
    There is unease about--even Ms. Schwartz acknowledged--that 
they would be hard to do. I would point out that I read 
someplace in the last couple of days that interest rates are 
now nudging down under 6 percent, which is a marvelous tonic 
for this whole thing.
    Ms. Schwartz. Yes.
    Mr. Cannon. That is a really, really big deal. But you both 
represent or have dealt with people who have problems and are 
struggling with mortgages. You are also both advocates for 
people owning their own homes, and that means being able to buy 
in at a relatively cheap rate. I don't think anybody has been 
critical of the numbers that Mr. Kittle has suggested.
    In the balancing that we need to do here, and given the 
cost, especially the much, much, much higher down payments that 
we are talking about, we know that people can somehow live with 
a larger payment, if they can budget it, so the extra point and 
a half or so in closing costs, people can maybe live with that. 
But a 20 percent down payment puts most houses beyond most 
people.
    Shouldn't be wary of doing or creating a cramdown in this 
bankruptcy bill that will put a much higher threshold before 
people buying houses?
    Mr. Henderson. Certainly, Mr. Cannon, were that to be the 
result of the proposal before us today. It certainly would be a 
cautionary issue worthy of further examination. But having said 
that, I do not believe that the current bill will result in the 
loss of homeownership opportunities of the magnitude that you 
have described. We are back----
    Mr. Cannon. Because of the shortness of my time, can I just 
ask do you disagree with the idea that Mr. Kittle has 
presented, which we have many times? I think Mr. Zandi also 
gave us statistics like this in an earlier hearing----
    Mr. Henderson. Yes.
    Mr. Cannon [continuing]. That the down payment is going to 
go up.
    Mr. Henderson. I don't dispute the fact that the down 
payment will go up, but I also recognize that there is a need 
for a more comprehensive adjustment in the mortgage lending 
system to prevent that result from occurring.
    The question that Chairman Johnson asked earlier about 
whether there is steering that put a disproportionate number of 
African Americans, Latinos, women and older Americans in the 
subprime market is true and well documented.
    Having said that, we certainly encourage homeownership 
opportunity, but that involves a more comprehensive adjustment 
in the mortgage lending system with more regulation of banks 
and traditional lenders, fulfilling their fiduciary 
responsibility in the communities in which they function.
    Our particular concern about the notion that voluntary 
efforts will result in a positive outcome is belied by the fact 
that over almost a year our organizations have been meeting 
with groups like the Mortgage Bankers Association and others, 
trying to seek a more coordinated loan modification program.
    We talked about a 90-day moratorium on foreclosures to give 
both borrowers and lenders an opportunity to restructure these 
loans. Voluntary efforts have been woefully inadequate, and the 
evidence of that is borne out by the increasing numbers of 
foreclosures month after month.
    If there is not a modest intervention in the market by the 
Federal Government, it will be virtually too late to serve 
those who are actually legitimate borrowers who in fact are in 
need of support.
    And to suggest somehow that Chapter 13 is the easy way out 
ignores the fact that there has been a substantial adjustment 
in our bankruptcy laws over the past several years, making the 
consequence of filing bankruptcy more difficult than ever 
before. It is not an option of first resort for many people. It 
is an option of last resort.
    But as you saw from some of the people that Mr. Dodds 
brought with him, the consequences of a failure to address 
these issues is the loss of home, the loss of equity. And for 
many people, like African Americans and Latinos, this 
represents the greatest loss of wealth ever documented in 
modern times. That is something that we are deeply concerned 
about.
    Mr. Cannon. Mr. Chairman, I see my time has expired. Do we 
have the possibility of a second round here?
    Mr. Johnson. Yes, I think that would be appropriate. And if 
you want to continue with your 5 minutes in the second round, 
or would you want to wait?
    Mr. Cannon. I think I would actually like to continue----
    Mr. Johnson. All right.
    Mr. Cannon [continuing]. Because we are getting to the gist 
of the argument here. There is a radical agreement on many, 
many issues here, and we divide on some basic ones.
    And so, Mr. Dodd, I would like to hear. Do you basically 
agree with what Mr. Henderson said?
    Mr. Dodds. Yes, I think the voluntary efforts are going to 
be woefully short for people, though. We are talking about 
scaling. But in the next year and a half, two million loans are 
going to be going----
    Mr. Cannon. Let me intervene, because you sort of said that 
earlier, and I really want to get to the deep issues here. 
People don't voluntarily do things, especially people who are 
sitting out on the sidelines with investments----
    Mr. Dodds. Right.
    Mr. Cannon [continuing]. Or with guarantees on investments.
    And, in fact, I believe Mr. Zandi, you would like to 
comment at this point about Moody's role in the subprime 
problem with its over rating of the mortgage backed securities.
    Mr. Zandi. No, I don't want to talk about that at all. 
[Laughter.]
    Mr. Cannon. All right, but there is a problem. You 
acknowledge the problem.
    Mr. Zandi. That is not my purview, and I am not part of the 
rating agency, and I am here as a----
    Mr. Cannon. But the point is----
    Mr. Zandi [continuing]. We will go around, and all of us 
are in this together.
    Mr. Cannon. I don't mean to beat the heck out of you right 
now. The fact is we have so many people, and we have such a 
complex process that has led to this very high level of 
homeownership with low down payments, and some abuses.
    Mr. Carr, you talked about the abuses.
    Mr. Dodds, you talked about the abuses.
    Mr. Henderson, you also talked about the abuses.
    But you can't have a free marketplace without some rough 
elbows here and there, not that we should condone rough elbows, 
but now we are talking about having had a failure, it is one 
thing to say that it doesn't work very well, but have people go 
voluntarily in a path.
    On the other hand, we are now looking at people who figured 
it out. They have looked in the gaping jaws of the beast, and 
they are saying, ``We have a big problem.'' We have got write-
offs. Last week's Business, we got a list of all the write-
offs. It is a stunning--it is a stunning--number of write-offs. 
And people everywhere have been writing down these kinds of 
loans.
    And so now you have--I think, is it fair to say, Ms. 
Schwartz, that there is an incentive out there on the part of 
the private industry to come together and solve the problem?
    Ms. Schwartz. Yes. All the incentives are aligned. There is 
no good outcome in these foreclosures, and we are working hard.
    Mr. Cannon. And as I understand--Mr. Dodds, I am going to 
give you a chance to talk here, but--you have every incentive 
to keep your people from going to bankruptcy and to working 
through a system, if you can get these guys in the private 
sector to work with you. Isn't that the case? Mr. Dodds, yes.
    Mr. Dodds. Mr. Cannon, I think one of the big problems is 
that the lenders are not going to be able to communicate well 
with these homeowners, that people, when they are in problems, 
the real world is when people can't pay their bills, they don't 
open their bills. They put them in corners.
    Mr. Cannon. Right.
    Mr. Dodds. And that may be----
    Mr. Cannon. Look, I agree. I understand. That is a well-
taken point. But advocacy groups like you guys can reach out to 
those people and help facilitate.
    Mr. Dodds. You know what happens? When we send letters out, 
they are getting letters from everybody under the sun. They are 
getting flooded with letters, and it is very difficult to reach 
these folks. And one of the groups that has done the best job 
of reaching them are Chapter 13 lawyers.
    Mr. Cannon. Yes.
    Mr. Dodds. And I would say not in a good way.
    Mr. Cannon. Right.
    Mr. Dodds. They put them in bankruptcies they can't afford. 
They have taken their money, and they have basically done a 
disservice very often. But right now, if we change this law so 
that bankruptcy would work, these people will go out and find 
those homeowners. It will only be a safety valve. It won't be 
the whole program. HOPE NOW continues. They would find these 
homeowners, and they would get them in bankruptcy. The judges 
would----
    Mr. Cannon. Mr. Dodds, you are saying that you would trust 
bankruptcy lawyers to solve the problem, because their 
financial incentives are better than the guys----
    Mr. Dodds. Yes, you are talking----
    Mr. Cannon [continuing]. Who face a meltdown of the whole 
economy after all their investments?
    Mr. Dodds. You are talking free market, and part of free 
market is these----
    Mr. Cannon. I grant you. That is part of free market.
    Mr. Dodds [continuing]. Finding homeowners and getting them 
in programs, which the lenders are going to have a hard time 
doing it. They are already having a hard time doing that.
    Mr. Cannon. Let me just take the one point, not to be 
argumentative, but I think we are getting here to sort of the 
center of the issue. You have got somebody who gets a whole 
bunch of bills. He can't pay his bills, because his mortgage 
payment has gone way up, and he doesn't know what to do. How 
dumb can a person be to not recognize that there is a big trend 
in America?
    Every single presidential candidate is talking about these 
issues, and we are argue that they are a small player in a 
large trend, and all we need to do is tell those people there 
are forces out there that exist to help them. If we get that 
message to people, then they come to people like you, and you 
help them to----
    Mr. Dodds. Again, I don't believe we can do the volume. I 
don't believe that lenders are set up to do the volume. When we 
did Countrywide, I am telling you, they couldn't even get the 
stuff through the imaging department in over a month.
    Mr. Cannon. That was a great story, Mr. Dodds.
    Mr. Dodds. Even if they try, even if they try very well.
    Mr. Cannon. What happens in our bankruptcy courts? We hang 
up the bankruptcy courts in this dramatic fashion with all 
these guys who got out and hustled business. And now everybody 
has got a stay on their payments, and now the market is really 
fouled up.
    And I think, Mr. Kittle, you would like to speak. And I 
think you have been very clear, and I am going to end by giving 
you the floor.
    Mr. Kittle. Thank you. I feel neglected just a little bit. 
[Laughter.]
    I will just give you one number. In the third quarter of 
2007, our servicing members of MBA helped modify, worked out 
over 236,000 loans in the third quarter. It is on a trend like 
this. We need the opportunity, along with our members, the 
market to correct itself, and HOPE NOW to take advantage of 
lenders who want to help. We are making a difference. We think 
we can handle the volume.
    Mr. Zandi. I would like to make a point.
    Mr. Johnson. The time has expired for Mr. Kittle.
    I will now move to Mr. Watt.
    Mr. Watt. I will let Mr. Zandi respond, because I still 
think we are really talking past each other here.
    I don't think the issue is the numbers at all--236,000. You 
have got three million people who are in default or are likely 
to be in default. So at the end of the day, there is always 
going to be somebody that you are not going to be able to work 
out. That is the person that we are trying to protect, 
ultimately, and the person that lenders are so intent on not 
having some external party make a determination about.
    Lenders are not going to be able to do it, so why wouldn't 
the solution to this require exhausting every other option 
before you get to bankruptcy? And if your only option is 
bankruptcy, why is the lender community so resistant to 
allowing--I mean, bankruptcy was always intended as the last 
resort.
    Mr. Kittle, go ahead and tell me that. I have been waiting 
on people to tell me.
    You tell me, Mr. Zandi, and some on the other side.
    Mr. Kittle. You give Mr. Zandi an opportunity, and I will 
take it back, if you have time.
    Mr. Watt. All right.
    Mr. Zandi. Yes. At the end of last year of 2007, there were 
450,000 loans in default, first mortgage loan default. That is 
the first step in a foreclosure process. Then let us turn to 
the board and look at the data. In the second half of last 
year, we saw 250,000 repayment plans and 120,000 loan 
modifications. When you do the math, they are not all covered.
    Second point. Repayment plans do not solve anybody's 
problem. They make the problem worse for the borrower. They are 
going to end up in default. All they are doing is taking the 
interest not paid, rolling it back into principal, and the 
amount owed monthly going forward is going to rise. So you are 
delaying the day of reckoning for these people, not by years, 
but by months. So repayment plans--that means nothing.
    Mr. Cannon. Would the gentleman yield for a clarification 
here?
    Mr. Watt. Yes. Sure.
    Mr. Cannon. In those repayment plans, don't interest rates 
get adjusted? So you have got a subprime mortgage that is going 
to bounce? Are we not adjusting those interest rates?
    Mr. Zandi. Those are modifications. Those aren't repayment 
plans. No. And in fact in modifications, we don't know what 
those modifications are. If you listen to the lenders--take 
Countrywide, for example, to bring up a case in point--what 
they are saying a modification is is that we are going to take 
the interest rate and give these people--it is almost like a 
repayment plan--give them some chance to repay what they owe 
over some period of time.
    Mr. Watt. And if I can just intone here, part of the 
problem is the housing prices got bid up so high that the 
houses aren't even worth trying to keep--a lot of them--
anymore, so if you don't cramdown to a manageable value for the 
house, this is not going to work anyway.
    Mr. Zandi. Mr. Cannon, this is a good idea. It is a 
laudable plan. It is worth going down this path. But the 
numbers don't suggest that it is going to solve the problem. It 
may make a big dent.
    And the other point is in terms of the cost, the cost will 
not rise. I mean, if you look at the Federal Reserve, and they 
said, ``Give your opinion, Freddie Mac, tomorrow. What would be 
the impact on mortgage rates?'' well established research that 
has been well refereed, gone through the Federal Reserve 
system, discussed in many times, the number is 25 basis points.
    I could go to Fannie Mae and Freddie Mac tomorrow with 25 
basis points on a mortgage loan, so how in the world could we 
possibly get to a point and a half on the mortgage rate, when 
we are talking about this cramdown bill?
    Mr. Cannon. Mr. Watt, would you yield?
    Mr. Zandi. If we get rid of Fannie Mae and Freddie Mac----
    Mr. Watt. I have been yielding for the last 5 minutes. Yes.
    Mr. Zandi. Mr. Cannon, if we get rid of Fannie Mae and 
Freddie Mac, there is no market.
    Ms. Schwartz. There is no market.
    Mr. Zandi. It doesn't matter what the percentage is at.
    Mr. Cannon. Let me just ask Mr. Watt a question.
    Doesn't it seem in this whole scheme, when people have bid 
up and made improvident decisions on buying houses that are 
overpriced, that the market ought to be allowed to correct 
itself, and that we actually really can't affect the whole 
from----
    Mr. Watt. I am a firm believer in the market correcting 
itself for the people who it can be corrected for. This bill 
talks about people who--I mean, you know, even the minority 
issue that Representative Johnson raised, the 60 percent that 
Mr. Carr talked about that should have been in a prime loan in 
the first place, they can get their loan refinanced as soon as 
we raise the cap on FHA. They can go and get a good loan, if 
the market quits steering and making discriminatory loans.
    Those are not the people that I am worried about in this 
bill. These are the people who have no other resort and end up 
in bankruptcy as the only resort. Ms. Schwartz is not going to 
be able to solve their problems. She is not going to sit here 
and tell us, with a straight face or not with a straight face, 
that she can solve every one of these problems in HOPE NOW.
    HOPE NOW is a wonderful program for people who can afford 
to refinance, reorganize, but some time at the end of the day, 
there are going to be some people who can't afford to do that. 
And what are we going to do about those?
    Mr. Cannon. I ask unanimous consent that the gentleman be 
granted an additional minute, because I want to ask a question, 
Congressman. [Laughter.]
    Mr. Johnson. Let Ms. Schwartz answer that question first, 
and then you ask permission granted without consent.
    Ms. Schwartz. For the record, HOPE NOW has been around for 
3 months, and in the last 30 days, we brought on almost 10 more 
servicers.
    Mr. Watt. That is fine, but you know, you can bring on 500 
servicers, but there are still at the end of the day, some 
people who you are not going to be able to help. Isn't that 
right?
    Ms. Schwartz. Absolutely.
    Mr. Watt. Okay. That is the only point I am trying to make.
    Ms. Schwartz. But we can help hundreds of thousands of 
borrowers----
    Mr. Watt. And we want you to do that.
    Ms. Schwartz [continuing]. A quarter, and that is what we 
are talking about----
    Mr. Watt. Which is why I am saying one of the solutions 
might be to say, if somebody comes to bankruptcy, ``Okay, have 
you gone to HOPE NOW and exhausted every remedy you can? Is 
this your only resort?''--because I don't people to declare 
bankruptcy, unless they have exhausted every other option that 
they have.
    Ms. Schwartz. And HOPE NOW is----
    Mr. Watt. And I have invited the industry to tell me how we 
can structure this so that only the people who are using it as 
a last resort are the beneficiaries of it. And there has been 
deafening silence----
    Mr. Cannon. Would the gentleman----
    Mr. Watt [continuing]. And there continues to be deafening 
silence from everybody except Mr. Cannon.
    Mr. Johnson. The time has expired.
    Mr. Cannon. I ask unanimous consent that the gentleman be 
granted one additional minute, because I just want to----
    Mr. Watt. I yield that minute to you.
    Mr. Cannon. I actually am trying to figure out who it is 
you want to help, because those people who have been steered to 
subprime loans who can now get prime loans are not people that 
you are concerned about. They can do it.
    Mr. Watt. They will go into Ms. Schwartz's program.
    Mr. Cannon. Are you concerned about the people who paid too 
much for their home? They have overpaid. The market is not 
going to sustain that price, and so they need to be able to go 
to bankruptcy to lower that price, to lower that mortgage 
amount?
    Mr. Watt. That is part of the group.
    Mr. Cannon. Okay.
    Mr. Watt. And maybe they will solve some of those problems 
in Ms. Schwartz's deal. But somebody at the end of the day Ms. 
Schwartz is not going to be able to help.
    Mr. Cannon. I am not sure how big that group is, but if you 
focus on that relatively small group, you will have this broad 
market effect, which means 20 percent down, and I think there 
is some agreement. Maybe it is only----
    Mr. Watt. No, you don't believe that, Chris.
    Mr. Cannon. I believe that if you get----
    Mr. Watt. If you all believe that----
    Mr. Cannon. If you----
    Mr. Watt. You are not going to have that broad market 
effect. If you get that little group of people who have no 
other resort other than to go and appear in bankruptcy----
    Mr. Johnson. Okay. I am losing control of this hearing----
    Mr. Watt [continuing]. It is going to have a point and a 
half worth of impact on the whole market? That is ridiculous.
    Mr. Johnson. Okay, we have had good discussion here.
    Mr. Cannon. One more comment.
    Mr. Johnson. Mr. Cannon, go ahead and make your comment.
    Mr. Cannon. Mr. Watt, if you can come up with an 
identification of the group, I would be happy to work with you 
on that. Then you won't have the broad market effect, if it is 
a very, very narrow group. And I think that is what you have 
been saying you have tried to work on.
    Mr. Watt. That is what I have been saying.
    Mr. Cannon. We will talk about that and see if we can't 
come up with it.
    Mr. Watt. That is what I have been saying.
    Mr. Cannon. I don't think we can do it.
    Mr. Watt. I will limit the number to just the people who 
really need it.
    Mr. Dodds. The other issue is that you have already 
compromised this, so this only affects current loans. None of 
this cramdown will affect anyone in the future, so I think----
    Mr. Cannon. You have 7 years in the current bill. That is 
the problem with that.
    Mr. Dodds. Exactly. But it is going to end, if it passes. 
So you are not going to talk about the future market. I think 
that is the compromise that has already been put together to 
prevent from occurring that you are talking about. I am not 
sure where this giant increase in down payments is going to 
come from in a bill that is only for retroactive subprime 
mortgages, which I think the market itself is taking us out of 
the subprime fiasco. Nobody is doing subprimes today, so that 
to me seems to be an answer to the problem also.
    Mr. Johnson. Okay. We will now go to Mr. Keller from 
Florida.
    Mr. Keller. Thank you, Mr. Chairman. Those who are 
deafeningly silent wish to speak. And I have tried to get at 
one side of the case through Mr. Kittle, and I am going to go 
to the other side.
    And the gist that I got from you, Mr. Kittle, before I move 
on, is you believe that HOPE NOW, FHA Secure and FHA 
Modernization are the best way to help this troubled subprime 
crisis, because if we allow the courts to rewrite these home 
mortgages, then it would result in future first time homeowners 
having to pay higher down payments, higher interest rates and 
higher closing costs. Is that a correct summary?
    Mr. Kittle. That is correct. Along with higher loan limits 
for the GSEs.
    Mr. Keller. Okay. Thank you.
    I am going to turn to the other side, and I am going to 
tell you whom I am going to talk to--Mr. Carr and Dr. Zandi. So 
you all listen to this, if you would.
    So, Dr. Zandi, let me start with you. What do you think of 
the concerns raised by Mr. Kittle that this could possibly lead 
to higher down payments of as much as 20 percent, higher 
interest rates going up as much as 1.5 percent and higher 
closing costs as much as one or two points? Is that a concern 
of yours? Or do you think those figures aren't going to happen?
    Mr. Zandi. I don't think they are going to happen, no.
    Mr. Keller. And why is that?
    Mr. Zandi. Well, for a few reasons. First, I believe the 
cost of foreclosure is measurably greater than the cost of 
bankruptcy. Those economic benefits will accrue to somebody, 
borrowers and lenders.
    Mr. Keller. If you don't believe that those figures will 
happen, do you believe there is a concern, albeit now 20 
percent of some risk of higher down payment?
    Mr. Zandi. No, I don't think there will be--not under the 
current legislation.
    Mr. Keller. And are you concerned that there might not be 
an interest rate increase of 1.5 percent, but some interest 
rate increase?
    Mr. Zandi. No, I don't think there will be a measurable 
increase. I don't think there will be a measurable increase.
    Mr. Keller. Are you concerned, maybe not an increase of two 
points for closing costs, but some increase in closing costs?
    Mr. Zandi. No, I don't think the costs will rise. I do not.
    Mr. Keller. Mr. Carr, the same questions to you. Do you 
have concerns about the possibility of higher down payments, 
interests rates or closing costs, if this bill were to pass?
    Mr. Carr. Not at all. I don't believe that they would be 
significant. I think they would be modest. But I would point 
out, and ask Mr. Kittle to excuse me if I am attributing the 
wrong organization, but I thought it was a remarkable statistic 
I read recently that showed 40 percent of the foreclosures in 
the third quarter were actually loan mods, which means those 
mods are not sustainable.
    Mr. Keller. Okay. And we will let you all deal with that 
later. I just have a limited amount of time. The gist of what I 
got from you, Mr. Carr, earlier is the challenge is not that 
this is a purely voluntary program with all these entities 
participating in HOPE NOW. The challenge is even when they do 
participate, the relief is inadequate, that further relief is 
needed through this bankruptcy cramdown provision. Is that 
correct?
    Mr. Carr. That is correct, for the voluntary programs--not 
FHA Secure, because that is a refinance.
    Mr. Keller. Okay.
    Now, Dr. Zandi, reading your testimony, you estimate that 
about two million people could lose their homes and that this 
legislation will benefit about a quarter of those, 570,000 
people. What about the remaining three-quarters? How will they 
seek to remedy their troubling situation of facing foreclosure, 
if this bankruptcy cramdown legislation is not going to be 
their result?
    Mr. Zandi. I think no matter what we do, there will be 
many, many foreclosures. I think, given the stunning decline in 
housing values, which are only accelerating, given the 
weakening job market, given the ARM resetting, given the deep 
recessions in places where people are losing homes----
    Mr. Keller. Don't you think many of those would in fact 
benefit from things like HOPE NOW and FHA Secure and FHA 
Modernization?
    Mr. Zandi. Absolutely. Absolutely. I am very supportive of 
those ideas. I think they are all very good ideas. I think they 
are too small, and they are not going to be effective enough. 
And I think that the proof is in your data right in front of 
you. You can see it. It is not going to work sufficiently.
    Mr. Keller. Okay.
    Mr. Kittle, you have heard from two well-respected people. 
They are not concerned about the down payments going up or the 
interest rates going up or the closing costs going up. Do you 
have a rebuttal as to why you think they should be concerned, 
but aren't?
    Mr. Kittle. Well, the precedent has been set in 1978 with 
investment properties. I mean, that is something that is there. 
It has been there. Those costs on those loans have gone up.
    If you talk about one of the comments that were made that 
this is retroactive, fear is what is driving the stock market 
right now. Fear is what is driving our economy. It is fear with 
our servicers and lenders and our members that Congress will 
come back the next time and when it won't. So fear is driving--
--
    Mr. Keller. Even if it is 100 percent concrete retroactive, 
the market may say, ``Heck, Congress could come in and bail 
these folks out just like they did in the past. I am not going 
to make this loan at a competitive rate.'' Is that what you are 
saying?
    Mr. Kittle. Generally, with all due respect, once Congress 
starts, they don't stop.
    Mr. Keller. Dr. Zandi, your response.
    Mr. Zandi. Two responses. First, with regard to the 
investor property, the difference in interest rates is a point 
and a half between investor property and single family occupied 
homes. That point and a half is due to the much higher credit 
risk involved. If you give money to an investor, there is a 
much higher probability of default. You need to be compensated 
for it.
    It has nothing to do with cramdowns. It has to do with the 
higher probability of default. So I don't think that point and 
a half has anything to do with these differences in cramdown 
legislation.
    Mr. Keller. Okay. I would love to keep going. I have got 
more questions, but my time has expired, so I will yield back.
    Mr. Johnson. Thank you, Mr. Keller.
    Mr. Kittle, what is most expensive to the lender? Would it 
be a foreclosure, or would it be a bankruptcy under the 
Conyers-Chabot compromise bill?
    Mr. Kittle. Well, we haven't seen anything go through under 
the compromise, and I know that the average cost of a 
foreclosure is around $30,00 to $40,000 to the lender. We are 
talking about long-term damage to the lender, something that is 
not even there yet.
    Mr. Johnson. And in addition to those expenses to the 
lender, you would have the loss of the property to the 
borrower, the effect on the surrounding community of vacant 
homes, which then contribute to a loss of property tax 
revenue----
    Mr. Kittle. That all depends on when a customer and a 
letter get together----
    Mr. Johnson. We have crime.
    Mr. Kittle. It depends upon at which point the customer, 
the borrower, and the lender start to communicate. There are 
many things that happen where the property--they get it done 
before the property is vacant.
    Mr. Johnson. Well, given the fact that you have got so many 
other costs associated with a foreclosure--cost to society--but 
just looking at it from the lender's standpoint, $30,000 to 
$40,000 it costs to foreclose, doesn't it seem that it would be 
cheaper to allow a bankruptcy court to adjust the interest rate 
and the payoff on a loan down to reflect market value, and then 
the borrower is able, since he or she is in Chapter 13, to 
repay the mortgage and at some point come out of bankruptcy?
    Doesn't it make sense that you would have that option on 
the table as one of the tools in the toolbox, as Congressman 
Watt suggested?
    Mr. Kittle. No, sir, it doesn't. It may be easier and 
quicker, but the cost long term is much greater for future home 
borrowers to the lenders. They will lose their loss of credit 
enhancements. FHA by itself--right now there is a statute in 
place that doesn't even allow cramdowns, so if cramdowns go 
through forward, that portion's cramdown goes directly back to 
the servicer on every FHA loan. My members, should this happen, 
will no longer want to participate in the purchase and 
origination of the FHA loans, which are for first time 
homebuyers----
    Mr. Watt. Will the gentleman yield?
    Mr. Kittle [continuing]. Honest people out of this type of 
situation.
    Mr. Johnson. Mr. Zandi, how would you respond to that?
    Mr. Zandi. I just want to respond to the point about FHA 
and the enhancement. If you look at the 2006 HOMDET data and 
look at those loans, those FHA loans, that would be classified 
as subprime under this legislation, 300 basis points over 
prevailing market rates, that would encompass less than 2 
percent of all the FHA first purchase loans and just about a 
little over 3 percent--3.1 percent--of refinancings.
    So the universe we are talking about here is very, very 
small.
    Mr. Kittle. May I respond to that, please?
    Mr. Johnson. I will yield to Mr. Watt.
    Mr. Kittle. I would like to respond just to what he just 
said, because the data that he just said is inaccurate, if I 
may.
    Mr. Watt. You all are arguing about data. We are trying to 
find the solution.
    Mr. Kittle. Well, this is the solution. FHA----
    Mr. Watt. I don't think this the solution at all on this 
issue. This is about whether this is a more viable solution 
than foreclosure for somebody as a last resort. Now, the 
question that----
    Mr. Kittle. Part of your stimulus package is FHA reform.
    Mr. Watt. No, I am not talking about stimulus package. I am 
talking about somebody who is having their house foreclosed. 
They aren't going to get $300 in the stimulus package. They 
aren't going to get any of that. I mean, this isn't about a 
stimulus package to me. This is about saving somebody's house.
    Mr. Johnson. Reclaiming my time. [Laughter.]
    Mr. Watt. Can I just make the point that I wanted him to 
address that was related to this? In most states--North 
Carolina is one of them--there is no such thing as a 
deficiency, so you foreclose and you sell. You can't get 
anymore than the cramdown value of the house. Usually, it is 
going to be a lot less than the cramdown value of the house, 
because some opportunist is out there, the only person that is 
going to buy, and the point I am making is that the cramdown 
figure is going to be higher than your foreclosure sale figure.
    Mr. Johnson. And the time having expired----
    Mr. Watt. I ask unanimous consent the gentleman be given 
two additional minutes----
    Mr. Johnson. Thank you for----
    Mr. Watt [continuing]. At least one of them----
    Mr. Johnson. Without objection.
    Mr. Watt [continuing]. Let Mr. Kittle respond, because I 
don't see how you think this is going to be more advantageous. 
Foreclosure is going to be more advantageous--work out far more 
advantageous. If you can work it out, it is great. But 
foreclosure is not a better alternative than this bill will 
provide to you in bankruptcy in most cases. Do you think so?
    Mr. Kittle. My time? To answer your question, I am not only 
concerned, but I am concerned, about the people whom you are 
talking about. And if you could identify that small number, 
like Mr. Cannon asked, that would be great. We would try to 
address it, both HOPE NOW and as an industry in MBA.
    But I am concerned about the long-term effect of a short-
term solution for your constituents being able to purchase 
homes down the road. It is a postponed.
    Mr. Watt. Mr. Kittle, I think you are being disingenuous--
--
    Mr. Kittle. Not at all.
    Mr. Watt [continuing]. Because the truth of the matter is 
the long-term implication of your selling in foreclosure at a 
figure that you can't even begin to approach as the cramdown 
figure is a lot more devastating to the industry and a lender 
than the cramdown figure is going to be.
    Mr. Kittle. Well, I----
    Mr. Watt. And you can't convince me otherwise. I think you 
are being disingenuous with us now.
    Mr. Kittle. Well, I am not being disingenuous, Mr. Watt. I 
gave you figures in my testimony earlier, both written and 
stated, of what we thought the cost of the cramdown would be. 
We stand by those figures. We have precedence for those 
figures.
    Mr. Johnson. Reclaiming my time.
    Mr. Henderson, did you have something you wanted to add?
    Mr. Henderson. Yes, sir. I think, Mr. Chair, both you and 
Congressman Watt have framed the issue appropriately, which is 
to say whether foreclosure is a more costly result than the 
result that would be accomplished by this modest interjection 
in the market that this bill represents.
    And again, when you total, as you suggested, not just the 
cost to the individual borrower, who loses his or her home, but 
the surrounding neighborhood, the impact on the community in 
which the foreclosure occurs, the potential for increase in 
crime, the other debilitating effects that this kind of 
widespread housing dislocation has on these neighborhoods, it 
is not incalculable, but it is obviously much more substantial 
than we have talked about here.
    And it does seem to me that the effort on the part of 
Congressman Watt to try to define the population of people who 
would most be affected by this bill and who would benefit is 
the way to go.
    I can't explain to you why you have had difficulty in 
getting cooperation from the industry to identify that 
population, but I can say that the effort to drive the industry 
to coordinate a more effective response in loan modification, 
as we have seen through the Hope Six program--we certainly 
support these things.
    These are all necessary elements to have on the table, but 
they are necessary, but insufficient, to meet the magnitude of 
the problem. And that is why this adjustment, which is only for 
a period of 7 years and only applies to existing loans, is a 
modest intervention that we think is timely and suited to the 
magnitude of the problem.
    Mr. Johnson. All right. Thank you, Mr. Henderson.
    My time has expired, and I would like to thank all of the 
witnesses for their testimony today.
    Without objection, Members will have 5 legislative days to 
submit any additional written questions, which we will forward 
to the witnesses and ask that you answer as promptly as you 
can, to be made a part of the record. Without objection, the 
record will remain open for 5 legislative days for the 
submission of other additional information and materials.
    Again, I thank everyone for their time and patience. This 
hearing of the Subcommittee of the Commercial and 
Administrative Law is adjourned.
    [Whereupon, at 4:36 p.m., the Subcommittee was adjourned.]

                                 
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