[Senate Hearing 110-532]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-532
 
          FORECLOSURE AFTERMATH: PREYING ON SENIOR HOMEOWNERS

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                           FEBRUARY 13, 2008

                               __________

                           Serial No. 110-21

         Printed for the use of the Special Committee on Aging



  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html


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                       SPECIAL COMMITTEE ON AGING

                     HERB KOHL, Wisconsin, Chairman
RON WYDEN, Oregon                    GORDON H. SMITH, Oregon
BLANCHE L. LINCOLN, Arkansas         RICHARD SHELBY, Alabama
EVAN BAYH, Indiana                   SUSAN COLLINS, Maine
THOMAS R. CARPER, Delaware           MEL MARTINEZ, Florida
BILL NELSON, Florida                 LARRY E. CRAIG, Idaho
HILLARY RODHAM CLINTON, New York     ELIZABETH DOLE, North Carolina
KEN SALAZAR, Colorado                NORM COLEMAN, Minnesota
ROBERT P. CASEY, Jr., Pennsylvania   DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri           BOB CORKER, Tennessee
SHELDON WHITEHOUSE, Rhode Island     ARLEN SPECTER, Pennsylvania
                 Debra Whitman, Majority Staff Director
            Catherine Finley, Ranking Member Staff Director

                                  (ii)

  
?

                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Herb Kohl...........................     1
Opening Statement of Senator Gordon Smith........................    67
Opening Statement of Senator Blanche Lincoln.....................    69

                           Panel of Witnesses

Statement of Walter Malone, contractor, Malone and Malone 
  Construction, Washington, DC...................................     3
Catherine M. Doyle, chief staff attorney, Civil Division, Legal 
  Aid Society of Milwaukee, Milwaukee, WI........................     7
Thomas Perez, Maryland secretary, Department of Labor, Licensing, 
  and Registration, Baltimore, MD................................    18
John Anderson, licensed realtor, Twin Oaks Realty, Minneapolis, 
  MN; on behalf of the National Association of Realtors..........    27
Rachel Dollar, attorney and certified mortgage banker, Santa 
  Rosa, CA; on behalf of the Mortgage Bankers Association........    39
Peggy Twohig, associate director, Division of Financial 
  Practices, Federal Trade Commission, Washington, DC............    52

                                APPENDIX

Prepared Statement of Senator Susan Collins......................    81
Testimony submitted from BITS The Financial Services Roundtable..    83

                                 (iii)

  


          FORECLOSURE AFTERMATH: PREYING ON SENIOR HOMEOWNERS

                              ----------                              --



                      WEDNESDAY, FEBRUARY 13, 2008

                                       U.S. Senate,
                                 Special Committee on Aging
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:30 a.m., in 
room SD-628, Dirksen Senate Office Building, Hon. Herb Kohl 
(chairman of the committee) presiding.
    Present: Senators Kohl, Lincoln, and Smith.

        OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN

    The Chairman. Good morning to everybody. I welcome you to 
our hearing this morning.
    We are going to commence the hearing. But I need to inform 
you that at 10:45 a.m. approximately, we are told there is a 
vote on the floor. When that occurs we will have to have a 
temporary recess, hopefully not for very long.
    This morning our Committee will focus on a new type of 
financial fraud that has sprung forth from our country's 
mortgage crisis.
    As Americans strive for financial security in their later 
years, many are falling short. Perhaps their retirement dollars 
are not stretching as far as they had hoped for, or medical 
expenses are overwhelming them.
    Whatever the reason, more and more older Americans are 
falling behind on their mortgages, and they find themselves 
facing foreclosure. Across our Nation, foreclosures have 
increased by 95 percent in just the past year.
    Because foreclosure filings are public information, 
scammers target the already troubled homeowners, contacting 
them by phone or mail repeatedly with claims that they can help 
the homeowner stay in their home. These financial predators say 
that they can help ``save'' the home of a person or family 
experiencing foreclosure. They create a sense of urgency and 
say that there are no other options. They tell the homeowners 
not to contact their lender or to seek legal advice. In the 
end, these predators walk away with both the title and equity 
of the home.
    Senior homeowners are particularly vulnerable to rescue 
scams because many of them are on fixed incomes and rely on the 
equity in their homes as their primary financial asset. They 
are also particularly attractive to financial predators because 
they tend to have a larger amount of equity in their homes.
    Older homeowners are also more likely to experience 
foreclosure in the first place because, according to a study 
conducted by AARP, seniors are three times more likely to have 
subprime mortgage loans than younger borrowers. The foreclosure 
rate for subprime loans is much higher than prime loans because 
they carry a much higher risk of default by the borrower.
    The mortgage foreclosure crisis is real. Most communities 
across our country are experiencing both the primary and the 
secondary effects.
    In my own State of Wisconsin, over 17,000 homeowners filed 
for foreclosure in 2007, an increase of 131 percent from the 
year before.
    Recently, the mortgage giants joined the Administration in 
announcing a plan to help seriously delinquent borrowers stay 
in their homes. While this is a step in the right direction, 
there are concerns that this help will not reach as many 
troubled homeowners as possible.
    Today we will hear from a local man who was the victim of a 
foreclosure rescue scam. Thankfully, his case was recently 
settled. But this is a rarity. We will learn about why it is so 
difficult to litigate cases against these financial predators, 
and we will hear about limitations of current State and Federal 
laws.
    We will hear from the realtors and the mortgage bankers, 
who have seen the effects of the foreclosure crisis up close. 
Our witnesses will also highlight the steps that individuals 
must take to avoid foreclosure as well as to prevent being 
victimized if foreclosure is inevitable.
    Finally, we will hear testimony from the Federal Trade 
Commission about their programs designed to assist homeowners 
in crisis.
    We need to determine how Federal and State Governments can 
best protect seniors and other targeted populations from these 
ruthless financial predators. I am currently working on 
legislation that would help homeowners across the country avoid 
these foreclosure rescue scams, especially in States where no 
law exists to prohibit or to regulate these practices.
    We thank our witnesses for being here to take part in 
today's hearing. At this time, I will introduce our panel of 
witnesses.
    Our first witness will be Mr. Walter Malone. Mr. Malone has 
lived in the Washington area since 1953. In 1960 he began a 
construction business with his brother, and he still works as a 
contractor under the trade name of Malone & Malone 
Construction. A devoted member of this community, Mr. Malone 
lives in Southeast Washington.
    Next, we will have Catey Doyle. Our second witness, Mrs. 
Doyle is not only the sister of Wisconsin's Governor Jim Doyle, 
but she is also currently the chief staff attorney for the 
Civil Division of the Legal Aid Society of Milwaukee. She is 
the lead attorney for the A-LINE Project, which is Advocacy for 
Low-Income Neighborhood Equity, of the Legal Aid Society. She 
is supervising a comprehensive study of one recent foreclosure 
in Milwaukee. As a fellow Wisconsinite, of course, I welcome 
you, and we look forward to hearing from you.
    Thomas Perez, our next witness, is the secretary of 
Maryland's Department of Labor, Licensing and Regulation. 
Secretary Perez is a nationally recognized consumer advocate 
and civil rights lawyer. He has spent over 12 years in public 
service, the bulk of which was at the Department of Justice 
where he prosecuted and supervised some of the Department's 
high-profile civil rights cases. He later served as Deputy 
Assistant Attorney General for Civil Rights under Attorney 
General Janet Reno.
    Next, we will have John Anderson. Mr. Anderson has been a 
licensed realtor with Twin Oaks Realty in Minneapolis since 
1980. He has been recognized as the State Realtor of the Year. 
Mr. Anderson is a long-time proponent of sustainable home 
ownership and affordable housing finance programs.
    Next we will have Rachel Dollar. Ms. Dollar is a California 
attorney, a certified mortgage banker and a recognized expert 
in the mortgage lending industry. Ms. Dollar handles mortgage 
fraud litigation for lenders, and she supervised mortgage fraud 
and RICO litigation in the Federal courts. Furthermore, Ms. 
Dollar was recognized in each of the last 3 years by Inman News 
as one of the 100 Most Influential Real Estate Leaders.
    Finally, we will be hearing from Peggy Twohig. Ms. Twohig 
is currently the associate director for the Division of 
Financial Practices at the Federal Trade Commission where she 
is responsible for overseeing enforcement of the FTC Act and 
other consumer protection laws. Ms. Twohig received her law 
degree from New York University School of Law and her master's 
in public policy at the Woodrow Wilson School of Public and 
International Affairs.
    We welcome you all for being here today.
    We will start with testimony from Mr. Malone.

 STATEMENT OF WILLIAM MALONE, MALONE AND MALONE CONSTRUCTION, 
                         WASHINGTON, DC

    Mr. Malone. Good morning, members of the Committee.
    My name is Walter Malone. I am 72 years old and have owned 
my home here in D.C. at 1606 A Street since 1994. I grew up in 
Sussex County, VA. I moved here in 1953. I have worked in the 
construction business all my life. I have owned my construction 
company in D.C. since 1960. I am married, the father of eight 
children; most of them are grown now.
    I bought my house for about $100,000. It is now worth about 
$400,000. In early 2002, I had a problem in my business. I had 
been working on a major job for several months but wasn't 
getting paid at all because there was a problem with a lien on 
the property. Each week, I thought the payment would clear, but 
it didn't clear soon enough. I got about 3 months behind in my 
mortgage payments and got a notice of foreclosure.
    I was looking into refinancing my mortgage and even into 
filing for bankruptcy, when I was visited one day by a man 
named Calvin Baltimore. Mr. Baltimore told me I didn't need to 
refinance the mortgage. He promised that he could lend me the 
money to stop the foreclosure and do some repairs also on the 
house. He told me, ``That is what we are about--helping 
people.''
    Even though the offer sounded good, it was hard to 
understand. Mr. Baltimore promised that the house would stay in 
my name, and everything would stay just the same. At the same 
time he talked about how much I would have to pay to buy the 
property back.
    I didn't take Mr. Baltimore up on his offer right away. For 
one thing, my wife told me she didn't trust him. I kept 
thinking the construction payment owed to me would come any 
day. I did consult with a bankruptcy attorney, and I learned 
that I could stop the foreclosure by filing bankruptcy.
    The week went by, and the pressure inside me built up. 
About a week before the foreclosure, Mr. Baltimore came back. 
He noticed the religious pictures on my wall. He told me he was 
a believer himself, that he had been a preacher, and his uncle 
was a preacher, a pastor in a church in Annapolis. This made me 
feel connected to him. I trusted him because he said he was a 
believer. He said things that made me feel like I would be 
doing something wrong if I filed for bankruptcy. He told me, 
``Don't mess yourself up like that Mr. Malone.''
    As the foreclosure date got closer, the pressure built up 
on me. A week before the foreclosure, I signed some documents 
Mr. Baltimore gave me. A few days later, I signed some papers 
at the office of Vincent Abell. I learned later that one of the 
documents was a deed that signed my house over to Mr. Abell. 
But all Mr. Abell ever paid was about $10,000 to the mortgage 
company to catch up the mortgage. Even though the deed says he 
bought the house for $157,987.00, he gave me no money at all.
    The worst part was that, even though he was on the deed to 
my house, the mortgage was still in my name. The papers said I 
had to pay my mortgage payment plus a few hundred dollars more 
to Mr. Abell every month. They also said that, if I made all 
payments on time, I could buy the house back from Mr. Abell 
within a year for $215,000.
    I got lucky. The lawyers at AARP and Legal Counsel for the 
Elderly had a lot of folks come to them who had done the same 
kind of deal with Mr. Abell and Mr. Baltimore. The AARP lawyers 
joined up with lawyers from Hogan and Hartson. They represented 
me and five others, older homeowners, in a case against Mr. 
Abell, Mr. Baltimore, and others. All of us had all been 
through some hard times. One was a veteran of three wars who 
suffers from post-traumatic distress. One was a woman who had 
been in a bad car accident and suffered brain injury. Many of 
the others had been passed from one dishonest lending company 
to another.
    People's homes are important. One of the folks in our case 
was born in the house they tried to take away from him. Most of 
the others have lived in their homes for 30 years or more. They 
raised their kids there and made their lives there. People like 
Mr. Abell and Mr. Baltimore make their living by hitting you 
when you are down, all the while pretending they are helping 
you.
    Like I said, I was lucky to get the help I got. I got to 
stay in my home. But others aren't as lucky.
    I hope you in the Congress can pass laws to stop some of 
this bad lending and to stop people like Mr. Abell. People who 
have worked hard in their whole life should not have to fight 
this kind of thing just to hold on to their house.
    Thank you.
    [The prepared statement of Mr. Malone follows:]

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    The Chairman. Very fine testimony, Mr. Malone. Appreciate 
it.
    Mr. Malone. Thank you, sir.
    The Chairman. Catey Doyle.

 STATEMENT OF CATHERINE M. DOYLE, CHIEF STAFF ATTORNEY, CIVIL 
    DIVISION, LEGAL AID SOCIETY OF MILWAUKEE, MILWAUKEE, WI

    Mrs. Doyle. Well, good morning, Mr. Chairman. Thank you for 
inviting me to testify today at this hearing regarding mortgage 
foreclosure rescue scams.
    I am the chief staff attorney at the Legal Aid Society of 
Milwaukee, and we represent many victims of these scams. As Mr. 
Malone pointed out, I consider our clients to be lucky because 
they have found their way to an attorney. Many of the victims 
do not find legal representation to help them through this 
morass.
    Mr. Malone's testimony was very compelling. As you can 
tell, these rescue scammers are very good, and they know 
exactly what to say to people to get them to participate in the 
scam. I have seen many, many people who shouldn't otherwise be 
gullible who are talked into these things by very good fast-
talking people.
    Legal Aid Society saw its first case more than 2 years ago 
when an 83-year-old woman and her daughter, Yvonne and Susan 
Klermund, came to our offices complaining that they were being 
evicted from their home of 30 years. They were extremely 
distraught, but they were really unable to explain what had 
happened to them. Then the word ``foreclosure'' was used in the 
intake process, so the intake specialist came and got me.
    We began to ask more pointed questions and soon realized 
that we had on our hands our first case of rescue fraud. We 
have been litigating this case for more than two years, because 
these cases are very hard to litigate. They are also quite 
complicated to prosecute. We have been working extensively with 
State and Federal prosecutors on some of these cases, but they 
just take a long time, and they drag on. It is very hard for 
the victims to be able to right the wrongs or get themselves 
back in their house or relieve the stress that was caused by 
this lengthy litigation.
    Sadly, Yvonne, our client who was our first client, passed 
away on Christmas Day of 2007. Our trial is set for June this 
year, and I know for a fact that stress contributed to her 
death.
    The Klermund story is this: As with most of our clients, 
many of whom are senior citizens, they were in foreclosure, and 
they were very isolated and very paralyzed by their 
circumstances, and they had no idea where to go for help. They 
were just the perfect victims.
    Pamela Johnson, a rescue scammer, contacted them by mail 
and offered to help them stop a sheriff's sale, get cash from 
their home and get a fresh start. Pamela came to their home and 
had them sign a number of documents including a power of 
attorney. There was no contract she had them sign, no 
explanation of what services she would perform or what her fees 
would be.
    After the Klermunds signed the documents--they trusted her 
though; she was a good talker; they did trust her--they didn't 
hear from her for several months. When we investigated the 
matter, we discovered that actually Pamela had gone ahead and 
sold their home, without their knowledge or consent, to a straw 
buyer she had recruited, because the straw buyer had good 
credit and could get a mortgage to finance the scam, and the 
two of them had kept $58,000--the entire net proceeds from the 
sale of the Klermunds' home.
    The Klermunds got nothing--just as Mr. Malone. They were 
left penniless, without their home, without any savings to help 
them relocate, and now they were being evicted. So, so much for 
the fresh start that Pamela Johnson had offered them.
    Legal Aid has filed complaints bringing claims against 
Pamela Johnson for theft by fraud, theft by a fiduciary, 
intentional misrepresentation, violations of Wisconsin's UDAP 
statues. We have brought claims also against the straw buyer 
for aiding and abetting in these claims, against the closing 
agent--and the closing agents in these cases, often title 
companies, I believe, are either very negligent or actually 
fully aware of the frauds and allow them to proceed. We have 
also had to bring in the lender from whom the straw buyer got a 
loan because they now have a lien against the Klermunds' home.
    As I explained, these cases are very hard to litigate, and 
it is also hard to prove the damages because we have to educate 
the courts on that. Because the perpetrators say, ``Well, it 
was, you know, no harm no foul. They were going to lose their 
house anyway, and all we are doing now at this point is, you 
know--they were going to lose it anyway, and they weren't going 
to get the money anyway from their home, the equity out of 
their home.''
    So the goal here really has to be to take a look at what 
this is and to stop these scams before they occur. Because it 
is so much better for consumers to prevent the abuses from 
occurring than trying to go back and recover damages that may 
be long gone. It takes so many years, and living with the 
stress and the threat of homelessness or perhaps even 
homelessness is very hard.
    Wisconsin is close to passing a law that strictly restricts 
the activities of mortgage rescue scammers, and there are 
approximately 16 States that have statues or are close to 
getting them passed, have bills introduced. We think that that 
is a very good state of affairs, that the States would regulate 
these things. However, 15 States is not 50. So there are a lot 
of people left out there without anyone attempting to pass 
legislation or without laws that will assist them.
    So we really appreciate the fact that you are giving 
attention to this issue today and attempting to help consumers 
and attempting to prevent these scams before they occur. We 
hope that any legislation which might come of this would 
supplement the State statutes, most of which are very good, and 
explicitly preserving the rights that a person might have if 
they live in a State in which there is State law or the rights 
they might have under other laws, but as a supplement to that 
to help those not covered.
    I have made several recommendations in my written remarks, 
which I won't repeat. But, again, thank you very much for 
allowing me to testify today on behalf of our clients and other 
people similarly situated.
    [The prepared statement of Mrs. Doyle follows:]

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    The Chairman. Thank you, Mrs. Doyle. That was important 
testimony.
    Mr. Perez.

 STATEMENT OF THOMAS PEREZ, MARYLAND SECRETARY, DEPARTMENT OF 
        LABOR, LICENSING AND REGULATIONS, BALTIMORE, MD

    Mr. Perez. Good morning, Senator, it is a pleasure to be 
here in front of you. I am a former Judiciary Committee staffer 
for Senator Kennedy, and it is a pleasure to be in front of 
you. I am also an adopted Wisconsinite; my in-laws live in 
Wauwatosa, and my children's favorite time of the summer is 
always the 2 weeks in Marinette County at the cabin. So it is a 
pleasure to be here in front of you.
    I have the privilege of serving as the secretary of the 
Department of Labor, Licensing and Regulation, in Maryland. 
Among other things, we charter all the State-chartered 
institutions in Maryland, and we oversee the activity of the 
mortgage industry in Maryland.
    As you well know, the regulation of the mortgage industry 
will always be a joint venture between the States and the 
Federal Government. Seventy percent of the loans originated in 
Maryland are subject to State regulation, while 30 percent are 
originated by federally chartered institutions and, therefore, 
are preempted by Federal law. So it always has to be a joint 
venture.
    The foreclosure bug has indeed bitten Maryland, as it has 
the rest of the country. We had roughly 3,000 foreclosure 
events in 2006 and 23,000 in 2007. So we have certainly fallen 
prey to that.
    Again, it is a problem that is disproportionately affecting 
the communities of color and the elderly, and that is because 
it is predominantly, as you correctly identified, a subprime 
phenomenon. Fifty-three percent of African Americans are in 
subprime loans in Maryland, 46 percent of Latinos, 18 percent 
of nonminorities. Twenty-five percent of subprime borrowers 
were older than 55, compared with 14 percent of prime 
borrowers.
    So the elderly and people of color have a bull's-eye on 
their back, regrettably. That is what we have been working very 
vigilantly on. I co-Chair the Governor's Home ownership 
Preservation Task Force and, indeed, sustainable home ownership 
is our goal here.
    Rather than describing some of the specific scams--because 
Mr. Malone really did it quite eloquently, as did Mrs. Doyle--I 
know I try to put myself in your shoes. What I would really 
like to talk about is what we are doing and what I would 
respectfully recommend that the Congress do.
    We have seen a proliferation in scams. Again, as you 
correctly pointed out, they target people who have equity. Many 
elderly people are cash poor and house rich, and so they have a 
bull's-eye on their back. We have case after case after case 
of--I wish they had the ending that Mr. Malone had. The 
majority of the people that we deal with do not have that 
ending.
    We are working with the Feds right now on what I believe 
will be the largest rescue scam case in the Mid-Atlantic region 
involving over 100 victims. So it is very real. It is affecting 
people who are upper-middle class; it is affecting people who 
are lower-middle class; it is affecting people across economic 
lines as well as age lines.
    We are one of the States that have some protections. In 
2005 we passed a bill called the Protection of Homeowners in 
Foreclosure Act--the acronym is PHIFA. It contained a number of 
consumer protections and a number of disclosure requirements. 
It has been a good start. I must candidly admit: It is not 
enough. Part of the Governor's robust and aggressive package of 
reforms includes one provision that I want to highlight here.
    Because what ends up happening to Mr. Malone and others is 
they are exceedingly vulnerable. The phone rings, or the letter 
comes in the mail with an offer that sounds too good to be 
true, and that is because it is. That is that person who is 
indeed the scam artist that Mr. Malone and Mrs. Doyle 
described. One of the things that happens is they sign 40 
documents. I am a lawyer; I don't read the documents. I 
shouldn't admit that, probably, in public, but that is just the 
nature of life. One of those documents that they invariably 
sign is a quitclaim deed to their home. They have just become a 
renter.
    What we are doing in Maryland--that transaction is 
inherently fraught with potential for abuse. So in our package 
of reforms that we are proposing, and that I expect will pass 
the Maryland General Assembly in the next month, one of the 
provisions is to actually ban the conveyance of a home in the 
rescue context. Because I have yet to encounter a situation 
that wasn't fraught with fraud. The scam artist who says, 
``Don't worry. When your situation gets better, I will let you 
get the home back,'' that is baloney--it doesn't happen. The 
only way, in our judgment, to regulate this practice is to ban 
it, with certain commonsense exceptions.
    So we are about to become the second State to actually ban 
that conveyance. If you don't ban it, what you end up doing is 
you have situations like the Legal Aid Bureau and others coming 
in after the train wreck has occurred. They are a renter; you 
are trying to prevent somebody from being evicted as opposed to 
keeping someone in their home. Disclosure is not enough, I have 
concluded after way, way, way too many stories.
    In conclusion, I wanted to just highlight a few 
recommendations. If I were in the shoes of a member of this 
august body, what would I be doing?
    First of all, I would respectfully request that you take a 
very careful look at the proposed acquisition of Countrywide by 
Bank of America. Currently, we have many Marylanders--and I am 
confident there are many Wisconsinites--who are now in the soup 
as a result of a loan that they had with Countrywide.
    I am very concerned as a result of this acquisition that 
States will be preempted from protecting consumers who are 
victims of foreclosure activity. So I would respectfully and 
strongly encourage you to take a close look at that. If it is 
approved, which I expect it will be, that there be some 
provisions which continue to allow States to protect their 
residents who had Countrywide mortgages and who may be now 
preempted as a result of that acquisition.
    Second, I encourage you to continue the efforts to assist 
in building nonprofit capacity. As Mrs. Doyle correctly pointed 
out, we need to prevent things. The Prevention of Homeowners in 
Foreclosure Act, that is when the train wreck is about to 
happen. We need to prevent these things from happening. We have 
too few people in our communities, in Maryland and Wisconsin 
and elsewhere, who are out there advocating for people like Mr. 
Malone.
    What we need is that strong cadre and an infrastructure of 
nonprofit housing counselors who have no dog in the fight--they 
have no financial stake in the outcome. The only thing they are 
looking out for is the best interest of the consumer. 
Nationally we don't have that infrastructure. NeighborWorks 
America and others are doing great work, but we need to do 
more, plain and simple. I think the Federal Government can do a 
lot.
    There are some bad products on the market. There should not 
be the marketing of these risky ARMs to seniors. I know of one 
entity that has been doing just that. I encourage the Federal 
Government to play a very aggressive role in overseeing these 
products, because a senior who is living on a fixed income has 
no business getting in on of these risky ARMs. I am sure you 
are aware in the context of reverse mortgages that there is a 
counseling requirement before you can reverse mortgages.
    At a minimum, if we are going to allow these products to 
continue to exist, we need to be very aggressive in overseeing 
how those products are implemented. Because I sure wouldn't 
want to put an elderly relative of mine into a risky ARM 
product when they are living on a fixed income and the price of 
gas and the price of electricity and everything else is going 
through the roof.
    Finally, two final quick thoughts. No. 1, it is critically 
important to continue to shine a light on the role of the 
mortgage servicer. These are the folks who collect the 
payments, and these are the folks who negotiate when you fall 
behind. As I am sure you are aware, there was a study by 
Moody's documenting that one percent of people in danger of 
foreclosure are having meaningful modification. Whereas there 
is another study from the Center for Responsible Lending 
showing that 70 percent of people in foreclosure could keep 
their home if they had meaningful modification.
    What we are seeing is that seniors are trying to pick up 
the phone, if they know who to call, and they can't get through 
because servicers are overwhelmed. Servicers are, frankly, not 
regulated at a Federal level. There needs to be much more 
aggressive oversight than there has been to date.
    Finally, I believe it is critically important to simply 
aggressively enforce the laws that are on the books and to 
ensure that the States have the authority to enact laws. I am a 
firm believer in what I call redundancy in law enforcement, and 
we need redundancy in law enforcement. The States need to have 
an important role. The Feds need to play an important role. 
Because at any given moment laws are only as good as the 
political will of those enforcing them. Without that 
redundancy, we cannot get the job done in this joint venture 
between the Feds and the States of protecting people.
    So thank you for your time. I appreciate your leadership.
    [The prepared statement of Mr. Perez follows:]

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    The Chairman. Thank you. Thank you for your testimony. We 
appreciate it.
    Mr. Anderson.

STATEMENT OF JOHN ANDERSON, LICENSED REALTOR, TWIN OAKS REALTY, 
   MINNEAPOLIS, MN, OF BEHALF OF THE NATIONAL ASSOCIATION OF 
                            REALTORS

    Mr. Anderson. Chairman Kohl, thank you very much for 
inviting me to testify today.
    I am a licensed real estate broker with Twin Oaks, and I 
have been doing this, been a realtor, for over 30 years. I have 
assisted and counseled thousands of buyers and sellers over the 
years as a residential broker and salesperson, including those 
facing the foreclosure situation just like Mr. Malone.
    Realtors want to protect our Nation's homeowners. We are 
troubled by the proliferation of foreclosures and the scam 
artists who are preying on the most vulnerable homeowners, 
including older Americans.
    Today there are more than 87 million Americans over the age 
of 50. According to NAR research, 43 million Americans age 50 
and over own their home and have been a homeowner for more than 
20 years. The typical older boomer household has more than 
$100,000 in home equity. Yet when describing their financial 
situation, almost half of older homeowners report concerns 
about their financial security. For those on a fixed income, a 
spike in just one monthly expense or an unexpected significant 
cost transforms older boomers into the most vulnerable 
population in the eyes of abusive lenders and foreclosure 
scammers.
    As we sit here today, my home State of Minnesota has seen 
foreclosure filings almost double since 2006. Minneapolis and 
St. Paul, where I work, just last month reported 711 homes lost 
to foreclosure, which has increased from 560 in October. In 
fact, in the last week I drove down a two-block neighborhood, 
and I counted 15 homes in foreclosure, both boarded up and 
abandoned. There is a chart that will show you the 
foreclosures.
    Someone once said that foreclosures are like mold: Once it 
starts, it is difficult to get rid of a community of them. 
Families struggling to make mortgage payments and who live in a 
neighborhood where homes have already been lost to foreclosure 
will find it difficult to refinance or sell due to decline in 
area home values. Far too often the financially stressed family 
will end up losing their home and feeding the vicious 
proliferation of foreclosures.
    Since you have already heard from some of the witnesses 
about different types of fraudulent foreclosure rescues, I 
would like to take a minute to talk about what my State has 
done to make Minnesota less attractive for scammers.
    In 2004 the State enacted a law that sets forth a series of 
complex requirements applicable to persons who offer to help to 
stop or postpone a foreclosure. Minnesota requires that the 
services of foreclosure consultants be detailed in a written 
contract and must include a consumer notice stating that the 
consultant cannot ask the homeowner to sign a deed, lien or 
mortgage. On the monitor you will see a copy of that 
disclosure.
    Another important provision in our State foreclosure law is 
the additional right of the homeowner who engages the services 
of a foreclosure consultant to cancel the contract for services 
within three business days. This statute requires that a 
separate notice of cancellation be attached to each contract. I 
have seen this work and be something that happens.
    In order for a foreclosure rescue scam to be successful, 
the ``counselor'' cuts off the homeowner's access to all 
legitimate foreclosure prevention options. For older Americans 
who have been in their home for more than 20 years who do not 
want to seem like a burden on their family members and who do 
not understand their available options, the foreclosure rescue 
seems like a great option, and the counselor seems like they 
really want to help. But as we know, these predatory rescues 
are the worst option, and by some measures even more terrible 
than a foreclosure where equity in the home is returned to the 
borrower after the mortgage debt is paid.
    Similar to Mr. Perez, I agree: Just the laws are not 
enough. It is critical that mortgage mitigation options be 
widely advertised, especially in areas where we know that 
rescue scammers like to operate. NAR strongly believes the 
private sector has an obligation to help inform homeowners 
about foreclosure prevention. Last May, NAR partnered with CRL 
and NeighborWorks on a brochure, which I have here and have 
available, that focuses on helping financially stressed 
homeowners understand their options and offers advice on how to 
avoid foreclosure. The brochure also promotes the 1-888-995-
HOPE number, which directly connects homeowners with a trained 
counselor at HUD-certified nonprofit counseling agencies.
    Rarely do foreclosure scams turn out with a happy ending. 
Rather, the rescue scenario that is played out over and over in 
communities across this country is in reality the theft of 
families' wealth, the taking of a homeowner's dignity and 
stolen home ownership. For older Americans who rely on their 
home as the foundation of their net worth, this is emotionally 
and financially crippling.
    In conclusion, as a realtor who for many years, like my 
father before me, has worked hard to help Americans achieve the 
dream of ownership, I believe now it is the time, the duty and 
the duty of our industry as well as everyone touched by this 
crisis to help homeowners protect their dream and the financial 
security a home brings.
    NAR stands ready to work with Congress on the important 
issue of foreclosure rescue scams, and we are happy to make 
available to your constituents our foreclosure prevention 
brochure and any other materials.
    Thank you very much.
    [The prepared statement of Mr. Anderson follows:]

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    The Chairman. Thank you very much, Mr. Anderson.
    The vote just started, so we will recess now for perhaps 10 
minutes. I will get back just as soon as I can. [Recess.]
    Ms. Dollar, we would like to hear your testimony.

STATEMENT OF RACHEL M. DOLLAR, ATTORNEY AND CERTIFIED MORTGAGE 
   BANKER, SANTA ROSA, CA; ON BEHALF OF THE MORTGAGE BANKERS 
                          ASSOCIATION

    Ms. Dollar. Thank you, Chairman Kohl, for the opportunity 
to discuss foreclosure rescue scams.
    The Mortgage Banking Association believes it is important 
to protect homeowners, especially the elderly, from scams that 
can result in the loss of people's primary financial asset--
their home. The impact of frauds, scams and deceptive practices 
on the elderly can be both psychologically and financially 
devastating.
    The current increase in foreclosures around the country 
heightens the concern that borrowers may be lured by bogus 
offers of help, particularly in the case of older homeowners 
who may be targeted by fraudsters.
    Escalating foreclosures also provide criminals with the 
opportunity to exploit and defraud vulnerable homeowners. A 
foreclosure rescue scheme often involves forged or fraudulent 
deeds. In extreme circumstances, perpetrators sell the home or 
secure a cash out loan without the homeowner's knowledge, 
stripping equity for personal enrichment.
    In my professional experience, one of the most common 
frauds is a sale and leaseback transaction, where the homeowner 
is instructed to transfer the property to a third party. The 
homeowner is told that the rescuer will pay off the mortgage 
and will lease the property back to the homeowner. The phony 
rescuers then have title to the home, fail to pay off the 
existing mortgage and place additional mortgages against the 
property, stripping out any equity that may have existed.
    Another significant scheme that involves seniors is real 
property theft, which is targeted at properties with stable 
ownership histories, typically those owned by older Americans. 
Unscrupulous contractors also approach elderly homeowners 
offering to obtain loans and make home repairs.
    Homeowners in distress seldom seek assistance from a HUD-
approved counseling agency or from their mortgage company, the 
entity that is best suited to provide a workout.
    The best assistance senators can offer to stop foreclosure 
rescue scams is to educate constituents who find themselves in 
financial difficulty to call their loan servicer or the HOPE 
hotline at 1-888-995-HOPE. It is extremely important for people 
to know that the HOPE hotline is a free service. We have become 
aware of impostor services looking to scam troubled borrowers.
    Although there are no precise statistics available on the 
extent or cost of mortgage fraud, the Department of Treasury's 
Financial Crimes Enforcement Network reported that suspicious 
activity reports, or SARs, related to mortgage fraud increased 
almost 400 percent from 2003 to 2006. The FBI has also seen its 
mortgage fraud casework increase over 235 percent and estimates 
financial losses to the mortgage industry for 2006 between $946 
million and $4.2 billion.
    MBA is proactively working with law enforcement in an 
effort to curb mortgage fraud crimes. On March 8, 2007 MBA 
signed a memorandum of agreement with the FBI to promote the 
FBI's Mortgage Fraud Warning Notice. The Notice States that it 
is illegal to make any false statements regarding income, 
assets, debt or matters of identification, or to willfully 
inflate property value to influence the action of a financial 
institution.
    MBA continues to advocate for increasing the investigation 
and prosecution of mortgage fraud by law enforcement agencies 
and improving the communication between mortgage lenders and 
State and Federal agencies. To that end, MBA requests Congress 
appropriate $6.25 million per year, over a 5-year period, of 
dedicated funding for the FBI efforts in tracking down and 
prosecuting mortgage fraud.
    To protect a borrower from becoming a victim of a 
foreclosure rescue or bailout scheme, MBA recommends consumers 
keep the following six points in mind:
    If it sounds too good to be true, it probably is.
    Beware of offers to ``save'' homeowners from default or 
foreclosure.
    If you are having trouble, contact your mortgage servicer 
or call 888-995-HOPE.
    Make every effort to understand the papers and forms being 
presented.
    Never sign any loan documents that contain blanks.
    Make sure the servicer is fully aware of and approves any 
transfer of title to the property.
    Thank you for the opportunity to testify. MBA looks forward 
to working with the Committee.
    [The prepared statement of Ms. Dollar follows:]

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    The Chairman. Thank you very much, Ms. Dollar.
    Ms. Twohig.

  STATEMENT OF PEGGY TWOHIG, ASSOCIATE DIRECTOR, DIVISION OF 
 FINANCIAL PRACTICES, FEDERAL TRADE COMMISSION, WASHINGTON, DC

    Ms. Twohig. Chairman Kohl, I am Peggy Twohig, associate 
director of the Division of Financial Practices at the Federal 
Trade Commission. I appreciate the opportunity to appear before 
you to discuss what the FTC is doing to address foreclosure 
rescue scams.
    In the past year, as you noted, there has been a sharp 
increase in delinquencies and foreclosures. There were 75 
percent more foreclosure filings in 2007 than in 2006. 
Unscrupulous actors, therefore, now have more opportunities to 
take advantage of people facing serious financial hardship.
    Although foreclosure rescue scams take various forms, as 
you have heard, at the heart of each is a false promise that 
the rescuer will save the consumer's home. The Commission, 
partnering with other Federal agencies and State and Local 
Governments, is working to address the problem of foreclosure 
rescue frauds through law enforcement and consumer outreach.
    I will briefly describe the FTC's authority in the 
financial arena, the nature of foreclosure frauds, and recent 
activities to protect consumers from these frauds.
    The Commission has wide-ranging responsibilities regarding 
consumer financial issues. In particular, the FTC enforces 
Section 5 of the Federal Trade Commission Act, which prohibits 
unfair and deceptive acts and practices in commerce. The FTC 
protects consumers from unfair and deceptive practices at every 
stage of the consumer credit lifecycle--from the advertising 
and marketing, through the loan servicing, through the debt 
collection--and, unfortunately, foreclosure occurs at the end 
of the lifecycle for many consumers. That is where foreclosure 
rescue scams step in.
    Foreclosure rescue frauds take many different forms, as you 
have heard, and I won't go into detail here because you have 
heard this already from other panelists. But there are some 
common types.
    In some scams the homeowner is told that he is signing 
documents for a new loan when, in fact, he unknowingly signs 
over the deed to his house.
    In another type, the homeowner knows he is signing over 
title to his house based on promises that he will be able to 
stay as a renter and get the house back, repurchase it later. 
However, rather than allowing the homeowner to repurchase the 
property, the rescuer typically asserts ownership outright and 
evicts the homeowner.
    Or rescuers sometimes promise various types of assistance 
that will stop the foreclosure in return for a hefty fee, such 
as promises to help them negotiate a loan workout or a loan 
modification. But these promises are typically false. The 
assistance does not stop the foreclosure, and the consumers end 
up losing their homes anyway.
    Foreclosure rescue scams are widely dispersed 
geographically and often local in nature. Indeed, historically 
State and Local law enforcement agencies have prosecuted 
foreclosure rescue scams because these scams are typically in 
States and Cities and sometimes even in particular 
neighborhoods.
    In light of the recent increase in foreclosures, the FTC 
through its regional offices is working with Federal, State and 
Local partners to enhance its efforts in preventing foreclosure 
rescue frauds and has a number of ongoing nonpublic 
investigations of these scams. Commission staff members are 
leading or participating in various State and Local task forces 
around the country that are sharing information and working to 
identify solutions to the problem.
    The Commission also works to empower consumers to prevent 
harm by educating them about their options when facing 
foreclosure and other credit problems. The FTC has published 
more than 50 credit-related educational brochures for 
consumers, including an alert that I have with me here with 
guidance on steps borrowers can take to avoid foreclosure. This 
publication, called ``Mortgage Payments Sending You Reeling? 
Here is What to Do,'' warns consumers that companies may say 
they can offer services to help consumers avoid foreclosure but 
that often these promises are false. It also tells them about 
what options they may have in terms of working out their loan, 
different loan modification or workout options.
    Commission staff have participated in a number of public 
meetings recently to provide homeowners with information and 
resources to help them avoid foreclosure. The Commission is 
also planning a stepped-up consumer outreach initiative on 
foreclosure rescue fraud. In particular, the FTC will submit 
radio public service announcements to stations in cities 
hardest hit by foreclosures as well as publish classified ads 
for free in free publications.
    The Commission will also send information to community 
libraries, unions and other organizations warning consumers 
about foreclosure rescue scams. The Commission is committed to 
working with our partners to combat foreclosure rescue fraud 
and to protect consumers from unfair and deceptive practices 
generally in the financial services marketplace.
    Thank you for the opportunity to testify at this hearing 
today.
    [The prepared statement of Ms. Twohig follows:]

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    The Chairman. Thank you, Ms. Twohig.
    We would like to turn now to the distinguished Ranking 
Member of this Committee, Gordon Smith from Oregon.

   OPENING STATEMENT OF SENATOR GORDON SMITH, RANKING MEMBER

    Senator Smith. Thank you, Senator Kohl, Mr. Chairman, I 
appreciate your holding this very timely hearing. My wife and I 
happen to live in a home that is down a hill which was iced 
over this morning, and it took a little time to get up that 
hill.
    But I am glad to be here because this issue, as we talk 
about the economy and stimulus and all of these things, at the 
core of it, at the center of the problem, is obviously the 
housing crisis. In 2007, the number of foreclosures hit an all-
time high in this country, with over 400,000 homeowners losing 
their homes. In my State of Oregon, the number of foreclosures 
increased 57 percent between 2005 and 2007.
    Obviously, the cons that you are focusing on in this 
hearing, Mr. Chairman, they don't necessarily focus on the 
elderly, but the fact of the matter is it is a target rich 
environment because the elderly do have a lot of their equity, 
a lot of their life savings, tied up in their real estate, in 
their homes.
    It is a situation that is intolerable. It is a problem that 
I think calls upon State, Local and obviously the Federal 
Government as well to enforce our consumer protection laws and 
prosecute those who would target anyone, but in particularly 
elderly who may be vulnerable in a special way to these kinds 
of schemes.
    We need to do more to educate people as to what their 
options are to prevent foreclosure and how to protect 
themselves from fraudulent schemes. An educated consumer is the 
first line of defense against fraud and abuse. So I am very 
pleased with objectives to the HOPE NOW initiative and the way 
it proactively reaches out to borrowers.
    To that end, to the end of helping put a brake on this 
situation, Senator Kerry and I introduced in the Finance 
Committee legislation that would give people who are at risk of 
default the option to obtain safe, fair and obtainable 
mortgages.
    Under current law, State and Local Governments are 
permitted to issue tax-exempt bonds to finance new mortgage 
loans to first-time homebuyers. Our bill would temporarily 
expand the use of the program to include refinancing of 
existing subprime loans.
    I really believe, Mr. Chairman, that people want--not a 
handout or a bailout--they want a workout. They want the 
dignity of that. That is the spirit of the bill that Senator 
Kerry and I have introduced. We want to help people who may 
face foreclosure to stay in their homes and at the same time 
provide needed stimulus to the housing industry.
    So I thank all of our witnesses for their presence here 
today and the contribution they are making to the understanding 
of this Committee and the Senate as to what more we can and 
should do.
    So, my first question, Ms. Dollar, is to you. I thank you 
for what you do at MBA, and I wonder if you have evaluated or 
know of the legislation that we are proposing. It is actually 
legislation that President Bush spoke favorably of in his State 
of the Union Address. I had hoped it would have been part of 
the stimulus package. I do hope that it will soon be included 
although it was not included in the stimulus package, in a 
measure that will get to the President. Because I know he will 
sign it.
    What impact do you see this bill having on homeowners, 
including seniors who are at risk of foreclosure?
    Ms. Dollar. Thank you, Ranking Member Smith.
    MBA applauds the bill that was introduced by yourself and 
Senator Kerry. We believe that all effort to bring financing 
options to people that are in foreclosure or that are facing 
payment distress are necessary and appropriate in this 
particular marketplace. The MBA and lenders and services are, 
as you are well aware, reaching out to borrowers in an 
unprecedented way in order to try and modify loans, to create 
workouts, and to keep people in their homes. So any legislation 
that assists with that ultimate goal, the Mortgage Bankers 
Association is very much in favor of.
    Senator Smith. Are you aware of States unilaterally trying 
to do this on their own--increase the caps so that they can 
extend these kinds of services to those who otherwise don't 
qualify, aren't first-time homebuyers?
    Ms. Dollar. I am not personally aware of any State-based 
initiatives. It wouldn't surprise me if those were being made 
on various different levels and in different States. I know 
especially on the foreclosure rescue side that many, many 
States are moving toward trying to put specific legislation and 
to address that issue.
    Senator Smith. Right.
    Thomas Perez, the home I spoke of is in Maryland, and I am 
curious about what the State of Maryland is doing to reach out 
to seniors to inform them of potential foreclosure scams.
    Mr. Perez. In short, first of all I want to apologize for 
your icy beginning to the day. I used to serve on the 
Montgomery County Council, and I hope it wasn't in Montgomery 
County.
    Senator Smith. It is in Bethesda.
    Mr. Perez. Oh, my gosh. Well, OK, as soon as I leave here 
today, senator, I will be in touch with the Department of 
Public Works and Transportation.
    Senator Smith. Montgomery County had a 2-hour school delay 
today.
    Mr. Perez. Yes, as we found out this morning, absolutely.
    Senator Smith. Very justifiably so.
    Mr. Perez. I would agree wholeheartedly.
    We have quite a range of things that we are attempting to 
do as it relates to the very important questions that you 
raised. Let me outline just a few.
    We have put together some new products through our 
Department of Housing and Community Development to assist 
people, lifeline products. There is one product--for instance, 
what we are finding is that there are a lot of people who could 
climb out if they could get a short-term loan of maybe $10,000. 
They have fallen behind, but their situation is sufficiently 
stable such that if they could just get that little assistance 
they could climb out.
    So we have established this program--interest-free, 
payment-deferred program--and we are finding that that is very 
helpful. Although I don't want to overstate. We are helping 
dozens of people. We need to be helping thousands of people.
    On the regulatory front, we are now, I think, the second 
State in the country--we issued an emergency regulation that is 
requiring loan servicers to document on a monthly basis, with 
precision, the precise nature and extent of the modifications 
that they are doing. Because as you--I am a kleptomaniac, so I 
was stealing your line about ``not a handout or a bailout but a 
workout.'' As I said in my testimony, the data show that there 
is, regrettably, still a very wide gulf between the stated 
aspirations of loan servicers--and I have no reason to doubt 
the sincerity of their desire to help people--but there is a 
disparity between the stated aspirations and the actions. You 
are, I am sure, well aware of the study from Moody's 
documenting that one percent of people in danger of foreclosure 
are getting help. The National Association of Attorneys General 
just released some data last week showing that only 3 in 10 
people in distress are even contacting the servicer--they are 
having so much trouble getting through.
    So we are working hard to, frankly, hold servicers 
accountable. We are one of a handful of States that actually 
licenses loan servicers. So we have regulatory authority to 
hold them accountable. Most States actually don't have that 
regulatory authority to hold them accountable. I think that is 
unfortunate. We are using that regulatory authority in an 
effort to bring them to the table. I believe that is the 
elephant in the room.
    We are doing a ton of aggressive, proactive things like 
banning prepayment penalties--those are very important 
prospective steps. But the most difficult nut to crack in this 
is the here and now of the people that are staring foreclosure 
in the eye. We are going to need--there is no silver bullet for 
that; it is more like silver buckshot. Both the States and the 
Federal Government and, frankly, and I would argue, most 
importantly, the servicers need to come to the table in a 
meaningful way with modifications that are taking it to scale.
    Senator Smith. Well, I commend you for that. I also commend 
Montgomery County. It is a great place to live.
    Mr. Perez. Thank you.
    Senator Smith. The condition of this particular place was 
nobody's fault--it was nature.
    Mr. Perez. Well, thank you.
    Senator Smith. Thank you.
    Mr. Chairman.
    The Chairman. Thank you, Senator Smith.
    We now turn to the great Senator from the State of 
Arkansas, Blanche Lincoln.

          OPENING STATEMENT OF SENATOR BLANCHE LINCOLN

    Senator Lincoln. Thank you, Mr. Chairman. As always, thank 
you for your leadership and bringing us together to discuss 
this issue. The Aging Committee is one of my favorite 
Committees because it really does focus on the issues that 
concern the constituencies that we represent in our elderly 
population. The chairman brings forth great issues.
    We know across the Nation that foreclosures have increased 
by 95 percent in the past year due to the rising interest rates 
and declining housing prices, predatory lending. In our State 
of Arkansas, there were 14,310 foreclosures in 2007, which was 
up about 10 percent from 2006. But we also know and hear from 
so many across our country that it is going to get worse this 
year and that we are going to see more and more, and it is 
going to be more devastating if we don't do something to really 
start taking a handle on things and setting things straight.
    I know Senator Kohl is working on something right now, and 
we appreciate that. I look forward to working with him on that 
and the Mortgage Rescue Fraud Act. Again, his leadership in, 
whether it is the Elder Justice Act or a host of other things 
where he has been looking out for our seniors, is great 
leadership, and I appreciate that. Mr. Chairman, you do a 
wonderful job at that.
    Just a couple of questions--I know you all have already 
covered some things before I got here in terms of the outreach 
and better information and understanding of what exists out 
there to help seniors particularly.
    But Mr. Malone, we appreciate you coming before the 
Committee and sharing with us your experience. I am not sure if 
you have answered this or not, but did you try to contact your 
lender during the time you were unable to make your payments to 
try to negotiate some kind of an arrangement?
    Mr. Malone. Yes, I tried several times, but I never was 
able to talk with anyone about it.
    Senator Lincoln. They never responded to you?
    Mr. Malone. I left messages for them to call me, and they 
never called back.
    Senator Lincoln. Of course that is such an issue. I know 
particularly with seniors, as we went through the transition 
into the Part D in Medicare, the prescription drugs and the 
dual-eligibles, we had a really tough time getting the folks, 
the agencies, that we needed to work on those issues. So really 
being able to just make contact with folks needs to be a big 
part of the steps so that you can understand what your options 
are available to you.
    Ms. Dollar?
    Ms. Dollar. Yes?
    Senator Lincoln. Yes. Secretary Paulson has recently 
announced a new agreement through the Hope Now Alliance that is 
called Project Lifeline. . .
    Ms. Dollar. Yes.
    Senator Lincoln. . . . where lenders agree to halt 
foreclosure proceedings for 30 days if the homeowner contacts 
their lender and attempts to put out a payment plan. It is only 
available to people who are more than 90 days behind their 
payments and that are facing immediate danger of foreclosure.
    How much can realistically be done in 30 days? I mean, it 
seems like that is not an awful lot of time. When you are 
having a hard time getting in touch with people and putting all 
those bits and pieces together, 30 days can tick away pretty 
quickly.
    What sort of arrangements do lenders expect to work out 
with those homeowners, do you think?
    Ms. Dollar. Well, lenders have a number of different that 
they can provide to homeowners, whether it is a temporary 
forbearance plan--something that probably would have assisted 
Mr. Malone when he was having problems with his loan--where a 
lender will look at the amount that is outstanding and maybe 
set it for payment over a longer period of time so the 
arrearage can be paid, or reduce payments temporarily, or 
reduce the interest rate, or completely modify the loan so that 
a borrower can actually meet the payment obligation, and it is 
a different payment obligation that they can meet.
    Project Lifeline is intended as an immediate stop to the 
foreclosure process. Because at 90 days you are really heading 
toward sale at that point in time. So this is a breath to stop 
that foreclosure process--and that is the time when these 
rescuers come in and really victimize people. So it gives the 
borrower a chance to talk to their servicer, to talk to their 
lender, to submit financials. . .
    Senator Lincoln. If they can get in touch with them.
    Ms. Dollar. Yes.
    Senator Lincoln. If they can get in touch with them.
    Ms. Dollar. The HOPE hotline is manned by HUD-approved 
counselors. If borrowers cannot get in touch with their lender 
or servicer or have problems, they can call the HOPE hotline, 
and the HOPE hotline has access into those servicers and a 
manner of getting in touch with them. So there is that 
telephone number that we are publicizing as well.
    But Project Lifeline just allows breathing room in order to 
look at the mortgage, look at the payment options and see 
whether there is a way the borrower can be helped into saving 
their home.
    Senator Lincoln. So you think that 30 days is adequate?
    Ms. Dollar. I think the 30 days provides an additional 
window and a stop on a proceeding that is already probably 
nearing its conclusion at that point in time. It should provide 
servicers with enough time to look at the financial 
information.
    I don't think that the 30 days is a limit, that if they are 
not working toward something a servicer can't voluntarily 
continue it longer if there is discussion going on. But this is 
just what they have agreed to is this 30-day pause.
    Senator Lincoln. Well, so when we hear about the concerns 
about these mortgages, particularly the ones that have been, 
you know, divided up and sold into other secondary markets and 
a host of other things, is that enough time to realize who 
actually holds those bits and pieces of that mortgage in order 
to be able to bring it back together and figure out how you are 
going to do that?
    Ms. Dollar. Well, the servicer has the ability to act on 
behalf of any securitizer that is holding ownership of the 
loan. The servicer is the point of contact who generally has 
the authority from the holder of the loan in order to modify 
the loan or in order to make payment options or workouts. So 
that servicer is the point of contact and is the correct entity 
to discuss it with.
    Senator Lincoln. They keep that authority?
    Ms. Dollar. Yes, they do.
    Senator Lincoln. Do you think there is any problem--I just, 
I try always to apply as much of my own life to the 
practicality of what I am asking others to do and participate 
in. My mom, who is a widow, she is a Lifeline Partner. Do you 
think there is any confusion for seniors in terms of the title 
of that?
    Ms. Dollar. I don't know that there would be. . .
    Senator Lincoln. Has anybody else asked that?
    Because there is a woman even more elderly than my mother 
that lives across the street from her, and she has one of those 
Lifeline buttons that, you know--I just wonder if there any 
con--.
    I just know that we had a hearing in the Finance Committee 
last week, and we were talking about choices on health care and 
other things like that, and one of the gentlemen that was 
testifying about his personal experience was saying that, you 
know, when there are so many names and so many choices it is 
difficult for our elderly population to kind of keep all that 
going, keep all that in one place. But I am just not. . .
    Ms. Dollar. When you may just be looking for two different 
forms of relief in medical versus mortgage, and hopefully that 
is. . .
    Senator Lincoln. I hope.
    Ms. Dollar. . . . looking for the relief they find the 
program.
    Senator Lincoln. I just was--it occurred to me because it 
would have confused me if somebody had said that, and of course 
we are faced with millions of acronyms up here every day that 
we have to keep apart.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Lincoln.
    Mr. Malone.
    Mr. Malone. Yes, sir?
    The Chairman. What kind of advice would you give to future 
homeowners who might find themselves in a similar situation as 
you?
    Mr. Malone. First, I would advise them to see a lawyer. I 
think that is the best thing to do--find a lawyer and talk the 
situation over with the lawyer, and they can guide them right.
    The Chairman. Thank you.
    Mr. Malone. Thank you.
    The Chairman. Mrs. Doyle, in the case of Ms. J in your 
testimony, you pointed out that the title company issued checks 
without question to the various parties involved in the sale of 
Ms. J's home. Do you find that there are third parties involved 
in these transactions that enable the scams to move forward, as 
in the case of Mrs. J?
    Mrs. Doyle. Yes, I do. That is a very good question.
    Because one of the things we have learned in representing 
our clients in these scams is that many of them are funded by 
loans that are closed through closing services, many of which 
are title companies. We just had--there is the case of Mrs. J 
and then another case I mentioned, Mrs. K, where we just got 
discovery in our legal proceedings and learned that on the HUD-
1 for the sale of her home it did indicate that the scammer was 
going to get the $32,000 of equity in the home.
    But as it turned out in discovery, that wasn't even 
correct--that the HUD-1 did not reflect the actual checks cut 
at the closing. In this particular case, a check was cut for a 
great deal of that $32,000 to Wells Fargo Acceptance 
Corporation, and we believe it was to pay a car loan for the 
scammer. So as Mrs. Kirk's husband lay dying, and they were 
desperate for money, the title company cut a check to pay off a 
car that belonged to the scammer.
    In Mrs. J's case, it was so interesting, because on the 
HUD-1 it showed $58,000 to go to Mrs. J as the seller. Instead, 
the scammer gave a disbursement notice to have it divided up, I 
think among maybe six different people, most of whom my client 
had never heard of. It seemed to me when I looked at it, it was 
as if a den of thieves was dividing up the loot, and some 
people would get--just somebody got $8,000, somebody got 
$10,000. She didn't know who these people were. She had never 
met them before. The title company cut those checks.
    Now, under RESPA, a HUD-1 has to clearly, correctly reflect 
who is getting the checks out of the closing, where the 
proceeds are going. So there is violation No. 1. But RESPA has 
no enforcement. The penalties are nonexistent in that 
situation.
    Now, we have filed claims for negligence and breach of duty 
against these title companies, but they fight us very hard. The 
state of the law in Wisconsin is such that there is great 
deference given to closing agents. They don't want them to 
become the police officers of these.
    On the other hand, these things just shock me. How could 
they--so they get her car paid for, the title company writes a 
check, and then she just went home and slept and knew that the 
Kirks were destitute. So, yes, that is one example.
    In addition, appraisers, sometimes the lenders knew or 
should have known that they were getting involved with a scam. 
So there are many other parties that we looked to.
    It might be an area in the RESPA act to look, maybe 
enhance--extremely enhance--the penalties for violations by 
these closing companies.
    Thank you.
    The Chairman. Thank you very much.
    Ms. Dollar. Can I address this issue, very quickly, with 
the third party. . .
    The Chairman. Ms. Dollar, go ahead.
    Ms. Dollar. Thank you.
    On the mortgage fraud front, we run into these same issues 
dealing with third parties within the transaction, undisclosed 
transfers on the HUDs, and it is costing the lending industry 
billions of dollars every year in losses. The schemes, even 
though they target different victims, they are often 
perpetrated in much the same way. So we see these same types of 
parties, whether it is inflated appraisals or it is falsified 
issues on the HUD-1 coming through foreclosure rescue as well 
as other mortgage fraud schemes.
    There is a lot of Federal law out there that addresses the 
ability to go after this type of conduct criminally. I don't 
necessarily see that enhancing penalties under a statute that 
is designed to inform consumers about real estate settlement 
addresses the very, very criminal conduct that we see in these 
cases and that we have Federal and State criminal laws that 
address.
    The Chairman. Thank you.
    Mr. Anderson, since the passage of the Minnesota law 
restricting scam artists taking advantage of troubled 
homeowners, have you seen a downturn in these types of scams?
    Mr. Anderson. That is a terrific question, Mr. Chairman.
    There has been a downturn, but what we have seen is that 
these people, the scammers, have gone underground. They can get 
lists of the foreclosures--instead they used to boldly 
advertise on telephone poles and different places, but now they 
just direct mail.
    Just recently there was a case where one of these scammers 
came in on an elderly person, fixed income, had $50,000 in 
equity, was only $4,000 behind on her payments, and three days 
before the sheriff's sale was told by this scammer, ``If you 
don't sign it over to me now, you will be out of the house at 
the sheriff's sale.'' That is the big part of--I appreciate the 
Lifeline program, and all the different programs will help a 
certain amount of people--but we have got to get the word out. 
We have got to, either through the servicers do direct 
mailings, through advertisement in papers and different things 
working with the bankers, get this information out.
    In that case, luckily, that person met up with an attorney, 
and because of the 3-day right of cancellation got out of that 
deal, and the equity was saved. So that was a win. But only 
fortunately because she got a hold of someone.
    I met with someone just last week--and I just share this 
story--she is facing cancer, she is out of her job, 62 years 
old, and just not very far behind in her payment. An exact same 
question: She won't answer the calls from her lender or from 
other people because they are being nasty and, you know, she is 
doing the best she can. So what happens is they turn to other 
means of someone they think they trust.
    Again, fortunately, I was able to meet with her and say, 
``Look, here are your options. Here are some counseling 
agencies. If we sell, I can get your equity back out of the 
house.'' But the key is--even the enforcement is good, the law 
is fantastic, but unless we catch them, we can't do anything 
about it.
    That is where the education becomes so, so important, and 
getting the word out of all the options to people and figuring 
out creative ways to work with the servicers and everyone to 
get this information out.
    The Chairman. Thank you.
    Ms. Dollar, do loan service companies, or mortgage lenders, 
have any safeguards in place to help homeowners avoid these 
scams?
    Ms. Dollar. Mortgage lenders try to educate as much as we 
can, and we are involved in a concerted effort to reach 
homeowners at this point in time just in unprecedented ways.
    There is door-to-door, you know, knocking door-to-door for 
troubled homeowners at this point in time. They are ramping up 
the call lines. They have established the hotline. So they are 
putting out as many feelers as they can to people who are 
distressed and who are having problems with making their 
mortgage payments.
    The thing is is that the people who do this are engaging in 
criminal conduct. These are criminals who are out there trying 
to steal from people. The lenders end up being as much victims 
as the homeowners are.
    A lot of time the lenders are the ones who do the next 
loan, and the next thing you know the lender is involved in a 
lawsuit by the prior owner when they have a new person in the 
home.
    Or in the case of a scheme that there were just indictments 
on in New York, six people were indicted, they went out and 
they saved 80 homes from foreclosure. They did it by getting 
straw buyers and telling these people you are going to help 
someone in foreclosure, and then obtaining big loans from banks 
to pay off the other loans based on falsified income and asset 
data of the new borrowers.
    So now the banks have over $20 million in bad loans, and we 
have a situation where people have lost homes and a whole other 
group of people who now acted as the front person for a 
fraudulent loan. So this affects lenders as much as it does 
consumers. These are criminal acts.
    The Chairman. Thank you.
    Ms. Twohig, in your testimony you cite several laws which 
the FTC enforces to combat predatory or deceptive financial 
practices. Would you comment on the adequacy of these laws to 
address the foreclosure rescue scam issue?
    Ms. Twohig. Our primary tool--. The number of laws that we 
enforce include--in addition to the FTC Act we enforce the 
Truth in Lending Act, which contains the Home Ownership and 
Equity Protection Act, which goes to very high rate loans, 
which sometimes comes into play here if it is basically a 
refinancing scheme that might be covered by that law, which is 
HOPA. We also enforce the Credit Repair Organizations Act and a 
number of other particular credit statutes.
    I think the main tool that we will be using to address the 
foreclosure rescue scams will be Section 5 of the Federal Trade 
Commission Act which prohibits unfair and deceptive acts and 
practices. Under that Act, in our cases we can get equitable 
remedies, monetary remedies, not only of the particular injury 
to the consumers, but we also get disgorgement of ill-gotten 
gains.
    So to the extent that it was commented earlier it may be 
difficult to prove up specific injury to consumers, we have 
another tool in our arsenal, and that is to make sure that the 
fraud artist disgorges their ill-gotten gains. So we think 
right now we have quite a few tools to address these problems.
    The Chairman. All right.
    Generally, to the panel, I would like to ask this question: 
I am considering legislation that would create a Federal floor 
regulating foreclosure rescue transactions. Legislation I am 
considering would limit a foreclosure consultant from engaging 
in certain practices like collecting any fees or compensation 
prior to completion of the contract and prohibiting a 
consultant from obtaining the power of attorney from a 
homeowner. In addition, the bill would allow States to take 
action against scammers with FTC notification.
    Do you believe that this would be a good idea to protect 
people in States without foreclosure rescue scam laws?
    Mr. Perez, would you like to comment?
    Mr. Perez. Sure.
    My first point would be to ensure that there would be no 
preemption of State laws. As long as that were the case, as I 
pointed out in my testimony, I am a strong believer in 
redundancy in law enforcement. We need Federal and State 
Governments working together because, again, at any given 
point, the laws are only as good as the political will of those 
enforcing them.
    I would note, as I mentioned in my testimony, one thing 
that we have done at a State level--and this is about to pass 
in the next few weeks--is we are actually banning the 
conveyance of property during this stage. Because I have 
concluded, based on dozens and dozens and dozens of 
conversations with victims that the transfer, the conveyance, 
of the property is inherently ripe with so much potential for 
fraud that it should simply be disallowed.
    We have a number of what I would call commonsense 
exceptions, but the transaction has been so fraught--and, 
again, it gets back to this, ``Just sign the document,'' and 
you are signing 50 documents and you don't realize that you 
have signed over a quit claim deed. There are those 
conversations that are occurring: ``Yeah, you are signing over 
your loan, but don't worry--you will get it back in six months 
when you are back on your feet.'' That is baloney, as I said 
before.
    So I applaud your efforts, Mr. Chairman, to try to have the 
Federal Government play a role. As long as the States can 
continue their efforts to be these laboratories of democracy in 
protecting consumers, I think having that wonderful one-two 
punch would make all the sense in the world.
    Mr. Anderson. I would tend to agree, and again, with the 
preemption. But I think just passing a bill like that would 
bring it to more notice to the United States, you know, to the 
people out there that there is this availability. Which in that 
case, if they called and said, ``Hey, I have this problem going 
on,'' and then they are going to be seeking out help, which 
there will be State and local help as well as the Federal help.
    So I think anything to bring the notice out so people have 
more information--the more we can educate the consumer, the 
more they are protected. There is no question about it.
    The Chairman. Mrs. Doyle.
    Mrs. Doyle. I certainly would applaud your efforts in doing 
so and feel that could play a very positive role in trying to 
bring this particular scam and this element, this really 
bottom-feeder element, to the whole mortgage foreclosure 
crisis.
    I like the idea to deal directly with the consultants. As 
Mr. Perez said, these mortgage reconveyance schemes really deal 
a lot with individual State property laws and very--so I think 
that they might not be as appropriate for Federal legislation. 
But certainly the consultants are. They are the people like 
Mrs. Klermund met who said, ``I will help you get out of your 
jam and get you some money.'' So having a contract, having 
specific statement of services, having to sit down and go 
through that with them, having a 3-day right to rescind that 
contract, and also having the opportunity to limit the amount 
of fees or what might be taken out of it are very important 
elements and would be very helpful.
    I also would echo, however, the concern we have about 
preemption of State laws that might be more restrictive or 
provide strong remedies, and also preserving a, or including a, 
private right of action for people who have been victimized.
    Law enforcement has been pushed to the limit. I, really, in 
Wisconsin I very much respect the prosecutors who are taking on 
these cases. It takes them a long time to put together a good 
case. We had talked earlier about the fact that there are 
criminal penalties and so on, but it takes years. It is not a 
solution. It is better to prevent in the beginning than put 
people in that position.
    The Chairman. Thank you.
    Mrs. Doyle. Thank you.
    The Chairman. Ms. Dollar.
    Ms. Dollar. The principles are wonderful, and anything that 
we can do to assist homeowners in distress is laudable.
    On the law enforcement funding issue as well, that is very, 
very important. Any law that is enacted, or even the ones that 
are on the books, one of the biggest issues that we have is 
that there is not funding in order to enforce them. A lot of 
laws that are out there do reach the conduct that underlies the 
mortgage foreclosure schemes, and there just isn't the 
resources in order to prosecute or investigate it. That is just 
so important in anything that is considered.
    But the MBA looks forward to working with you on the terms 
of any bill you might propose.
    The Chairman. Thank you so much.
    Ms. Twohig.
    Ms. Twohig. Well, as I mentioned previously, from the 
Commission's perspective, we already have quite a few tools at 
our disposal to address this problem. Nevertheless, we would be 
happy to take a look at anything you proposed and consider it 
and work with you and your staff.
    In terms of the State perspective, I would defer to them on 
whether the States feel like that would be helpful for them. As 
I mentioned in my remarks, the States are very important actors 
in this arena.
    The Chairman. Thank you.
    Ms. Lincoln.
    Senator Lincoln. Thank you.
    Just one quick question of Secretary Mr. Perez. The reverse 
mortgage issues. I was just wondering if you all have seen the 
same kind of--we have heard about abuses in that arena--what 
abuses you have seen there and how they are similar in what we 
have discussed here today and maybe some of the ways that you 
have looked at that.
    Mr. Perez. Sure. We have seen--we are beginning to see more 
people from the reverse mortgage context who are in trouble. A 
lot of them are because they have lived well and there is no 
more equity left in their home because they took out a 
mortgage, and now they are 87 years old, and so they are 
running into difficulty.
    One of the provisions that I think has had some degree of 
success is the mandatory counseling requirement before you can 
get a reverse mortgage. I think that is something that is very 
useful.
    We have a first-time homebuyer's program. We have a 
mandatory counseling requirement. The foreclosure rates of 
those programs are infinitesimally small. So that is, I think, 
very, very useful.
    But one of the challenges is that there is a capacity 
problem. By that I mean there are not a sufficient number of 
counselors to address the need. So part of my set of 
recommendations was to continue the efforts at a Federal level 
to build capacity in nonprofit communities so that people have 
someone to go to.
    Because we are beginning to hear more people in the reverse 
mortgage context. I don't think those products are 
sufficiently, well, consumer-friendly yet. I think, you know, 
there are so many costs involved. My mother--we had that 
discussion with her. Her annual income was about $17,000, and 
she owed her home free and clear--that was her only asset. We 
ultimately decided not to go with one because the costs were 
just--the entity was getting rich, and it just wasn't a good 
deal for her.
    I am fearful that there aren't enough people who are having 
the benefit of that advice, and so it continues to be a 
challenge.
    I just wanted to say one thing. You asked a really good 
question before--and all the questions have been great--but you 
asked about the proposal regarding people who are 90 days 
behind, and I just couldn't resist the urge to say, I don't 
think that is nearly enough.
    Anecdotally, and through data that has been presented by, 
again, Moody's and so many other entities, the National 
Association of Attorneys General, it is taking weeks just to 
get through to a servicer. The notion that there is going to be 
a 30-day period--well, it is better than nothing, I guess, but 
not by much.
    The problem is the servicing industry is built on a model 
that is designed for a trickle of people coming in the door or 
calling on the phone. We now have the tsunami, and they haven't 
yet adjusted. The problem before was there was shoddy 
underwriting by all sorts of underwriters, that you are well 
aware of.
    Now they are overcompensating. So when someone comes in and 
they are in trouble, they are looking at every little thing, 
and they are saying, ``Sorry. We can't help you.'' That is why 
we have one percent of the people who are in danger of 
foreclosure getting meaningful assistance. Thirty-day 
forbearance is not meaningful assistance. So we have now got 
that ``porridge is too hot-porridge is too cold'' thing going, 
and we need to develop a better balance.
    I strongly urge the Senate and the Congress to really 
exercise its authority to hold servicers accountable because 
all too frequently they have these contracts with the hedge 
funds, and they look at themselves as only accountable to the 
hedge fund that they have contracted with. We are trying to 
make the case at a State level that a half a loaf or a third of 
a loaf is better than no loaf at all, and that is what you are 
going to get if you continue to move people to the precipice of 
foreclosure.
    Senator Lincoln. Well, the reason I asked that question is 
our experience with the prescription drug piece because some of 
my seniors thought they had been on hold for 30 days.
    Mr. Perez. Right.
    Senator Lincoln. You know, they would call in, and they 
couldn't find anybody to help them or answer their questions, 
and what have you. So that was the reason for the question.
    Mr. Perez. Well, it is. . .
    Senator Lincoln. Glad to hear your side of that.
    Mr. Perez. Thank you.
    Senator Lincoln. Thank you.
    Ms. Dollar. Can I make a quick statement?
    The Moody study is, or the article was, it is not timely 
information at this point in time. Even the footnotes to the 
study indicate that that one percent is probably not accurate, 
and that at that time it was probably more 30 percent of 
homeowners were getting assistance. But this was also many 
months ago when the foreclosure flood just started, and 
servicers were not ramped up yet to deal with it.
    Servicers, as I said, have been taking unprecedented 
measures to try and not only field calls that are coming in but 
to reach out proactively to borrowers in all types of ways in 
order to assist them to modify their mortgages. So, the 
servicing industry is reacting, and. . .
    Senator Lincoln. What is the average time, then? What is 
the average time that you are saying that people are being 
serviced?
    Ms. Dollar. I don't have that information, but the MBA can 
provide that to you afterwards, and I will ask them to do that.
    Senator Lincoln. That would be helpful.
    Ms. Dollar. Thank you.
    Mr. Perez. Senator, I commend your attention to the, this 
is now last week, report released by the National Association 
of Attorneys General who got data from servicers showing that 
less than 3 in 10 people in distress were even able to get 
ahold of a servicer. So, the Moody study is a couple months 
old. Now I commend your attention to last week's study.
    There are people who are trying--I don't have any doubt--
but they are not nearly where they need to be, and they haven't 
built the model that deals with the scale and scope of the 
challenges before us.
    The Chairman. Thank you, Senator Lincoln.
    I would like to thank all the members of the panel for 
journeying here and making an appearance before this Committee 
to detail your experience and your expertise in this serious 
issue of foreclosure rescue scams that is plaguing our country.
    Obviously, there is a lot of work that needs to be done, 
legislation that needs to be passed, education that needs to be 
pushed ahead. With your help and your assistance I think we can 
make a lot of progress. I think we will. To a large extent we 
thank you for helping us achieve these goals. So, appreciate 
your appearance. Thank you so much.
    This hearing is adjourned.
    [Whereupon, at 12:18 p.m., the Committee was adjourned.]


                            A P P E N D I X

                              ----------                              


              Prepared Statement of Senator Susan Collins

    The deceptive and abusive practices that have caused so 
much personal heartache and economic distress in the national 
mortgage markets are especially outrageous when they are 
directed against senior citizens. Seniors on fixed incomes who 
have been talked into unsustainable mortgages can face 
foreclosure when interest rates reset.
    In that situation--often alone, lacking knowledgeable 
advisors, unaware of government or non-profit services that 
might help, fearful of contacting their lender, and ready to 
trust anyone who appears to be offering a way to avoid 
foreclosure--seniors may find themselves victimized by 
criminals who take money for negotiations that are never made, 
or who offer a sale-leaseback arrangement that will lead to the 
homeowner's eviction, or who slip a quit-claim deed for signing 
into a stack of papers osentsibly for refinancing.
    We know from numerous accounts in the financial press that 
some people in the foreclosure process have made calculated 
decisions to be there. Having acquired properties with little 
or no cash investment in hot real-estate markets like Florida 
or California, some people have simply chosen to walk away when 
market prices fell below the level of their mortgages and let 
the lenders foreclose. Such deliberate speculators deserve 
little sympathy and have no moral claim on taxpayers for 
assistance.
    Senior citizens are another matter. Few of them have the 
means or the inclination to gamble in real estate as an 
investment. Even fewer have the time horizon needed to 
reconstruct their lives are losing their homes, which typically 
represent their main financial asset.
    We need to make sure that we are taking all appropriate 
steps to prevent foreclosure-rescue fraud against seniors--
including the fundamental step of helping victimized people 
avoid foreclosures in the first instance. Consumer-education 
efforts by government, private-sector, and non-profit 
organizations are essential for both objectives.
    We also need to consider whether laws and regulations at 
state and federal levels are well coordinated and well targeted 
to control foreclosure-rescue efforts, distinguish the 
legitimate from the abusive, and provide stern punishment and 
restitution for violations. The State of Maine has a new 
predatory-lending law that addresses some of the problems we 
will learn about today, and I am told that additional focused 
measures are in development.
    As we take up the issue of foreclosure-rescue fraud, 
however, we should take note of an observation from Will Lund, 
Maine's director of consumer credit protection. Mr. Lund points 
out that it is the past few years onslaught of bad loans--
nonstandard loans with deceptively low initial rates, lax 
underwriting, poor documentation, serial rate resets, and 
punitive fees for pre-payment--that create the demand for the 
services of the foreclosure-rescue operations that so often 
lead to fraud and heartbreak as well as foreclosure. Both 
problems call for more action. We need to make special efforts 
to protect seniors from deceivers, and we need to continue 
sharpening state and federal protections against deceptive and 
abusive lending practices.
    I know the Federal Trade Commission, which has a witness at 
this hearing, is cooperating with state agencies as well as 
exercising its authority to prosecute deceptive trade 
practices. As we consider new federal responses to this 
problem, I hope we can draw on the lessons accumulated in such 
federal-state collaboration, and on predatory-lending 
initiatives already adopted in Maine, New Hampshire, and other 
states. We should be careful of displacing or preempting state 
and local authority because they are the legal first responders 
who are in closest touch with the perpetrators and victims of 
these heartless frauds.
    I commend the Chairman and Ranking Member for conducting 
this hearing. It is tragic that many senior citizens have been 
led into loans that are triggering foreclosures, and it is 
outrageous that criminals should add to their distress with 
fraudulent offers of aid.

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