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




 
                  USING FHA FOR HOUSING STABILIZATION
                  AND HOMEOWNERSHIP RETENTION, PART II

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 10, 2008

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-104


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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 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


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 10, 2008...............................................     1
Appendix:
    April 10, 2008...............................................    49

                               WITNESSES
                        Thursday, April 10, 2008

Burrola, Victor, Director, Homeownership Network, National 
  Council of La Raza.............................................    32
Crowley, Sheila, MSW, Ph.D., President, National Low Income 
  Housing Coalition..............................................    29
Fenty, Hon. Adrian M., Mayor, District of Columbia...............     9
Garver, Doug, Executive Director, Ohio Housing Finance Agency, on 
  behalf of the National Council of State Housing Agencies 
  (NCSHA)........................................................    25
Goodman, Hon. Oscar B., Mayor, City of Las Vegas.................    13
Lizarraga, David C., Chairman, United States Hispanic Chamber of 
  Commerce (USHCC)...............................................    27
Menino, Hon. Thomas M., Mayor, City of Boston....................    10
O'Malley, Hon. Martin, Governor, State of Maryland...............     7
Shelton, Hilary O., Director, NAACP Washington Bureau............    31

                                APPENDIX

Prepared statements:
    Bachus, Hon. Spencer.........................................    50
    Carson, Hon. Andre...........................................    54
    Velazquez, Hon. Nydia M......................................    56
    Burrola, Victor..............................................    57
    Crowley, Sheila..............................................    65
    Fenty, Hon. Adrian M.........................................    72
    Garver, Doug.................................................    76
    Goodman, Hon. Oscar B........................................    83
    Lizarraga, David C...........................................    86
    Menino, Hon. Thomas M........................................    90
    O'Malley, Hon. Martin........................................    94
    Shelton, Hilary O............................................   101

              Additional Material Submitted for the Record

Frank, Hon. Barney:
    Letter from Mayor Ronald O. Loveridge, dated March 10, 2008..   106
    Letter from the members of the National Foreclosure 
      Prevention and Neighborhood Stabilization Task Force, dated 
      April 7, 2008..............................................   107
    Letter to Hon. Christopher Dodd, Hon. Barney Frank, Hon. 
      Richard Shelby, and Hon. Spencer Bachus from the National 
      Governors Association, dated April 3, 2008.................   108
    Letter from the National League of Cities, dated March 7, 
      2008.......................................................   110
    Statement on behalf of the National Multi Housing Council and 
      the National Apartment Association.........................   114
    Article from The New York Times, entitled, ``In U.S., Metal 
      Theft Plagues Troubled Neighborhoods,'' dated April 8, 2008   119
    Letter to President Bush, Hon. Nancy Pelosi, and Hon. Harry 
      Reid from Hon. Deval Patrick, Governor of Massachusetts, 
      dated April 3, 2008........................................   121
    Letter to Hon. Christopher Dodd from PIMCO, dated April 9, 
      2008.......................................................   124
    Statement of the United States Conference of Mayors, the 
      National Association of Counties, the National Association 
      of Local Housing Agencies, and the National Community 
      Development Association, dated April 9, 2008...............   126
    Various items relating to Boston's Anti-Foreclosure Campaign, 
      submitted by Mayor Menino..................................   130


                  USING FHA FOR HOUSING STABILIZATION
                  AND HOMEOWNERSHIP RETENTION, PART II

                              ----------                              


                        Thursday, April 10, 2008

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:03 a.m., in 
room 2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Waters, Velazquez, 
Watt, Moore, Clay, Lynch, Miller of North Carolina, Green, 
Cleaver, Davis of Tennessee, Hodes, Ellison, Klein, Wilson, 
Perlmutter, Foster, Carson; Pryce, Manzullo, Biggert, Miller of 
California, Capito, Hensarling, Brown-Waite, Marchant, and 
Heller.
    The Chairman. The hearing will come to order. This is the 
second day of hearings on what we hope will be our response to 
the ongoing foreclosure crisis. I would point out again, and I 
want to underline this, questions have been raised as we 
approach this about the phenomenon which is, I think oddly, 
known as ``moral hazard.'' That does not appear to me to be a 
good use of the English language, but it is the fear that if 
you alleviate current problems, you will somehow reduce the 
barrier to people repeating that behavior.
    One of the things I want to stress is that this committee 
last year, and then the whole House, pursuant to our 
recommendation, adopted legislation that will govern the 
mortgage business going forward. Our main protection against a 
repetition of the behavior that has led to the current crisis 
is a law that we hope will be enacted--and we hope the Senate 
will act--that will legally prevent a lot of what happened. So 
when we talk about diminishing the moral hazard aspect, we are 
not relying simply on people's experience; we are going to make 
it illegal.
    I should also add that even if everything we are now 
proposing goes through, even if what the Administration has 
proposed, which is an expansion of efforts to help, if we do 
all that, it is hard for me to think that anybody who has gone 
through this, either as a lender or a borrower or a servicer, 
is going to say, ``Gee, that was fun. I'm going to get on line 
and buy another ticket.'' I think the inherent difficulties of 
the experience--we are alleviating people's difficulties. We 
are not making anybody whole.
    With that, I want to just thank our panel. We are here 
today to talk about Title 3 of the bill, and I will tell people 
that we don't know at this point what the legislative next 
steps will be. The Senate, as Members know and others, has 
acted on some pieces of a housing plan, a response. The 
Administration has a position. We put one bill together. It has 
three titles. I do not know whether it will be done as one 
bill, two bills, or as two or one bills as part of an overall 
package. That is something that the leaderships are now 
discussing.
    The Treasury Department has weighed in, as people might 
know, urging that, for instance, the bill that this committee 
passed on the government-sponsored enterprises be made part of 
an overall package, because as the Treasury Department 
correctly points out, it has been the general decision to rely 
more on the Federal Home Loan Banks, Fannie Mae, and Freddie 
Mac, in the current situation, and the Treasury feels, I think 
quite correctly, that we should enhance the regulation as we do 
this. Necessity has required that they be given more authority, 
but we think that there ought to be more regulatory authority, 
including provisions for rental housing, which we added to the 
bill.
    So, I can't tell people exactly what form the leaderships 
are going to settle on in moving forward, but we do plan to go 
forward. This particular piece is very important. I was reading 
Tuesday's New York Times yesterday--I was a little behind--and 
this was the story in the business section: ``Metal scrappers 
have attacked churches and ransacked homes in this Midwestern 
city, leaving entire neighborhoods uninhabitable.'' This is 
from Cleveland.
    Vacant property, substantially due to foreclosure, is a 
serious problem for cities in particular, property that once 
paid taxes to support the services our constituents need in 
increasing amounts have been transformed into consumers of tax 
revenues. Mayors have to send police officers, firefighters. 
The fire marshal of the State of Massachusetts told us that he 
has done a study which shows that vacant properties--not 
surprising, but it's always interesting to have it confirmed--
are a serious source of fires and a major drain on fire 
departments. So you have the cities being given fewer revenues 
and more needs. It is of course also the case that foreclosed 
property detracts from those people in the neighborhood who are 
trying to keep up their property.
    One of the issues we have is, well, why are you helping out 
some of these people who imprudently borrowed? The answer is 
the people who suffer when there is a foreclosure are not 
simply those whose homes are foreclosed, although they suffer 
the greatest, but people down the block and people across the 
street suffer as well with a deterioration both in the quality 
of life and the value of that property, and then the 
municipalities suffer and the States suffer because of the 
revenue losses.
    So we have proposed legislation that would provide funds to 
our units of local government and we are going to be working on 
ways so that it goes through the States but with a requirement 
that there be cooperation with the cities. We are looking at 
numbers now. What we hope to do is give this money out in a 
formula which, as nearly as we can achieve, reflects the amount 
of foreclosed property. To that extent, if we are successful, 
it would be like other countercyclical fiscal programs. It 
would gets the money by definition to where the need is. People 
who do not have foreclosed property will not get any funds 
under this. It will go to where the need is.
    We believe that putting a dent in the overhang of 
foreclosed property is important economically, socially, and in 
other ways. And we are open to conversations with those who 
administer the State and local governments about how best to do 
it. So we have a governor and three mayors, and we had asked 
for others.
    Let me say, we do have a letter, which I will ask unanimous 
consent to put in the record. I actually have a number of 
things to put in, but I ask unanimous consent to put into the 
record the letter from the Governors Association signed by--I 
don't have the exact name--one Democratic governor and one 
Republican governor on behalf of the whole Governors 
Association in a bipartisan way endorsing this idea.
    Obviously, we have details to work out, but the Governors 
Association has supported it. Obviously, we have mayors who are 
interested in it, and that is what we hope to work out.
    It is my expectation that the committee will be voting on 
this on the 23rd of April, giving us basically 2 weeks from 
today's hearing, and hopefully, we will be able to do some of 
this on the Floor.
    Are there any further requests for opening statements? I 
know the gentleman from New Hampshire had a statement. The 
ranking member of the Housing Subcommittee will be here at some 
point and will--oh, I didn't see my colleague, the chairwoman 
of the subcommittee, the gentlewoman from California, is here.
    Ms. Waters. Thank you very much, Mr. Chairman. I thank you 
for convening this second day of hearings. As I mentioned 
yesterday, I have personally witnessed block after block of 
foreclosed properties when I visited cities such as Cleveland, 
Detroit, and some areas of California. It is now crystal clear 
that any sound strategy for providing further stimulus to the 
ailing economy must include making Federal resources available 
for State and local government in partnership with nonprofits 
to purchase these properties and either resell them or operate 
them as affordable rental housing.
    I feel strongly enough about certain issues that needed to 
be addressed in any such stimulus that I too introduced H.R. 
5678, the Neighborhood Rescue and Stabilization Act. However, I 
am very pleased, Mr. Chairman, that your staff has been working 
with my staff, and you have included in your draft many of the 
concerns that I addressed in H.R. 5678. They have been working 
over the past few days, and they have particularly worked on 
the provisions of the draft that proposed solutions by way of 
loans and grants to addressed the foreclosed properties 
dilemma.
    I am happy to report that I understand the next version of 
the proposal will include some key changes that I strongly 
endorse and that I had again included in my legislation. In 
particular, I am pleased that we will move to deeper income 
targeting. I believe strongly that any substantial investment 
of Federal resources in the homeownership and rental housing 
stock of communities must take into account the housing needs 
of very-low- and extremely-low-income families; that is, those 
earning below 50 percent of area median income and 30 percent 
of area median income, respectively.
    These poorest households face a double whammy in the 
current crisis. Thanks to the push by the Administration and 
subprime lenders to increase homeownership at all costs, more 
such households are homeowners than ever before, 11.2 million 
nationwide, and 1 million in California alone. They are at 
great risk of foreclosure given their low capacity to withstand 
a financial disruption such as an interest rate reset. Not only 
that, extremely-low-income renters now face increased 
competition for an inadequate supply of affordable housing from 
slightly higher-income households who have been foreclosed 
upon.
    In addition, some renters are facing eviction when, through 
no fault of their own, the homes they have rented enter 
foreclosure. Accordingly, I am pleased that the new version of 
the bill will require that fully one-quarter of authorized 
funds will target very-low-income households, and half of that 
amount must be targeted to extremely-low-income households.
    I am also cognizant of the fact that it is a financing 
challenge to serve very-low- and extremely-low-income 
households. Additionally, the foreclosed and abandoned property 
aspect of the current economic crisis is filled with 
uncertainty, given that many of these properties are located in 
communities with rapidly shifting and sometimes nearly 
impossible-to-determine market values.
    For these reasons, I have strongly advocated for providing 
as much assistance as possible in the form of grants, rather 
than loans that have an uncertain prospect of being repaid. 
Therefore, I am also happy that you have included increasing 
the grant portion of the bill from $2.5 billion to $5 billion, 
fully half of the authorized assistance.
    Finally, I share the chairman's concern that Federal 
resources devoted to revitalizing foreclosed and abandoned 
properties should be invested in a coordinated and effective 
fashion. This said, it is a mistake to ignore the substantial 
capacity that exists in the governments of our Nation's largest 
cities, a point on which I suspect our first witness panel will 
concur. That is why H.R. 5678 proposed to distribute funds not 
just to States, but to large cities as well.
    I understand, Mr. Chairman, that you will be modifying the 
current proposal to include funding of the country's 25 largest 
cities, which I think is a great approach. The key point is 
that we in this committee must move quickly to get consensus on 
a proposal that provides substantial targeted resources rapidly 
to State and local governments with the capacity to administer 
them effectively. This is because we already know that we are 
in for some tough negotiations with the Senate on their more 
modest proposal in this area.
    I appreciate your willingness to listen to the concerns of 
your members, Mr. Chairman, and I thank you for including 
already in your draft some of those ideas that I attempted to 
address in H.R. 5678. I thank you, and I yield back the balance 
of my time.
    The Chairman. I thank the gentlewoman. Let me at this point 
just read the list of people inserts:
    We have a letter from the National Governors Association to 
the chair and ranking members of the two committees in the 
House and the Senate supporting this concept and making 
suggestions about how to do it. It is signed in support of this 
by Governor Granholm of Michigan, who is the chair of the 
Economic Development and Commerce Committee and a Democrat, 
Governor Rounds of South Dakota, who is the vice chair of the 
Economic Development and Commerce Committee and a Republican, 
and it is on behalf of the National Governors Association.
    In addition, there is a letter from the League of Cities 
signed by Joe Davis, the alderman from Milwaukee who is chair 
of the National League of Cities Committee and National Model 
Development Committee in support of this. The Governor of 
Massachusetts, the mayor of Riverside, California, and the 
National Foreclosure Prevention and Stabilization Task Force, 
which endorses both yesterday's bill and today's, again, with 
specific suggestions. And that is a coalition which includes 
the Community Development Financial Institutions Coalition 
Enterprise, the Housing Assistance Council, the Housing 
Partnership Network, the Local Initiative Support Corporation, 
the National Alliance of Community Economic Development 
Associations, the Community Land Trust Network, the National 
Housing Institute, Housing Conference, and NeighborWorks 
Association.
    I would note that our colleague from California, Ms. 
Sanchez, Ms. Loretta Sanchez, had specifically talked about the 
importance of them, and asked that they be able to participate 
in this hearing. We also have the National Vacant Properties 
Campaign; that is probably an organization that didn't exist a 
few years ago, the National Vacant Properties Campaign, and we 
hope to put it out of business. And finally, Smart Growth 
America.
    These will be, without objection, put into the record.
    The gentlewoman from West Virginia, the ranking member of 
the Housing Subcommittee, is now recognized.
    Mrs. Capito. Thank you, Mr. Chairman, and I thank all the 
witnesses for coming today on a very important issue on the 
recent mortgage crisis and steps that we might take to address 
the impact on individual homeowners, the mortgage industry, and 
our economy in general.
    The Center for Responsible Lending estimates 2.2 million 
Americans with subprime loans will lose their homes. The 
Mortgage Bankers Association reports that 550,000 homeowners 
with subprime loans began a foreclosure process in 2007. 
Clearly, we're facing difficult economic times, and the housing 
market, which was the engine driving this country's robust 
economic growth, is now a major factor in the economic 
downturn.
    While I understand that many feel an urgency to move 
quickly on this legislation that will address the current 
mortgage crisis, I want to caution my colleagues on how 
important it is to make sure that we understand the 
consequences of our actions, and that we do it right. There is 
certainly enough editorial comment on both sides of the issues, 
some urging quick action, others making the case that action 
would only further prolong the current mortgage crisis and 
exacerbate the problems. It's difficult to know how best to 
proceed.
    Several weeks ago, much of the attention pertaining to the 
mortgage crisis was focused on the potential resets and the 
ability of homeowners holding these loans to continue making 
their payments after the reset. Recent reductions in interest 
rates have made those resets less of a problem. Today the focus 
is more on those homeowners who are underwater, families living 
in homes that are worthless due to declining markets and the 
current mortgage on their home.
    The change in focus serves to highlight the importance of 
being deliberate and cautious before taking action that may 
only exacerbate the crisis and weaken our economy. I have been 
very pleased to hear of the progress that has been made on both 
FHA modernization--although I would like to get that bill out 
of conference and onto the Floor--as well as a discussion of 
potential expansions of FHA Secure programs that have been 
created to assist homeowners with mortgages that have reset and 
are now having trouble making their payments. We must have a 
modernized FHA in order to properly respond to the current 
housing troubles as well as avoid future problems.
    There have been efforts to expand the pool of homeowners. 
Ranking Member Biggert and I recently wrote to FHA Commissioner 
Montgomery, who was here yesterday, urging the Administration 
to implement administrative changes, which he has said they are 
going to do and willing to do, and I look forward to learning 
more about the progress of this program.
    Whatever action this committee takes, we must be careful 
not to expose the taxpayers to undue risk when responding to 
the troubles in the housing market. Two programs that are 
already in place, HOPE NOW and FHA Secure, have helped over a 
million homeowners stabilize their mortgages by working with 
all involved in the process. I'd like to again thank Chairman 
Frank for holding this hearing and I look forward to the 
testimony of our witnesses.
    I yield back.
    The Chairman. The gentleman from New Hampshire had asked 
for time.
    Mr. Hodes. Thank you, Mr. Chairman. Thank you for holding 
this important hearing, and for taking a principled lead in an 
effort to provide relief for the foreclosure crisis and for 
keeping working families in their homes.
    Yesterday this committee heard from the regulators and 
economists. We heard from Administration officials who 
expressed reservations about Chairman Frank's proposed 
legislation, and the White House has even weighed in against 
relief for homeowners. Yet the Federal Reserve has no qualms 
about lending Wall Street $30 billion. I don't necessarily 
think that is a bad thing, but if there is money for Wall 
Street, there surely has to be money for Main Street.
    Many of my constituents are wondering whether Congress will 
act to help the folks who need help with their homes. Too often 
this Administration has advocated and adopted economic policies 
based on a top-down model. The lax regulatory environment over 
the past years, the tax policies we have seen, have led us in 
part to the crisis we are facing today, and working families 
and middle-class families are suffering as a result.
    In my home State of New Hampshire, it is projected that 
4,300 homes will be foreclosed by 2009. You can drive through 
neighborhoods in Manchester, Concord, and Nashua and see street 
after street with numbers of bank-owned sales and foreclosed 
signs on properties. There is a crisis out there, and it takes 
a toll on families, on neighborhoods, and on State and local 
budgets. As the chairman's remarks suggest, every foreclosure 
is like throwing a boulder into a pond; you get big ripples and 
bad effects.
    So I look forward to today's testimony from our 
distinguished panel, whom I thank for being here. Today's 
testimony will highlight the true human cost of the foreclosure 
crisis when we hear about the impact it is having on local and 
State leaders. This input is important to understand how this 
committee should and must move forward as expeditiously as 
possible to provide relief for this crisis.
    Thank you, Mr. Chairman. I yield back.
    The Chairman. Are there any further opening statements? If 
not, we will go to our panel, and we will begin with Governor 
O'Malley.

STATEMENT OF THE HONORABLE MARTIN O'MALLEY, GOVERNOR, STATE OF 
                            MARYLAND

    Governor O'Malley. Mr. Chairman, thank you very much for 
the privilege of being able to testify before your committee. 
Ranking Member Capito and the distinguished members of the 
committee, thank you for inviting me here today, and thank you 
also for your leadership on this looming crisis that is 
threatening to undermine the very strength and stability of 
America's middle class and therefore the security of our shared 
economic future.
    The legislation I testify in support of today is critical 
to making progress in the face of this challenge. Mr. Chairman, 
over the last 7 years, we have seen an effort by some at the 
Federal level to do away with regulators, to create what the 
Congressman described as that lax regulatory environment, and 
now we see the results. Subprime mortgages, communities being 
preyed upon, and an unprecedented foreclosure crisis that 
threatens to undermine the strength of our middle class and the 
security of our shared economic future.
    Government in fact actually can play a critical role in 
getting us out of this calamity and sparing countless thousands 
of families and neighborhoods the sort of damage that results 
from foreclosures. This, I might add, is why the work of this 
committee is so important. In Maryland, Mr. Chairman, we 
actually license loan servicers. We recognize that everyone 
loses when there is a foreclosure--lenders, borrowers, 
neighbors, communities, and so forth. So last summer we brought 
all of the various stakeholders to the table and assembled a 
task force that included consumer advocates, lenders, housing 
counselors, and representatives from government.
    And out of their recommendations came something that the 
Washington Post referred to as the most sweeping legislative 
package yet enacted, and under our new laws in Maryland, 
families, prospectively anyway, will have more time to avert 
foreclosure, lenders will have more accountability, and future 
borrowers will be less likely to get into unsustainable 
mortgages.
    In addition, we have new tools for going after those who 
prey on our most vulnerable citizens. But most of those 
benefits are prospective in nature. We still have a challenge 
with tens of thousands of families who are facing foreclosure 
now. So as an additional part of our strategy, we have been 
working with lenders to create products for which both 
government and private lenders share the risks associated with 
refinancing the loans of defaulted borrowers.
    We are exploring ways to bring banks to the table as well. 
We have also created a program called Bridge to HOPE, which 
offers small, no-interest loans of up to $15,000 to help at-
risk homeowners refinance and save their homes.
    While all of these initiatives represent steady progress at 
the State level, our ultimate success depends on a successful 
partnership with our Federal Government playing an 
indispensable and critical role in this partnership. The 
legislation at hand is that important role, and I wanted to 
offer just a couple of thoughts on key provisions.
    Number one, I strongly support language that would 
authorize $200 million per year for housing counseling. These 
sort of mitigation originators, if you will, who can work with 
homeowners to help them get the lenders on the phone. Federal 
funding for these servicers is already helping us produce some 
results in Maryland. Funding from the National Foreclosure 
Mitigation Program has allowed our State to expand our 
nonprofit network and significantly increase the number of 
homeowners we assist.
    Number two, we believe the provisions regarding the 
acquisition and rehabilitation of foreclosed properties would 
help prevent vibrant neighborhoods, or neighborhoods that are 
starting to come back, from becoming vacant neighborhoods. This 
funding would not amount to a bailout, as some have suggested, 
but rather it would allow States and cities to target resources 
to save neighborhoods before they become blighted, and to allow 
us to mitigate the damage that is being done also to tens of 
thousands of homeowners.
    I would like to also recommend that some of these funds in 
these provisions be made available to bridge funding programs 
like our Bridge to HOPE program in Maryland.
    Mr. Chairman, whatever our efforts to date in Maryland, our 
Achilles heel is this, that we lack right now the resources 
that could be targeted in reasonable ways, in timely ways to 
mitigate the damage that is being done by a rising tide of 
foreclosures that is affecting some of our neighborhoods more 
disproportionately than others. Homeownership is the 
cornerstone of the American Dream. It is a pathway into the 
middle class for so many who dream of building better lives for 
themselves and for their families. To lose even one home is a 
tragedy. To lose hundreds of thousands is a threat to the 
strength and the vitality of America's middle class and to the 
security of our shared economic future.
    I thank you for your leadership. These resources are 
critical to us in the States and our cities, and we thank you 
for inviting our input in this important matter today.
    [The prepared statement of Governor O'Malley can be found 
on page 94 of the appendix.]
    The Chairman. It always seemed to be a little presumptuous 
for us to welcome the Mayor of our host city. He is the one who 
should welcome us. And Mayor, we thank you for coming here as 
the Mayor of the City that hosts us and isn't always adequately 
recognized for that. Thank you for your testimony.

STATEMENT OF THE HONORABLE ADRIAN M. FENTY, MAYOR, DISTRICT OF 
                            COLUMBIA

    Mayor Fenty. Thank you very much, Mr. Chairman, and members 
of the Committee on Financial Services. Thanks for inviting all 
of us to testify today on your proposal to reduce foreclosures 
affecting people in communities throughout the Nation.
    You have no doubt heard from countless housing and economic 
experts as you have crafted the legislation we are discussing 
today, but my fellow mayors and former mayor and I are here 
today because at its core, this issue is not about numbers. 
It's not even about mortgages or interest rates. It's about 
people. Shelter is a basic human need, and my Administration 
hears every day from residents right here in our Nation's 
capital who need our help to keep their homes.
    So I would like to express my full support for your FHA 
Housing Stabilization and Homeownership Retention Act of 2008, 
and to discuss some of the ways the bill would positively 
impact the people of the District of Columbia, as well as the 
entire Nation.
    We must move quickly to shore up our national economy. We 
know that the effects of the subprime lending crisis have gone 
beyond housing to affect the economy as a whole. Here in the 
District, we are somewhat fortunate because the recent increase 
in foreclosures has been relatively modest, but the potential 
impact on our economic wellbeing is still significant. The 
ripple effect of foreclosures has been a tighter credit 
environment and declines in real property values. This is of 
great concern to me and other local elected officials.
    An October of 2007 Joint Economic Committee report 
projected that there will be approximately 1.3 million 
foreclosures and a loss of housing wealth of more than $103 
billion through the end of 2009 caused by the spill-over 
effects of foreclosures.
    As of last fall, residents of the District had more than 
11,000 outstanding subprime loans and had experienced almost 
2,000 subprime foreclosures. While this is a fairly low rate in 
comparison to many States, the subprime lending crisis has 
still affected us quite severely through loss in home values, 
neighboring property values, and property tax revenues 
totalling over $257 million. In addition, we cannot know how 
many of the 9,000 remaining subprime loans in the District will 
end up in foreclosure.
    Our local government offers a dedicated mortgage default 
and potential foreclosure counseling to clients who have fallen 
behind in their mortgage payments. As demand for this type of 
individual counseling has increased over the past year, some 
counselors have increased their services in response by 
providing specific foreclosure prevention ``clinics'' that are 
advertised in the community.
    Your legislation would help District residents by offering 
direct assistance to homeowners in foreclosure and providing us 
with additional resources to support our existing affordable 
housing programs, especially those that use vacant or 
foreclosed properties. The legislation would also slow the rate 
of foreclosures regionally and nationally along with their 
potentially devastating ripple effects.
    In the District, we have two homebuyer assistance 
programs--the Housing Purchase Assistance Program (HPAP) and 
the Employer Assisted Housing Program (EAHP). We have found 
that first-time homebuyers who took part in these programs have 
not fallen victim to the current mortgage foreclosure crisis at 
the same levels as other jurisdictions. We believe this is 
because all participants go through a comprehensive homebuyer 
training program. Also, the loan processors for these programs 
evaluate the borrower's entire home financing package.
    Still for other residents of the District who are not 
first-time homebuyers or have purchased their homes without 
government assistance, the expanded HFA refinance options 
provided in this bill would be a helpful addition. We still 
have many people living under the weight of subprime mortgages, 
and in danger of mortgage foreclosure.
    The bill's proposed Loans and Grants program also would be 
of tremendous assistance to the District. The scarcity of 
affordable housing has been a crisis for some time in our City. 
We have recognized the need for a funding tool such as this one 
to address the current market conditions and create the 
potential for new affordable housing development.
    In the District's Fiscal Year 2009 budget, we proposed 
purchasing vacant land and buildings, including foreclosed 
properties, for affordable housing. The local funding that we 
proposed would allow the City to purchase up to 75 such single-
family properties. The Federal funding proposed in your 
legislation would allow us to significantly expand our efforts 
to restore foreclosed properties to productive use.
    The proposed Loans and Grants program would also support 
existing programs at the D.C. Housing and Finance Agency, 
including workforce housing assistance, simplified financing 
for developers of affordable housing, and below-market rate 
mortgages for families.
    In conclusion, Chairman Frank and committee members, I have 
often said that the future of this country lies in its cities. 
It is in the Nation's cities that you will find models of 
diversity, sustainability, and productivity. For our cities to 
thrive, we must protect the residents who live in them. Thus, I 
want to thank you in advance for your efforts to get this 
legislation passed, and I would be happy to answer any 
questions.
    [The prepared statement of Mayor Fenty can be found on page 
72 of the appendix.]
    The Chairman. Thank you, Mr. Mayor.
    Our next witness is the Mayor of the City of Boston. I am 
particularly pleased that he is here, because there are people 
in greater Boston who are not always able to distinguish 
between us, so having us both in the same room at the same 
time, I think, will therefore be very useful.
    Mr. Mayor?

  STATEMENT OF THE HONORABLE THOMAS M. MENINO, MAYOR, CITY OF 
                             BOSTON

    Mayor Menino. Thank you. I think that is so true.
    Members of this committee, thank you for having us here 
today. I also recognize my Congressman, Congressman Lynch, for 
all the great work he does for our City every day.
    You have asked that I focus my remarks on Section III of 
the Act, which provides loans and grants for States for 
foreclosure mitigation and relief. This important legislation 
comes none too soon. Boston's foreclosure rate is 2.5 percent. 
For people who complete our classes and receive our financial 
help, it is even lower, less than 1 percent. Despite our 
successful programs, every day we see how the meltdown of our 
financial system is affecting the lives of people who live in 
our neighborhoods and call Boston home.
    Last year, lenders foreclosed on 700 homes, more than 3 
times the level foreclosed the year before. By the end of 2008, 
we project another 1,000 foreclosures; one foreclosure is one 
too many.
    We have 250,000 homes in our City. Approximately one-half 
of one percent of this housing stock was foreclosed on, 
representing 1,200 housing units. This may not seem 
significant, but here is the problem: Our foreclosures are 
concentrated in the poorest neighborhoods of our City. They are 
located where thousands of hard-working people have scraped 
together money to buy homes through the City's programs. They 
are located in neighborhoods where the City and its partners 
have invested millions of dollars in State and Federal 
resources to produce high-quality, affordable rental units.
    So even though our numbers are relatively low, the impact 
is huge, and not just for the families who are being foreclosed 
on. There are problems for people who live next to the boarded-
up foreclosed buildings--buildings that can quickly become un-
boarded, and provide opportunities for drug dealers, chop 
shops, prostitutes, and other illegal activities. We have 
worked too hard to make these neighborhoods into thriving 
places to live and work.
    We can do better. We must do better. This brings me to the 
legislation. There is one thing I want to leave you with today, 
and it is this--a sense of urgency. We must act now.
    At the local level, I see the impact of these foreclosures. 
I know that anyone who takes a look at a street of foreclosed 
properties comes away with the same feelings I do, frustration 
and impatience. We want to take immediate action before more 
families lose their homes, their sense of security and hope, 
and before more properties become vacant. The people who live 
in these neighborhoods see the property values decline and 
crime increase.
    I have some specific comments about Section III. I know 
that you will consider my remarks in the spirit which I raise 
them--to make this legislation the best it can be.
    Section III ties funding to the number of foreclosures 
Statewide as a share of foreclosures nationally. Some States 
like Massachusetts, which have relatively few foreclosures, 
have cities like Boston, with concentrated foreclosure 
activities. I urge you to look at the formula with this in 
mind, design it so that high-impact pockets of foreclosure 
receive resources and assistance.
    In general, I believe the focus on States seems to be 
misplaced. Target the resources and the response to what is 
happening. Cities and mayors in particular are the ones dealing 
with this foreclosure crisis every day.
    My understanding is that States will develop their plans 
and that funding comes once the plans are approved. Remember 
Homeland Security. Think how long it will take for States to 
get the information from cities like Boston, from smaller 
communities, then accumulate them and digest the information. 
We can't afford to wait.
    We have proven tools and processes that work. I urge you to 
consider utilizing the CDBG allocation process, where larger 
cities with the capacity can develop their own plans, have 
States work with communities that do not have local capacity. I 
strongly urge you to provide direct funding to cities like 
Boston.
    I want to focus now on the reality of foreclosures--dealing 
with the servicers. My comments are based on our experiences in 
purchasing foreclosed property in the Hendry Street 
neighborhood of Boston. We have two 3-deckers and two other 3-
deckers that have been converted to condos, for a total of 12 
units. We also have plans to purchase additional houses.
    I strongly urge you to think about the mechanics of buying 
from the servicers. Otherwise, the legislative goals will not 
be achieved, and our neighborhoods will continue to be plagued 
by these properties. Dealing with the servicers and their 
Realtors is extremely time-consuming. Realtors have no 
authority, and must get servicers' approval to sell. Servicers 
are overwhelmed with the number of properties they own, and I 
question whether, at a national level, they have the capacity 
to move with the speed this legislation envisions.
    In some cases, servicers don't even know whether properties 
have completed the foreclosure process, so they are selling 
without having the right to sell. We were successful in Boston 
because I established relationships with some of the servicers 
beforehand.
    So I just--I know my time is up, and I would like to say 
that this is an issue that faces us in our cities. The key to 
this issue--I had a meeting last week, I brought the servicers 
in to work with us on potential foreclosed property. And when 
we had them face-to-face, we were able to work out a lot of 
these deals.
    But if you have any legislation here that is going to bring 
or send monies back to our localities, it has to go through the 
cities, because--with all due respect to my government friend 
here, if they go to the State, it takes a long while to come up 
with formulas. We need this money locally.
    Thank you for your time, and also I want to leave a 
thought, this thought, as this committee continues to address 
housing and credit issues: Will you make sure that lenders 
continue to meet the CRA obligations in the new lending 
environment? This includes access to credit and being part of 
the rebuilding of communities that will get us past this 
crisis.
    Thank you for allowing me to testify this morning.
    [The prepared statement of Mayor Menino can be found on 
page 90 of the appendix.]
    The Chairman. It looked like your former mayoral colleague 
wanted to respond briefly.
    Governor O'Malley. As a point of personal privilege, once a 
mayor, always a mayor. And I agree with a great amount of what 
Mayor Menino--
    The Chairman. Well, I appreciate that and I will say this--
and people in Boston will tell you--that when it comes to the 
phrase, ``Once a mayor, always a mayor,'' they do believe that 
Mayor Menino has taken that as his motto.
    [Laughter]
    Mayor Menino. I also have--I'm pretty sure he'd like to 
have all--
    The Chairman. We will put that into the record. We are also 
very pleased to have Mayor Goodman of Las Vegas. Mr. Mayor, 
please go ahead.

STATEMENT OF THE HONORABLE OSCAR B. GOODMAN, MAYOR, CITY OF LAS 
                             VEGAS

    Mayor Goodman. Thank you very much, Mr. Chairman, and 
distinguished members of the committee. I am honored to appear 
before you this morning to discuss issues of national 
importance as well as a pressing need in my City.
    Of course, I adopt the pertinent comments of those who 
preceded me this morning, but this is an issue that not only 
affects people, as everybody recognizes, but also affects the 
way cities conduct their business as a result of this crisis.
    Las Vegas is a City of 625,000 persons situated in Clark 
County, Nevada, which has a population of 1,900,000. It is the 
largest city in Clark County, and we have been very fortunate 
in our area to be a community that has grown phenomenally in 
the past 10 years, not only in size, but also as far as an 
unprecedented prosperity.
    We are building tens of thousands hotel rooms, and what 
that does is it gives people a reason to want to come to Las 
Vegas and to that area, in order to find the American dream. We 
have about 6,000 people a month who come into our community, 
and they all want to partake in what makes America a very 
special place--they want to buy a home.
    It got to a point about 3 or 4 years ago that they were 
standing in line, getting lottery numbers, and sleeping out 
overnight in order to buy homes. There was a crisis in that 
there weren't enough homes to satisfy the needs of those who 
were moving into our community. Now just the opposite has taken 
place, and this feeling of perhaps invincibility that we had 
experienced is no longer with us, and we recognize that we have 
a tremendous issue in trying to address our needs, not only as 
far as taking care of the people who find themselves in this 
very difficult spot, but also in running government.
    Clark County is experiencing over 90 percent of the 
foreclosures in the State. They have tripled from 2006 to 2007; 
we have gone from 20,000 foreclosures to 60,000 foreclosures, 
and 60 percent of our homes are experiencing negative equity. 
Property values--and you can imagine this--people taking their 
hard-earned money, as mentioned before, have dropped in Las 
Vegas by 20 percent, and nearly half of the homes currently on 
the market are due to foreclosures.
    This has had a devastating effect on the way we look at our 
communities and our neighborhoods. I remember when I was first 
elected, the definition for blight was a broken window. And now 
blight is defined in vacant homes in neighborhoods, and this 
has resulted in increased crime, deteriorating property 
conditions--nobody is there to take care of the homes--and 
undue pressures on the City to provide services as far as code 
enforcement is concerned. Our fire department is overtaxed as 
well as our police force in addressing these issues. And I 
think perhaps the worst thing is that families are at risk of 
becoming homeless. Homelessness had been an issue before 
foreclosures; now it is an issue that faces us every single 
day.
    There is also the issue of the loss of tax revenue as far 
as State and local government. Construction represents 10 to 12 
percent of our local economy, and the issues created by 
slumping new and resale home sales, foreclosure sales, and post 
subprime lending, credit crunch have impacted all of the major 
revenue sources of the city, such as property tax, sales tax, 
real estate transfer tax, license revenues, and that results 
unfortunately in budget cuts. We had a deficit of $20 million 
in our budget this year. We have had to tighten our belt. And 
the worst of it is, for the first time in our memory, we had to 
lay off some of our employees as a result of this situation.
    So I applaud the efforts of the chairman and those who are 
in support of this particular legislation. It is going to not 
only help us as far as the foreclosures, but I think in some 
ways, some good could come out of the bad in the sense that the 
$10 billion which is proposed for cities to purchase and 
rehabilitate vacant, foreclosed homes in order to get people 
into them as soon as possible will go to satisfy issues of 
affordable housing, which we face every single day in our 
communities.
    I would join my colleagues in suggesting that the monies 
come directly to the municipalities for distribution rather 
than be filtered through the State. We have had a history with 
that kind of filtering, with Homeland Security funds that we 
don't believe that the funds reach us quickly enough, and this 
is a matter that has to be addressed immediately.
    So I applaud everybody on the committee for bringing this 
much-needed legislation forward and for your commitment to 
dealing with this foreclosure crisis.
    [The prepared statement of Mayor Goodman can be found on 
page 83 of the appendix.]
    The Chairman. Thank you, Mayor. Let me say that I am going 
to set a good example here. We have another large turnout of 
this very large committee reflecting the interest in this 
subject, so we are going to hold everybody, myself included, to 
5 minutes. If there is a question pending, a witness will be 
allowed to answer it, but we are going to stick to the 5-minute 
rule.
    Governor O'Malley, let me ask you, and we were discussing 
this earlier, I have been struck--and it is obviously related 
to the foreclosure issue--by the questions we have had about 
the ability or willingness of servicers, who are so critical 
here, to help.
    We are going to be putting, I hope, a number of programs, 
and even, you know, the Administration yesterday announced a 
program that is more aggressive than we have seen--but a lot 
depends on, as I said, the ability and the willingness of the 
servicers to move here. And I just would be interested in 
your--what has your experience--Maryland has laws on servicers 
and a lot of other places don't--been with the servicers in 
trying to get these issues resolved? If you want to have 
members of your staff join you, we could accommodate that.
    Governor O'Malley. Sure. I'm joined to my right by 
Secretary Tom Perez, from our Department of Labor Licensing and 
Regulation, who chaired the task force that resulted in the 
legislation that we passed in Maryland. We found that the loan 
servicers were willing to come to the table and help us work on 
the legislation, moving forward prospectively.
    What we have not found is the same willingness to 
renegotiate the loans that they have the power to renegotiate, 
so homeowners can stay in their homes, making their payments on 
a monthly basis for a sustainable mortgage. And it has been 
very frustrating to us.
    We're trying to come up with new products. This legislation 
would help us, but there has been some considerable foot-
dragging when it comes to actually renegotiating the terms of 
some of these mortgages, and taking the write-down, if you 
will. And I suspect that they're probably waiting for something 
to happen here before they're more amenable to that.
    May I ask, Secretary Perez, do you want to--
    The Chairman. Yes. Without objection, I want to ask him if 
he--
    Secretary Perez. Good morning, Mr. Chairman. The most 
important data point I learned in our meetings with servicers--
and we have had two lengthy ones--is they told us that 75 
percent of the people in distress that they are dealing with, 
under the terms of their contracts with investors, they have 
substantial discretion to modify the terms of the loan.
    My initial hypothesis was that the reason we had so few 
meaningful modifications was that the contracts were preventing 
modification. That's simply not true. And so I think the 
explanation of why we have such a wide gulf--Moody's did a 
study showing that something like 2 percent of people in 
distress were having meaningful modification. So there is a 
gulf between action and words, and I think the capacity exists, 
the legal authority exists to modify. It's a matter of will, 
and--
    The Chairman. Well, I appreciate that. Mayor Menino made a 
point that hadn't occurred to us before, which in some cases is 
a capacity, not a legal authority, but an actual technical 
capacity. And I am more and more convinced from what we have 
heard that we probably will want to ask the servicers to come 
in and meet with us in a more relaxed setting and see how we 
can be more helpful.
    Mr. Mayor?
    Mayor Menino. Yes, Mr. Chairman. Last December, I brought 
seven of the servicers into my office, and I told them we need 
to work together. Just 2 weeks ago, we had a fair, a housing 
fair, with anyone who was in danger of foreclosure. We had the 
servicers there and the folks in danger of foreclosure. We 
worked out many deals between the servicers and the folks who 
had a mortgage that was in danger of foreclosure.
    This was the first time they ever met. You know, it's not 
dial-a-number, press one for this. They sat face-to-face. Let 
me tell you, it was very successful Saturday.
    The Chairman. I appreciate it. I think we are going to be 
following up on this.
    I am going to give back some time now, so we can speed this 
up. The gentlewoman from Illinois, the former ranking member of 
the Housing Subcommittee, and current ranking member of the 
Financial Institutions Subcommittee.
    Mrs. Biggert. Thank you, Mr. Chairman. Thank you for 
holding this hearing. The bill includes $10 billion in loans 
and grants to let State and local governments buy out 
foreclosed properties, and sell them, and then Mayor Goodman 
suggested that maybe we should look at doing this through CDBG 
instead of the housing finance agencies. I would like to get a 
comment from the other mayors and the former mayor, who might 
have a difference of opinion, being now the governor. But which 
of these methods do you think we should look at, Mayor Menino?
    Mayor Menino. I would like to see it used, the CDBG formula 
that has worked for so many years, and it comes directly to the 
city, and we're able to parcel it out to the folks who need it 
the most. I always find that in all due respect to my 
colleague, when he sends it up to the State, there's all kinds 
of bureaucracy, and they take 12 percent for administrative 
costs and all that. It goes directly to your locality, where 
you're able to dole it out to the people who need it as quickly 
as possible, because there's an urgency we have in our city and 
in many cities in America today.
    Mrs. Biggert. Now I might just put a caveat in here that 
this is $10 billion and I don't know how U.S. taxpayers will 
react to the cost of this to them. But I just want to get it on 
the record, the difference. So, Mayor Fenty?
    Mayor Fenty. I would say both are good, first of all, but 
if given a preference definitely CDBG dollars, given the amount 
of flexibility that would give to municipalities, especially 
around the foreclosure areas. So, glad to put that on the 
record.
    Mrs. Biggert. Do you see too that the State sometimes--
well, of course you don't have a State, do you? So you don't 
have to worry about that?
    Mayor Fenty. That is another hearing.
    [Laughter]
    Mayor Fenty. But I think I empathize with everyone who says 
you want to be nimble, and we have to move fast. So I 
understand what the mayors are saying.
    Mrs. Biggert. Thank you. Governor O'Malley?
    Governor O'Malley. Yes, Congresswoman. You know, regardless 
of what that formula is, I think what all of us agree upon is 
that it should be flexible and should allow us to get the 
dollars to where they can do the most good, namely to the 
people who are suffering the most.
    So if there's some sort of--in our State, for example, I 
mean if you look at us Statewide, one, we have 1 out of every 
500 homes that are going through some sort of foreclosure 
event. If you look at one county in particular, Prince 
George's, the ratio is 1 in 72, so we would want to target 
those dollars to where the problems actually exist. I would 
have no problem in making sure that some goes directly to the 
cities. I think cities generally--large cities generally do a 
much quicker and better job, quite frankly, of getting dollars 
to the problem. And that can't be debated.
    However, there are counties that might not be in line but 
are also suffering. So I think that's why the formula of trying 
to target it to where the foreclosure events are actually 
happening is the way to go. If it were strictly CDBG, you might 
have dollars going to places that are not necessarily impacted 
as greatly as others are by the number of foreclosures.
    Mrs. Biggert. Thank you. Mayor Goodman, would you like to 
add anything to that?
    Mayor Goodman. No. I believe that the position that we have 
asserted is probably the most expeditious way to have the 
monies placed in the hands of those who need it the most. And 
one of the I think pleasing aspects of the proposed 
legislation, and it's in response to $10 billion being spent of 
taxpayer money, is much of this proposal provides that if there 
is a sale of the property, that the money will be recompensed. 
And I think that is something that the American public would be 
happy to hear. But in the meantime, we're taking care of a very 
serious issue.
    Mrs. Biggert. And then, just quickly, you know, the--are 
you cutting me off?
    The Chairman. No. I don't know what that was.
    [Sound system crackling. Laughter]
    Mrs. Biggert. The Senate bill temporarily lifts the Federal 
cap on tax-exempt State-issued mortgage revenue bonds. So this 
would allow States to use investor-raised funds to help owners 
refinance.
    Governor O'Malley, do you think that this is a good idea?
    Governor O'Malley. I think it's a great idea. I mean that 
has been our Achille's heel so far. Like some of the other 
mayors at the table, we were able to get loan servicers 
together, and we were able to do a little better job of 
matching up the nonprofits that were overwhelmed with 
homeowners trying to reach somebody besides the 1-800 numbers 
and the push buttons.
    So we've done a slightly better job at that. What we have 
yet to accomplish, though, and what this could help us 
accomplish, is to create that pool of dollars that would allow 
us to refinance homes, refinance mortgages, so that we can keep 
people in their homes. That's not possible everywhere, but for 
a lot of homeowners, that little bit of help could be the thing 
that preserves the block, preserves the neighborhoods, and 
that's why this could be very helpful.
    Our Achilles' so far, our Achilles' heel in our mitigation 
efforts has been the inability to come up with those funds that 
can go directly to helping homeowners and save neighborhoods.
    Mrs. Biggert. Thank you. I yield back.
    The Chairman. I thank the gentlewoman. We will now turn to 
the gentlewoman from California, the chair of the Housing 
Subcommittee, whom I think you will find anticipated some of 
the issues that were raised by some of the mayors, not 
surprisingly given her involvement in the City of Los Angeles. 
Ms. Waters?
    Ms. Waters. Thank you very much, Mr. Chairman. I am 
extremely pleased that we have this panel of mayors and 
individuals who really understand what it takes to deal with 
this foreclosure crisis in their cities. And the 
recommendations that you have made are consistent with some of 
the information that had been shared with me and therefore the 
draft discussion of the bill does not include all of the 
additional modifications that we have made. As you know, or 
perhaps should know by now, we are up from $10 billion to $15 
billion. We have a 50/50 arrangement with $7.5 billion in zero 
interest loans and $7.5 billion in grants. Prior to that, it 
was a 75/25 loan-to-grant ratio. Also, we are making sure in 
this bill that we have direct funds to cities; States must 
direct funds to the 25 most populous in the Nation. Also, the 
50 percent of the grant money targeted to those at below 50 
percent AMI, with 50 percent of the grant money targeted to 
those at or below 30 percent AMI, States can obtain a waiver 
but the latter requirement only no deeper target in the 
discussion draft. I guess what I am trying to share with you is 
we did anticipate some of the needs of the cities, and we have 
tried to make those--include those in the bill and of course 
this hearing today may provide us with some additional 
information. But I think certainly direct funding to the 
cities, more money, will give you better control over how to 
deal with the problem.
    The Chairman. The gentlewoman from West Virginia, the 
ranking member of the Housing Subcommittee. Mr. Mayor, you know 
you have been joined by your colleague from Nevada, one of the 
newer members of our committee, and we are glad to have the 
gentleman from Nevada, Mr. Heller, with us. Ms. Capito?
    Mrs. Capito. Thank you, Mr. Chairman. I would like to ask 
the governor about one of the programs that you mentioned that 
is fairly new, Bridge to HOPE, where you give deferred loans to 
help people. Are you getting much action on this? I know it is 
fairly new. Are people accessing this? I am thinking on the one 
hand that sounds great, on the other hand, I am thinking if you 
are already having trouble meeting more obligations, taking on 
another loan, is that a challenge, and how have you worked 
through that?
    Governor O'Malley. It has been slow going, it has been 
difficult. We have a number that we put out. We are going to be 
doing a lot more outreach to people and making them aware of 
this. Here is the Catch-22 that we found ourselves 
encountering, it was that there were some people who could in 
fact--who might be able to refinance and get into a more 
sustainable loan but only after they became current on the loan 
for which they were behind. So, of course, if they were current 
on the mortgage that they had fallen behind on, they would not 
need to refinance in the first place. So this Bridge to HOPE 
loan does not help everyone. There are some homes that cannot 
be saved but it is our hope that there will be some people in 
that delta, if you will, that if they were to become current, 
could go forward.
    There are other issues involving credit ratings and the 
like as underwriting standards become tougher that we are also 
overcoming. We have not had as many people taking advantage of 
it as we would have hoped.
    Mrs. Capito. Thank you. Mayor Fenty, it is a beautiful city 
and I am privileged to be working here. I have a question on 
your first-time homebuyer tax credit.
    The Chairman. If the gentlewoman would yield?
    Mrs. Capito. Yes.
    The Chairman. Mayor Fenty pointed out, as we all know, when 
something happens in your home district, you are not as 
available as if you went a couple of hundred miles away since 
then nobody can bother you. The mayor is here and he does have 
to leave at 11 a.m., so if that is the case, Mayor.
    Mayor Fenty. Probably no later than 11:15.
    The Chairman. Okay, well we can finish this question. When 
you have to leave, please feel free to do so.
    Mayor Fenty. Thank you, Mr. Chairman.
    Mrs. Capito. Thank you. I am interested in the $7,000 tax 
credit for first-time homebuyers. I believe the Ways and Means 
Committee yesterday passed something similar. Are you finding 
that is increasing first-time homeownership for first-time 
homebuyers? What kind of effect is that having on the housing 
market in D.C.?
    Mayor Fenty. Well, it has had a fabulous effect over time. 
It started, I think, as a $5,000 home credit, and what we find 
with that program, as with so many others, is that the price of 
real estate is going up and it just needs to be increased, so 
the more money that we can put into it, the more we will get at 
this problem.
    I think one of the number one things that we would just 
like to emphasize is that the money that would go directly to 
foreclosure relief and mitigation in this legislation is 
extremely important. We have so many either abandoned or 
neglected properties in the District of Columbia--you probably 
read a lot about it in the Washington Post--that the ability to 
take those dollars and then pump them back into either 
abandoned or vacant properties or properties that have been 
foreclosed on and then make them into affordable housing. That 
is where we really see the big problem in cities like 
Washington, D.C.
    Mrs. Capito. Thank you. And one final question for the 
Mayor of Las Vegas: You mentioned in your testimony that 
property values have dropped in Las Vegas by 20 percent?
    Mayor Goodman. Twenty percent and new home sales have 
dropped 49 percent from last year to this year. The banks are 
selling the foreclosed homes at 35 to 50 percent below the peak 
levels that they were in 2004.
    Mrs. Capito. Do you expect that--in what way do you think 
this kind of legislation, the proposal that we are talking 
about today, could stabilize housing prices? Do you think that 
is going to have an effect or what are you looking at long 
term, obviously you cannot recoup 20 percent right off the bat?
    Mayor Goodman. Not right off the bat. We are very 
optimistic. I do not want to have a cloud of pessimism over how 
we look at our future in Las Vegas. So we are usually the first 
ones to come back from a recession based on the nature of our 
economy, and these homes will regain their value some day. The 
prediction perhaps is that markets are going to come back in 
about 2 years. What I am looking for is relief right now to 
make sure that those persons who are in homes that have 
foreclosure issues will be able to stay in those homes so that 
they do not hit the streets and become homeless. And we have 
some very affluent parts of our community at this point where I 
am advised, surprisingly to me, that they are looking for food 
baskets because of the nature of the economy. So I think it is 
a very tenuous time in our history as a country and certainly 
in our community because we have rode the crest, so to speak, 
and this is the first time we are looking at hard times.
    Mrs. Capito. Thank you and just a final comment. I really 
appreciate your perspectives as mayors, and with the governor 
being a former mayor, as I look at my own State of West 
Virginia, we have a very low foreclosure rate of 47 percent, 
which we are very proud of, but there is an area, it is 
actually close to the Washington, D.C. metropolitan area, 
Shepherdstown, Martinsburg area, where a more targeted view or 
helping hand would be most appropriate rather than generalizing 
so it tends to get diluted a lot if it has to go through the 
filter of the State. But I thank you all very much. I yield 
back.
    The Chairman. Well, I thank the gentlewoman for those 
remarks. I just hope that--there are people who tend to be 
somewhat cynical of hearings but this is an example I think of 
an issue upon which we are focusing more. The gentleman from 
North Carolina?
    Mr. Watt. Thank you, Mr. Chairman. I want to take the 4 or 
5 minutes to say that I agree with the concerns that have been 
raised about the specifics of the bill, getting them targeted 
more specifically to local communities and particular areas 
even in local communities, so the input from the panel has been 
good. I would just say that in a speech that I made to local 
housing authority people a couple of weeks ago, I raised the 
prospect that we could take the lemons that we have here and 
make some lemonade out of them, the lemons being chronic 
homelessness and the unaffordability of housing. This crisis 
has had the effect of making housing available if we use it for 
the purpose of addressing homelessness and the unavailability 
of affordable housing. And we could take this and turn it into 
something that could have some positive impacts in our 
communities if the funding were there, about the same time our 
chairman was out actually putting the mechanism in place to 
authorize such a program and propose that the funding in fact 
be made available for this purpose. So we have some 
opportunities here, given the substantial reductions in housing 
values now that have taken place, and the substantial 
availability of housing to do some things if we will take 
advantage of it. And I am hopeful that we can pass this bill 
and create the mechanism to make it easier to turn those lemons 
into lemonade, at least in some cases.
    So with that, Mr. Chairman, I will yield back. I don't have 
any questions.
    The Chairman. I thank the gentleman. We have a couple of 
votes and we should be back in a half hour or so. Mr. Mayor, 
Mayor Fenty, thank you for joining us. And if the other 
panelists can wait, we will be back shortly and there is a lot 
of interest in this, and we will finish this up and we will get 
to our next panel. So the committee will be in recess, and I 
urge the Members to come back. There are three votes, two 5-
minute votes after this one.
    [Recess]
    The Chairman. We will reconvene. I regret--I was not 
informed that we had a swearing-in of a newly-elected Member, 
which delayed us, and I regret that because I appreciate your 
time. We will begin the questioning with the gentleman from 
North Carolina, Mr. Miller, who has been as active in trying to 
deal with the subprime crisis as any Member of Congress and in 
fact, had he been listened to several years ago, we would not 
have had one. So the gentleman from North Carolina?
    Mr. Miller of North Carolina. Thank you, Mr. Chairman. I 
have questions about a concern for adverse selections but they 
are not the same concerns about adverse selection you have 
heard from over there or that have been expressed from over 
there. There is no doubt that the problem that we have now was 
not caused by lenders trying too hard to make homeownership 
possible for people who would not otherwise qualify for 
traditional mortgages. The problem we have now was caused by 
predatory loans, loans that were designed to strip equity from 
homeowners as housing values appreciated.
    When I first came to Congress 5 years ago, subprime loans 
were about 8 percent of all mortgages. And the features that 
made most of them subprime did bear some kind of actuarial 
relationship to the risk, the greater risk that the borrower 
posed, although even back then, I think Freddie Mac estimated 
that 25 percent of subprime borrowers qualified for prime 
loans. In 2006-2007, the period that is causing our current 
problems, subprime loans jumped to 28 percent of all mortgages. 
And according to the Wall Street Journal, 55 percent of the 
borrowers in subprime loans qualified for prime loans. Ninety 
percent, 89 to 93 percent of those loans had an adjustable rate 
with a quick adjustment after just 2 or 3 years, usually a jump 
from about 7 percent, not really all that much of a bargain in 
the first place, and the increased premium might be 30 to 50 
percent. That was typical. Seventy percent had prepayment 
penalties. Those were loans that were obviously designed not to 
be paid, to become unpayable so that the borrower would have to 
come back and refinance, to have to borrow again and would have 
to pay a prepayment penalty to get out of the last loan, to 
have to pay points and fees to get into the next loan. They 
would never own their home outright. And if they stayed in that 
cycle for very long, they would lose their home.
    The most catastrophic have been those who have lost to 
foreclosure. Mrs. Capito said 2.2 million would lose their 
homes, now that is how many will lose their homes to 
foreclosure. That is how many people will be escorted from 
their home by the sheriff after a judicial sale of their home, 
but there are millions more who have still been victims of 
abusive lending practices, parasitic lending practices. If 
people still have some equity in their home, they can still 
sell their home, they do not have to have it foreclosed, they 
can get out, and in fact we have already seen the homeownership 
rate decline from what it was 3 years ago by about 1.4 percent. 
From 69.2 in the fourth quarter of 2004 to 67.8 in the fourth 
quarter of last year. When the numbers come out for the first 
quarter later this month, it will show a further decline in the 
second quarter, the third quarter, the fourth quarter, it will 
continue to decline. And those are families who have had their 
homes foreclosed and families who were able to get out by 
selling their home, but they have still lost their homes.
    In addition, and particularly since 55 percent of the 
people qualified for prime loans, there are a lot of people 
whose economic circumstances were not so fragile and they were 
able to refinance, and they have kept their home but they lost 
a big piece of the equity in their home of their life savings, 
their net worth, when they did it because of the loan that they 
were in.
    All the industry has been willing to do to this point has 
been voluntary. And all they have volunteered to do, when you 
look closely, has been to modify the mortgages where they knew 
they were not going to get paid, and they only agreed to modify 
the loans to take the most that they could possibly calculate 
they would get paid, a very careful calculation of how much 
they could possibly get paid and then that is what they agreed 
to take. And they announced this with great fanfare as if they 
expected a humanitarian award for it.
    I have no doubt that the loans that they will voluntarily 
sell will be the biggest problem for them, although they are 
taking a haircut, they are not going to sell us, the 
government, those loans unless they are pretty sure that they 
are going to come out better by selling those loans to us than 
they would if they kept them on their books.
    Now, there are a lot of other loans where they are still 
enforcing prepayment penalties. They are still taking the most 
they can. They are not modifying unless they have to. Should we 
agree to buy the worst loans without any expectation about the 
other loans? Should there be some link between buying these 
loans, the ones that they voluntarily sell to us at a discount, 
and how they act with respect to the other predatory loans that 
are still destroying the finances, taking the net worth of 
middle-class families.
    The Chairman. Let me just say in fairness to the witnesses, 
they were asked to testify about the piece about buying the 
foreclosed property, not the piece that we had the hearing on 
yesterday. These are specifically local officials, here to talk 
about buying foreclosed property, but if anyone wants to 
comment, please go ahead.
    Governor O'Malley. I will just say generally that I think 
that anything that you can do to put pressure on the servicers, 
on the lenders, to mitigate the damage that is being done would 
be helpful. We have not seen the degree of flexibility that 
should be given the magnitude of this crisis. I am not sure 
exactly what the reason for that is, but anything you can do to 
push them towards that would be helpful.
    Mayor Menino. Mr. Chairman, in the last several months, I 
have had some success dealing with the servicers. Initially, I 
brought them into my office and had a conversation with them 
about the magnitude of the problem, and we agreed at that time 
to have an event at one of our areas of the City to bring all 
the servicers in who are there, six of them, and the people who 
had mortgages. And during the course of the day, we were able 
to re-write a lot of those mortgages. If you saw some of those 
documents, that people who are making $60,000 have $4,000 a 
month in mortgages, and how that was going to increase in 2 
years, it was a disgrace how those mortgages were written. They 
were able to re-negotiate some of them. I hear the chairman is 
going to bring the servicers in, and I think you have to also 
get the banks to put some pressure on the servicers to come to 
the table, and I think you will get some reaction from the 
servicers as you move forward.
    The Chairman. The gentleman from Nevada?
    Mr. Heller. Thank you very much, Mr. Chairman. I appreciate 
your bringing this bill forward. I truly do believe that there 
is a government role in solving this particular problem, I am 
just not sure what it is today as we go through this piece of 
legislation. And I want to thank the panel for being here 
today, I truly do appreciate your input and it is very helpful 
in determining what direction we ought to go on this. But I 
would like to direct my questions towards the Mayor of Las 
Vegas, Mayor Goodman. As I look at some of these statistics 
that you have in your community, for example, and tell me if 
what you understand this is accurate. I know the first one is 
and that is averaging one foreclosure for every 154 households 
in Nevada. I know the national average is one in 555. But in 
Clark County, is it true that nearly one in 20 homes is in 
foreclosure?
    Mayor Goodman. I would say at least that.
    Mr. Heller. One in 20 homes?
    Mayor Goodman. Yes, Mr. Chairman.
    Mr. Heller. Also, more than 4,000 homeowners owe their 
lenders more than the current value of their property, is that 
an accurate assessment?
    Mayor Goodman. Those are accurate statistics.
    Mr. Heller. Because I am also aware that in Washoe County, 
foreclosures increased exponentially last year; 14 percent of 
the area's active homes for sale in December 2007 were bank-
owned homes. So the problem is not just in southern Nevada, 
obviously it is Statewide?
    Mayor Goodman. It is a Statewide problem, however because 
the bulk of the population is in the South and Clark County and 
Las Vegas, the problem is that much more exacerbated.
    Mr. Heller. Mayor, let me tell you what I think is part of 
the problem, and I do not think that we could have reduced to 
zero the problems that we have in Nevada, but what I am 
concerned about--and as I mentioned earlier, I think there is a 
government role in this as far as oversight is concerned. My 
concern is about 10 years ago, I worked with David Goldwater on 
a piece of legislation that would have put the mortgage 
industry under the Securities Act. If we would have done that 
10 years ago, and I am not asking you to respond to this 
because it is probably a pretty broad question, but feel free 
to respond if you want to, that is fine, but I do believe that 
our mortgage industry was very tight-lipped, there was not 
enough sunshine in the process.
    If you would have put the mortgage industry under the 
Securities Act, like most States, if not all States, except for 
the State of Nevada, what you have the ability to do is for a 
division in that office, the Securities Division, going once 
every 3 years to go audit the books to find out what kind of 
lending is in fact actually happening. And that was not 
happening in Southern Nevada nor anywhere else in the State of 
Nevada, that there was an agency that overlooked and was able 
to come in unannounced, audit these books, and determine what 
kind of lending practices were going on and whether or not the 
actual borrowers had all the information that they needed to 
make a decision. Are you aware of any pattern of this?
    Mayor Goodman. Mr. Chairman, I do not believe that there is 
any oversight into those practices. As much as takes place in a 
fast growing State like Nevada, and particularly a fast growing 
area of Las Vegas, one of our biggest problems is to regulate 
the activity that takes place in our community. We just went 
through, as you know, a horrible experience with an endoscopy 
clinic, and we were criticized as not having appropriate 
supervision and oversight into that, and that happens in a lot 
of areas in our State. Would it have been caught? Perhaps had 
we had those kind of reporting requirements as you would under 
securities but there is no guarantee even under that set of 
circumstances or that scenario--
    Mr. Heller. Right.
    Mayor Goodman. --that it would have been picked up.
    Mr. Heller. Yes, I do not think we could have zeroed it out 
but I will tell you that these--
    Mayor Goodman. No, with all due respect, I do not think 
anybody saw it coming. That is the problem. If we saw it 
coming, then I could fault us, but it sort of happened 
overnight. I was sitting in a casino with one of the casino 
owners, who was talking about borrowing $250 million for an 
improvement to that casino, and he had been advised that day 
what had happened as far as the subprime was concerned and 
without blinking an eye, he said, ``That is the end of that 
project.'' That is how quickly it happened. And, unfortunately, 
something we have not talked about today, and I think the 
record should at least reflect some of this, this certainly is 
not a quick fix no matter what is happening here. The effects 
are going to linger for a substantial period of time.
    One of the areas that concerns me greatly is that somebody 
might receive assistance under this bill who has already had an 
adverse report concerning their credit, which will stay with 
them for an indefinite period of time because of their 
inability to have met the payments on their mortgages to this 
date. And that seems to me to be a penalty that is unwarranted, 
particularly for the owner-occupied people who are involved.
    Mr. Heller. Yes, well, I will tell you, Mayor, I was 
concerned 10 years ago.
    The Chairman. We will have to finish up this comment. We 
are over time too. Finish the comment, if you wish.
    Mr. Heller. Okay, but I was concerned 10 years ago about 
the lending practices in the State of Nevada, and I think at 
the time I called it the ``ultimate Ponzi scheme'' that we were 
seeing in the State of Nevada. So I will yield back and ask 
questions later.
    The Chairman. Thank you. We will have another panel. Mayor 
Goodman, I know you have to leave, so you leave when you have 
to. And, Mayor Menino, if any of our three officials, can you 
stay any longer any of you, or do you all have to leave?
    Mayor Goodman. Unfortunately, Mr. Chairman, I have to catch 
a plane.
    The Chairman. Well, go ahead.
    Mayor Goodman. I am going to have to leave. I want to thank 
you very much for giving us the privilege of appearing here.
    The Chairman. You are welcome. Mayor Menino?
    Mayor Menino. Mr. Chairman, I have to catch a plane also 
back to the city.
    The Chairman. Governor?
    Governor O'Malley. I have to catch a rocket back to 
Annapolis, Mr. Chairman.
    [Laughter]
    The Chairman. We will have a second panel. Let me say to my 
colleagues, I regret that we were held up by the swearing-in, 
so I am going to excuse this panel and the next panel will come 
in. We will begin the questioning of the next panel where we 
left off on this one, so my colleagues who have just come in 
will be the first to question. The panel is excused.
    As the next panel comes forward, I would ask unanimous 
consent to put into the record a letter dated April 9th from 
William Gross, who is the co-chief investment officer and 
Muhammad Arian, who is the co-chief investment officer from 
PIMCO, in support of the concept that we talked about 
yesterday. So without objection, that will be made a part of 
the record. It is a letter to Senator Dodd, which we will put 
in the record on this issue.
    And for our next panel, our representatives of business and 
advocacy and public agencies that deal directly with the 
housing crisis, we will begin with Mr. Doug Garver, who is 
executive director of the Ohio Housing Finance Agency.
    Mr. Garver?

  STATEMENT OF DOUG GARVER, EXECUTIVE DIRECTOR, OHIO HOUSING 
  FINANCE AGENCY, ON BEHALF OF THE NATIONAL COUNCIL OF STATE 
                    HOUSING AGENCIES (NCSHA)

    Mr. Garver. Chairman Frank, Ranking Member Bachus, and 
members of the committee, thank you for the opportunity to 
testify on behalf of the National Council of State Housing 
Agencies in support of your Economic, Mortgage and Housing 
Rescue bill. NCSHA is grateful to you, Mr. Chairman, for this 
important legislation and for all you are doing to soften the 
impact of today's housing crisis on working families, 
communities, the housing market, and the economy. This 
legislation will help keep families in their homes and put 
foreclosed properties back into productive use.
    NCSHA represents the housing finance agencies of the 50 
States, the District of Columbia, Puerto Rico, and the U.S. 
Virgin Islands. State HFAs issue tax-exempt housing bonds and 
allocate the Low-Income Housing Tax Credit to finance 
affordable homes in every State. More than a dozen HFAs have 
established mortgage refinancing programs to help homeowners at 
serious risk of foreclosure hold onto their homes. I testified 
before this committee last year on Ohio's Opportunity Loan 
Refinance Program.
    OHFA and other HFAs have experienced disappointingly little 
volume under these programs. Many troubled homeowners simply 
cannot refinance their mortgages because they are too far 
behind on their current mortgage payments, have weak credit, or 
have outstanding mortgage obligations that exceed the value of 
their homes. I can tell you from our experience in Ohio that 
unfortunately, many people confront a combination of these 
challenges. Your legislation's FHA Homeownership Retention 
Mortgage Program would help lower some of these hurdles.
    NCHA suggests the committee consider the following 
modification to the legislation's FHA Refinancing Program to 
encourage lender participation and potentially help a broader 
spectrum of homeowners. We recommend you permit higher loan to 
value ratio mortgages to encourage more lenders to participate 
by offering them greater loan payoffs. We also suggest you 
expand the number of eligible mortgages by including loans 
originated before 2005. Lenders in many States, including Ohio, 
began originating subprime mortgages in significant numbers as 
early as 2001.
    Before troubled homeowners can be helped, they must be 
reached and educated about their options. State HFAs are doing 
their part to assist homeowners facing mortgage payment 
difficulties by conducting Statewide outreach campaigns and 
providing foreclosure mitigation counseling. For example, 
NeighborWorks, through last year's congressional appropriation, 
awarded $39 million to 32 HFAs, including OHFA. NCHA strongly 
supports the $200 million in loss mitigation counseling funds 
this bill authorizes for both this year and next and urges its 
quick appropriation.
    Sadly, despite the best efforts of State HFAs and others to 
help troubled homeowners keep their homes, many will still lose 
theirs. Foreclosure rates are up significantly and are still 
rising in many parts of the country. State HFAs, partnering 
with local communities and nonprofit groups, are working 
aggressively to turn this foreclosed property crisis into an 
opportunity for low- and moderate-income working families. In 
Ohio, our board's multi-family committee just yesterday gave us 
the green light to move forward with a pilot program making up 
to $4.5 million available in agency funds and State housing 
trust fund monies to six neighborhoods in Cleveland, the 
epicenter of the foreclosure crisis, as you have noted, Mr. 
Frank, and the Nation.
    This is yet another example of State, city, and local 
nonprofit organizations working together to build a stronger 
Ohio. However, our funds and those of other HFAs are inadequate 
to deal with the huge scope of the foreclosure problem. Your 
legislation's proposed State Loan and Grant Program would 
significantly strengthen and expand State HFA initiatives in 
this key area. Based on our experience with similar programs, 
State HFAs believe it is important for Congress to understand, 
however, that the full repayment of these loans in the short 
term, and even possibly over the long run, may not always be 
possible. Continued home price depreciation and high 
rehabilitation costs will likely make it difficult in some 
cases to re-sell properties for what States and their local 
partners may need to pay for them. We are seeing that firsthand 
in the initiative we are looking at in Cleveland.
    We are concerned the bill's purchase price limit will 
constrain the program from serving people who really need help 
and stabilizing economically integrated neighborhoods. We 
suggest you increase this limit to at least conform with the 
Mortgage Revenue Bond Program.
    Finally, we understand the bill requires 6 months of 
payments before insurance endorsement for new loans with total 
debt to income ratios greater than 40 percent. Delaying 
endorsement for new mortgages will make it much more difficult 
for HFAs to include them and their bond-financed mortgage 
programs, we recommend you permit flexible underwriting 
standards without the 6-month delay.
    Mr. Chairman, thank you again for the opportunity to 
testify in support of this important legislation.
    [The prepared statement of Mr. Garver can be found on page 
76 of the appendix.]
    The Chairman. Thank you. Next, we have Mr. David Lizarraga, 
who is chairman of the United States Hispanic Chamber of 
Commerce. The gentlewoman from California would like to 
introduce Mr. Lizarraga.
    Ms. Waters. Thank you for an opportunity to introduce Mr. 
David Lizarraga. He is founder of the one of the biggest CDCs 
in the country, TELACU. He now services at the Hispanic Chamber 
of Commerce. He has long been involved in providing housing 
opportunities for low- and moderate-income people, and I would 
like to welcome him, and I thank him for coming.

   STATEMENT OF DAVID C. LIZARRAGA, CHAIRMAN, UNITED STATES 
              HISPANIC CHAMBER OF COMMERCE (USHCC)

    Mr. Lizarraga. Thank you very much. Chairman Frank, Ranking 
Member Bachus, Congresswoman Maxine Waters, and members of the 
committee, good afternoon. My name is David Lizarraga, and I am 
the chairman of the United States Hispanic Chamber of Commerce. 
The USHCC represents the interests of 2.5 million Hispanic 
entrepreneurs in this country today. We are honored to be 
invited to share our views on the housing market with the 
committee, and in particular its impact on the economy and what 
can be done to cushion the negative impact of this economic 
downturn.
    As a business organization, the USHCC believes in a free 
market, but the magnitude of this situation is so great and the 
impact so severe that we believe that the market cannot correct 
itself without seriously jeopardizing our economy.
    In representing both entrepreneurs and the Hispanic 
community, we see a convergence of interest: Underserved 
communities and small businesses are some of the biggest losers 
in the current market crisis. The fact is that the home is 
often the first substantive asset held by members of 
underserved communities such as ours. Therefore, foreclosures 
and losses in home value constitute a loss and perhaps the only 
substantial asset contributing to the net worth of most members 
of our Hispanic community. This results in a lack of equity to 
pay our retirement or our children's college education. Also, 
the results of lack of collateral for business loans, even SBA 
loans, and a general decline in the financial stability and 
security of our community are really, really impacting us.
    In this regard, we are also very concerned that this crisis 
is deeply affecting small and minority business owners who use 
their home equity to secure loans to help finance the 
establishment or expansion of their businesses. Unlike many 
corporations that are outsourcing jobs to foreign countries, 
our small businesses are the largest employers and job creators 
in the United States today.
    Many of these small and minority business owners are now in 
jeopardy as a result of rapidly cascading home values. In light 
of this situation, and in order to further improve the relief 
of this legislation, we believe it is critical for the 
committee to take into full consideration the needs of these 
borrowers who have subordinated debt secured by their homes.
    Earlier this year, the United States Hispanic Chamber of 
Commerce called for further economic stimulus and investment in 
order to reverse the downward course of our economy and bring 
us back to economic growth and stability. While as a national 
business membership organization, we are inclined to push for 
less regulation in the economy, we recognize that our Nation is 
facing extraordinary circumstances that require extraordinary 
measures. This is why we now support Federal legislation, such 
as the chairman's draft FHA Housing Stabilization and 
Homeownership Retention Act, in order to bring stability to our 
economy. In addition to the other provisions in the bill, we 
support the chairman's proposal to provide $10 billion in loans 
and grants for the purchase and rehabilitation of vacant 
foreclosed homes.
    With regard to the 25 percent State relief and mitigation 
grants program, we fully support your proposed initiative as 
critically needed. Additionally, adding a sentence to foster 
private sector leverage of these proposed funds for the 
purchase of foreclosed and vacant properties will result in 
long-term benefits for our underserved communities across the 
Nation.
    While testifying today as chairman of our membership 
organization, I also preside over one of America's oldest, 
largest, and most successful community development 
corporations, TELACU. In many of our activities, we have worked 
together with lenders, insurance companies, local small- and 
minority-owned businesses, government agencies at all levels, 
and many others to advance private/public partnerships that 
have dramatically altered the economic dynamics in many low- 
and moderate-income communities. These partnerships have helped 
to revitalize urban neighborhoods and rural areas by creating 
vibrant hubs of economic activity and thousands upon thousands 
of jobs, homes and small- and minority-owned enterprises. My 
written testimony attempts to address how such partnerships can 
be useful in the current crisis and its aftermath.
    We welcome the opportunity to work with you, Mr. Chairman, 
and the committee to help ensure that States receiving grant 
and loan assistance under this proposed program will have 
incentives to foster these same types of private/public 
partnerships, resulting in a $10 billion program being 
leveraged to serve a need that is actually many tens of 
billions of dollars.
    In conclusion, the United States Hispanic Chamber of 
Commerce lends its support to the chairman's proposal as a 
means to bring stability to our shaken housing and credit 
markets, and we also appreciate your consideration of our 
recommendations as you further deliberate on this legislation. 
Thank you again for inviting our organization here today.
    [The prepared statement of Mr. Lizarraga can be found on 
page 86 of the appendix.]
    The Chairman. Thank you, Mr. Lizarraga. Let me make it 
explicit that what we had the hearing on yesterday and today, 
the two parts of this, is explicitly and deliberately labeled a 
discussion draft. We will probably be introducing something 
next week that we will be marking-up 2 weeks from now, and all 
the witnesses are people whose opinions we value, and so this 
is very much something where we will be taking these 
recommendations into account.
    Our next witness is a familiar and welcome witness before 
the committee in the very important issue of housing for people 
with low income, Sheila Crowley, who is president of the 
National Low Income Housing Coalition.

 STATEMENT OF SHEILA CROWLEY, MSW, PH.D., PRESIDENT, NATIONAL 
                  LOW INCOME HOUSING COALITION

    Ms. Crowley. Thank you, Mr. Chairman. Chairman Frank, 
Ranking Member Capito, and Chairwoman Waters, thank you very 
much for the opportunity to testify today. The major concerns 
of the National Low Income Housing Coalition in this 
foreclosure crisis are with the fate of low-income families and 
with the fate of renters. The lower a household's income, of 
course, the less able it is to cope in the face of foreclosure. 
And renters who have the misfortune of having landlords who 
lose their property to foreclosure are the completely blameless 
victims in this catastrophe.
    Unfortunately, the data on income of families affected by 
foreclosure are not collected in any public form that makes 
examination easy, but we do have some indicators, which I have 
detailed in my written testimony. These data support the 
numerous news reports that renters are a significant portion of 
families who are losing their homes due to foreclosure. We are 
using the working estimate at this point of 40 percent of the 
people who are evicted are renters.
    The data also support reports from local service providers 
that very-low- and extremely-low-income families are a 
significant portion of those who are losing their homes. A 
working estimate for very-low-income, is 50 percent of the 
families are in that category and for extremely-low-income, it 
is 20 percent.
    The first policy implication of this information is the 
need to provide better protection for renters. There is 
considerable variation from State to State on the rights of 
renters when the owners of their homes lose their properties to 
foreclosure. Some States have enacted tenant protection laws 
that give tenants a reasonable time to relocate, others have 
not. I received a report just this week from two families in 
Alaska who became homeless after losing the homes they had 
rented due to foreclosure with just 7 days notice. Although 
renter protection language was included in H.R. 3915, which has 
already passed the House, this provision would only be 
applicable if the mortgage on the rented property was entered 
into after enactment. Current tenants should be protected as 
well, and we urge you to take up this issue.
    Another top public policy objective should be to prevent 
homelessness due to foreclosure. Lower-income families faced 
with eviction lack the resources to transition to new living 
arrangements. They may not have the immediate funds to pay for 
moving expenses or security deposits. Homelessness is highly 
traumatic for families who experience it and it is much more 
costly than the modest amount of assistance needed to prevent 
it. We recommend a one-time supplemental appropriation of $300 
million to the Emergency Food and Shelter Program to provide 
direct financial assistance to be used solely for housing-
related assistance needed to prevent homelessness in connection 
with foreclosure. Our proposal would provide $3,000 in 
assistance for 100,000 families. It would seem to be the least 
we could do--$30 billion for Bear Stearns, $3,000 for a low-
income family.
    In regard to Title 3 of the proposed legislation, we have 
previously submitted to Chairman Frank several recommendations 
to strengthen this provision. Giving States and cities the 
ability to buy foreclosed homes and put them back into service 
makes good sense. However, the program should be designed to 
address the most pervasive and longstanding housing problem of 
every community, the well-documented shortage of affordable 
rental housing. Thanks to Mr. Watt for pointing that out in his 
opening statement.
    Nationwide, there are just 38 rental homes that are 
available and affordable for every 100 extremely-low-income 
families. As Ms. Waters noted, the competition for affordable 
rental homes is intensifying as families who have lost their 
homes to foreclosure flood the rental housing market. We need 
to expand the supply of affordable rental housing so that the 
people at the bottom of the wage and income ladder will not be 
squeezed out of the housing market altogether. Therefore, we 
recommend that at least 25 percent of the proposed $15 billion 
in grants and loans be for the benefit of very-low- and 
extremely-low-income households. We are delighted with Ms. 
Waters' announcement earlier that agreement had been reached. 
We also urge that the use of these grants and loans minimally 
not result in a net loss of rental housing units in any 
jurisdiction that receives this assistance.
    Let me close with a plea for balance. There is plenty of 
blame to go around for the U.S. mortgage foreclosure crisis, 
including those who have uncritically proclaimed homeownership 
as the idealized form of housing tenure in the United States. 
The rhetoric on homeownership in a political era that favored 
an unregulated market created a fertile environment for risky 
and unscrupulous lending practices to flourish. A social 
environment saturated with messages that have propelled low-
income people to seek homeownership at all costs has also 
delivered the corollary message that rental housing is 
inferior.
    The interventions that you devise for this immediate crisis 
should not be for the purpose of just restoring the status quo. 
The U.S. housing market is in desperate need of re-balancing. 
Purchase prices need to make financial sense. Cost and incomes 
need to be more in sync. Homes need to be reasonably sized and 
better for the environment. Communities need to make sure that 
housing stock, including rental housing, matches the needs of 
the people who live there. Tax policy needs to reward 
moderation, not excess. And housing needs to be understood more 
as the place where one is sheltered and carries out family life 
and less as a financial asset.
    I urge you to use this galvanizing moment that has the 
potential of producing significant policy changes to lead the 
way to more balanced housing policy and a more balanced housing 
market.
    Thank you very much for your consideration of my remarks.
    [The prepared statement of Ms. Crowley can be found on page 
65 of the appendix.]
    The Chairman. Next, another welcome, frequent witness 
before this committee on important issues, Hilary Shelton, who 
is the director of the Washington Bureau of the NAACP.

  STATEMENT OF HILARY O. SHELTON, DIRECTOR, NAACP WASHINGTON 
                             BUREAU

    Mr. Shelton. Thank you, Mr. Chairman. Good afternoon. As 
you mentioned, my name is Hilary Shelton, and I am director of 
the NAACP's Washington Bureau.
    I am here today to express our strong support for the draft 
legislation spearheaded by Chairman Frank, which would enable 
the Federal Government to help troubled homeowners save their 
homes. This proposal is especially important to the NAACP since 
a disproportionate number of subprime loans, which are at the 
heart of the massive wave of foreclosures that our Nation is 
currently facing, were made to African Americans and other 
racial and ethnic minorities.
    The NAACP firmly believes there is so much the Federal 
Government can do and should do to address the current 
foreclosure crisis. First, we fell it is incumbent upon the 
Federal Government to help families facing foreclosure to be 
able to stay in their homes, which I believe is the intent of 
this legislation. Homeownership makes the neighborhoods safer 
and encourages community investment, provides financial 
security, and improves the lives of families by helping to 
provide a safe, secure, and stable home environment. By 
enabling the Federal Government to ensure and guarantee 
refinanced, sustainable, and affordable mortgages, Congress and 
the Administration will be assuring homeowners, as well as the 
American public, that families are as important to lawmakers as 
large corporations and financial institutions.
    In addition to helping consumers, the NAACP also considers 
the proposal before us a win for lenders. Although they must, 
under Chairman Frank's plan, take a diminished return on the 
properties, they are no longer responsible for the foreclosed 
properties and are assured of getting some return on their 
investment.
    Finally, such an action, as proposed by Chairman Frank, 
would also help the national economy, which is currently 
suffering tremendously because of the foreclosure crisis.
    A second step which the NAACP believes is imperative for 
the Congress to take is to pass substantive legislation to put 
an end once and for all to predatory lending. For decades, 
predatory lenders have targeted African Americans and other 
racial and ethnic minorities and the elderly through steering 
and other immoral practices with dubious products that contain 
prepayment penalties, the so-called exploding ARMs, and the 
list goes on and on. In fact, according to the Center for 
Responsible Lending, more than 52 percent of homes purchase 
loans made to African Americans in 2006 were subprime.
    Let's consider the facts for a moment. Among subprime loans 
made in 2005 and sold to investors, 55 percent went to people 
with credit scores high enough to often qualify for 
conventional loans with far better terms. By the end of 2006, 
the share of overpriced loans rose to 61 percent. As a 
conservative estimate, one in 10 African-American homeowners 
who received subprime loans in recent years will lose their 
homes to foreclosure. The subprime market has not increased 
homeownership for the communities of color. In fact, subprime 
loans made between 1998 and 2006 produced a net loss of 
homeownership. In 2004, African-American homeownership peaked 
nationally at 49.1 percent but by the end of 2006, it dropped 
1.2 percentage points to 47.9 percent. The subprime mortgage 
crisis will drain $213 billion in African-American wealth, the 
greatest loss of wealth in modern in U.S. history.
    A report issued last year by the Center for Responsible 
Lending estimated that one out of every five mortgages that 
originated during the last 2 years will end in foreclosure. 
This means that the effects of years of predatory lenders 
targeting African Americans and other racial and ethnic 
minorities will now begin to hurt not only the borrowers but 
also their neighbors and their communities as homes are 
foreclosed upon in record numbers and those numbers will be 
concentrated in African-American communities and other 
communities with high concentrations of racial and ethnic 
minorities.
    Foreclosures ruin lives, families, and communities and 
cause economic devastation throughout. For many, homeownership 
means the difference between spending their golden years in 
either poverty or comfort, yet a predatory mortgage or 
refinancing can ruin all these dreams and more. And for the 
communities, the foreclosures that will result because of 
targeted predatory lending can mean devastation. One study 
estimated that for every home that is foreclosed on in a given 
block, the other homeowners on that block lose 1.14 percent of 
their property's value.
    So I will close by thanking the chairman and the committee 
for your efforts and to reiterate our support for the 
legislation before us. On behalf of the NAACP, we look forward 
to working with you on this proposal and others that will 
effectively address the foreclosure crisis facing our Nation. 
Like you, we want to help America's families stay in their 
homes.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Shelton can be found on page 
101 of the appendix.]
    The Chairman. And finally, Mr. Victor Burrola, who is the 
director of the Homeownership Network of the National Council 
of La Raza.

 STATEMENT OF VICTOR BURROLA, DIRECTOR, HOMEOWNERSHIP NETWORK, 
                  NATIONAL COUNCIL OF LA RAZA

    Mr. Burrola. Good afternoon. My name is Victor Burrola, and 
I am director of the NCLR Homeownership Network. In this role, 
I oversee our daily activities with 50 housing counseling 
groups across the country. I would like to thank Chairman Frank 
and Ranking Member Capito for inviting me to participate in 
this panel.
    Every day, I hear from our counselors about their battle to 
save the homes of families. Unfortunately, despite their skill 
and best efforts, there are many families they cannot help. We 
commend you on this legislation. For many victims, the programs 
laid out in the bill may be their only hope.
    Today, I would like to share with you five challenges 
community groups are dealing with. I will also share with you 
our thoughts on the proposed legislation, and I will end with 
recommendations.
    Before I start with the challenges, I would like to share 
with you a recent story from our group in Georgia. They had a 
family that recently had their hours cut at the local factory. 
This should have qualified them for a hardship loan 
modification, one of the easiest and least controversial kinds 
of modifications. The counselors of Don Whitfield submitted all 
the paperwork to the servicer, but the company never responded 
to their request or returned their phone calls. When the family 
was days away from losing their home, the servicer finally 
contacted the agency. Unfortunately, their news was not so 
helpful. They told the family that they did qualify for a loan 
modification, however, because of the late hour, the family had 
to come up with an additional $2,000 in legal fees. The couple 
had already scraped together all of their savings to pay 2 
months of back payments as required by their modification. Due 
to the servicer delays, the plan became unaffordable. The 
family lost their home through a foreclosure option.
    The story of this Etta family is familiar, and it is what 
we are seeing across the country. Many of our families could 
afford to pay a mortgage if it was affordable. Industry players 
point to data stating many families in foreclosure never 
reached out to their servicer. It is our experience that most 
servicers cannot respond to the calls quickly enough to avoid 
foreclosure, even when a family is working with a housing 
counselor.
    I could tell you multiple stories of this kind of 
malpractice, instead I will turn to the barriers community 
groups face when serving foreclosure victims.
    First, voluntary loan modification programs are not 
working. Many servicers are relying on short-term payment 
plans. This is just a Band-Aid. The mortgage will be just as 
unaffordable when the extension expires.
    Second, we need more capacity and support. Not only is the 
demand for our services increasing but so is the demand for 
related services like homeless shelters and legal aid.
    Third, foreclosure rescue scams are competing with 
legitimate housing counseling agencies. Troubled homeowners are 
easy targets for these scam markets. They charge high fees and 
make unrealistic promises to save the home from foreclosure.
    Fourth, our neighborhoods are in decline. Communities are 
struggling to keep up with the growing number of vacant homes. 
Many cities not only lack the funding to maintain the 
properties, they also do not have the technical expertise to 
address the problem.
    And, finally, we are seeing homeownership opportunities dry 
up. We are seriously concerned about the impact the credit 
crunch will have on low-income borrowers.
    In general, we are supportive of the concepts included in 
the bill. In our written statement, we comment on key areas of 
the bill that must be preserved moving forward.
    In the interest of time, I would like to turn to three 
areas where we believe the bill comes up short. First, the lack 
of capacity to the pay standard will not work. In particular, 
the cut-off date of March 1, 2008, would leave a significant 
segment of our community out of the program.
    Second, some of the timelines are too tight, for example, 
the 2-year sunset in Title III. Certain mortgages are not 
expected to peak until the next 2 years, so the need for 
neighborhood stabilization activities will continue for several 
years past the sunset.
    Third, the bill does not recognize the critical role of 
neighborhood organizations. Community groups specialize in 
local development and preparing families for homeownership. We 
know that when the right tools and partnerships are in place, 
foreclosures can be stopped.
    We look forward to working with the committee and others on 
these issues.
    Allow me to close by making four recommendations: Extend 
the eligibility cutoff date; allow for more flexible timelines; 
create a set aside for local nonprofits; and investigate 
foreclosure rescue scams.
    Thank you for your time and this opportunity, and I would 
be happy to answer any questions you may have.
    [The prepared statement of Mr. Burrola can be found on page 
57 of the appendix.]
    The Chairman. I thank the panel. Let me reiterate that this 
is really open, these are the kinds of suggestions we are 
looking for. I would like to say that the last of those is not 
legislative obviously, looking into the scams. The committee 
has limited investigative resources, but we will be urging 
others to be doing that. But the substantive suggestions are 
very much what we are looking for, and the gentleman from 
California has already anticipated some of these and other 
members have, the gentleman from North Carolina, so I think you 
will see that some of these will be adopted.
    Mr. Burrola. Thank you.
    The Chairman. As I announced, I am going to begin where we 
left off, because we were not able to get everybody in the 
first panel, so the first questions will come from the 
gentleman from Georgia.
    Mr. Scott. Thank you, Mr. Chairman. Let me start out by 
first of all congratulating you, Mr. Chairman. Our Chairman 
Frank has done an extraordinary job in crafting and coming up 
with a very, very good piece of legislation that hits at the 
critical and crucial need of providing relief for the 
homeowners and families.
    We recognize fully in this committee that too many 
homeowners, too many American people, millions literally, are 
just hanging on by their fingernails. This, as I said 
yesterday, is the most critical economic crisis since the 
Depression, and we must not let this generation of Americans 
down just as Franklin Delano Roosevelt and those Members of 
Congress rose to the occasion to save America. Had it not been 
for that kind of very incisive, well-timed, critical public 
policy of the government getting involved and coming and doing 
what the government is in place to do, and that is to fix a 
very terrible situation. And so I commend you, Mr. Chairman, 
for what you have put forward here, and I want to see, as the 
chairman just mentioned, how we can even strengthen this bill 
moving forward.
    You know from the arguments from the other side of the 
aisle that this is not going to be an easy challenge. There are 
philosophical differences just as there were during the 
Depression, but the American people are the final arbiters on 
this, and they are demanding action. And, as I said before, 
yesterday, if we move with the kind of speed and just total 
full speed ahead, and in a matter of hours, we made the 
decision to bail out Wall Street. And we did that, in my 
estimation, properly. And that was a role that government had 
to play because I believe world markets would have collapsed 
from that. And with that same eagerness, with that same energy, 
with that same urgency, we must move to help these homeowners 
and families.
    So with that, I just wanted to make that comment, Mr. 
Chairman, because I think you have a good bill here, we are 
moving forward with it, and we are open to how it can be 
improved.
    Now, I would like to just ask a few questions. I am 
concerned that we may not be moving fast enough and that this 
bill might need to have some features added to it. I am very 
concerned about any families and homeowners who might fall 
through the cracks. I think we might want to address that 
because so many of these investors that have bought up these 
mortgages are very hesitant to refinance and restructure, and I 
would like to see if there is something in this bill that we 
can do that can make sure that they do not fall through the 
cracks. I think that there might be also the idea, if it gets 
down to the bankruptcy level, that we may assure a bankruptcy 
judge can have that authorization to demand that these 
mortgages be refinanced and restructured, lowering the 
principal as well as the interest and taking into consideration 
what the chairman has been saying a long time ago, that we 
should understand the lowering the property values and the 
value of that home is less than it was when they purchased the 
mortgage so that we have to take that into consideration as 
well and perhaps have that bankruptcy judge be able to make 
that determination.
    I wanted to just ask, if I may, my time I know is wrapping 
up, and I thought you made some very good points, all of you 
good points, Mr. Shelton and Mr. Burrola. What would you 
suggest that we do to address your three concerns--I think your 
three concerns were the March cutoff date, for example, what 
date do you think would be sufficient for that? The sunset 
provision, which I think you are right because some of these 
things are going to come through in the next 2 or 3 years, how 
would you apply--how would we write in the bill to increase the 
neighborhood involvement that you are talking about?
    Thank you for your patience, Mr. Chairman.
    Mr. Burrola. We had an internal discussion, and we were 
proposing that 5 years would be an adequate time to capture the 
people that we think are going to reset within that 2-year 
period. And that data is from the Credit Suisse. It was a 
presentation that was given to us, and so I would be happy to 
show that to you so you can see that. So the 5-year period, I 
think, would be an amount of time to get a good handle on what 
is going on in the reset period.
    We also discussed a set-aside for the nonprofits. What we 
are concerned about is that when the money is released, that 
businesses that are used to doing REOs or large corporations 
and whatnot may take a lot of the funds, and so we just want to 
make sure that the nonprofits who are dealing with the families 
on a day-to-day basis who understand and are impacted because 
they are in the community are able to tap into those funds to 
help out.
    The Chairman. Thank you. I think we did intend to have a 
nonprofit requirement in there. We will have to maybe improve 
its specificity. The gentleman from Ohio?
    Mr. Wilson. Thank you, Mr. Chairman.
    The Chairman. I am sorry, the gentlewoman from Ohio. We 
have to go in order.
    Mr. Wilson. I am sorry. I just heard ``Ohio.''
    Ms. Pryce. Well, thank you, Mr. Chairman, and I thank the 
gentleman from Ohio. I am sure that many of our concerns are 
the same. And I want to thank the panel for your very 
thoughtful testimony today. We all agree that much has to be 
done. I think there will not be agreement on everything, but 
one thing I would like to address right now is one thing we do 
not want to do is make this situation worse. And we as a 
Federal Government oftentimes propose a one-size-fits-all 
solution, and my State of Ohio and Mr. Wilson's State of Ohio 
and Mr. Garver's State of Ohio perhaps have different 
challenges than the State of California or the State of 
Florida, just to name a few others. So I would like any of you, 
and especially Mr. Garver if you could, to help us understand 
how the formula might work. The Midwest has more moderate 
median home prices. And our committee or the chairman's mark 
proposes to use the $10 billion for loans and grants to the 
States and it is based on a formula that looks at the State's 
percentage of nationwide foreclosure and it is adjusted for the 
median home price. Now, the Senate has a different approach, it 
takes into consideration a number of different things, the 
number and percentage of home foreclosures, the number and 
percentage of homes financed by subprime mortgages, and the 
number and percentage of homes in default or delinquency in 
each State. I do not know, is this more advantageous to the 
overall picture? I am looking at Rust Belt States where I am 
from, and Mr. Garver or any of you who would like to comment on 
that, do you think the formula should be more specific?
    Mr. Garver. I will take the first shot at that if I could, 
Congresswoman Pryce. I think it is a good observation on your 
part, we have been living and breathing in Ohio this 
foreclosure crisis issue for years now. And we have our 
champions, Jim Rokakis, treasurer of Cuyahoga County, and many 
of his cohorts have been dealing with this for years. And you 
travel around our great State and you see firsthand the fallout 
from this whole situation. While most certainly we do not want 
look a gift horse in the mouth and would appreciate any 
resources that might come to help us work with this. As I said 
in my testimony, we look at it as a partnership.
    The Federal Government, the State government, the local 
communities, and I know speaking for OHFA and for my colleagues 
at other State HFAs, we drive that partnership all the time. We 
look for that. We know we cannot be the be-all, end-all, but 
the reality is when you look at a State like Ohio, which has 
been dealing with this problem for a long time, you need a 
bigger snapshot. You need to look at things like the number of 
subprime loans, at foreclosure statistics, at default and 
delinquency statistics to really get a better understanding of 
what is going on on a State-by-State basis, and our argument 
would be obviously that Ohio was hit early and hit hard and 
that this legislation and the assistance that it might provide 
should focus on those States that have really been hit hardest 
and try and direct as much resources so that we can work with 
our counterparts at a local level to really start to address 
this problem and start to bring some sense of stability to 
neighborhoods, communities, and obviously to help homeowners.
    Ms. Pryce. Anybody else on the panel want to comment or 
disagree with Mr. Garver?
    Ms. Crowley. Well, I would like to agree. One of the 
recommendations we have had is to look at a longer period of 
time in terms of the data precisely because States like Ohio 
have been grappling with this for some period of time and so 
that would reflect that reality if we looked back in time 
further than is currently recommended.
    We also think it is important to make sure in looking at 
the housing stock, that you look at the totality of the housing 
stock, so not just not the median price of single family homes 
but also multi-family properties. And one of the things that is 
a variable that we are really trying to get a good handle on to 
show the depth of the problem is to look at the difference 
between the numbers of properties in foreclosure and the number 
of units of housing that are represented by that. What we are 
finding is that it is a substantially higher number when you 
look at total homes versus actual properties, and we think 
those should be included in the formula as well.
    Ms. Pryce. Thank you. Thank you, Mr. Chairman.
    The Chairman. Mr. Cleaver?
    Mr. Cleaver. Thank you. I have a couple of questions, the 
first, yesterday, I unfortunately sought to convey to one of 
our witnesses and some of my colleagues the feeling on the part 
of a lot of people, at least maybe I just live in a unique spot 
in the world, who believe that our government, the Federal 
Government, has a history of and continues to provide 
assistance most readily for those who need it. My colleague Mr. 
Scott's comment about the bailout of Bear Stearns and we did 
that quickly but there seems to be, at least to the little 
piece of geography that I represent, a tendency of the Federal 
Government to do that. I am wondering if in real worlds where 
you live there is a sentiment that we responded quickly to Bear 
Stearns, and we do a tortoise pace as it relates to the general 
public?
    Mr. Burrola. I would say so. And you have to understand the 
perspective. You know, like I said, I have calls with our 
counselors all the time, and so when a family is losing their 
home and they see in the paper what's going on with the 
financial sector and they have a problem just even in getting a 
response from a servicer at times for customer service, and 
you're in a tough situation like that, you know, of course, 
there's a lot of resentment there, so. I would say, yes, 
definitely, you know--
    Mr. Cleaver. Well, there is a perception--
    Mr. Burrola. Why is it--yes. Why is it for them, but why 
not for us?
    Mr. Shelton. And I think--
    Mr. Cleaver. Mr. Shelton?
    Mr. Shelton. I would simply add to that that the African 
American community, walking out of your door and seeing all the 
For Sale signs of your neighbors and knowing that your property 
is depreciating at that rate, it's incredible to know that what 
you have invested in your home now is actually--the home is 
actually worth much less than you owe on that home, is 
outrageous.
    But to take it a few steps further, to know that the 
bailouts that are available would allow a restructuring of 
loans of those who need to restructure the loan for their yacht 
and for their mortgage company, their financial institution, 
but the American family cannot enjoy the same kind of 
protections is absolutely outrageous. You can imagine how 
Americans feel that they're not really part of the equation, 
part of the real concern that's being debated not only on 
Capitol Hill but even in our newscasts and television stations 
across the country.
    Mr. Cleaver. Thank you.
    Mr. Lizarraga. I would also like, if I may, I would also 
like to add that I agree with Mr. Shelton. One of the things 
that we see is the ability for government to respond very 
quickly in very unique areas, and we're talking about a 
national disaster here. This needs to be treated as a national 
disaster, because all the gains that have been made over the 
last 15 or 20 years to get people to build equity, to buy their 
first home, to get that first ladder of equity building, have 
been wiped away in just a short period of time.
    And the response that I see from the Administration to this 
issue, very, very quickly, is a response that we need for this 
issue right now. In order to recapture, I guess, the intensity 
of it, we have already lost 1.5 million--have 1.5 million 
foreclosures not even going to be touched by this legislation. 
There's another 1.5 million coming in the next 60 to 90 days, 
you know, that we're going to be facing as well; 3 million 
foreclosures in the United States is just a huge, huge, huge 
problem. So it is something that our community sees as just a 
different approach to solving--yes, the Bear Stearns issue is 
an important issue as far as stability of our banking 
community, but our communities, our underserved communities and 
communities throughout the United States are being impacted 
very negatively by this issue.
    Mr. Cleaver. One of our witnesses yesterday said when I 
raised this issue that--I mentioned that I have a town hall 
meeting on Saturday morning, and I asked for some comfort from 
him, what could I tell the people, and he said to tell them 
that they need to think more deeply about why the government 
should respond to those who run the economy first. That was a 
gratuitous comment. I apologize.
    My final question is, what do we need--what can we do? When 
I look at the statistics that you presented, Mr. Shelton, and 
the same with you, Ms. Crowley, we have people who are losing 
homes, and the problem is going to be that they may never 
qualify again for a home. So, I mean, is there something that 
you think we can do to be of assistance to people who may have 
lost their life savings and then will never, ever achieve the 
American Dream again?
    Mr. Shelton. Certainly, options need to take into 
consideration the conditions the American families were in 
going into the loans, as well as the conditions they're in now, 
that very well providing an opportunity for them to even seek 
to purchase those homes in a restructured manner, that they 
have just lost. Indeed, the discussions we're having even today 
won't help those who have actually lost their homes at this 
point, who are finding themselves destitute. So reconsideration 
and then reorganizing of the process in which we assess how 
American families can actually receive the capital, the 
protection, and the sustainability to be able to own those 
homes throughout.
    And again, going back to the question you asked before, 
Congressman Cleaver, we felt like when Bear Stearns had a 
problem, the government was willing to write a check. But when 
the American family had a problem, we got counseling.
    The Chairman. The gentlewoman from West Virginia.
    Mrs. Capito. Thank you. I would like to ask the panel a 
question. We have appropriated previously in the economic 
stimulus package money for counseling assistance. I know 
NeighborWorks is a big player in this. Can you tell me--but I 
have heard that the money is not quite getting down to the 
actual assistance and counseling folks in a speedy enough way. 
Can you tell me the status of this from your perspective? And, 
you know, this bill advocates more money for counseling. Are we 
spending what we have? Is it being used in the best possible 
way that we can?
    Mr. Garver. Ranking Member Capito, if I could, I'll speak 
to it, at least from Ohio's perspective. We received a $3.1 
million allocation in the National Foreclosure Mitigation 
funding, and within 2 weeks had funding agreements out to 18 
counseling agencies.
    Mrs. Capito. Could I interrupt you for just a second?
    Mr. Garver. Sure.
    Mrs. Capito. Excuse me. So the money comes from the Federal 
Government to NeighborWorks to you to another entity?
    Mr. Garver. Yes.
    Mrs. Capito. So it passes through twice?
    Mr. Garver. And the key to that is that we actually applied 
on behalf of 18 nonprofits who didn't have the capacity to 
access those dollars. So we felt it was critical to develop a 
Statewide network of counseling.
    The Chairman. Hold up. You applied to whom?
    Mr. Garver. We applied to NeighborWorks.
    Mrs. Capito. So we send the money to NeighborWorks?
    The Chairman. So the Federal Government sends it to 
NeighborWorks and then the State of Ohio asks to apply to 
NeighborWorks?
    Mr. Garver. Yes. They had a two-pronged process. Some 
entities got funding directly that had prior capacity and a 
track record, and others that didn't, in a State as diverse as 
Ohio and as large as Ohio with 11.5 million population, there 
were gaps in that servicing network.
    The Chairman. But I think if the gentlewoman would permit 
me, what strikes us is that it goes from the Federal Government 
to a private entity and then the State goes to the private 
entity. That's the chain that--
    Mrs. Capito. Well, what I want to know is, by the time--you 
know, it starts at the Federal Government. By the time it goes 
to the private entity, 10 percent maybe out that way, then it 
goes through Ohio, 10 percent out that way, you have already 
lost 20 percent of the buying power, you know, if that is in 
fact the way it goes. Could you help me out with that?
    Mr. Garver. No. We passed--on a pass-through basis. First, 
I will point out that most of the funding did flow directly 
from HUD. But what we--
    Mrs. Capito. From HUD to--
    Mr. Garver. Through NeighborWorks directly to local 
organizations, but there were also entities that did not have 
the prior capacity, and we stepped in and said we will help to 
build that network.
    Mrs. Capito. So right now, are those--I'm sorry to 
interrupt, but I am short on time--right now, are those 
entities, the 18 entities that you advocated for, are they--do 
they have the money and are now actually talking face-to-face 
with people?
    Mr. Garver. They are--yes. Yes, they are, literally. And I 
will mention one in particular, ESOP, which is a neighborhood-
based organization in Cleveland, has agreements with I believe 
it's 11 servicers, to literally work out modifications on 
behalf of homeowners. And they will be receiving significant 
dollars through our participation.
    The other thing I would point out is how important that 
counseling is, and I'll speak to it from an HFA perspective. 
We, obviously, in terms of our mission, work with low- and 
moderate-income first-time homebuyers. That is our passion, and 
that is our direction. A lot of folks would say there's risk in 
that, and there is. And yet when you look at the performance of 
our portfolio, the Ohio Housing Finance Agency has seen a 
tenfold increase in production in the last 4 years in its 
first-time homebuyer program, and that portfolio is performing 
at our better than prime loans for the State of Ohio. And the 
reason for that is proper underwriting standards and an 
informed buyer. And when you have that combination and put 
people in a product that is suitable to their economic 
circumstance, and teach them about the responsibilities of 
homeownership, we believe that those individuals will perform.
    Mrs. Capito. And I believe in those goals as well. I'm 
questioning now the different hands. But Mr. Burrola I think 
wanted to add something.
    Mr. Burrola. Yes. Actually, I just wanted to clarify 
something. The funds came via Congress to NeighborWorks. It 
didn't pass through HUD whatsoever. And then there were three 
criteria that needed to be met. You either had to be a HUD 
housing counseling intermediary, a NeighborWorks direct 
organization, or a State housing finance authority. If you did 
not meet that criteria, you were not eligible for the funding.
    Mrs. Capito. Can you tell me where NeighborWorks is 
located, and does it have offices across the country?
    Mr. Burrola. Right here in Washington, D.C.
    Mrs. Capito. Thank you.
    Mr. Burrola. The other item, just real quick, just to give 
you some perspective on something that she had stated earlier, 
we were receiving--our housing counseling agencies were 
receiving 5 to 10 phone calls a day--or excuse me, a week, in 
the first quarter before the mortgage default started getting a 
lot of traction, and so we started--we are anticipating way 
more calls. And so we were understaffed, and there definitely 
is a need.
    The Chairman. Let me just add briefly, because I want to 
move on, but I was in Arizona at the request of our colleague, 
Ed Pastor, and one of the things that hadn't occurred to me 
was, particularly when people were in trouble, that counseling 
is very labor-intensive. They estimated that if you can do this 
right for a family, it is 20 hours per individual.
    Mrs. Capito. Yes.
    The Chairman. And I think that is one of the things that we 
don't take fully into account, particularly if it's post-
problem counseling.
    Mrs. Capito. Yes.
    The Chairman. You really need to put a lot of time into it. 
The gentlewoman from New York.
    Ms. Velazquez. Thank you, Mr. Chairman. And I want to take 
this opportunity to thank all the witnesses for your insights 
in providing information about this issue that is important not 
only for our Nation but particularly for my community and my 
district back in New York. I'm sorry I wasn't here to listen to 
the testimony, but I was chairing a full committee hearing.
    I would like for any of the witnesses to comment on the 
following statement and question that I'll be making. 
Yesterday, we heard from regulators about a contraction in the 
availability of credit to mortgage borrowers. In addition, HUD 
raised concerns about using a loan and grant program to turn 
around foreclosed properties because it will represent, and I 
quote, ``a clear moral hazard.'' Mr. Montgomery didn't refer to 
the bailout of Bear Stearns in the same way. So, first, do you 
agree with Mr. Montgomery's assertion? And second, how do you 
suggest we encourage vacant home sales to avoid neighborhood 
blight?
    Mr. Lizarraga. One of the statements I would like to make, 
Congresswoman, is that the cooperation and participation of 
nonprofits is going to be significantly important in this 
process, we believe. Certainly we're going to have to work with 
the cities in this effort through their redevelopment 
capabilities and also their CBDG capabilities as well. But 
we're going to have to put together a capability with 
nonprofits and provide assistance, underwriting capability with 
the possibility of bringing together the ability to buy in bulk 
properties that can then be refinanced through this process so 
that we can use out-of-the-box concepts, concepts like maybe 
rent to buy. Keep people in their homes.
    Because the minute somebody leaves their home, as we heard 
a little bit earlier, within 2 weeks, it is vandalized, and it 
is impacting the community. It becomes a detriment in that 
block. And we used something similar. It was years ago, a HUD 
program to deal with their housing crisis they had at the time, 
but working through nonprofit intermediaries impacted together 
with this partnership, because $30 billion is a lot of money, 
but I have to tell you something, it has to be leveraged in 
many, many, many, many ways.
    Ms. Velazquez. Okay.
    Mr. Lizarraga. And I would hope that we would provide the 
capacity and the capacity building that's necessary in order to 
assist these nonprofits to impact.
    Ms. Velazquez. Mr. Garver. Thank you.
    Mr. Garver. He has made some excellent points, and we are 
learning firsthand, and it's something that we practice, I 
mentioned the partnership that goes on within Ohio. And most 
certainly the pilot initiative I mentioned that we are--will be 
going to our board next week to finalize and move forward on, 
but we've been working with the City of Cleveland, which has 
been so devastated by this foreclosure crisis, and the reality 
is, you have to work with the local communities and you have to 
establish working relationship with the nonprofits and then 
leverage resources, even understanding, as the Housing Finance 
Agency, we could put every dime we have--tax credits, reserves, 
put it all on the table, and we couldn't resolve the problem in 
Cleveland.
    So you are absolutely correct. You have to pick your 
targets. You have to be strategic and invest in neighborhoods, 
look for anchor projects and start a slow but sure 
revitalization process.
    Ms. Velazquez. Thank you. Last Tuesday, the Federal Reserve 
closed the comment period regarding Regulation Z, Truth in 
Lending. It has come to my attention that, although the Fed's 
proposal is critical and overdue, it has significant gaps in 
some areas that will render provisions unenforceable or 
relatively weak.
    For example, in the ability to repay section, they require 
borrowers suing lenders to prove that lenders exhibited a 
pattern and practice in lending when even State's law does not 
raise the bar that high. Some New York group submitted 
comments, and I'm wondering if any of you have submitted 
comments or have any concerns regarding that requirement.
    The Chairman. This is on the Fed's subprime under HOEPA.
    Ms. Velazquez. No? Okay.
    Mr. Garver. I'm not aware of any.
    Ms. Velazquez. Thank you very much.
    The Chairman. The gentleman from Colorado.
    Mr. Perlmutter. I have a couple of questions. One is kind 
of a rhetorical question, but do any of you know where this 
phrase ``moral hazard'' ever came from? I mean, I have been 
involved in financial services stuff for 25 years, and until 
this year, I never heard about moral hazard. So, rhetorical 
question. Maybe the chairman knows.
    Also, what is Neighborhood Works? Is that a private 
contractor?
    Ms. Crowley. NeighborWorks America?
    Mr. Perlmutter. NeighborWorks.
    Ms. Crowley. It is a national organization, with a direct 
line item in the Federal budget. It was previously Neighborhood 
Reinvestment Corporation, and it has a board composed of the 
Assistant Secretary for Housing and others. It is a 
longstanding organization that is well-respected, and I think 
does a very good job.
    The earlier question about the NeighborWorks grants related 
to housing counseling, I have a list of who got those grants, 
if anybody is interested in seeing it.
    Mr. Perlmutter. But NeighborWorks is a legitimate pass-
through from--
    Ms. Crowley. Oh, absolutely.
    Mr. Perlmutter. Okay.
    Ms. Crowley. Absolutely. It has had a longstanding 
relationship with groups called Neighborhood Housing Services, 
which you may be familiar with, in lots and lots of communities 
that do homeownership programs in local neighborhoods.
    Mr. Perlmutter. Last question. As we have heard from 
various panels, and especially last year, we talked about the 
resets that, you know, the variable rates were going to reset 
at some high rates which were rates that people couldn't pay, 
and that was one problem. Another problem was we had these no 
doc loans and people didn't have income that justified what 
they borrowed in the first place or at the higher rate maybe. 
And then finally we have this valuation question where now we 
see property prices drop.
    But the Federal Reserve has taken action to drop interest 
rates which do assist with any resets that occur this year. In 
counseling or working with your members or clients, are you 
able to take advantage of this drop in the interest rates?
    Mr. Garver. I think it helps, but the reality is, we 
certainly saw it in our refinance program and in working with 
nonprofit organizations around the great State of Ohio. The 
reality is, the vast majority of potential applicants are 
underwater, either from a debt-to-income basis or a loan 
devalued. In fact, there are many folks in homeownership that 
you mentioned, no doc and low doc loans, that simply shouldn't 
have been in that situation.
    Mr. Perlmutter. Okay. I yield back.
    The Chairman. The gentleman from Ohio.
    Mr. Wilson. Thank you, Mr. Chairman. Thank you for your 
leadership on working on this very important issue for the 
people of America and certainly for the State of Ohio.
    My question is to you, Mr. Garver. In your testimony, you 
said that there have been some pretty good innovative things 
that other States are doing, and I'm sure that Ohio is doing 
them as well. Could you hit on some of those for us?
    Mr. Garver. I would be pleased to do that. Governor Ted 
Strickland, who obviously is one of your former colleagues, 
became Governor of Ohio in January of 2007 and fairly shortly 
after taking office, he established the Foreclosure Prevention 
Task Force. It was very clear the breadth and scope of the 
problem in Ohio, and that task force, which was chaired by 
Commerce Director Kimberly Zurz, was a cross-section of both 
public and private sector interests, industry and so on and so 
forth, and came up ultimately with I believe 27 
recommendations, a number of which are now in the process of 
being implemented.
    I think the key thing to recognize about this crisis, and 
we have all talked about pointing fingers and looking and what 
happened and who did what, what we know in Ohio is, it is a 
very complex issue and there is not one simple, easy answer to 
it. It involves partnerships. It involves a comprehensive 
approach to the problem. And when I look at what we are doing 
in Ohio, I will just mention a couple of things very quickly.
    First and foremost, outreach. There are a lot of folks who 
just don't understand what is going on. It has been estimated 
that 50 percent of borrowers don't get in touch with their 
lender or their servicer until it's too late. And the Ohio 
Housing Finance Agency undertook its first Statewide outreach 
campaign, Take a Second Look at your Mortgage, to try and get 
folks to do something.
    And now the Ohio Department of Commerce and the Department 
of Development are really talking the lead in doing a Statewide 
media campaign. Last week, Governor Strickland signed a compact 
for preserving homeownership with nine servicers that focuses 
on things like helping or having those servicers contact folks 
so that they have plenty of time to do something.
    The willingness to do some large-scale modifications, a 
number of different steps that are really intended to try and 
move this forward. I believe it is the first compact of its 
kind in the country, and it also--the servicers will be 
reporting back to the Department of Commerce.
    We think counseling is very important. Another thing that 
we think is a relatively new step is mediation. The Ohio 
Supreme Court has started an initiative with 1,100 attorneys 
around the State signing up to provide pro bono services. You 
know, when a foreclosure starts, the servicer or the lender has 
their legal representation, and unfortunately, the vast 
majority of homeowners go into a foreclosure with no 
representation, and the State of Ohio has now put in place an 
initiative that will enable homeowners that are facing the 
prospect of foreclosure to have that kind of legal 
representation.
    And most certainly, we continue to look at our first-time 
homebuyer program. We consider that to be a foreclosure 
prevention initiative in and of itself. We use mortgage revenue 
bonds and put in place long-term fixed-rate financing. As I 
mentioned, our portfolio performs as well as prime loans. We 
believe when you put people in the right product, they will in 
fact repay the loan as long as they are educated and know what 
their responsibilities are.
    Mr. Wilson. May I follow up, Mr. Chairman? Mr. Garver, 
could you give us any indication of the effect that Senate bill 
185 has had on the State of Ohio?
    Mr. Garver. I think that's the predatory lending bill that 
was passed by the legislature. It's too soon to say, to be able 
to quantify the effects, other than we know they are positive. 
The unfortunate reality is, it wasn't passed as soon as it 
could have been. A lot of what has transpired in Ohio didn't 
have to happen in terms of predatory lending and in terms of 
people being put into products that they couldn't afford.
    We understand there are a number of things that drive 
foreclosure. Some of those are life events, things like loss of 
job, a medical situation, a divorce, that type of thing. But 
the reality is, predatory lending sapped the lifeblood out of a 
lot of communities and a lot of families. And while we think 
going forward that bill will be of great benefit in terms of 
preventing the kind of irresponsible lending that was taking 
place, the reality is, we have an issue that we have to deal 
with now.
    Mr. Wilson. Thank you.
    The Chairman. The gentlewoman from California.
    Ms. Waters. Thank you very much, Mr. Chairman, again, and 
thanks to you for these 2 days of very informative hearings, 
and thanks to all of our panelists who have been so helpful in 
helping us to understand what's going on in their respective 
areas and giving us thoughts about how this bill can be the 
strongest bill possible.
    Let me just say to our panelists, I am singularly focused 
on the servicers. The servicers emerge as the most important 
element in this foreclosure problem. They are the ones now with 
the ability to do modifications and workouts. They are 
independent. They are owned by banks and other financial 
institutions who have invested in these tranches that have come 
from the banks and other places. And they say that they have a 
responsibility based on their contract and liability to pursue 
collecting those mortgages and doing the foreclosures. 
Otherwise, they could be sued.
    So, we are learning a lot about servicers, this unknown 
entity, the kind of entity that's off the radar screen, again, 
that emerges as so important in all of this. We found out 
they're not regulated by anybody, and that many of the 
companies like Countrywide, for example, they have their own 
servicers, but it's a separate entity that's organized as a 
part, you know, separate and apart from the bank itself.
    They are unregulated by anybody. None of our regulatory 
agencies could tell us anything about them. We don't know a lot 
about how much money they make on foreclosures. I'm led now to 
believe that there's a profit in foreclosures for the 
servicers. Also, I'm not so sure that when we talk about 
counseling, we're all talking about the same thing. Since I'm 
focused on servicers, and trying to get workouts and 
modifications, I don't know if our traditional counselors, the 
ones who are doing first-time homebuying and helping people to 
figure out how to buy a home and how to be responsible, whether 
they're the same people that we're talking about or should be 
talking about to do workouts.
    In order to negotiate with the servicer, you have to know 
what you are talking about. My mitigation bill goes to the 
heart of that. My mitigation bill is controversial because it 
describes what mitigation should be. Some of these companies 
and these banks have so-called mitigation departments with a 
telephone number. Nobody's ever there. I've been dialing them. 
And then I'm finding that they contracted them out to India 
someplace where people, you know, can't talk to you about what 
you want to talk about. And we're finding out that when some 
people talk about mitigation, they're talking about extending 
the loan, etc., etc., but they're not really talking about 
workouts that will allow people, for example, who have gotten 
into these ARMs, not to have to confront these resets in 6 
months or a year or 2 years, but would be able to continue, 
say, for a 5-year period of time or some period of time paying 
the same amount of money that they got into the loan with.
    So we're defining what mitigation really is. And I have 
asked my staff to take a look at how we regulate these 
mitigators and these so-called mitigation operations. I want 
you to tell me anything that you have learned or that you know 
about the servicers and about their so-called mitigation 
efforts and whether or not we have enough people trained to 
negotiate with these servicers to actually get modifications 
and loan workouts.
    Mr. Burrola. I can go ahead and begin. Our counselors are 
experienced in both P-purchase and mortgage default counseling. 
They attend trainings regularly. You know, I would say at 
average they are at about 8 years or so experience. And this is 
agencies that are located throughout the country.
    To understand post mortgage default side, you need to 
understand the pre-purchase side to help the family. In terms 
of working with the servicers, many have expressed to me that 
some servicers are aggressive, that you're dealing with a new 
person each time you call, and so the lack of understanding on 
the family situation isn't there. There has been mentioning 
that the call centers may be from other countries. And it's 
kind of set up like call center, so you know--
    Ms. Waters. We know what they are.
    Mr. Burrola. Right.
    Ms. Waters. But I want to know how you deal with them and 
what you would suggest for us to be able to get a handle. 
Otherwise, you're not going to get any modifications. You're 
not going to get any real workouts. So we know all of that. 
We're learning all of that about the servicers. What do you 
suggest we do to be able to regulate and control them?
    Mr. Burrola. Well, I think the biggest thing is just with 
the training. The counselors, when they're trained, they're 
prepared with documents so when they contact the servicer, they 
know how to speak on behalf of the family to not be intimidated 
by the scenario.
    The Chairman. Let me--because we're going to have to rush. 
Any other members want to comment on--one more.
    Mr. Lizarraga. Yes. I think that this kind of thinking out 
of the box was somehow we're going to have to find some way of 
regulating the servicers. In addition to that, we're finding 
that more and more the servicers are being owned by banks. You 
know? Banks are acquiring the services. They like the platform. 
They like what they have.
    And so providing maybe some regulation or additional 
incentive to banks to do some type of CRA benefit, to 
incentivize them, might be something you might consider as 
well.
    The Chairman. Well, I think that's very much what we're 
talking about going forward and the message we are trying to 
send to the servicers is to the extent to which we'll get 
cooperation now will have some impact on how tightly we think 
we have to regulate them in the future.
    The gentleman from North Carolina, Mr. Miller, will be our 
last questioner on this round, and then the hearing will 
adjourn.
    Mr. Miller. Thank you, Mr. Chairman. I regret that I have 
missed some of the questions that you have already had. I think 
my questions are similar to Ms. Waters', although she's a 
California liberal firebrand and I'm a soft-spoken Southern 
moderate.
    The proposed legislation is entirely voluntary. And 
industry appears to have volunteered only to do what is in 
their obvious self-interest. They've only agreed to modify. 
They've only volunteered to modify the loans. They know they 
can't get paid in full. And they can't really collect for 
amount of foreclosure because there's not enough equity. And 
they've only agreed to modify just to the extent that they can 
get paid. I don't think they should get a humanitarian award 
for that.
    And in other loans where the borrowers' financial 
circumstances are less fragile, which should be most of the 
subprime loans--since 55 percent of the people who took out 
subprime loans in 2006 and 2007 qualified for prime loans 
shouldn't have been in the subprime market in the first place--
a lot of them can get out.
    A lot of them can sell their house because they do still 
have some equity in their house. They're not upside down. A lot 
of them can refinance. But they are suffering too. They're not 
losing their homes to foreclosure but they're losing their 
homes because they are selling them, or they're losing a piece 
of the equity in their home because of equity stripping 
practices.
    Almost everything that we're doing voluntarily or that 
would be voluntary for industry for whoever holds the mortgage, 
the mortgagees, servicers, whoever, does not require anything 
with respect to the other mortgages, where someone can pay, can 
get out, should we not find a way to link what we do to help 
industry to help the mortgagees in these circumstances to what 
they're doing with respect to all the other mortgages, where 
they're doing nothing to help people who are still in predatory 
loans that stripped equity for middle-class homeowners?
    [No response]
    Mr. Miller. Don't all speak at the same time. What else can 
we do besides what we're doing? Mr. Shelton, you mentioned in 
the anteroom the bankruptcy legislation.
    Mr. Shelton. Absolutely. Certainly we need more options for 
the homeowner, the family who is trying to keep their home. And 
certainly as we've discussed, we certainly need to make sure at 
the very least Chapter 13 type solutions are made available to 
the family, to the individuals who are trying to keep their 
homes as well.
    We do it for businesses, we do it for other programs. We 
certainly need to do it for all American people. And certainly 
we would prefer to find incentives certainly to help companies 
step to the plate to do the ethical thing, to do the right 
thing. But you're absolutely correct. They have not stepped up. 
They're basically continuing to look for the bottom line profit 
for themselves in a bailout for themselves. So we would 
certainly support any option that would help, even mandate the 
involvement of the services industry to provide assistance to 
the American family.
    Finding that solution has been a very difficult one, as 
you've seen, and the balance has been very challenging, to say 
the least.
    Mr. Garver. I think flexibility is the key, as you have 
suggested, providing the tools to try and help as many folks as 
possible, knowing that still there will be people that will 
lose their homes, as they are too far gone. So then the 
question becomes one of we have to find alternative housing 
resources for them.
    And I know one of the things we're looking at in Ohio, in 
fact in some of these impacted neighborhoods, is stepping in 
with our tax credit programs and other initiatives and doing 
lease--on the floor.
    The Chairman. Would the gentleman yield? The question that 
he posed is surely becoming more and more important to us. Let 
me invite any of the panelists, it may not have been something 
you came prepared to talk about, but if you want to submit 
something later in writing, this is a topic that is going to 
engage this committee. So drawing on your experiences, in 
addition to what you have to say today, please, we would 
welcome written comments. I'm sorry, the gentleman from North 
Carolina.
    Mr. Miller. I was happy to have the Chair's intervention 
there. Anybody else? Before the light turns red and we go vote?
    Mr. Garver--I think no one thinks that all homeowners are 
going to get saved. A lot of people are going to lose their 
homes.
    Mr. Garver. Yes. But I think we have a responsible, then, 
to make the best out of a bad situation and look for other ways 
to reinvest back into those neighborhoods and give folks 
alternative housing resources.
    The Chairman. Without objection, I will put into the record 
a statement on behalf of the National Multi-Housing Council, 
the National Apartment Association, and a joint statement by 
the Council of Mayors, Association of Counties, Association of 
Local Housing Agencies, and the National Committee Development 
Association, in which they express qualified support--and 
qualified means they want it to go to the cities and counties, 
and not the States. We are trying to work out some of kind of 
sharing there. I think we understand the cities will be primary 
in many places, but there could be problems outside, as came 
out in the questions, so we are going to try and blend those 
two.
    I thank the witnesses for their testimony, and we certainly 
remain available for the guests--
    Mr. Lizarraga. Mr. Chairman, if I may? I just wanted to 
take the opportunity to thank Congresswoman Waters for 
introducing Neighborhood Rescue and to thank you for 
incorporating it into the bill. I understand that is moving 
forward, and we really appreciate it.
    The Chairman. Yes. We plan to do that, and many of the 
suggestions that you made, we have already been talking about. 
Just for your information, this bill will probably be voted on 
in this committee on the 23rd and 24th of April, so we have a 
couple of weeks. Obviously, we won't be able to comment on 
everything, but we are moving in that direction.
    The hearing is adjourned.
    [Whereupon, at 1:35 p.m., the hearing was adjourned.]


                            A P P E N D I X



                             April 10, 2008


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