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



 
                    EFFECTS OF THE SUBPRIME MORTGAGE

                  CRISIS IN NEW YORK CITY AND EFFORTS

                     TO HELP STRUGGLING HOMEOWNERS

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


                             FIELD HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 11, 2008

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-89




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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

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

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
       Subcommittee on Financial Institutions and Consumer Credit

                CAROLYN B. MALONEY, New York, Chairwoman

MELVIN L. WATT, North Carolina       JUDY BIGGERT, Illinois
GARY L. ACKERMAN, New York           TOM PRICE, Georgia
BRAD SHERMAN, California             DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois          MICHAEL N. CASTLE, Delaware
DENNIS MOORE, Kansas                 PETER T. KING, New York
4PAUL E. KANJORSKI, Pennsylvania     EDWARD R. ROYCE, California
MAXINE WATERS, California            STEVEN C. LaTOURETTE, Ohio
RUBEN HINOJOSA, Texas                WALTER B. JONES, Jr., North 
CAROLYN McCARTHY, New York               Carolina
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
AL GREEN, Texas                          Virginia
WM. LACY CLAY, Missouri              TOM FEENEY, Florida
BRAD MILLER, North Carolina          JEB HENSARLING, Texas
DAVID SCOTT, Georgia                 SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
LINCOLN DAVIS, Tennessee             JIM GERLACH, Pennsylvania
PAUL W. HODES, New Hampshire         STEVAN PEARCE, New Mexico
KEITH ELLISON, Minnesota             RANDY NEUGEBAUER, Texas
RON KLEIN, Florida                   GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida                 PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio              JOHN CAMPBELL, California
ED PERLMUTTER, Colorado              KEVIN McCARTHY, California
                                     DEAN HELLER, Nevada


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 11, 2008............................................     1
Appendix:
    February 11, 2008............................................    31

                               WITNESSES
                       Monday, February 11, 2008

Azia, Jane, Director, Non-Depository Institutions and Consumer 
  Protection, New York State Banking Department..................     9
Dilan, Hon. Erik Martin, Chairman, Housing and Building 
  Committee, New York City Council...............................     7
Gerecke, Sarah, Chief Executive Officer, Neighborhood Housing 
  Services of New York City......................................    13
Quinn, Kieran P., Chairman, Mortgage Bankers Association, on 
  behalf of the HOPE NOW Alliance................................    11
Zinner, Josh, Co-Director, Neighborhood Economic Development 
  Advocacy Project...............................................    14

                                APPENDIX

Prepared statements:
    Engel, Hon. Eliot L..........................................    32
    Azia, Jane...................................................    34
    Dilan, Hon. Erik Martin......................................    47
    Gerecke, Sarah...............................................    55
    Quinn, Kieran P..............................................    70
    Zinner, Josh.................................................    82


                    EFFECTS OF THE SUBPRIME MORTGAGE



                  CRISIS IN NEW YORK CITY AND EFFORTS



                     TO HELP STRUGGLING HOMEOWNERS

                              ----------                              


                       Monday, February 11, 2008

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 11 a.m., in 
the City Council Chamber, New York City Hall, New York, New 
York, Hon. Carolyn B. Maloney [chairwoman of the subcommittee] 
presiding.
    Members present: Representative Maloney.
    Also present: Representatives Velazquez and Meeks.
    Chairwoman Maloney. I am Congresswoman Carolyn Maloney, and 
I'd like to call this hearing to order, this Federal hearing, 
and recognize the Speaker of the great City of New York, 
Speaker Christine Quinn.
    She has graciously allowed us to use this chamber today, 
along with the entire Council, and they have been doing 
tremendous work on this challenge. Thank you, Christine.
    Speaker Quinn. Thank you. I'd like to say that we have the 
nice chairs for you and Chairwoman Velazquez, but the truth is 
that Scott Stringer is giving his State of the Borough speech 
later. Seriously, though, I want to thank you both very much 
for holding this hearing here and for having us be a part of 
it.
    I mentioned before we had a hearing not dissimilar from 
this that Congresswoman Maloney requested on the issue of TRIA, 
a very important insurance issue related to the City. And not 
long after the hearing, the legislation was passed in exactly 
the way the City of New York needed it to be passed. I raised 
that example because I think it shows the difference that the 
City and our congressional leaders can make, working together. 
I just want to thank Chairwoman Maloney and Chairwoman 
Velazquez again for being so receptive to the needs of this 
City, and for demonstrating that by being with us in our 
chambers and having our housing chair participate in today's 
hearing.
    So, I really just wanted to take a moment to thank you both 
so much for your tremendous commitment to the City, and to 
thank you for working on an issue that is critically important 
to so many of the neighborhoods we all represent. You know, 
it's terrible to have to talk to somebody who is at risk of 
losing their home and not know what to say to them. We have 
tried to bring resources to this issue on the Council level, 
but ultimately we'll only be successful if the City, and the 
State, and the Federal Government are working together. And I 
know with your--both of your leadership, the response of the 
Federal Government will be expanded tremendously, because you 
both will really bring the urgency that this issue needs to 
Washington.
    So I want to thank you both so much. I am excited at the 
idea of staying and grilling our housing chair, but I'm going 
to leave that to our two Congress people. And thank you, both, 
very, very much.
    Thank you, Chairperson Dilan, as well.
    Chairwoman Maloney. Thank you so much, Christine, for your 
leadership, and for allowing us to be here today. Thank you. I 
hope we have the same success that we had with the TRIA bill, 
which was enacted and signed into law and is now helping 
commerce go forward in New York City and around the country.
    This hearing is entitled, ``The Effects of the Subprime 
Mortgage Crisis in New York City and Efforts to Help Struggling 
Homeowners.'' This is a hearing of the Subcommittee on 
Financial Institutions and Consumer Credit, which I chair.
    Without objection, I'd like to invite any Members of 
Congress here today or those who were not able to come to put 
their statements in the record. Hearing no objection, I welcome 
their statements. And, without objection, I will now recognize 
myself for 5 minutes.
    We are at a critical juncture in the subprime mortgage 
crisis. All of the data we have seen clearly demonstrates the 
severity of the problem. We have seen the perfect storm of 
stagnant wages, rising mortgage payments, and decreased home 
values, which have all led to a tsunami of foreclosures here in 
New York and across the country.
    A look at the performance on subprime adjustable rate 
mortgages in New York City reveals a really startling picture. 
Of the almost 26,000 adjustable rate mortgages examined, the 
Federal Reserve Bank of New York reported in November that only 
57 percent were current, 12 percent were more than 60 days 
delinquent, and 19 percent were in foreclosure. Couple this 
with the reports from the Mortgage Bankers Association that 
places foreclosures at an all time high nationwide, and 
estimates from the Center for Responsible Lending, that say we 
will see at least 2.2 million Americans with subprime loans 
lose their homes, it is very easy to see that we have a crisis 
on our hands. And this crisis is not just confined to the 
holders of these mortgages, but affects the community as a 
whole.
    These foreclosures can have devastating effects on 
families, communities, and financial institutions. Consumers 
forced into foreclosure can lose many thousands of dollars in 
equity on top of substantial fees imposed prior to and during 
the foreclosure process. Communities are negatively affected as 
foreclosures drive down home prices overall, diminishing 
homeowners' equity in entire neighborhoods.
    Costs also accrue to local governments in the form of lost 
tax revenue and direct expenses for securing policing and 
disposing of abandoned properties. And, financial institutions 
and holders of mortgage securities suffer losses if loans do 
not perform, particularly in the environment of flat or 
declining housing prices.
    I think that one report that came out last week, from 
Freddie Mac, in one of their surveys it showed that over half 
of those who were delinquent in their subprime loans--57 
percent--did not even know that there was help there, or that 
they could go for help. And that is one of the reasons that 
we're holding this hearing here in New York City. We want to 
hear from the City and the State as to what they are doing to 
help translate the programs and policies that we have on the 
Federal level. We just passed a funding, $180 million, for 
counseling to go to neighborhood groups. And I know of at least 
five neighborhood groups here in New York City that are 
applying for that funding. But we need to really take the City 
and State and have them take the initiative to work with the 
individuals in their communities.
    My colleague, Nydia Velazquez, has already sponsored forums 
in her community. And the Governor and the Banking 
Superintendent, along with the New York State Senate, have 
started Operation Protect Your Home. They will be having day-
long seminars around the State and in New York City to 
literally work with the lenders, the servicers--and my 
colleague, welcome--here in New York City and to help them in 
their home. The first will be in the Bronx, on Saturday, 
February 23rd.
    We are welcomed by my good friend and colleague, 
Congressman Meeks.
    We are focusing today on what we can do to help people stay 
in their homes, but I do want to mention what we have done on 
the Federal level. Last year, working together with Congressman 
Meeks, Congresswoman Velazquez, and Chairman Barney Frank, we 
passed H.R. 3915, the Mortgage Reform and Anti-Predatory 
Lending Act. This has passed the House, but regrettably, it has 
not passed the Senate. This comprehensive legislation will 
create a licensing system for residential mortgage loan 
originators and establish a minimum standard for underwriting, 
so that loans are not given to people who cannot afford to pay 
for them, a very fundamental change. It will also have limited 
liability to the secondary market securitizers, to build more 
discipline into that market.
    We also passed legislation to reform and modernize the 
Federal Housing Authority and government-sponsored 
enterprises--Freddie Mac and Fannie Mae. This legislation will 
enhance the safety and soundness of these institutions, and 
with the FHA, provide a safe haven for subprime borrowers in 
desperate need of refinancing. It will give them extra tools to 
help people stay in their homes.
    And we have pushed and succeeded in getting a change in the 
FASB rules--the Financial Accounting Standards Board--to 
clarify that its Standard Rule 140 allows for the modification 
of a loan when there is a reasonable idea that there will be a 
default. Otherwise, before we got it changed, they could only 
become involved after the default.
    So, we are taking steps to help people stay in their homes. 
We have eliminated the tax on debt forgiveness, sparing 
families the double whammy of paying taxes on the lost value of 
their homes. And we are working now to eliminate the cruel 
anomaly under Chapter 13 of the Bankruptcy Code which allows 
judges to modify mortgages on a borrower's vacation home or 
investment property, but not the home they actually live in. 
This change, again, will give us more tools to help people stay 
in their homes.
    Beyond the work of Congress, industry and advocacy groups 
have formed important partnerships, such as the HOPE NOW 
Alliance, and they are working, and we'll be hearing more about 
that. And, just last week, we passed an economic stimulus plan 
that included raising the cap on the loan limit amounts of 
Fannie Mae and Freddie Mac. This will help high cost housing 
areas such as New York City.
    And, the State of New York has formed a $100 million 
mortgage rescue fund in addition to their Operation Protect 
Your Home. They are coming forward with comprehensive 
legislation also to help people stay in their homes.
    That is why we are here and we will keep on working. I have 
a lot more to say, but I'm going to put it into the record, 
because I'd like to hear from my good friend and colleague, 
Nydia Velazquez, chairwoman of the Committee on Small Business, 
who has led many efforts here in the City to help people stay 
in their homes.
    Ms. Velazquez. I am the only Member from the New York 
delegation who sits on the Housing Subcommittee.
    Good morning, Chairwoman Maloney, and thank you for holding 
this hearing today on such an important issue for New Yorkers.
    Right now, New York City is at a crossroads with the 
current housing crisis threatening the pursuit of the American 
dream. Homeownership in New York City, in spite of slight 
growth recently, still lags behind the national average and 
that of other major cities. Also disappointing is that while 
Blacks and Hispanics make up a large portion of the population 
and contribute significantly to our local economy, they 
experience lower tenure rates than other groups. There is no 
question that it is paramount to identify the driving causes of 
these disparities in order to find constructive solutions to 
our crisis today.
    I held a roundtable on mortgage foreclosure in my district 
3 weeks ago, and some of the financial services institutions 
were saying, ``Well, we are not at fault. It is not our fault. 
It is those mortgage brokers.'' Financial institutions have to 
ask themselves why it is that there is a perception in minority 
communities that they cannot walk into any bank to get a loan 
to purchase a home, and therefore, they are driven to go to 
unscrupulous lenders?
    So, when we look at HMDA reports on data as to fair lending 
practices and we see that there is a disparity in terms of the 
mortgage loans that people get across the board in New York 
City compared to the lack of such loans in minority 
communities, we need to ask what is wrong and if there is any 
legislative fix that needs to take place in order to make sure 
that fair lending practices are the norm and not the exception 
when it comes to minority communities. Hispanic and Black New 
Yorkers are 3 to 4 times more likely to have a loan issued by a 
subprime lender than non-minorities. At 19.8 percent, New York 
has one of the highest subprime lending rates in the country. 
In 2007, the average subprime outstanding loan balance in New 
York City was nearly twice the national average.
    Not only is this an issue in minority populations, but 
compounding the negative effects of subprime lending is the 
concentration of outstanding loans in particular neighborhoods. 
Last year, in at least 10 communities across the City, more 
than 34 percent of all loans were subprime. These places 
include Jamaica, Brownsville, Ocean Hill, Queens Village, my 
district--Bushwick, and East New York, Sunset Park, and Red 
Hook. It should come as no surprise to find that those areas 
are experiencing high rates of default and foreclosure. 
Clearly, certain populations and areas within our State are 
targets of faulty lending practices.
    Although most of us know that this is not a simple problem 
that a quick fix will solve, foreclosures crush a family's 
dream for economic stability and success. If large numbers of 
families are only achieving homeownership for a short period of 
time, our policies are misguided. All those who want to enter 
the ranks of homeowners should not only have a fair opportunity 
to do so, but also the ability to remain there.
    And so I take this opportunity once again to thank 
Chairwoman Carolyn Maloney for being here to listen to the 
recommendations not only that the State and the City Government 
can provide to us, but those who are on the ground, facing the 
pain and the struggle that so many hard-working families are 
suffering, today, in New York City, in our Nation, the most 
powerful, richest country in the world, robbing these families 
of their dreams. That's shameful, and we need to act. Thank 
you.
    Chairwoman Maloney. Thank you, so much, Nydia, for speaking 
so eloquently on the American dream and the assault that it is 
under.
    We are very fortunate to be joined by my good friend and 
colleague on the Financial Services Committee, Gregory Meeks, 
from the great Borough of Queens.
    Mr. Meeks. Thank you, Madam Chairwoman, and I want to thank 
you for holding this timely hearing on this issue, which is 
particularly alarming to my constituents and deeply concerning 
for millions of Americans across this Nation.
    I mean, it is very timely, and I just want to compliment 
you on all of the work that you do on this committee. I am 
having the opportunity to watch you operate, and I just wish 
that everyone in New York would tune in sometimes when you're 
doing your hearings, on C-SPAN, and see what a great job that 
you are doing and how focused you are, particularly on this 
issue.
    And likewise, I want to thank my colleague, Nydia 
Velazquez, who makes us all proud. I mean, I couldn't agree 
more with her statements. She is chairing the Small Business 
Committee, as well as, you know, working on the Housing 
Subcommittee of this great committee. And, I always just want 
to take the time to take my hats off to both of you strong, 
strong, strong advocates here in New York.
    The 6th Congressional District has been one of the hardest 
hit communities in New York with the crisis in subprime 
mortgage lending. In the next 2 years, it is estimated that 
91,000 families across the State will be at risk of 
foreclosures. In the New York Metropolitan Area alone, an 
estimated 53,000 families will see their mortgages reset to 
onerous rates.
    The foreclosure rate in my district is up 90 percent over 
last year. This is predicted to continue as subprime adjustable 
rate mortgages from 1 to 3 years continue to reset to their 
higher level. These are, indeed, astronomical figures.
    But, when I see the faces of constituents who are 
confronting financial ruin because they can no longer sustain 
the payments on their homes, I see something much more jarring 
than numbers. I see the American dream that Nydia Velazquez was 
talking about slipping away from them, and the pain that comes 
with that loss.
    It isn't just an individual pain. The entire community 
becomes at risk in the form of lost tax revenue, at the cost of 
securing abandoned properties, and preventing blight. Everyone 
suffers.
    My constituents, and indeed all New Yorkers, will 
experience some relief with the mortgage provisions of the 
economic stimulus package. But long term, much more is needed.
    Raising the maximum size of mortgages that Fannie Mae and 
Freddie Mac can purchase in markets as a security from $417,000 
to as high as $729,000 is critical to the expensive States like 
New York.
    However, our challenge today is to determine what else can 
we do to stop this hemorrhaging before our communities fall too 
deep into an economic downturn, the likes of which our Nation 
has not seen since the Great Depression.
    The subprime loan numbers in southeastern Queens are 
staggering. As of October, in the Jamaica and Hollis section of 
Queens, part of my district, there are over 609 foreclosure 
filings for two- to four-family properties in 2007. That's up 
from 223 in all of 2004.
    And a New York University study from 2005 reveals that for 
the Jamaica/Hollis community, the proportion of subprime loans 
for homes purchased has surged to 51.8 percent, ranked number 
two in New York City, almost 6 times the rate it was in 2003, 
when it was only 9.3 percent.
    Sadly, African Americans and Hispanics are 
disproportionately represented in the subprime market. The 
racial disparity between whites and minorities actually 
increases as incomes rise. So, this is not just on a poor 
level. But, as incomes rise we see the greater disparity.
    In trying to attain the American dream of becoming a 
homeowner, many minorities have fallen prey to high interest 
rates, balloon payments, and excessive fees and other predatory 
lending practices. What is most disturbing about this reality 
is the fact that a majority of subprime borrowers would have 
qualified for conventional prime rate loans.
    According to a Wall Street Journal study, 55 percent of 
subprime borrowers had credit scores that made them eligible 
for a conventional prime loan in 2005. By the end of last year, 
that percentage was up to 61 percent.
    Now, those who could have had prime loans are struggling to 
stay afloat and, because of predatory practices, they have lost 
the financial upper hand. Today, I'm especially focused on 
exploring what we can do to better serve this group of 
individuals.
    I commend my colleagues on this committee, who are working 
very hard with Chairman Barney Frank and Subcommittee 
Chairwoman Carolyn Maloney, for passing the Mortgage Reform and 
Anti-Predatory Lending Act of 2007. The bill includes language 
that prevents a lender from underwriting a loan if the 
borrower's income does not support the monthly payment at every 
interest rate during the life of the loan. The legislation also 
sets forth minimum repayment standards for residential mortgage 
loans and requires creditors to determine, based on verified 
and documented information, that a consumer has a reasonable 
ability to repay the loan according to its terms and all 
applicable taxes, insurance, and assessments.
    While passing this bill is and was an important first step, 
it is simply not enough. We have to continue to educate 
individuals about how to avoid foreclosures and provide 
financial counseling services for those who are in danger of 
losing their homes. The housing crisis and the economic descent 
that comes with it demands that all stakeholders come together 
to help struggling homeowners. The business community needs to 
work with clergy and neighborhood organizations to highlight 
the crisis and offer assistance to people who need help.
    We also must make sure that we begin to give financial 
education to individuals in our schools so that our young 
people and our seniors and our families will know and 
understand and become financially literate. It is something 
that we must do.
    Again, I want to thank our chairwoman for holding this 
hearing, and I look forward to hearing from the panelists, to 
find out how we can work together to ensure that this crisis is 
remedied. I know that the State and the City look forward to 
working with you and the private industry, because if we're 
going to solve this issue, all of us have to come to the table; 
because the truth of the matter is all of us have something to 
lose.
    Thank you, Madam Chairwoman.
    Chairwoman Maloney. Thank you so much, Congressman Meeks, 
for your work on this issue and so many others.
    The City Council has many committees that are challenged 
with subprime lending and have jurisdiction over it. Speaking 
for the City Council today will be Erik Dilan, chairman of the 
Housing and Building Committee. I had the honor of serving with 
his father on the City Council.
    I must point out that we have a 5-minute rule in Congress, 
and we will be enforcing it. Everyone's testimony can be put in 
the record, but we would like to give you 5 minutes to 
summarize your testimony, and at the end of everyone's 
presentation, there will be questions.
    Thank you.

STATEMENT OF THE HONORABLE ERIK MARTIN DILAN, CHAIRMAN, HOUSING 
         AND BUILDING COMMITTEE, NEW YORK CITY COUNCIL

    Mr. Dilan. Thank you, Madam Chairwoman. And I certainly 
understand, as the chair of the committee that probably holds 
the record for the longest hearings, so I hope to be shorter 
than the 5-minute rule.
    Good morning. My name is Erik Martin Dilan, and I am the 
chairman of the City Council's Committee on Housing and 
Buildings, and I would like at this time to thank the 
committee, Congresswoman Maloney, Congresswoman Velazquez, and 
Congressman Meeks, as well as the full committee chairman, 
Chairman Barney Frank, for convening this hearing and allowing 
me to testify today.
    In November, the Committee on Housing and Buildings held a 
joint hearing with the Council's Consumer Affairs Committee, 
chaired by Council Member Leroy Comrie, entitled, ``The City, 
State, and Federal Response to Subprime Lending and the 
Mortgage Foreclosure Crisis.'' Now briefly, some of the 
recommendations made at the hearing from community members on 
the Federal level were very simple: To enact laws that will 
further regulate the banking industry, in order to prevent 
predatory loans and deceptive practices.
    Someone very simply stated during that testimony that had 
their mortgage broker been their stock broker, they would have 
gone to jail for a very, very long time. So we know this is 
something that the Federal Government can regulate, because 
they are financial markets, even though we're talking about 
homes.
    We would also like the Federal Government to support 
restructuring of loans to clearly reflect what homeowners can 
afford. We'd also like to see the prohibiting of lending 
without the borrower's ability to repay--common sense; to 
restrict loan flipping; to mandate homeowner education and 
counseling for anyone entering into legitimate subprime loans, 
specifically seniors, because we have seen many seniors 
refinance their homes, many of them having full equity, and 
they have lost that upon refinancing; conduct anonymous testing 
of practices of brokers, realtors, attorneys, and lenders that 
are originating the lion's share of bad loans. And, this 
includes to fine, prosecute, and shut down the one-stop shops 
engaging in unscrupulous and illegal practices, perpetuating 
foreclosure rescue scams.
    We'd like to see a strengthened regulation against 
investors profiting from the bundling and purchase of predatory 
loans that are stripping owners of their wealth. These are some 
of the things that you mentioned in your opening.
    And then, in addition, we would like to see Federal 
legislation empower States' attorneys general. We see that many 
of the banks are hiding behind Federal laws, not giving the 
States' attorneys general the ability to prosecute fraud.
    And then, in the event that foreclosure can't be prevented 
by any Federal, State, or City regulation, we'd like to see the 
ability for banks--and I know my Congresswoman is very familiar 
with this, because she started a similar program in my 
district--we'd like to see the banks be able to receive CRA tax 
credit to banks that do give foreclosed homes, to have to re-
sell the foreclosed homes to returning veterans. How that gets 
structured, I don't know, but I know it is a program that has 
worked well in my district because of Congresswoman Velazquez's 
leadership.
    You mentioned in your opening, Madam Chairwoman, but the 
City Council agrees that there should be an increase in the cap 
on FHA loans. The current caps do very little to capture the 
high cost loans that have been originated here in New York 
City.
    And finally, the legislation, again, should better protect 
seniors who have already seen a substantial loss of equity in 
their homes.
    Now, just to add, and it's not part of my testimony, but I 
believe it's important enough to add in, I had a meeting with 
my local assembly member this past Friday, Assemblyman Darryl 
Towns, who chairs the Banking Committee on the State level. And 
part of his legislative package will include a code of conduct 
for appraisers. I think many appraisers have not been discussed 
on any level, and some appraisers wrongfully over-appraise the 
values of some of the homes that are not really real. So we'd 
like to, at least on the State level, we know they're going to 
strive to do that. We'd like to see that on the Federal level, 
as well.
    Just recently here in the City, a colleague of mine, 
Council Member Lew Fidler, had come up with the initiative--oh, 
I broke my promise.
    Chairwoman Maloney. Let's hear that initiative, and then we 
have to call time.
    Mr. Dilan. Okay, and I'll call time.
    The initiative was called the ``Center for New York City,'' 
that has been now a Council and administration initiative. This 
will provide major funding for the not-for-profits that will 
help the general public get out of bad loans.
    So, with that, I have a lot of statistical data that is in 
my testimony. I'm sure that the information you have is 
probably much better, but I'd like to submit that for the 
record, and I thank you for your time.
    [The prepared statement of Mr. Dilan can be found on page 
47 of the appendix.]
    Chairwoman Maloney. I want to thank you for your testimony, 
for being here today, and for your hard work.
    We will now hear from Jane Azia, director of non-depository 
institutions and consumer protection for the New York State 
Banking Department. Thank you, Jane, and thank you, 
superintendent, for all of the work and really creative 
initiatives that you have taken. And your new initiative, I 
think, is just absolutely terrific, Operation Protect Your 
Home, to have hands-on help. Thank you for being here.

 STATEMENT OF JANE AZIA, DIRECTOR, NON-DEPOSITORY INSTITUTIONS 
   AND CONSUMER PROTECTION, NEW YORK STATE BANKING DEPARTMENT

    Ms. Azia. Thank you, Madam Chairwoman, and the committee 
for the opportunity testify today.
    New York State is hit hard by the mortgage crisis. New York 
City is especially hard hit, with 52 percent of foreclosure 
filings in New York City, and 40 percent of those in Brooklyn 
and Queens. And, as Congressman Meeks pointed out, there is a 
disproportionate impact on those minority communities. For 
every one borrower in a non-minority community who has a 
subprime loan, there are two in minority communities. So, this 
is a severe problem.
    I would like to focus on some of the State initiatives that 
we have been undertaking. This is a priority for the Governor 
and for the Banking Department. Soon after taking office, 
Governor Spitzer created the HALT Task Force, to halt abusive 
lending transactions. We have had several summits through the 
State to bring together community groups, borrowers, government 
officials, and industry to discuss issues affecting different 
geographic areas and solutions.
    One of the areas that we have focused most on are loan 
modifications. It's important to put borrowers in places with 
affordable loans that they can sustain over the long term. And 
we have been very active on two fronts:
    First, we have been working with a group of State attorneys 
general and banking departments, particularly the North 
Carolina Banking Department and the Conference of State Bank 
Supervisors. We have met with loan servicers, over 90 percent 
of the industry, and got commitments from them that they were 
committed to long-term modifications where borrowers have the 
ability and desire to pay.
    Yet, we requested the data to support these claims. And 
just last week, we issued a report of our findings, looking at 
the month of October. And, this report had some very 
interesting results. The key findings were:
    The good news. Servicers are increasing their level of loan 
modification and home retention efforts, but these efforts fall 
far short of the need. At the end of October, 45 percent of 
loss mitigation efforts in process were directed to loan 
modifications. This is in contrast to mortgages closed in 
October, where only 9 percent were loan modifications.
    The bad news is that payment resets on hybrid adjustable 
rate mortgages are not a driving force in foreclosures. A 
significant percentage of subprime adjustable rate loans are 
delinquent before they ever experience payment shock. This 
reflects weak underwriting or origination fraud. Thirty-two 
percent of subprime ARMs and Alt-A loans scheduled to reset in 
2008 and 2009 are already delinquent by more than 30 days; 20 
percent of loans that are scheduled to reset in the third 
quarter of 2009 are already delinquent.
    Another key finding is that 7 out of 10 seriously 
delinquent borrowers are not currently on track for any loss 
mitigation option.
    And finally, the refinance option, which had saved 
borrowers in the past, has nearly evaporated.
    The State Working Group intends to put out monthly reports 
showing how we perceive going forward. But one unfortunate fact 
is that of the major loan servicers, only 13 contributed data 
to the report. The remaining national banks did not do so. And, 
we wrote to the Comptroller of the Currency, and his response 
was that to do so would provide inconsistent data. Well, we 
don't believe that is the case, and we urge action to encourage 
cooperation by the national banks and the Federal regulators. 
The forms that we used were developed in collaboration with 
Federal regulators, lenders, and servicers. These forms are 
short, they're not burdensome, and we believe that it is 
important to get full information out to the public.
    Our other initiative with respect to loan modifications is 
at the grassroots local level. We have teamed up with State 
officials and State legislators, housing counselors, and 
community groups and lenders to schedule forums here in New 
York City that will take place February 23rd and 24th and the 
following weekend, March 1st and 2nd, to bring borrowers 
together with loan servicers to hopefully work out 
modifications where possible.
    The State is also looking at legislative proposals, many of 
which contain ideas similar to what was in the Assembly's bill, 
and that would require protections for both all borrowers, as 
well as those who are in high cost loans.
    I also think there's a greater role that the Federal 
Government could play in this area. As I mentioned, we were 
disappointed with the OCC's response to our request for data, 
and we feel that this should not be a turf issue. There are 
also legislative reforms that are needed, both with respect to 
Bankruptcy Code, tax relief, and affordable housing.
    Chairwoman Maloney. Your time is up. Can you summarize 
briefly? Are you finished?
    Ms. Azia. I am finished.
    Chairwoman Maloney. Okay, great. Thank you so much.
    Ms. Azia. Thank you.
    [The prepared statement of Ms. Azia can be found on page 34 
of the appendix.]
    Chairwoman Maloney. We now have Mr. Kieran P. Quinn, 
chairman of the Mortgage Bankers Association, and he is 
speaking on behalf of the HOPE NOW Alliance.
    Thank you for being here.

   STATEMENT OF KIERAN P. QUINN, CHAIRMAN, MORTGAGE BANKERS 
        ASSOCIATION, ON BEHALF OF THE HOPE NOW ALLIANCE

    Mr. Quinn. Thank you. Thank you for the opportunity to 
appear before you on behalf of the Mortgage Bankers Association 
and the HOPE NOW Alliance to discuss both the mortgage market 
and how we are helping homeowners.
    HOPE NOW is a broad-based collaboration between counselors, 
lenders, investors, and trade associations, and is achieving 
real results in helping people avoid foreclosure. Our task is 
two-fold:
    We want to increase the number of delinquent borrowers who 
respond to our efforts to contact them and create a streamlined 
system to help borrowers in differing circumstances. The most 
significant barrier we face in helping consumers in an historic 
and persistent reluctance of struggling borrowers to reply to 
or contact their servicer for help. With every passing week 
without contact from a delinquent borrower, fewer options are 
available to a homeowner.
    We understand it is human nature to want to avoid the 
conversation with a lender, especially if you are behind on 
your payments. That is why we are working on innovative ways of 
reaching out to people, three of which I'd like to talk about 
this morning.
    First, servicers began a monthly direct mail outreach 
campaign to at-risk borrowers. This direct mail effort on the 
HOPE NOW letterhead--not on ours--is in addition to the 
thousands of letters and telephone contacts made by individual 
servicers to their own customers. Over the last 3 months alone 
we sent out over half-a-million letters to at-risk homeowners 
who had not contacted their servicers. This third party contact 
has already increased borrower response rates.
    The second tool we are using is the Homeowner's HOPE 
Hotline--888-995-HOPE. This hotline directly connects 
homeowners with trained counselors. This counseling is free and 
it is offered in English and in Spanish.
    Counselors have direct access to servicers through single 
points of entry specially designed for this effort, and to help 
advise the consumer and act as his advocate as he goes through 
this process.
    Third, we have undertaken a media campaign to promote the 
hotline. For example, HOPE NOW has created a series of Public 
Service Announcements with very effective and moving messages 
illustrating the real world impact a foreclosure can have on a 
family, and urging borrowers to call 888-995-HOPE, especially 
if they find themselves in trouble.
    Public officials can help us spread the word. Thirty-eight 
mayors recently worked with the MBA to produce Public Service 
Announcements promoting the hotline. Hearings such as this are 
perfect to help us increase the awareness of the hotline and 
encourage more people to call.
    All of these methods are having results. The hotline 
received over a quarter of a million calls in 2007, and this 
volume is increasing. In December alone, there were over 90,000 
calls, producing over 15,000 counseling sessions. In New York, 
almost 4,000 New York homeowners were counseled through the 
hotline last year. My written testimony goes into much greater 
detail, detailing these results.
    The second challenge we have is to ensure that we have the 
tools available to help borrowers in the most effective way 
possible. We have worked with the American Securitization Forum 
to create a framework that allows servicers to modify the 
securitized loans you were talking about this morning. The 
focus of the effort has been to identify different categories 
of subprime hybrid ARM borrowers who can benefit from work out 
solutions catered to their situation. The key is to find 
solutions which help borrowers but do not violate existing 
agreements with investors who now own the securities containing 
these loans.
    The ASF framework covers securitized subprime adjustable 
rate mortgages--the 2/28s and the 3/27s. The framework provides 
solutions for homeowners who qualify for one of three different 
types of help: Refinancing, modification, or other loss 
mitigation efforts.
    Now, I'm a native New Yorker who grew up up in Stuyvesant 
Town, so I have some more things to say about New York, where 
loan modifications and repayments plans are continuing to 
increase. Generally speaking, we are experiencing fewer loan 
problems and delinquencies than the national average. 
Nevertheless, there are a significant number of homeowners who 
need assistance.
    For example, in November, we counseled 495 New Yorkers. It 
grew in December to 654. And last month, we helped 785 New 
Yorkers with counseling.
    Loan modifications in New York by HOPE NOW servicers 
increased 138 percent between the first and fourth quarters of 
2007, and repayment plans increased 27 percent during that 
timeframe. We believe the upward trend in counseling, the key 
aspect, loan modifications, and repayment plans will continue, 
and homeowners will receive the help they need.
    It is my number one priority, and the number one priority 
of the member companies of the Mortgage Bankers Association to 
help people stay out of foreclosure and stay in their home. 
Thank you.
    [The prepared statement of Mr. Quinn can be found on page 
70 of the appendix.]
    Chairwoman Maloney. Thank you. We will now hear from Sarah 
Gerecke, the chief executive officer of the Neighborhood 
Housing Services of New York City. She is on the front line 
working with the pain and suffering of homeowners who are 
losing their homes. She has been hard working at the 
neighborhood level, and we want to hear what is happening. 
Thank you for being here.

     STATEMENT OF SARAH GERECKE, CHIEF EXECUTIVE OFFICER, 
         NEIGHBORHOOD HOUSING SERVICES OF NEW YORK CITY

    Ms. Gerecke. Thank you for having me. And, I want to thank 
all of the representatives here for their hard work and 
successful efforts in bringing attention and, I know, solutions 
to this problem.
    My name is Sarah Gerecke, and I am the CEO of Neighborhood 
Housing Services of New York City. Last year, we had 2,000 
families come to us for help in paying their mortgage and 
preventing foreclosure.
    The mortgage crisis is causing great damage to families and 
to neighborhoods in New York City. The damage to families I 
don't think is fully understood.
    The families who walk in have begun abusing their charge 
cards, often as Congressman Meeks said, when their credit was 
good to begin with, but they find they can't keep up with the 
loan. They have taken on two and three jobs. A lot of times 
they're leaving their children unsupervised.
    And, if they do lose the home, there is nowhere for them to 
go in New York City, where our rental vacancy rate is still 
around 3 percent and where landlords, frankly, look for 
satisfactory credit and don't want to see a bankruptcy or 
foreclosure in order to rent an alternative apartment.
    But, the collateral damage to neighborhoods is awful, too. 
Most homes here, as you know, are two- to four-family homes, 
and the rental families are evicted if the mortgage is 
foreclosed.
    Rescue scams are rampant. There are blocks in Bedford 
Stuyvesant, in South Ozone Park, and in Williamsbridge, where 
more than half of the homes on a single block have 
unsustainable loans.
    You see signs of deferred maintenance on blocks that used 
to be spotless, blocks where NHS has worked for decades to 
bring them back from the horrors of the 1970's. We're seeing 
graffiti now, abandonment, foreclosures.
    If you are the neighbor with a prime loan, not only is your 
home devalued, but you wonder why you remain. You wonder if 
your children are safe going past the vacant house down the 
street.
    Investors are buying properties and speculators are very 
active, filling single-family homes illegally with 10 or more 
single adults who rent rooms or beds. This happened down the 
street from me. Infill construction sites are abandoned. 
Commercial businesses are closing shop.
    The convergence of these New York City conditions has a 
major dampening effect on the entire economy. I know 
Congresswoman Velazquez mentioned the Joint Economic 
Committee's data.
    I think the report released by the New York Conference of 
Mayors is even worse, estimating that the New York City 
Metropolitan area faces $10 billion in 2008 in losses relating 
to the mortgage crisis. That's the worst of any city it 
studied.
    Your hearing today will bring recognition and resources, I 
hope, to stabilize neighborhoods. Federal tools are invaluable. 
And, first and foremost, I want to thank each of you for your 
support for the Neighborhood Reinvestment Corporation 
appropriation, doing business as NeighborWorks America. NHS 
received support for counseling, and we've just applied for 
additional counseling resources that you appropriated and were 
passed in December for $180 million total.
    Chairwoman Maloney. Well, we hope you will be successful in 
that, and we'll certainly support it.
    But right now, your time is up. Could you summarize, 
please?
    Ms. Gerecke. Sure. I'm sorry.
    We urge additional support for capacity building for 
counselors, greater consumer protection, and flexible Federal 
funding for innovative programs that can help us.
    Thank you.
    [The prepared statement of Ms. Gerecke can be found on page 
55 of the appendix.]
    Chairwoman Maloney. Thank you, so much.
    And now, we will hear from Josh Zinner, who is the co-
director of the Neighborhood Economic Development Advocacy 
Project, also working at the neighborhood level, helping people 
stay in their homes. Thank you for your hard work and for being 
here today.

 STATEMENT OF JOSH ZINNER, CO-DIRECTOR, NEIGHBORHOOD ECONOMIC 
                  DEVELOPMENT ADVOCACY PROJECT

    Mr. Zinner. Thank you, Madam Chairwoman. And thank you, 
Congresswoman Velazquez and Congressman Meeks, for--
particularly for your testimony. I had come here to testify in 
part about the situation on the ground in New York City, and I 
think you have all done such an eloquent job of describing the 
scope of the problem that, given the time, I'll jump right into 
some of the possible solutions.
    I do want to mention a couple of points. One is that I 
can't overstate enough the responsibility that the secondary 
market, and particularly Wall Street investment banks, have for 
this fiasco. The securitization of subprime mortgages has 
provided easy liquidity to the subprime market and for abusive 
lenders who are doing loans that were unaffordable, that didn't 
have benefit to borrowers. It was so profitable to make 
unsustainable loans that the investment banks were actually 
marketing products such as ``no doc'' loans and piggyback 
loans, payment option, adjustable rate mortgages that were not 
sustainable and not advantageous to borrowers that mortgage 
lenders were actively and aggressively pushing on borrowers at 
the neighborhood level, which created huge profits on Wall 
Street.
    There was no incentive at any level to make sustainable, 
responsible loans. Mortgage brokers were getting big fees for 
inducing borrowers into loans based on misrepresentation. And 
lenders were selling their loans into the secondary market 
regardless of their viability, and everybody was making a 
killing. So, it is time now to create some accountability in 
the secondary market and to change the incentives.
    The Federal regulators and especially the Federal Reserve 
was asleep at the wheel, I think with a blind faith in the 
markets as a corrective. But of course, because the incentives 
were perverse, the market did not correct itself, creating this 
crisis.
    As far as the mortgage servicers go, I think that loan 
modifications are obviously a key to helping borrowers out of 
foreclosure. And, there has been plenty of testimony about the 
scope of the foreclosure problem. Millions are facing 
foreclosure. But, there have been no signs that voluntary 
actions alone by servicers are going to solve the problem.
    So, while I laud any initiatives by the industry to modify 
loans, and I hope that helps to solve the problem, I want to 
stress that it cannot alone solve the problem. And, I want to 
state that the Bush-Paulson plan, which really at most is only 
going to help 3 percent of borrowers at risk of foreclosure, is 
not nearly the answer.
    So, I call on Congress to really push the industry to find 
a way to change the incentives so that servicers are offering 
loan modifications that are not only better for homeowners but 
better for investors.
    I'm going to run through, because I know I'm running out of 
time, some of the policy recommendations that we have. And 
again, if there are questions more about neighborhood impacts 
or the civil rights implications here, I'm happy to answer 
them.
    We strongly support House Bill 3609 to change the 
Bankruptcy Code. It goes without saying this is a sensible, 
simple, straightforward emergency fix that would save more than 
600,000 homes. So, I think I speak for the advocacy community 
as a whole in New York State, or for many people, that this is 
sort of a no-brainer fix that will save homes.
    We also favor a very strong preventative bill and we do 
laud House Bill 3915, but we call on the Congress to pass a 
bill that is more in line with the bill that Senator Dodd has 
introduced in the Senate, which does have stronger protections 
in several areas, including stronger prohibitions to prevent 
steering of borrowers into higher cost loans on the basis of 
race, has a wider scope of protection of ability to pay 
provisions, and in particular, widens assignee liability, which 
is critical--absolutely critical--for holding Wall Street 
accountable for the loans that they buy and for changing the 
incentives in this system.
    Finally, I want to emphasize, as my time is running out, 
that remediation--you know, the bankruptcy fix is critical, but 
remediation efforts are needed on the Federal level and on the 
State level to fill gaps. I mean, this is absolutely critical 
to halt the bleeding from the foreclosure crisis.
    There is a big problem, in that there is not a secondary 
market for loans that come out of rescue programs, for 
borrowers who are more than 60 days delinquent. New York and 
Massachusetts have started loan funds that are promising, but 
that are hamstrung because the requirements are less than 60 
days delinquent in order for the loans to be made--I'll close.
    Chairwoman Maloney. You'll have to sum it up.
    Mr. Zinner. I'll sum it up.
    And this needs to be fixed. You know, the bottom line is 
that borrowers come in later in the process, and so these 
programs have been able to close on very few refinance loans.
    So, we welcome the FHA reform, but I do call on Congress to 
expand FHA reform to look for ways to create some flexibility 
in the secondary market so that FHA temporarily can guarantee 
loans that come out of special programs that are refinance 
loans that are for borrowers who are more than 60 days 
delinquent, and this is critical.
    And finally, we call on Congress to expand funding--we laud 
Congress for expanding funding for loan counseling, but also 
funding needs to be expanded for legal services programs around 
the country that represent borrowers who are in foreclosure. 
This is critical, again.
    Chairwoman Maloney. Those are all good points.
    Mr. Zinner. Thank you very much.
    [The prepared statement of Mr. Zinner can be found on page 
82 of the appendix.]
    Chairwoman Maloney. We can recognize you later, but we have 
to stick to the 5-minute rule.
    I'm going to ask one brief question, and then recognize my 
colleagues.
    In response to the testimony from the Superintendent of 
Banks' office, Ms. Azia, you said that the data collected by 
the States show that the reset is not the only gateway to 
subprime loan foreclosure, and many subprime borrowers, the 
States found, are delinquent before the reset. We were under 
the impression that when you hit the reset, that's when the 
foreclosure happens. So, this is extremely interesting.
    And, what are your conclusions from this data? Are we in 
for an increased rate of foreclosure? Because a lot of the 
estimates were based on the resets that are coming up this year 
and next year. But, you're saying it was before they even get 
to the reset they're foreclosing--
    Ms. Azia. Yes.
    Chairwoman Maloney. --so it looks far worse than the 
predictions that we have heard.
    So, if you could, just elaborate, please.
    Ms. Azia. Well, what we're saying is that resets are only 
part of the problem and are only part of the solution, and that 
long-term modifications based on resets are missing huge chunks 
of the population, that over 30 percent of loans that are not 
even reset are already delinquent, and that these people need 
to be addressed. Otherwise, we will continue to have real 
problems.
    Chairwoman Maloney. Thank you. Congresswoman Velazquez is 
now recognized for 5 minutes.
    Ms. Velazquez. Thank you, Chairwoman Maloney.
    I would like to address my first question to Ms. Azia and 
Mr. Quinn, and also Sarah, if you could come respond.
    What can we do to incentivize services to engage in mass 
modification of loans that could save thousands of New Yorkers 
from losing their homes?
    Ms. Azia. Well, I mean, services already have at the top 
levels the commitments to modify loans. I think, you know, they 
have expressed that quite clearly. But, it's not clear that 
they have the staff and the capacity themselves to engage in 
the full modifications.
    And while at some levels we hear that their agreements with 
the investor community have been relaxed, other occasions we 
hear that those are still impediments. So, those issues need to 
be addressed.
    Ms. Velazquez. Mr. Quinn.
    Mr. Quinn. May I give the phone number one more time? It is 
888-995-HOPE.
    We cover, in the HOPE NOW Alliance, 90 percent of the 
servicers who service the subprime adjustable loans. They are 
there, at the ready. We have increased the number of people 
just answering the calls from roughly 64 to almost 400, over 
the course of 2007.
    The NeighborWorks organization has 240 locations around the 
country. The increased funds for counseling that Congress 
recently passed are enabling us to expand that network.
    And the beauty of a counselor is that he then becomes not 
just a counselor for the homeowner, but he is also the 
homeowners' advocate before the servicer. He has the hotline. 
He has the way to go.
    Ms. Velazquez. Okay. But so, in that statement that you're 
providing us, are you saying that modification of at-risk loans 
is taking place among the Mortgage Bankers Association.
    Mr. Quinn. As a trade association, we represent many 
members.
    Ms. Velazquez. Sure.
    Mr. Quinn. Our evidence, covering over 33 million loans 
that our servicers take care of, modified 230,000 loans in the 
third quarter alone. And, this was 2 months before the Paulson-
Bush plan was announced.
    And, with that publicity and all, we made every major 
newspaper in this country. The word has gotten out that 
homeowners should call their servicer.
    Ms. Velazquez. Okay. Let me take this opportunity and ask 
you how expensive it has been for your members to provide the 
counseling, to do the outreach, and to have the staff to deal 
with borrowers who are at risk of losing their homes.
    Mr. Quinn. It's expensive for our organizations, but it's 
free for the homeowners and--
    Ms. Velazquez. I understand.
    Mr. Quinn. --and each servicer is being asked to write a 
check as they go along.
    Ms. Velazquez. So, do you think that housing counseling 
should be a part of any legislation, in terms of being 
mandatory? Or for--or to have opt-out provisions.
    Mr. Quinn. Illinois passed the mandatory counseling, and I 
think the State revolted against it. We have tried, and we 
spent a lot of money last year, to improve our home loan 
learning center. In the late fall, we had a million hits a 
month for people trying to get more education before they went 
for a home.
    The literacy programs that Congressman Meeks talked about, 
we desperately need to upgrade that, all across the country. I 
don't like mandatory counseling, personally.
    Ms. Velazquez. I know that. I know. I am the one who has an 
amendment advocating for it, but you also mention the fact that 
borrowers are not, for whatever reason, reaching out to housing 
counseling providers or to those banks where they are--that are 
the originators, because they are embarrassed, because they are 
postponing it, for whatever reason.
    So, if a borrower is delinquent the first month or second 
month, why is it so bad for the industry to have a mandatory 
provision that will get the lender to notify a housing 
counseling provider to contact that borrower?
    Mr. Quinn. Well, we have sent the notices out to the 
borrowers. They need to take some initiative to call the 
counselor to prepare their financial information. It is the 
most critical tool we--
    Ms. Velazquez. I know that I'm not going--
    Mr. Quinn. --need to help them--
    Ms. Velazquez. --to convince you. Let's go with--
    Chairwoman Maloney. We have one more minute.
    Ms. Velazquez. --with Mr. Zinner.
    Chairwoman Maloney. One more minute.
    Ms. Velazquez. Yes, okay.
    Mr. Zinner. If I could just speak for a minute on your 
question of how to change the incentives with servicers to 
promote more loan modifications? I have a lot to say on this 
topic, but let me be brief and say one thing. I think one of 
the problems even taking the servicers at face value that they 
do want to do more loan modifications, and I think that there 
is a need to change the culture of the mortgage servicers in 
that area.
    But, you know, because of the way these loans have been 
securitized and, you know, they've been sold off in slices to 
different grades of investors, you know, there are ``A'' 
investors who get paid first out of the trust, and then there 
are slices at the bottom that only get paid when the investors 
above get paid first.
    So, you know, the investor--the servicers say that they 
fear legal liability from investors if they engage in too many 
loan modifications. You know, part of the problem is that 
modifications might be good for investors with the lower 
slices, but whereas foreclosure is better for the investors 
with the top slicers. The legal obligation of the servicer is 
to act in the best interests of the investors, as a whole.
    So, I think it would be very helpful if there was guidance 
received from the top, possibly from the SEC. But, if there 
were Federal guidance that sort of could assure mortgage 
servicers that if they're engaging in modifications that are in 
the best interests of the--to maximize the return to the trust 
as a whole that they don't have to fear liability from certain 
slices of investors. I think this is critical.
    Ms. Velazquez. Thank you.
    Chairwoman Maloney. Thank you. I'll make one comment and I 
have a brief question, and then recognize my colleague Gregory 
Meeks.
    I want to respond to one of the comments of Mr. Zinner, 
where he said that we need to negotiate and help people stay in 
their homes, but what do we do for the people who have already 
lost their homes? They need help right now, and what are we 
doing now?
    One suggestion that I have heard recently is a revival of 
the Homeowners Loan Corporation. This agency was created during 
the Depression to manage defaulting mortgages in that crisis. 
I'd like to hear what your thoughts are about this.
    By the way, at the Joint Economic Committee, we have heard 
some testimony from some economists who believe that the amount 
of people who will lose their homes during this crisis will be 
even greater than those who lost their homes during the Great 
Depression. And, the Homeowners Loan Corporation bought 
defaulting mortgages during the Depression for the Government, 
with backed bonds at lower rates.
    And does the fact that the subprime mortgages are 
securitized now make the efforts of the Homeowners Loan 
Corporation more difficult than it was in the 1930's, to help 
in this situation?
    Any ideas of any of the panelists on this?
    Ms. Gerecke. I'll make one comment. I'm certainly not an 
expert on that proposal. But, I do want to say that the problem 
of families who have faced foreclosure already, and one of the 
limitations of the voluntary act, is that there is no ability 
to be geographically targeted with the solution. So, if you 
have a particular block where you have homeowners facing 
different levels of problem, it's very difficult to sit back 
and wait to receive the call and see which ones fit into which 
buckets.
    So, to that extent, a centralized coordinated solution, I 
think, would stop the secondary and tertiary economic 
spillovers that are happening right now, and harm that's being 
done to the broader community.
    Mr. Quinn. Our fear is that in just the time it will take 
to put all this in place, we can be modifying 230,000 loans a 
quarter or more.
    We lose $30,000 to $50,000 at a minimum every time we 
foreclose on a home. We have every incentive to modify the 
loan. We just want the people to get in touch with us.
    Mr. Zinner. Yes, I would say again--excuse me. Again, we 
strongly support any efforts by the industry to improve the 
rate of modifications, but it can't be a replacement for 
effective Federal action.
    And we do strongly support the initiatives to create a 
Federal fund. I think Representative Baca and Senator Dodd are 
both talking about such an initiative. As Ms. Gerecke said, 
there is a potential problem in that it doesn't give you 
necessarily the ability to respond on the local level. It would 
be sort of a top-down approach, because only borrowers whose 
mortgages were sold into this fund would get assistance.
    So, while we strongly support this as a very appropriate, 
effective, and strong Federal response, there is also a need at 
local levels to have complementary programs. And, this is where 
it's critical, as I stated in my testimony, to have more 
flexibility possibly in FHA to enable those local programs, 
those State programs, to be effective.
    Chairwoman Maloney. We have passed an FHA reform bill that 
is flexible, if we could get it through the Senate. So, that's 
one of our goals.
    And, I'd like now to recognize my colleague and good friend 
Gregory Meeks for 5 minutes.
    Mr. Meeks. Thank you, Madam Chairwoman. And, in my 5 
minutes, just first I should have said when I opened up, is a 
strong thank you to Erik Dilan for the work that he's doing. 
We're in your house. It's good being in your house at the City 
Council and working with my friend and colleague that you 
mentioned in your statement, Leroy Comrie, doing a job focused 
on this.
    I also, Mr. Zinner, want to say thank you to your 
organization. Sarah Ludwig, who works very closely with my 
office, helping my constituents who fall into problems, and 
referring her to people, your agency is doing a great job, and 
I want to make sure you say hello to Sarah for me, and we thank 
you for what you do.
    I also want the record to be clear that we still believe 
that owning a home is the greatest thing that one can do. And 
we understand that the subprime market is a--you know, we don't 
want to throw the whole market out. We want to get rid of those 
predatory lenders, those that take advantage of individuals. 
Because some people, without subprime, would not be able to be 
in a house, period.
    However, we want to make sure that steering is over, and 
all of these illegal and predatory practices don't begin--you 
know, don't continue.
    And so the first thing that, in listening here, I was 
wondering if, in fact, Mr. Zinner, and you and Mr. Quinn, or 
your respective organizations, is there any direct 
communication? When someone comes to you, do you have any 
experience with that, referring to HOPE and back and forth, to 
try to see if there's some synergy there in this market or 
other markets?
    Mr. Zinner. Let me just say that NEDAP does not take direct 
referrals from borrowers. However, I can speak of prior to 
working at NEDAP, I ran the foreclosure prevention project at 
South Brooklyn Legal Services, and we had thousands of calls 
coming in from borrowers who were targeted for subprime abuses.
    And, you know, I want to say historically, and I think I 
can speak for many, many advocates, that historically it has 
been very, very difficult for borrowers and advocates to work 
with servicers. That's not to say that we are not very hopeful 
that those bridges can be opened up, and HOPE NOW is a positive 
development.
    We do have a concern, you know, since we are speaking of 
HOPE NOW, we do think that there's a need to train the 
counselors in the HOPE NOW Alliance, the counselors who are 
working with the Alliance to screen loans for illegalities, 
because borrowers go straight into loss mitigation without a 
look at whether their loans have illegalities that might create 
defenses to foreclosure. And, when they do sign those 
modification agreements, they waive those defenses.
    So, with that caveat and saying that there is a need to be 
more careful in the screening of these loans, we welcome 
opening up any bridges. Historically, advocates and homeowners 
have had a lot of difficulty dealing with mortgage servicers, 
and it has been a negative experience, but we welcome a change 
in that.
    Mr. Quinn. The HOPE NOW Alliance is an alliance of trade 
associations and neighborhood associations, so we welcome all 
the help we can get in this important endeavor.
    Mr. Meeks. But, I should hope--
    Ms. Gerecke. I just want to add, because we do refer to and 
from the hotline a lot, and we've had experience with it, both 
in improving the levels of service on both sides. On the plus 
side, we find the hotline counselors very helpful in conducting 
triage and providing basic advice. They do refer back to us if 
people need more assistance.
    The work with the servicers, I will say, is uneven. Some, 
we've seen incredible changes over the recent periods of time. 
Often though, within the same organization, you can get very 
different responses from person to person.
    On Friday I was told by my director that he had personally 
placed a call to the nonprofit contact for the servicer about a 
customer, and had left five messages over the course of a week 
that had never been returned. So, I think that they are also 
facing capacity and volume issues that we all have to work 
through.
    But very often, the answer, especially for the early 
payment delinquent that Jane was talking about, the answer is 
we cannot help you with that now. Many of the modifications are 
just forbearances on the interest that may be collected later, 
rather than a full loss mitigation.
    Mr. Meeks. Let me just throw two questions out there real 
quick, before that buzzer goes off.
    One is I am concerned when you have someone who has been 
wronged, and clearly, we can identify a group of individuals 
who have been wronged, as I stated in my testimony. Those 
individuals who were steered into a subprime, when they could 
have had a prime rate, those individuals who had great credit, 
who were paying their mortgage until the rates went up. They 
clearly were wronged.
    I was wondering if there's any focus that the industry, or 
whether we in Government, that we can do at the City and the 
State level, or counseling can do, that can focus on making 
sure that those individuals, that they're restored their credit 
ratings or something of that nature.
    Because the statement is actually correct. Once their 
credit is gone, they probably can't buy another home again in 
their lifetime, which is affecting a generation of people. And, 
it is difficult for them even to rent a decent place when they 
were wronged.
    So, is there any focus on helping those who clearly were 
wronged in this matter?
    And secondly, I think Mr. Quinn indicated that individuals, 
you know, it's hard to get people to come. And, that's correct. 
And, we've appropriated millions of dollars for foreclosure 
prevention counselors.
    And, I was wondering if, in fact--in fact, there was a 
study by Fannie Mae that showed the reason why some people go 
to subprime lenders in the first place is because they are 
afraid to be told ``no'' by others. So, surely, when they're 
foreclosed.
    What other efforts--what else can we do--
    Chairwoman Maloney. The gentleman's time is up, and we 
welcome any responses to his questions.
    Mr. Quinn. It absolutely starts with education. We have to 
get people better prepared when they go for a loan. I was 
blessed when my father worked in a bank, and I knew there was 
only one route for me to go. But, with the change in our 
population coming forward over the next 10 to 15 years, we have 
to have all our programs in multiple languages, and we have to 
get it down into the cities. The awareness that hearings like 
this help to create helps us immensely to get people more 
concerned.
    But I want to get back to your point about the modification 
process or workout process. These processes will leave people 
with the best credit record coming out of this situation. If 
people go into bankruptcy, it is a 7-year blight on their 
record. And, we encourage people to exhaust every remedy 
available to them through the counselors, through the HOPE NOW 
Alliance, before you enter into any kind of bankruptcy action. 
It's going to make the cost of financing for all homeowners go 
up, and we're not sure it's really going to help people that 
they couldn't already be helped through the HOPE NOW Alliance.
    Chairwoman Maloney. Any responses?
    Mr. Dilan. Yes, if I may, I would just like to re-emphasize 
some of the points that I made during my testimony. I think 
it's critical that practices such as one-stop shopping be 
eliminated, where you get your broker, your attorney, and 
everyone that's basically providing the bank with the client. I 
think it should be prohibited that they're all in league with 
each other. I think that the end user should be required to 
have their own attorney and a broker that's separate and apart 
from the bank.
    And I think that practices such as yield spread premiums 
and other fees that serve no benefit to the homeowner should be 
eliminated. It's essentially a kickback for the mortgage broker 
for steering that loan to said bank.
    And again, I would say that this committee, in an unrelated 
matter, should also study the impact on veterans who have their 
loans reset while they are overseas fighting wars, because they 
could be doing a service for this country and lose their home 
when they come back.
    Chairwoman Maloney. I'd like to ask Council Member Dilan 
how is the Council working with the State on Operation Protect 
Your Home or other initiatives? Obviously, one of the problems 
we're hearing is that people don't know where to go to get 
help, and certainly the City Council is the organization, the 
elected body closest to the people.
    How are you working with the State Senators and the Banking 
Department to let people know about Operation Protect Your 
Home?
    Mr. Dilan. We're just beginning. I met last Friday with, as 
I mentioned, Assembly Member Towns, who is the chair of the 
Banking Committee, to come forward with a strategy. I know that 
Senator Malcolm Smith has made this an issue for all of his 
members in the Senate. I've worked with Senator Jeff Klein in 
terms of getting some of the banks to come into communities and 
restructure loans, as well as conversations with the HUD 
Regional Director, Sean Moss, in terms of coming out to the 
community and letting neighborhoods know what the Federal 
packages are and what the Federal advantages are.
    You know, clearly there's still more work for us to do. I 
will be submitting legislation to the Council that, as I said 
in the press conference earlier, that will potentially restrict 
the City from publishing online people's deeds, via the 
Registrar's Office. Right now, that's available to anyone in 
the world with no proof that you are the actual homeowner. 
Those are some of the things that we could do at least to 
prevent fraud.
    And then, as a budget item, I'd like to at least ask my 
colleagues to consider funding specific units for property 
frauds in the five DA's offices.
    Chairwoman Maloney. Well, I want to thank you for your 
initiatives. And, I'd like to ask Mr. Quinn, we hear a great 
deal about the public/private efforts, and workouts, and 
certainly applaud your efforts. But the numbers that we're 
hearing from the State Superintendent's Office and others is 
that they're not happening, that all of these initiatives are 
taking place, yet the connection and the workouts are not 
happening.
    And what more are you doing with HOPE NOW to offer more 
borrowers help? And, do you think it would be helpful if we 
kept statistics on actual success? If servicers are being told 
to reach out, just numbers reported back on how many have 
reached out, how many have negotiated a workout?
    Because, the numbers we're seeing are really horrific. 
Everybody says they're helping, yet when we survey the 
homeowners, the individuals who are losing their homes, they 
say that they weren't aware, that no one is helping them, and 
there is not the reach out.
    And, I'd like to add to it, and have the other panelists 
add to the really startling report that came out from Freddie 
Mac last week, that 57 percent of the borrowers who are paying 
late still don't know that their lenders might offer 
alternatives--57 percent. And, I'm wondering if that is the 
same situation in New York City. Do you think that half of New 
York City residents facing foreclosures still have absolutely 
no idea that there are workout options?
    And again, the idea of having some oversight on what is 
happening. Not only are you reaching out, how many people have 
you reached out to? How many workouts are in the process now to 
help people stay in their homes? Because we are seeing a 
disconnect between what everyone says they're doing and what is 
actually happening to people in helping them stay in their 
homes.
    Mr. Quinn?
    Mr. Quinn. Part of the responsibility of the HOPE NOW 
Alliance is to report actual phone calls received on a monthly 
basis.
    Chairwoman Maloney. On a monthly basis. That's great. So, 
that's part of the plan.
    Mr. Quinn. And, that all took off late November/early 
December. So, you're going to see December--
    Chairwoman Maloney. Great. So then, there's oversight on 
it.
    And my question, do you believe that half of New Yorkers 
are not aware that there are workout options? To our 
panelists--Jane and others?
    Ms. Gerecke. Yes, I absolutely do believe it. I--we see all 
the time that there is a lack of awareness of what the benefits 
of calling a servicer can be, and we view our job to help 
connect the borrower to the servicers.
    Again, going back to the issue of early payment defaults, 
though, when a borrower was told that the loan would be 
affordable and then found out that the one percent teaser rate 
was only good for the first month, and the bill comes in at 
$500 or $700 higher the following month, asking for help from 
the servicer can be a very difficult experience. And, in many 
cases where they have been in contact from the servicer's 
collection department, there is a reluctance to believe that 
now, with a counselor, we can get you into a loss mitigation 
department, we can try to do other things.
    But there isn't a lot of help for people. And I think the 
ones that are in the deepest, or the ones who faced predatory 
or improper practices to begin with are really very reluctant 
or have the negative experience, unfortunately.
    Chairwoman Maloney. What else can Congress do to help with 
the awareness program? We have allocated $180 million. They are 
going to start processing that next week. They are taking 
applications. We certainly urge the neighborhood groups to 
apply, and we certainly want to help you.
    But, what else can Congress do to help with the awareness 
program? I'll ask Jane Azia.
    Ms. Azia. I think individual congressional offices can get 
information out to their constituents about programs. And in 
particular, in New York City, the foreclosure forums that are 
taking place at the end of February and the beginning of March. 
So, I think that's one very important thing.
    But, there's lots of material out there. It's just getting 
it to the borrowers.
    Chairwoman Maloney. Thank you. My time is up. Chairwoman 
Velazquez.
    Ms. Velazquez. Thank you. Mr. Quinn, you say that education 
is paramount, and I agree with you 100 percent. There is no 
doubt that an educated borrower will make a wiser financial 
decision.
    With the sharp increase in financial sophistication, what 
is the industry doing to enhance transparency for borrowers?
    Mr. Quinn. We supported the licensing provision in the 
recent House bill that required education, both up-front and on 
an ongoing basis for everyone who is involved in the loan 
origination business. We have to get our originators and our 
servicers on the same page about how these loans work.
    We focus too much, I think, on getting people into a home. 
This is the American dream that everyone is chasing, and we 
have to focus on keeping people in their home. So, explaining 
the loan programs. We actually would welcome RESPA reform. We 
think the stack of documents that a homeowner faces should go 
from this to about this. And, that would eliminate a lot of the 
confusion and potential hiding of documents.
    Ms. Velazquez. So, you're telling me that when HUD comes 
out with the next RESPA regs, that you are doing to design a 
grassroots mobilization from mortgage brokers to get members to 
oppose it.
    Mr. Quinn. We will support simplification of the mortgage 
process in as many ways as we possibly can, Congresswoman.
    Ms. Velazquez. Okay. Again, what can we do to restore 
confidence and bring transparency to the secondary market?
    In the roundtable that I held 3 weeks ago, specifically the 
president of the Federal Home Loan Bank of New York said that 
some institutions had withdrawn from the secondary market 
unless they were purchasing securities issued by Freddie Mac 
and Fannie Mae.
    Mr. Quinn. You've done the first two things that were 
excellent--the modernization of the FHA. If you go back to 
2000, roughly, FHA had 13 percent of the market, and subprime 
was about 2 percent. If you go to 2006, those numbers were 
exactly the opposite.
    The first-time home buyer, the person who needed the 93, 
the 95, the 97 percent loan, lost his access to FHA. The 
modernization of FHA, which you passed, was the critical first 
step.
    Empowering Fannie Mae and Freddie Mac through higher loan 
limits helps California, New York, Massachusetts, Chicago, and 
so many more places in this country. That was the critical 
second step. And the money you spent for homeownership 
counseling was also critical.
    Ms. Velazquez. Yes, and the issue of transparency.
    Mr. Zinner. Yes, I mean, well, just going back into your 
question about restoring stability, confidence towards the 
secondary market. I think the number one thing that's going to 
do that is strong preventative legislation, you know, such as 
the Frank bill in the House. And, you know--and, as I stated, I 
think there are some improvements in--
    Ms. Velazquez. Senator Dodd.
    Mr. Zinner. --in the Dodd bill. But, what this is going to 
do, you know, I think this is the single most important thing, 
because the secondary market will then know that loans that are 
sold are viable loans. And, this will restore stability and 
integrity to the process, and there will be a secondary market 
that is confident that what they're buying is legitimate, and 
investors will respond accordingly. I think this is critical.
    Ms. Velazquez. Okay. Thank you, very much.
    Ms. Azia. And, if I could just add that New York is 
considering various reforms, needed reforms with respect to 
lending, and it has already implemented some things, like the 
required registration of mortgage loan originators, not just 
the firms, but the actual employees who will be required to be 
registered, and the background check, and comply with ongoing 
education requirements. Because, it's not just the borrower who 
needs to be educated, it's the people in the industry who are 
making these loans.
    But, there needs to be comparable Federal legislation at a 
national level, setting national minimum standards, so that New 
York is not just in the forefront, so that there is a level 
playing field for the whole country of these kind of 
preventative measures.
    Chairwoman Maloney. Thank you. Congressman Meeks.
    Mr. Meeks. Thank you, Madam Chairwoman, and I will be 
quick.
    I think that Mr. Zinner and Mr. Quinn hit on part of what I 
wanted my last questions to be. And that is, you know, what--it 
only takes a few bad apples to taint the whole bunch. And, 
until we get rid of those bad apples, then this whole thing is 
going to be a problem.
    And, the ways that those--the banks and the larger 
mortgagors are at fault, in my estimation, is that you buy the 
whole package without knowing that they're good loans, you 
know, and that there was more attention paid to the quality of 
the loan than looking at the buyers--the mortgagees. Then, you 
would know that this is a bad loan and that would, to some 
degree, I believe, begin to stop some of what's the practice 
that's going on.
    And, I couldn't agree with you more, with the work that 
Nydia has done in strengthening the FHA is absolutely critical, 
because my parents wouldn't have had a home if it wasn't for 
FHA and Veterans--VA loans. That's tremendously important.
    But, the real question I have is just Mr. Zinner's 
recommendation. He made two recommendations, and I ask Mr. 
Quinn what do you think about it? Changing the Bankruptcy Law? 
He said that was number one, changing the Bankruptcy Law.
    I think we all agree about that we need remediation with 
reference to--it's critical, remediation is critical. But, what 
about that? What's your opinion on changing the Bankruptcy Law?
    Mr. Quinn. I'm not in favor of changing the Bankruptcy Law, 
for a couple of reasons. I believe--and I said a minute ago--if 
you exhaust all the remedies available through HOPE NOW 
Alliance, I believe you will be able to effect the modification 
work out repayment plan on your loan, not by going through 
bankruptcy. The bankruptcy will not only cause a blight on your 
credit record for years to come, while a modification won't, it 
will also raise the rate for all borrowers. I don't know the 
exact percentage that are in bankruptcy, whether it is 1, 2, or 
3 percent. You're going to be raising the rate for the other 97 
percent.
    It is something that is critical to our business. The 
reason that mortgages trade at the tightest spreads of any 
financial instrument is because you do have the sanctity of the 
mortgage document. It is a secured document. You control the 
duration risk.
    If you all of a sudden make it an unsecured loan, available 
for a cram down, you are going to raise the borrowing cost for 
all Americans. I believe that the modifications, through the 
HOPE NOW Alliance, will continue to solve this problem.
    Mr. Zinner. I just want to state in response to that, you 
know, again, I think we would certainly support the notion that 
if a borrower can get an affordable modification from his or 
her servicer, that that's the number one option, that makes 
sense.
    But I think we've seen, again and again, and the statistics 
bear it out, that we can't rely on voluntary loan modifications 
from servicers as a solution. So, what's critical about the 
bankruptcy fix, you know, this is an emergency fix, and it 
would be available to borrowers to have exhausted all of their 
remedies.
    And, the critical thing to state is that, in the House 
compromise bill, it's only from already existing mortgages. 
It's not going to affect the mortgage markets, because it's not 
going to affect mortgages that are being originated and then 
sold. It's an emergency fix that's narrowly tailored to 
mortgages that are already out there and that already exist. 
And it's a critical backstop if voluntary modification efforts 
fail.
    Mr. Quinn. To go back to the point you raised a minute ago, 
the number of people who stop making payments long before the 
reset date? Our evidence, and this is over a 38-year study that 
we track on delinquencies, is that in roughly 70 percent of the 
cases, the reason someone loses their home is because they lost 
their job, had a major illness, or they went through a change 
in their marital situation.
    There will be a number of these defaults that are beyond 
the remedies available to a homeowner. And we think that the 
HOPE NOW Alliance will solve those people that are in their 
homes, with an income, that can stay in their home.
    Mr. Zinner. But--
    Mr. Quinn. It will--it will distract--
    Mr. Zinner. But you--
    Mr. Quinn. --and it will add to the cost of other 
mortgages. You've changed the nature of the instrument forever.
    Ms. Velazquez. Will you yield?
    Chairwoman Maloney. Yes, absolutely.
    Ms. Velazquez. Thank you. But we are not assessing here 30 
years of numbers. We are assessing here what is happening to 
New York and families across the country in the last 2 to 3 
years.
    Mr. Quinn. But, you will affect the next 30 years for 
future homeowners.
    Ms. Velazquez. I guess you need a strong message to know 
that we are serious, and that we're going to hold people 
accountable.
    Chairwoman Maloney. Well, as my colleagues know, 
legislation that Mr. Zinner commented about has passed out of 
the Judiciary Committee and is scheduled to go to the Floor of 
Congress for a vote. I predict that it will pass, because of 
the basic fairness argument of the need to keep people in their 
homes. But, why in the world would you allow them to 
renegotiate on their secondary home, their 5th home, their 10th 
home, but not their primary home that can keep many families in 
their homes.
    I would--Speaker Quinn has indicated she needs her room 
back, and we're so pleased to have had time. But, I would like 
to end with one question.
    And that is, what are other creative ways we can keep 
people in their homes? Any new initiatives that we have not 
already talked about?
    I would like to mention one that came into my office. 
Although it would not affect a large group of people, it would 
affect some, and that is the idea that employers should be 
given incentives--whether it's a tax break or any other type of 
incentive--to keep their employees in their homes. They have 
flexibilities in their budgets to allow for this crisis 
situation, to help them stay in their homes. That is one idea 
that a constituent wrote in to me, that I think is a good one, 
and deserves to be explored.
    And so, I ask our panelists to respond to that particular 
idea, and any other idea that you can think of that would help 
us keep people in their homes. Obviously, we have ideas going 
forward to reform the system. But right now, we have a crisis 
in New York and across the country.
    And oftentimes legislators ask me, what is happening in New 
York? What is New York doing to help people stay in their 
homes?
    I congratulate the initiative from the Banking Department, 
but what other ideas do we have, that we can take back to 
Congress?
    Thank you all for your excellent work throughout your 
lives, and for being here today. Thank you.
    Yes?
    Ms. Azia. One idea that we are--that is being proposed at 
the State level are sort of modifications of the foreclosure 
procedures. Last year, we enacted a law that required a 
separate notice to go out at the time of foreclosure, on a 
separate colored piece of paper, that advised the borrower of 
the importance of the situation and to contact a housing 
counselor.
    We have gotten so many responses to that, but it's kind of 
late in the process, because the foreclosure action has already 
commenced. So, being considered at the State level are 
modifications where a lender would be required to send a notice 
prior to foreclosure commencing, advising the borrower of the 
situation, that it's a good idea to see a housing counselor, 
and staying the foreclosure for a set period of time--say 30 
days--in which the borrower and the lender or servicer can 
discuss possible solutions to the situation.
    So, that's one idea at the State level.
    Mr. Quinn. We've encouraged the Congress to allow more 
States to expand their tax exempt bond financing. There are 
several States that have much higher incidents of delinquencies 
and foreclosures--Ohio, Michigan, the places where we've had 
job losses. You're going to see more of it in California. That 
would be a very effective localized tool to expand relief.
    Ms. Gerecke. I want to mention, too, one is the Center for 
New York City Neighborhoods here, that Council Member Dilan and 
Speaker Quinn have launched. I think it's going to show 
tremendous innovation. I think it's very exciting and a 
different way of creating a network.
    The second is we're trying to work through how to intervene 
in the pre-foreclosure stage, trying to avoid some of these--
the investors coming in and buying these homes. And so, we're 
looking at ideas like a nonprofit real estate brokerage and 
other innovations that we think could really matter in the 
process. We're talking to some servicers about that.
    But it's very hard with how we're stretched right now to 
develop the capacity to actually plan for a program innovation 
at this time, to be honest with you.
    Mr. Zinner. I think it's critical to be available to offer 
support to creative State initiatives. And again, I mentioned 
this in my testimony, but I want to reiterate.
    You know, there are many States that are trying to set up 
refinance programs for people at risk of foreclosure. And, if 
successful, these programs could help an enormous number of 
borrowers and prevent them from losing their homes--borrowers 
who are in unaffordable mortgages but would have the ability to 
pay if they were in a fairly priced loan.
    And, for the Federal Government to step up and help to 
create a secondary market for these loans, so that these loan 
programs can flourish, I think, would be a huge contribution 
and would help State initiatives that look to keep borrowers in 
their homes.
    Chairwoman Maloney. Well, thank you so much. Mr. Dilan, 
Council Member, you have the last word. And, thank you for 
having us here in your City Council.
    Mr. Dilan. Oh, thank you, and welcome back to the place 
where you launched your career.
    I would just say that, right now, I don't have anything. 
But, I guess I would--I guess, in my future work, reserve the 
right to share our findings with your committee and my local 
Representative, Congresswoman Velazquez.
    We intend to do more work on this issue, as well as you, 
and I think the best thing for us is just further communication 
on the topic. But, we're also mindful, as a City Council, that 
we can move slightly quicker than Washington but with not the 
same amount of effectiveness.
    But, just keeping that in mind, we recognize that we want 
fairness for all New Yorkers who get a mortgage, but we also 
understand that we're the banking capital of the world, and we 
wouldn't want to do anything that would cause more layoffs in 
the banking industry, because that would certainly diminish our 
tax base here in the City, being as most of these jobs are from 
here.
    So we have to move quickly and strongly, but also carefully 
and collaboratively.
    Chairwoman Maloney. Okay. Thank you, so much. I thank all 
of the panelists.
    I'd like to note that some members were not able to be 
here. They are in Washington, so the record will remain open 
for 30 days for members to submit additional questions to the 
witnesses and to place their responses in the record.
    I thank everyone. The hearing is adjourned.
    [Whereupon, at 12:55 p.m., the hearing was adjourned.]


                            A P P E N D I X



                           February 11, 2008


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