[Senate Hearing 110-812]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-812
 
      KEEPING FAMILIES IN THEIR HOMES: HOW TO PREVENT FORECLOSURES 

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

                                HEARINGS

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                    OCTOBER 17, AND OCTOBER 24, 2008

                               __________

                          Serial No. J-110-123

                               __________

         Printed for the use of the Committee on the Judiciary

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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts     ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware       ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin                 CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California         JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin       JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York         LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois          JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland         SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
            Bruce A. Cohen, Chief Counsel and Staff Director
           Stephanie A. Middleton, Republican Staff Director
              Nicholas A. Rossi, Republican Chief Counsel



























                            C O N T E N T S

                              ----------                              

                        FRIDAY, OCTOBER 17, 2008
                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................     1

                               WITNESSES

Casey, Hon. Robert P., Jr., a U.S. Senator from the State of 
  Pennsylvania...................................................     2
Griffin, Barbara, Pro Bono Coordinator, Allegheny County Bar 
  Foundation, Pittsburgh, Pennsylvania...........................    11
James, Joseph M., President Judge, Court of Common Pleas of 
  Allegheny County, Pittsburgh, Pennsylvania.....................     3
McKeever, Michael T., Partner, Goldbeck, McCafferty and McKeever, 
  PC, Philadelphia, Pennsylvania.................................     9
Mullen, Sheriff William P., Allegheny County, Pittsburgh, 
  Pennsylvania...................................................     5
Sullivan, Dan, Mortgage Foreclosure Prevention Specialist, 
  ACTION-Housing, Inc., Pittsburgh, Pennsylvania.................     6
Williams, Dawn T., Director of Housing, Urban League of Greater 
  Pittsburgh, Pittsburgh, Pennsylvania...........................     8

                      A SUBMISSIONS FOR THE RECORD

Griffin, Barbara, Pro Bono Coordinator, Allegheny County Bar 
  Foundation, Pittsburgh, Pennsylvania, statement................    22

                        FRIDAY, OCTOBER 24, 2008

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................    25
    prepared statement...........................................    54

                               WITNESSES

Carmona, Hiram, Assistant Contract Administrator Housing 
  Counseling.....................................................    47
Casey, Hon. Bob, Jr., a U.S. Senator from the State of 
  Pennsylvania...................................................    26
Dodds, John, Director, Philadelphia Unemployment Project.........    44
Gould, George, Managing Attorney, Housing and Energy Unit 
  Community Legal Services, Philadelphia, PA.....................    38
Harrigan, Tania, Homeowner.......................................    36
Henderson, Cynthia, Homeowner....................................    37
Hudson, Brian, CEO, Pennsylvania Housing Finance Agency..........    40
Jackson-Smith, Deborah, Homeowner................................    35
Jones, C. Darnell, President Judge First Judicial District of 
  Pennsylvania Court of Common Pleas of Philadelphia County......    28
Jones, Curtis, Jr., Member, Philadelphia City Council, 
  Philadelphia Pennsylvania......................................    32
Rhaney, Eric, Homeowner..........................................    34
Rizzo, Hon. Annette M., Judge, First Judicial District of 
  Pennsylvania Court of Common Pleas of Philadelphia County......    29
Seldin, Stefhanie, Managing Attorney, Philadelphia Law Works/
  Philadelphia VIP...............................................    42
White, Michael, Pennsylvania Bankers Association city of 
  Philadelphia...................................................    45

                       SUBMISSIONS FOR THE RECORD

Carmona, Hiram, Assistant Contract Administrator, City of 
  Philadelphia, Office of Housing and Community Development, 
  Philadelphia, Pennsylvania.....................................    54
Dodds, John, Director, Philadelphia Unemployment Project, 
  Philadelphia, Pennsylvania, statement..........................    56
Gould, George, Managing Attorney, Housing and Energy Unit 
  Community Legal Services, Philadelphia, Pennsylvania, statement    61
Harrigan, Tania, Homeowner, Philadelphia, Pennsylvania, statement    67
Hudson, Brian, Sr., Executive Director and CEO, Pennsylvania 
  Housing Finance Agency, Harrisburgh, Pennsylvania, statement...    68
Jones, Curtis, Jr., Member, Philadelphia City Council, 
  Philadelphia Pennsylvania......................................    73
Rizzo, Hon. Annette M., Judge, First Judicial District of 
  Pennsylvania Court of Common Pleas of Philadelphia County, 
  Philadelphia, Pennsylvania, statement..........................    77
Seldin, Stefhanie, Managing Attorney, Philadelphia Law Works/
  Philadelphia VIP, Philadelphia, Pennsylvania, statement........    82
White, Michael, Pennsylvania Bankers Association, City of 
  Philadelphia, Philadelphia, Pennsylvania, statement............    85


      KEEPING FAMILIES IN THEIR HOMES: HOW TO PREVENT FORECLOSURES

                              ----------                              


                        FRIDAY, OCTOBER 17, 2008

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 9:35 a.m., in 
room 321, Allegheny County Courthouse, 436 Grant Street, 
Pittsburgh, Pennsylvania, Hon. Arlen Specter, presiding.
    Present: Senators Specter and Casey.

 OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM 
                   THE STATE OF PENNSYLVANIA

    Senator Specter. Good morning, ladies and gentlemen. The 
Senate Judiciary Committee will now proceed with this hearing 
on the unique programs here in Allegheny County to try to keep 
homeowners in their homes when faced with potential eviction 
under sheriff sales through a mediation program which has been 
devised by the Court of Common Pleas under the direction of the 
distinguished President Judge James and implemented by Sheriff 
William Mullen and supported by quite a number of pro bono 
groups in the community.
    I am pleased to be joined by my distinguished colleague 
Senator Casey, and we thank Judge James and the sheriff and 
others for coming in today on relatively short notice. And we 
have scheduled this hearing because of the problems faced 
nationally and, of course, locally on this eviction issue.
    It is a win-win proposition if we can structure these 
matters so that people can stay in their homes. The homeowner 
obviously is benefited by not being evicted and by an 
arrangement to save the home. The lender has the potential for 
benefit to avoid a lot of costs of eviction and to repossess 
property which may be reduced in value and in a very difficult 
housing market, and it is something to be avoided if it 
possibly can be avoided. And, of course, it has the benefit of 
protecting the taxpayers from welfare programs and other 
support programs.
    There are a number of agencies which are at work here. 
Pittsburgh and Allegheny County both qualify under the 
neighborhood stabilization grants and the Housing and Economic 
Recovery Act of 2008, and there are a number of programs both 
on the Federal and State level which are potentially helpful.
    In discussing this issue with President Judge James, one of 
the critical points is to acquaint the homeowners with the 
availability of the program. And when foreclosure proceedings 
are initiated, they are swamped with a lot of legal papers, 
which many people cannot understand and they discard. So it has 
to be a proactive effort to reach these people and tell them 
that they can get a 90-day stay and they can get assistance.
    Senator Casey and I are also looking at the issue of 
legislation at the Federal level. Legislation has been pending 
since last November to give bankruptcy courts some authority to 
move in, and we included in the economic recovery program some 
provisions to protect lenders who enter into these 
arrangements.
    We have a relatively tight timeframe here, and we want to 
proceed with dispatch, and in accordance with Judiciary 
Committee procedures, we have allocated 5 minutes to each 
witness to reserve some time for Senator Casey and me to ask 
some questions at the end. And now I am delighted to yield to 
my distinguished colleague, Senator Bob Casey.

STATEMENT OF HON. ROBERT P. CASEY, JR., A U.S. SENATOR FROM THE 
                     STATE OF PENNSYLVANIA

    Senator Casey. Senator, thank you very much.
    I want to thank Senator Specter for gathering us together 
today to talk about an issue that confronts not only Allegheny 
County and southwestern Pennsylvania, but the whole State and 
the country, and that is the issue of foreclosures and the 
strategies that many communities, including this county, have 
begun to put in place to prevent foreclosures, to keep people 
in their homes and thereby to stabilize neighborhoods and keep 
our economy moving in the right direction.
    Senator Specter has been kind enough to invite me here and 
to bring us together, and I know that he appreciates, as I do, 
Judge James and the sheriff and others who are here with us and 
spending the time with us to begin to hear some of the ideas 
that you have been implementing here in Allegheny County to 
prevent people from being thrown out of their homes.
    When you think about this in real terms, when we think 
about the economy that we are living through right now, the 
terrible financial crisis that has gripped the country, as 
complicated as it is, at its foundation it is rather simple. 
This started with the foreclosure problem, and that remains, I 
think, the central challenge in our economy. You could make a 
case for the freezing up of credit being another major 
challenge as well, but it did start with foreclosures. We have 
to keep our eye on the ball to bring that number down, which we 
see over and over again growing. The number of people in the 
United States, the number of families in the United States, 
every single weekday, the days that the courthouses across the 
country are open, almost 10,000 people every single day fall 
into foreclosure, begin that process of foreclosure. We have 
got to bring that number down.
    Here in Pennsylvania, even though we have been in a 
relative sense not as bad off as some States, like Nevada or 
California or Florida, for example, recently our numbers are 
getting worse. You know the numbers here in Allegheny County 
are getting higher. I know in the other end of the State, in 
Philadelphia, the numbers are getting higher. But statewide, in 
the month of August the foreclosure rate went up by 60 percent 
over August of 2007, and that is statewide. That is a statewide 
number. So Pennsylvania is going to be faced with this 
challenge for a long time, and we have got to put in place 
steps that will work, and a lot of those steps don't come from 
some smart guy in Washington. They come from people in 
communities like this and counties like this that have begun to 
take steps to deal with foreclosures.
    So I am happy to be here, happy to listen to the testimony 
and to ask questions, because we can learn a lot from you from 
having dealt with it directly, in a personal way and in a 
community-focused way here in Allegheny County, and I am 
thankful for that opportunity.
    Senator Specter. Thank you, Senator Casey.
    Senator Casey says the answers do not come from a smart guy 
in Washington. We are still trying to find a smart guy in 
Washington.
    [Laughter.]
    Senator Specter. If we are successful in finding one, maybe 
we will do a little better. But what is happening here on the 
county level is very encouraging, and our lead witness is the 
distinguished President Judge of the Court of Common Pleas, 
Judge Joseph M. James. I talked to Judge James last week, and 
he has expedited the organization of this hearing.
    We are very appreciative of your presence here, and as a 
general matter, it is 5 minutes, as I have said. And there will 
be time cards held up to give you notice when the time narrows 
and when the time ends.
    Judge James, this is an unusual procedure for you to be in 
the witness box and Senator Casey and I to be promoted to the 
bench, but thank you, and we look forward to your testimony.

 STATEMENT OF HON. JOSEPH M. JAMES, PRESIDENT JUDGE, COURT OF 
   COMMON PLEAS OF ALLEGHENY COUNTY, PITTSBURGH, PENNSYLVANIA

    Judge James. Thank you, Senator. Senator Specter, Senator 
Casey, being a witness is something I have tried to avoid in my 
29 years of being a judicial officer, but I am pleased to 
testify here today.
    When Senator Specter says that it was on short notice, we 
pulled this together in less than a week, and I would like to 
thank the staff of the Court of Common Pleas--Ray Billotte, the 
Court Administrator; Helen Lynch, the Deputy Court 
Administrator--who put this together working with Senator 
Specter's staff. It was quick. I guess when you are a United 
States Senator, you can get things done in about 5 or 6 days.
    I would like to start off. This summer, I had a meeting 
with Bill Mullen. The sheriff of Allegheny County and a long-
time friend of mine came to my office concerned with the home 
foreclosure problem within Allegheny County. We were well aware 
that the city of Philadelphia had started a program under the 
supervision of President Judge Darnell Jones, and I had spoken 
with President Judge Jones on a number of occasions. So we were 
looking to see what the problem was in Allegheny County, to 
identify it, see the magnitude of this problem, and then 
determine what type of project, if any, we should endeavor to 
start here to deal with the particular problems of Allegheny 
County.
    So after the meeting with the sheriff in June, I endeavored 
to start to meet with various people who were involved in this. 
I met with Katherine Martin of the Neighborhood Legal Services; 
Tom Riley, Esquire, who is the chairman of the Real Property 
Section here in Allegheny County of the Allegheny County Bar. I 
met with ACTION-Housing and the members of their Mortgage 
Foreclosure Conciliation Collaborative. I met with lawyers 
representing numerous banks and lending institutions. I also 
met with Dan Onorato, the County Executive, and he gave me full 
support to deal with our Director of Court Records. Under our 
home rule, the Director of Court Records, most of you 
practicing law remember them as prothonotaries. We no longer 
have one here. But Kate Barkman is the Director of Court 
Records. And I also spoke and met with John Goryl, who is the 
Director of the Pennsylvania Housing Finance Agency.
    And so after these various discussions, we have decided 
let's identify how many cases we actually have, how many home 
foreclosures are taking place. We started by identifying that 
we had approximately 400 actions in foreclosure taking place a 
month. The sheriff and I consulted, and the number is fairly 
stable, if not slightly down from 2007 numbers, which is unique 
to the Allegheny County housing market. So we looked at the 
magnitude of our problem.
    The problem we had initially was that of those 400 
foreclosures a month, we were unable to identify which ones 
were owner-occupied residences and which were commercial, which 
were non-owner-occupied residences, and the other group, which 
would have been tax delinquencies.
    So meeting with Kate Barkman, she and her staff have 
agreed, first of all, that we will have an official designation 
for owner-occupied mortgage foreclosures, a separate 
identifying suffix MG; as opposed to general docket, it will be 
mortgage docket. We will be able to create a data base and know 
exactly how many of these are homeowner-occupied mortgage 
foreclosures.
    Now, the second thing was where along this continuum of the 
legal process is the best place to intervene, and, obviously, 
the further up the stream, at the very initial beginning is the 
place where you can intervene and create a workout, if you 
will, and the lender has not incurred additional costs--the 
legal costs, the costs of posting the property, and, of course, 
of legal advertising.
    So our plan here in Allegheny County, after meeting with a 
number of people--in fact, as recently as yesterday afternoon 
in my courtroom--we have created a program as follows: At the 
time of the initial filing of the complaint, the case will be 
identified as a homeowner mortgage foreclosure. It will have an 
important notice on it which will identify a single phone 
number, which is what you alluded to, Senator, that, in fact, 
the people are confused by getting papers, a central repository 
where they can make a call and ask for counseling. The existing 
counsel program created by the Pennsylvania Housing Finance 
Agency have agreed to provide counselors and pay for those 
counselors, and counseling will be made available.
    If an owner avails themselves of the program, a 90-day stay 
in all proceedings will take place. Counseling will take place. 
A workout will be proposed, and they will go before a judge of 
the Court of Common Pleas for conciliation. The Allegheny 
County Bar Association, where the defendant qualifies, will 
provide pro bono, free lawyers for them to attend in a special 
appearance to appear before the conciliation judge. If it can 
be worked out, the case will be settled and discontinued. If it 
cannot be worked out, the stay will be lifted, and the case 
will proceed. So it is a simple solution to a difficult 
problem, and we think we will be much more effective by dealing 
with these cases at the very earliest stages of the legal 
proceedings.
    The banking community welcomes this and looks forward to 
it. The 90-day stay is not as disruptive as other stays, and it 
is not a stay across the board. The defendant must avail 
themselves of some counseling.
    Now, as you said, they get bombarded with literature, so by 
having a single number that they can call, an 800 number, then 
they can get help immediately, and people can explain to them 
what their rights are and their ability to get additional 
financing, get the HERO program set up by the State of 
Pennsylvania and the HEMAP program, also available for funding, 
and hopefully some additional funding available from the 
Federal Government which will be made available in the future 
as this bailout helps us.
    So thank you for coming, and thank you for calling 
attention to our efforts here in Allegheny County, and people 
here to my left can explain it a little bit further. But that 
is the outline.
    We have one last thing to do, and that is to centralize 
where we are going to have the single phone number. We have not 
decided where it is going to be. It could be the sheriff's 
office. It could be the prothonotary's office. It could be the 
bar association. We are finalizing that, and when that is done, 
we will put this plan in place.
    Senator Specter. Thank you very much, President Judge 
James.
    We turn now to Sheriff William Mullen, who has exercised 
unique sensitivity on a very, very difficult issue over and 
above the ministerial job of evicting people. So we appreciate 
what you have done, and we thank you for joining us, Sheriff 
Mullen, and the floor is yours.

   STATEMENT OF SHERIFF WILLIAM P. MULLEN, ALLEGHENY COUNTY, 
                    PITTSBURGH, PENNSYLVANIA

    Mr. Mullen. Thank you, Senator Specter, Senator Casey, for 
coming here. I can give you a little bit of a historical 
perspective how we have come to this plan.
    Shortly after I came from Pittsburgh Police over to the 
sheriff's office, I noticed that the sheriff sales had 
increased from 2006 to 2007. At that time, reading about what 
was being forecast for the housing industry and how the bubble 
was going to burst, and reading some FBI publications about the 
fraud and corruption within home sales and getting mortgages, I 
thought that we should do some things to be proactive in case 
that would come here.
    The first thing that we did was when we served the writs, 
the foreclosure notices, we would send an informational booklet 
which was ``Prevention of Mortgage Foreclosure, Tax Sale, and 
Other Court Action.'' That gives them financial and legal 
assistance by listing phone numbers and areas where they can 
contact people to try to save their home. There were several 
organizations included in that: ACTION-Housing, ACORN, the 
Urban League.
    There were other issues that we started. We started a 
website where people could come to the website, go through the 
various links to find help and maybe some ways to save their 
homes and stop the foreclosure process. We instituted a 
mortgage foreclosure hotline for people to call, which was 
manned between certain hours for people to call, where we would 
not be able to give legal advice, but certainly give them 
information on where to go to once they received the notice.
    What we did next was, you know, the sales sort of 
stabilized from 2006 to 2007. They actually decreased a little 
bit. But then I met with the Federal Reserve, I think in March 
of this year, to try to determine about the ARMs resetting. And 
I talked to them, and they told me that the ARMs would be 
resetting in Allegheny County between the next 5 and 12 months. 
I then checked to find out that the foreclosures and ARMs, or 
the adjustable rate mortgages, were 28 percent where the 
standard mortgage at foreclosure was 8 percent. So at that 
time, I thought there was maybe something else we could do to 
try to stay ahead of this curve and try to prevent people from 
losing their homes. And that is when I sat down with my staff 
and some of the lawyers, and actually some people from the 
mortgage business, and tried to come up with a plan to try to 
do something about maybe getting ahead of the curve and prevent 
some of these--you know, give these people some options.
    So then we came up with a plan about the conciliation 
process, and then, you know, I do not have much to do with this 
other than to be able to set the sheriff sales. I did not want 
to have a moratorium on sheriff sales because of the problems 
it would cause with the banking industry. I did not want to 
postpone them. I just wanted to try to get a conciliation 
process in place.
    So that is when I went over to see Judge James. He said to 
make a rough draft, put it on paper, and that is what we did. 
We put it on paper. We took it to Judge James, and he carried 
the ball from there.
    Thank you.
    Senator Specter. Well, thank you very much, Sheriff Mullen.
    We turn now to Mr. Dan Sullivan, a mortgage foreclosure 
prevention specialist with ACTION-Housing, Incorporated, in 
Pittsburgh. Thank you for coming in, Mr. Sullivan, and we look 
forward to your testimony.

  STATEMENT OF DAN SULLIVAN, MORTGAGE FORECLOSURE PREVENTION 
   SPECIALIST, ACTION-HOUSING, INC., PITTSBURGH, PENNSYLVANIA

    Mr. Sullivan. Thank you, Mr. Specter and Mr. Casey, for 
arranging this. I just want to let everyone know that I am 
merely now just a representative of 12 different organizations 
that are working in Allegheny County. We represent advocacy, 
housing counseling, and legal services. We had met back in the 
beginning of September to discuss some of the conversations 
that we had had with Judge James and Sheriff Mullen previously 
regarding mortgage conciliation to see where we could best fit 
into the solution.
    The organizations that I am representing cover the 
community outreach to get scared borrowers or borrowers who are 
not sure what conciliation means to them, to try to get them to 
answer the paperwork, to call up the 800 numbers. We represent 
the counselors who will help the borrowers provide financial 
documentation so a successful conciliation can be had. We also 
represent groups that provide legal services, pro bono 
attorneys to represent these borrowers at the actual 
conciliation so they get fair and equal representation at these 
discussions.
    I think when I look at certain economic projections of 
Allegheny County, this mortgage conciliation proposal is going 
to have an effect not just with the folks who are falling 
behind now, but, you know, for years to come in certain cases. 
We are going to see, based on estimates right now, an increase 
in foreclosure filings from 2007 to 2008 if the numbers keep 
up. If they keep decreasing, we should be fine. But averages 
right now show that they are going to be higher than they were 
last year.
    I think within the last 10 years, there has been a 131-
percent increase in mortgage foreclosure filings in the county. 
We are looking at a lot of subprime mortgages that Sheriff 
Mullen had just mentioned that are going to reset, have not 
reset yet, and there are about 52,000 subprime mortgages in 
Allegheny County that are going at a delinquency rate of about 
30 percent, which is significantly larger than prime mortgages 
as a comparison.
    We are also looking at unemployment rates that are going to 
increase in Allegheny County. Last year's unemployment rate was 
about 4 percent. This year's projections could be up to 6 
percent. So when you are looking at the borrowers, the citizens 
of Allegheny County, those projections are going to suggest 
that those subprime mortgages that they have, regardless of 
whether or not they are ARMs, they are going to start falling 
behind. Borrowers are very tight on their budget. You have got 
a lot of folks who are living paycheck to paycheck, week to 
week, to keep their mortgage affordable. And a conciliation is 
really going to have a positive effect with borrowers working 
out reasonable payment plans with mortgage companies.
    I think the largest issue that counseling and advocacy 
groups see now currently is getting timely responses from 
servicers regarding a modification request. Financials have 
been collected from the borrowers, income statements, debt 
information, and sent to these lenders for them to propose some 
sort of modification adjustment--either a rate decrease or 
principal balance reduction, something to that effect to help 
them out.
    We are looking at a turnover of somewhere in the range of 2 
to 3 months now for mortgage companies to come back and give us 
an adequate modification proposal. And that is just too long. 
It is after the Act 91. It is after the complaint has already 
been filed. The legal costs are escalating. And a mortgage 
conciliation at the time proposed by Judge James and Sheriff 
Mullen is perfect in that we can get these folks in before 
those fees have been assessed, and it is forcing everyone at 
the table to provide documentation up front and expedite the 
process so that we can get quicker turnover and get more people 
to stay in their homes.
    I again want to thank both Judge James and Sheriff Mullen 
for how they have taken on this issue, and they have really 
sort of pushed it to the forefront, because we have an issue 
just currently, but there is going to be a continual bubble 
burst in Allegheny County. I do not think we are halfway 
through the woods. I think we just got to the beginning of the 
woods. And we are going to see foreclosure rates go up based on 
some of the data I shared.
    Senator Specter. Thank you very much, Mr. Sullivan.
    We now turn to Ms. Dawn Williams, Director of Housing for 
the Urban League of Greater Pittsburgh. Thank you for coming in 
today, Ms. Williams, and the floor is yours.

   STATEMENT OF DAWN T. WILLIAMS, DIRECTOR OF HOUSING, URBAN 
     LEAGUE OF GREATER PITTSBURGH, PITTSBURGH, PENNSYLVANIA

    Ms. Williams. Thank you, Senators. Thank you for this 
opportunity.
    As Dan stated, I represent the Urban League of Greater 
Pittsburgh, and we are one of the collaborating agencies 
seeking to have some input into this conciliation process, 
wanting to express our support for this process, and to just 
outline the vital need for this process in this area, and even 
to advocate for that, for something like that across the 
Nation.
    Because of the inequity of bargaining position between 
lenders and homeowners, as Dan alluded to, it is vital that a 
third party, an impartial party--in this case, the court--step 
in to mediate favorable results that will make nonperforming 
loans perform and homeowners that are threatened with 
foreclosure able to hold onto the American dream of 
homeownership. If processes like these are not implemented--and 
we would even argue nationwide--there is going to be forum 
shopping on the part of unscrupulous lenders, and there could 
be possible negative business consequences for cities and 
municipalities that have the courage, as Allegheny County has, 
as Philadelphia County has, to address this issue systemically.
    The Government's role in this crisis has already been 
recognized by Congress and the executive branch, and so the 
country knows that decisive action is required and has been 
taken to begin to avoid and to avert this meltdown.
    The action that is needed is for Government to step in also 
in the form of legislation to mandate that the two entities 
crucial to our economy--lenders and homeowners--sit down at a 
table with a level playing field. And that is what the 
conciliation process does. It brings the two entities together, 
the lender and the homeowner who may be afraid, who is most of 
the time afraid, who does not have enough information, does not 
know in a lot of cases how to represent themselves in a way 
that would get them the best benefit and be able to create a 
situation that is affordable for them over the long term.
    Once brought together, we would advocate, legislation this 
process, that parties agree to terms that will ensure long-term 
affordability for homeowners and a consistent income stream for 
lenders uninterrupted by foreseeable disruptions in performance 
caused by too high interest rates, adjustable interest rates, 
balloon notes, and principal balances that far exceed fair 
market value.
    There are many things to recommend a conciliation process, 
but I just want to outline the importance of some of the ideas 
that were already raised.
    It is crucial that the process rely upon a centralized 
hotline so that people can call and know exactly where to call. 
There must be a network of counseling agencies to assist 
clients in reviewing documentation, proposing affordable loan 
modifications to lenders, with the ultimate goal of home 
retention and decreased foreclosure. And, finally, the 
significant role of volunteer and legal services attorneys 
cannot be underestimated in the success of this process and the 
production of meaningful results for constituents.
    Because of the many benefits for the homeowner, we would 
even advocate that this be implemented on a statewide level and 
that even it could be undertaken across the Nation. However, if 
the strong network that I have mentioned earlier, including a 
crucial role for housing counseling agencies and pro bono legal 
services, does not exist, this process becomes merely a sham 
and just one more hoop to jump through before foreclosure 
becomes a reality.
    If these underpinnings cannot be mandated, then another 
solution would be a nationwide moratorium on sheriff sales in 
order to for Congress to flesh this matter out and pass 
legislation that would give incentives to mortgage companies to 
negotiate meaningful workouts with borrowers and penalties for 
the failure to do so. Such legislation would need to provide 
substantive defenses for homeowners to foreclosure actions and, 
similar to the Truth in Lending Act and other consumer 
protection statutes enacted under the Commerce Clause, would 
have to penalize lenders that fail to comply with this 
provision.
    Now, these ideas I know seem ambitious and probably beyond 
the pale, but these desperate times are calling for decisive 
action and action that needs to be taken immediately.
    I thank you for your time.
    Senator Specter. Thank you very much, Ms. Williams.
    Our next witness is Michael McKeever, Esquire, a partner in 
the law firm of Goldbeck, McCafferty and McKeever, from 
Philadelphia.
    Thank you for traveling here today, Mr. McKeever, and we 
look forward to your testimony.

STATEMENT OF MICHAEL T. MCKEEVER, PARTNER, GOLDBECK, MCCAFFERTY 
          AND MCKEEVER, PC, PHILADELPHIA, PENNSYLVANIA

    Mr. McKeever. Thank you, Senator Specter, and thank you, 
Senator Casey, for the invitation. I look forward to presenting 
at least some of the lender response, as our firm represents a 
number of mortgage lenders in foreclosure, bankruptcy, 
eviction, and related proceedings.
    We, too, share the desire to resolve loans on an effective 
basis and in a cost-effective and efficient manner. The program 
that has been proposed in Allegheny County is similar to the 
program that is in place currently in Philadelphia. I want to 
take some of what the other witnesses have stated.
    Judge James and I think Mr. Sullivan and Ms. Williams have 
indicated, you know, we need to go out and acquaint the 
homeowners with their rights and with their responsibilities 
that are available to them. There is a lot of fear. There is a 
lot of concern and embarrassment. Homeowners are scared. That 
is why Sheriff Mullen's office gets the brunt of the calls and 
the letters and the contact from homeowners. That is at the end 
of the foreclosure process. By the time a sheriff sale is 
scheduled, you are 14 to 18 months delinquent in your account. 
That is too late. It is not too late for everybody, but it is 
too late for a lot of the homeowners. That is not to say we 
will not work with them, but it is very late at that point to 
come up with an effective plan based on their current income 
and expense statements.
    One of the frustrations that we deal with on the lender 
side is that income and expense statement and those payroll 
records. I am not aware of many of the resolutions that our 
clients have entered into over the last year or more that could 
not have been entered into whether or not there was court 
intervention or legislative activity. The fact of the matter is 
effective communication among the parties is absolutely 
necessary, and every homeowner out there who is near 
foreclosure, in foreclosure, or threatened with foreclosure 
should sit down today and work through their financial plan--
forget financial plan. That is too wordy. Work through their 
family budget. What do they make each month? What do they pay 
each month? Look to cut those costs. Take that responsibility. 
Then when they meet with a housing counselor or an attorney who 
specializes in foreclosure defense, they have a much better 
idea of how they can advocate for themselves and use those 
advocacy groups to push their plan ahead.
    It may be that those numbers show that they cannot afford 
where they are living, with or without the rate increases. 
Lenders are dropping interest rates. They are not doing it 
across the board. It has to be on a loan-by-loan basis, at 
least now under the current environment that we are in. They 
are dropping principal balances in certain cases. And I think 
we are going to see that increase as time goes on.
    It is clear that lenders lose money when a house is 
foreclosed upon, but they also lose money in delaying that 
process unnecessarily. The amount of time, money, and expense 
that lenders have put into creating programs and reaching out 
to borrowers over the last year is unprecedented. And, 
unfortunately, whether from fear or lack of information or lack 
of counseling, homeowners still are not stepping up as soon as 
they should. They are a couple of months down: ``Oh, I can 
handle this.'' The next thing they know, the foreclosure 
complaint is filed. It is moving along on a pretty quick track. 
It still takes 10 months in a State like Pennsylvania, but it 
moves quickly, and the costs continue to increase.
    One of the other elements of the Philadelphia program--and 
we have made the offer here in Allegheny, and we hope that it 
is embraced here--is to provide contact information for each of 
the law firms that represent lenders in foreclosure matters 
throughout the Commonwealth. The idea behind that is to avoid 
exactly what Mr. Sullivan had stated earlier, that idea that 
lenders are sitting on perhaps effective workout agreements, 
and meanwhile the foreclosure is proceeding.
    I can tell you that our office will take that to our lender 
clients, and we will try to avoid the incurring of additional 
costs and expenses because the goal is the loan resolution 
first. And foreclosure is one of the alternatives, but 
certainly not the chief alternative for lenders.
    That communication is of paramount importance. The 
Philadelphia program is a pilot program. This program I assume 
will be a pilot program as well. Constant communication among 
all the stakeholders throughout the process is really, really 
important. And to the extent that that is part of the framework 
of the program, we look forward to supporting it.
    We also, again, will--I am glad that most of the--that the 
witnesses today, all of the witnesses today, were not engaged 
in the blame game. And it would be easy. We could spend hours 
talking about who is to blame. I have my views on that, and I 
think, frankly, everyone has a piece of this puzzle. And that 
does not solve the underlying issue. The underlying issue is 
how do we resolve this loan, and we resolve it through 
effective communication--a court-annexed program such as this 
is very important to promote that effective communication--and, 
again, to stress that the homeowners are their best and first 
advocates. They are the ones who need to step up, find that 
counselor that can help them, find that attorney that can help 
them, and put together a plan of action to resolve their loan 
delinquency in partnership with their lender.
    I thank you for your time.
    Senator Specter. Thanks very much, Mr. McKeever.
    Our final witness is Ms. Barbara Griffin, Pro Bono 
Coordinator for the Allegheny County Bar Association.

 STATEMENT OF BARBARA GRIFFIN, PRO BONO COORDINATOR, ALLEGHENY 
        COUNTY BAR FOUNDATION, PITTSBURGH, PENNSYLVANIA

    Ms. Griffin. Thank you, Senator Specter and Senator Casey, 
for having me here today. I am the pro bono coordinator for the 
Allegheny County Bar Foundation, which is the charitable arm of 
the Allegheny County Bar Association, and I want to talk to you 
just for a few minutes about the role of volunteer lawyers and 
other lawyers on behalf of the borrowers in this process that 
has been proposed by Judge James.
    First, let me say that I am very proud to work for and be a 
member of one of the most active and involved and strongest bar 
associations in the country, I would say. The Allegheny County 
Bar Association has almost 7,000 members, which means that 
about 80 percent of the lawyers in Allegheny County are members 
of the bar association, and out of that number, about 750 
attorneys regularly volunteer for one of the many pro bono 
programs that we operate here in Allegheny County under the 
umbrella of what we call the ``Pro Bono Center.'' We have about 
24 or 25 programs that provide a number of types of legal 
services to low-income people in need of legal help. And these 
programs also call upon volunteer law students, paralegals, 
legal secretaries, and in all we have about 1,000 volunteers 
who are doing pro bono services for low-income individuals here 
in Allegheny County every year. So those are the volunteers 
that I feel very confident we will be able to call upon to help 
address this problem and participate in this very important 
program.
    I also want to say that luckily we are a close community 
here in Allegheny County, a little smaller than Philadelphia, 
so the bar association--I and really the bar association as a 
whole--enjoys a very good working relationship with members of 
the local bench, including and especially Judge James. And we 
also work very closely with other legal service providers, 
including our local Legal Service Corporation entity, which is 
called Neighborhood Legal Services Association, and along with 
organizations like the housing counseling agencies that are 
present here today. We started meeting with everyone very early 
on in this process, and I think that these relationships 
greatly facilitate the implementation of this kind of project 
here in Allegheny County.
    As Judge James described, what we envision is that 
volunteer attorneys will work very closely with the housing 
counseling agencies early on in the process to look at how a 
loan might be worked out. And as you know, by the time you get 
to foreclosure, there have been many attempts and notices to 
get these loans worked out. And you might think that all hope 
is lost, but what we have found in similar programs that are 
offering lawyers to low-income borrowers is that once there is 
a lawyer finally on behalf of a low-income borrower, who at 
this point has, you know, been barraged with information and 
really has not had anyone on their side, finally when this 
person that is finally there for them, the dynamics of the case 
change. The borrower is able to feel more comfortable. That 
fear factor, that shut-down factor often goes away. So we 
really think that lawyer participation on behalf of the 
borrower is essential to the success of this program.
    We have already laid the foundation for this type of 
project. We have something here in Pittsburgh called the 
``Pittsburgh Pro Bono Partnership,'' which is a sort of 
consortium of mostly larger law firms, corporate legal 
departments, and even governmental legal departments and legal 
services entities. And we have had for the past couple of years 
an anti-predatory lending clinic, and that clinic has been 
focused just on loans that we have identified predatory lending 
practices. And that project has been staffed entirely by 
volunteer lawyers from the U.S. Steel Corporation and from the 
firm of Pietragallo Bostick & Gordon. And we will talk to them 
about expanding that project not only to loans where there is 
predatory lending, but to all of these loans that are 
participating in this conciliation process.
    We will represent the very-low-income borrowers. We can go 
up to--borrowers who have up to--whose incomes are up to 250 
percent of the Federal poverty guidelines. Borrowers who may 
not qualify, who still have a higher income even though they 
are in trouble with their loan, we can use our lawyer referral 
service at the bar association to steer them to hiring a 
lawyer, maybe doing the conciliation on a flat-fee basis or 
something like that. So we are very confident that we will have 
the resources to mobilize an army of attorneys and get this 
process moving forward. And we are looking forward to continue 
working with everybody here.
    Thank you.
    [The prepared statement of Ms. Griffin appears as a 
submission for the record.]
    Senator Specter. Thank you very much, Ms. Griffin.
    We now turn to 5-minute rounds of questioning by Senator 
Casey and myself, and we will begin with you, President Judge 
James.
    Where the conciliation efforts do not work, the question 
arises as to what could be the next step. Last November, I 
introduced legislation which would authorize the bankruptcy 
courts to take a look at the situation and not to affect the 
principal sum but to deal with the scheduling, with a heavy 
focus on variable rate mortgages. For example, people take out 
a mortgage not knowing that the rate is going to change. They 
may have a schedule of $1,200 a month, and then shortly 
thereafter, they find it balloons to $2,000 a month.
    What do you think about the authorization to the bankruptcy 
court to take a look at a misunderstanding or perhaps 
misrepresentation, or perhaps even fraud, to rearrange the 
schedule of payments to elongate them so that the lender gets 
the principal repaid and the agreed-upon interest but on a 
longer period of time to try to keep the homeowner in the home?
    Judge James. The answer to your first question is that at 
the conciliation, if they are unable to reach an agreement, the 
case would go back onto the trial list, and an answer would 
need to be filed. The stay would be lifted.
    However, under our rule, the trial judge would have the 
opportunity to extend it. If the parties were close to 
settlement or needed an additional piece, the stay can be 
continued for a reasonable period of time for the workout.
    As to the question of bankruptcy, I would suggest that 
anything that makes the payments--or makes the ability of the 
borrower--gives them a greater ability to make payments that 
are reasonable would be helpful. But I have to confess to you, 
Senator, not only have I never practiced in bankruptcy law, I 
did not even take bankruptcy in law school. So my knowledge of 
the bankruptcy laws is slim and none. Perhaps someone here who 
practices would be better able to answer your question. But I 
would suggest that anything permits the homeowner to be able to 
make reasonable payments would be helpful for the conciliation 
process.
    Senator Specter. Well, Judge, you may not have been 
practicing in the bankruptcy field, but you might be appointed 
to the Federal bench. Then Senator Casey and I might recommend 
you.
    [Laughter.]
    Judge James. I would have to do some studying, wouldn't I?
    Senator Specter. Well, I am glad to hear you are not 
summarily turning it down. But that would put you in the 
bankruptcy field.
    Sheriff Mullen, if you had to give specific advice, say, to 
Ms. Williams and Ms. Griffin, who will be helping out the 
people who are threatened with foreclosure as to what to look 
for and how to be proactive--because there is a significant 
hurdle here, as I understand the practice, in acquainting the 
homeowners with their rights and their opportunities--how would 
you lay it on the line most effectively to see to it if the 
homeowners have not seen this on the evening news--and we 
appreciate PCN and the coverage here to try to get this word 
out. That is always a tough job. When they go out into the 
field in a proactive way, what would your suggestion be as to 
effectively communicate opportunities to the homeowners?
    Mr. Mullen. I think the biggest problem from what I have 
been told is that people refuse to look at the notices that 
they are receiving before this goes to foreclosure process, and 
it is difficult to get that information out. You know, we have 
advertised in the Pittsburgh Post Gazette when we do the 
sheriff sales about where to go. We take these brochures to 
each person that we serve. There is a Rule 91 that when we 
serve the papers to them, it tells them their rights.
    I think we may be able to do some public service 
announcements to try to get that message out before it goes to 
foreclosure. And I think we have been doing a relatively good 
job at that, but from what I have been told from these 
advocates to try to intervene, you know, people just are 
reluctant to admit that they are in that situation, much like a 
lot of people are reluctant to look at their 401(k)s nowadays.
    Senator Specter. Judge James, do you have a comment on 
that?
    Judge James. Yes. Through the use of the defined number 
that will be owner-occupied home foreclosures, we will be able 
to create a data base. And meeting with a number of the 
advocate groups, they were asking for this because they would 
like to do outreach to actually be able to contact people who 
have not responded to the 800 number.
    I have also discussed this with the two law schools in 
Pittsburgh concerning use of clinical students, law students, 
to try to reach these people and explain to them that all they 
have to do is avail themselves of counseling and some help will 
be there.
    So the data base is really important to identify these 
people so that we can share it with various agencies that want 
to do outreach, which I think is a big part of this.
    Ms. Williams--and before turning to Senator Casey, one 
final question for the panel at this moment--you talk about 
mandating conciliation, and that can be done with State law. 
Why do you think a mandated conciliation would have a better 
opportunity for success than voluntary conciliation?
    Ms. Williams. Senator Specter, because of the inequity of 
bargaining position of the two entities, the lender and the 
homeowner, we are finding, as Mr. Sullivan had mentioned, that 
it takes awhile for the lender to get back to a mortgagor when 
they are trying to work out an agreement, even if they are 
represented by a housing counseling agency.
    So the mandate for the two entities to come together is 
necessary because both parties need to be present and both 
parties need to be able to negotiate the terms. When that does 
not happen, someone needs to step in--and in this case, it 
would be the court--to say that this is what must happen.
    And just to go back to your point that you asked Judge 
James about, I am a bankruptcy practitioner, so I was kind of 
sitting at the edge of my seat when you mentioned what you 
mentioned, because I am a former legal services attorney. And I 
would say that your proposal is right on point. The Bankruptcy 
Reform Act took away Section 1322(b)(5) of the Bankruptcy Code 
which gave the court the ability to modify mortgages. So to 
proffer that legislation at this point I think is right on 
point, although I would differ with you on the principal 
balance issue. I think we should be able to reduce that as 
well, because many properties are underwater and a lot of 
properties are also in the inception of the loan; the fair 
market value is inflated.
    Senator Specter. Senator Casey.
    Senator Casey. Thank you very much.
    I wanted to focus my initial question on implementation. I 
realize that you are beyond the point of just talking about 
this and theorizing about it, that you are actually 
implementing. And I guess I wanted to get a sense, after having 
listened to each of you and having listened to individuals in 
Philadelphia and actually having gone into a courtroom like 
this, about this size or a little larger maybe, full of people 
discussing and negotiating and trying to work things out 
between lenders and borrowers and advocates. And it was a 
roomful of--gosh, it must have been 150 people packed in, 
talking and working things out.
    But I think they are pretty far along in terms of 
implementation, and I wanted to get your sense, maybe starting 
with the judge, with regard to impediments to implementation, 
problems you are seeing, and things you might need help with.
    Judge James. Well, actually, we are very fortunate, 
Senator, in Allegheny County--and Attorney Griffin pointed this 
out--that the relationship between the bench and the bar is 
very close. I serve as an ex officio member of the Board of 
Governors of the Allegheny County Bar Association, and a number 
of my judges are also active in the bar. So we are ready to go.
    One problem might be the funding of a central call system. 
We are trying to find out where we are going to place that. 
That seems to be the sticking point. The sheriff has offered 
the use of his offices. However, we think it should be closer 
to a counselor. It should be someone who actually has legal 
expertise and can discuss the matter and talk to the person. We 
would like to make it as simple as possible; that is, one call 
triggers the whole thing, rather than having people go to two 
or three different places. I think someone used the words 
``jump through hoops.'' Under these circumstances, once they 
contact us, we want to bring them immediately into the 
conciliation, let them know that we need their financials, we 
need them to come to a conference, and that it is free of 
charge.
    So financing or where we lodge the central call system is 
the only sticking point, and that is the only thing we need 
right now for the implementation of it. Once we resolve that--
and we hope to have that done, I think, by the first part of 
next week. Once we resolve that issue, we intend to create 
this. We need to do some training. We need to do some 
explaining to the counselors, the existing counselors.
    I should point out, Senator, we have decided to use the 
existing framework because we think it works fairly well. 
Philadelphia created some infrastructure and did some training, 
and the only training we are going to do is voluntary training 
of the lawyers, the pro bono lawyers, and some explanation to 
the debt counselors of who these people are and what is going 
on. But the communication and the linkage is already in place, 
and so I think we can kick this off within a few weeks.
    I have been happy that we have not had a lot of roadblocks. 
Everyone seems to be trying to resolve it, including Mr. 
McKeever, I believe, whom I spoke to in June, I think it was.
    Mr. McKeever. Yes, that is right.
    Judge James. And the banking industry is also cooperating, 
and they think that this is worthwhile for them.
    So the answer to your question is if we could get some 
funding for a central call center or something like that, that 
is the only thing we are looking at.
    Senator Casey. Well, let me say that I think when it comes 
to what the Federal Government has done and can do, in the 
``has done'' category, there has been a substantial effort at 
the Federal level just in the recent past where we passed and 
the President signed into law Hope for Homeowners, which is a 
major initiative, that the legislation that dealt with Hope for 
Homeowners and other aspects of housing policy is the most 
significant piece of legislation of its kind in a generation. 
That was a very positive step forward. And in the recent 
Emergency Economic Stabilization Act, there was even more help 
and focus on Hope for Homeowners. So that is a good thing.
    Part of that, of course, is what you have all touched on, 
and some more than others: the issue of counseling. I and 
others pushed very hard in 2007 and 2008 to get $180 million 
into housing counseling, which we have already deployed. I 
think that money is already spent, one of the best expenditures 
of Federal dollars in recent American history. We got another 
$150 million for that same purpose.
    So I think in terms of what the Federal Government can do 
to help, counseling is a very significant part of that, but in 
the last minute I have, is there anything very specific, in 
addition to the funding on counseling--because I think that I 
and others have said to Secretary Paulson and Secretary Preston 
at HUD, you ought to make this a national program, or at least 
focus on it and experiment with it as a national program. 
Anything else that the Federal Government can do that it is not 
doing right now to make your program even better?
    Mr. McKeever. Well, if I could speak to that, I will go 
back a little bit to the testimony I gave about the frustration 
that the lender side has about gathering the information from 
the bar. And I think that there probably are available 
technologies today among lenders, whether they are proprietary 
or shared systems, that maybe could be provided--or access 
could be provided to housing counselors and housing advocates 
so that you could gather the financial information 
electronically and work through a decision tree of available 
options that might be available from that investor or bank. And 
I think that that is something that perhaps would be a 
beneficial use of the Federal Government's power in this 
situation.
    It is likely that the Treasury Department is looking at 
something like that, I would imagine. But in terms of 
streamlining the application process for loan resolution, I 
think that might be an avenue to pursue.
    Mr. Sullivan. If I can echo Attorney McKeever's sentiment, 
as frustrated as I know the lenders are about getting 
financials, it is as frustrating for counselors not getting 
their hands on financials. We cannot do our job successfully if 
borrowers cannot get us the documentation. So his suggestion 
would be really key for us, too.
    Senator Casey. Thank you.
    Senator Specter. Thank you, Senator Casey.
    We have time for another round, and let me turn to you, Ms. 
Griffin, from your position as pro bono counselor for the bar 
association. How will you be proceeding to try to take this 
program that the President Judge and the sheriff have outlined 
here to make the maximum effort to get through to these 
homeowners who are frightened, have a lot of legal papers, do 
not understand them, but persuade them that they have to focus 
on it and come forward with the unique opportunity to save 
their homes?
    Ms. Griffin. Right now, whenever a defendant is suited in 
Allegheny County, their notice has the phone number of the bar 
association, the lawyer referral service, and it says pretty 
clearly, you know, you have been served, you need to call--you 
know, you need to get an attorney. And often the bar 
association is the first stop for many defendants in these 
kinds of actions. And so what we do at the bar association, we 
sort of do a triage when they call that number, and if they are 
able to afford an attorney, then they go to one of the 
attorneys that is a member of the panel of attorneys at the bar 
association. And then if not, then we send them to the 
appropriate legal service provider in the community.
    So we have a lot of experience of steering folks in the 
right direction. I do feel that we are already a pretty well-
known resource for the community. When I answer the phone calls 
at the Pro Bono Center, I often ask, ``How did you hear about 
us? How did you get to me? '' And it is amazing that they say a 
variety of ways. Sometimes they find us on the Internet. 
Sometimes it is a State senator or a State rep.
    Senator Specter. So you think you can get through?
    Ms. Griffin. I think we can get through. We have a 
marketing department. We can get out and do public service 
announcements also. But I think a lot of it is just going to be 
our network, our existing network of providers, and getting the 
word out and kind of referring people to the right place.
    Senator Specter. Mr. McKeever, let's turn to the 
perspective of the home for the lender. I was concerned to see 
this morning's USA Today saying that the bailout pushes 
mortgage rates up, and it has a couple of consequences from the 
legislation. One is with the Government borrowing $700 billion, 
it is going to tighten up the credit market, and the rates are 
already going up. But a second matter of greater concern to me 
is the report that bankers are looking for the Federal 
guarantee of up to $1.5 trillion on senior credit so that they 
can loan money to provide liquidity, which is very important, 
but they are not going to be looking to mortgages which do not 
carry that kind of a guarantee.
    What can Senator Casey and I do to make some modifications 
perhaps at the Federal level to see to it that all the money we 
are putting up goes to the homeowner? That is the man or woman 
in the chain which really needs the help the most. And the 
subprime loans got us on this crazy spiral so that we cannot 
tell the banks what to do, but we can come close. And we have 
to be concerned that we do not nationalize the banks and 
destroy our free enterprise system. But what can we do to get 
that money out there to the mortgage market?
    Mr. McKeever. Well, I think it is a very difficult problem 
that we are in because the mortgage service company, the 
lender, has some rights to make adjustments to the amount due 
and owing or change the payment schedule. But wholesale 
reductions create issues with the investor that they are 
servicing that loan on behalf of. They have a fiduciary duty to 
those investors, and, unfortunately, those investors are many 
of us. Almost all of us have a piece in that investment, 
whether you have a pension plan, a checking account, a savings 
account, or even an interest in a company.
    So to change that investment expectation--and, of course, 
that is one of the biggest issues regarding a bankruptcy 
cramdown or resetting the investment expectation--is that you 
may solve the problem temporarily, but what you may well create 
is a market--or reduce the market of the ability to sell 
mortgage securities in the future.
    It is not quite my area of expertise, but that is my 
understanding of why lenders find themselves in this difficult 
position of while it may make sense to make that reduction in a 
principal because the house price has dropped so dramatically, 
the investor has requirements, and the investor requirements 
require that the foreclosure be completed and the loss be taken 
at some other time.
    Senator Specter. A final question to Mr. Sullivan, with 30 
seconds remaining. You commented about the successful mediation 
projects that you have been involved in. Could you give us the 
critical elements which have led to success, maybe some 
guidance to the mediators who are going to be looking at this 
on a much broader scale?
    Mr. Sullivan. I think the most important piece was early 
intervention. Most of the successful modifications that I have 
been part of were borrowers who were 30 to 60 days delinquent 
and not, you know, 5, 6 months. It was key for the borrowers to 
get the financial documentation over to the counselors as 
quickly as possible and then us turning it over to the 
servicer.
    The longer the delinquency occurs, the harder it is to just 
work it out. It is just that simple. If I got someone who is 12 
months in with all the legal fees and everything else that has 
piled up, the workout is almost unattainable. So the key is--
and that is what I like about the conciliation proposal, is 
that it is early intervention. You are getting folks who would 
be 2 to 3 months behind. The filing has not been issued yet, so 
the attorney fee has not been attributed. Those are the kinds 
of workouts that I have seen most successful from my counseling 
perspective.
    Senator Specter. Senator Casey.
    Senator Casey. Yes, two questions. One is--or I should say 
one follow-up on what Senator Specter was asking about before a 
question. Yesterday I sent a letter to Secretary Paulson which 
highlighted a number of concerns I had with the direction that 
he is taking now, and I have been very complimentary of his 
work, but I have real concerns now that in the midst of this 
focus now on getting direct investment in banks, taking 250 of 
the 700 and directing it toward banks, which in concept is a 
good idea, but there is nothing in there for modifications of 
mortgages. And I said in part in the letter that financial 
institutions receiving significant benefits from Government 
investment or guarantees should agree to modify loans which 
they hold in their portfolios. And this is not some theory. The 
FDIC has done just that. The FDIC implemented a loan 
modification program that Treasury should look at in this 
context. It should adopt a lot of the same ideas that each of 
you have been not just talking about but advocating and 
implementing here in the county.
    I guess the one question I had was one of numbers, and I am 
not sure--a number of you have these numbers in mind or in 
front of you. But what is the projection for Allegheny County 
when you look at foreclosures or just default, mortgages 
heading in that direction? But let's just talk about 
foreclosures, 2007 versus 2008, and then the projection for 
2009, if any. Does anyone have that information?
    Mr. Mullen. The figures I have, our figures are based on 
those foreclosures that actually are listed in the paper, which 
we have to do by judicial rule. I can give you the figures from 
the end of the year: from 2006, they were 4,727; and then 2007, 
they were reduced to 4,632; and for this year--and keep in mind 
that these have to be posted 2 months in advance, so this is 
for the entire year--4,450. So those figures have gone down 
consistently for--
    Senator Casey. And 2008 is what?
    Mr. Mullen. 4,450.
    Senator Casey. Okay. To date, right?
    Mr. Mullen. Yes, that includes the entire year because they 
have to be posted 2 months in advance. So, actually, they have 
gone down, you know, from 2006 to 2007 and continue to go down 
in 2008.
    Senator Casey. Any projection for 2009?
    Mr. Mullen. I do not know. Like I said before, you know, 
after consulting with their--talking to the Federal Reserve, 
they said that the ARMs resetting would be increased within the 
next 5 to 12 months. And like I said before, those show a 
higher figure of foreclosure than the regular mortgages.
    Judge James. And to amplify that, Senator, we are not able 
to differentiate how many of those are commercial or how many 
of those are tax defaults. They are all lumped in one group, 
and that is why it is really important that the Director of 
Records has agreed to identify owner-occupied structures. As 
this program goes forward, not only can we identify them, but 
we can actually see if it starts to go up, because we are going 
to be able to track the owner-occupied foreclosures, which is 
really important. I think it is an important factor.
    Mr. McKeever. And although those numbers are large, I do 
think it is significant to look at the decrease from 2007 to 
2008 in the--now, we are talking about sheriff sales scheduled, 
which I think is an indication that lenders are working with 
borrowers and borrowers are stepping up to work with their 
lenders to resolve things and taking them out of the 
foreclosure process, because we saw similar things in 
Philadelphia where there was an increase in the foreclosure 
filings, but the number of sales has stayed relatively 
constant. And I think, again, it is an indication that there 
are--that these programs are working.
    Judge James. There is about a 10-percent shrinkage from 
actual foreclosure filings to actual foreclosures, so about 10 
percent of the complaints are being withdrawn. Either they are 
being settled or there is some procedural defect, and we think 
that there is 10 percent of the ones that they are settling 
early on even without court intervention.
    Mr. Sullivan. I would just suggest this as a concern: that 
in 2001 and 2002, there was about a 1-percent national and 
local increase in the unemployment rate. At that time, the 
foreclosure filings--not sheriff sales notices, but the actual 
filings itself--increased by 25 percent. So if projections by 
the Bureau of Labor are accurate, and we are going from 4 
percent to 5.5 to 6 percent locally and nationally, you are 
also going to see a spike again in the foreclosure filings.
    But, I mean, both Judge James and Attorney McKeever, who 
represented, correctly I think, that there is at least more 
workouts being attained early on, because the sheriff's own 
numbers are decreasing while, generally speaking, we are still 
on pace for about 4,700 filings for the year.
    Ms. Williams. And I would just submit that because a lot of 
times in Allegheny County it has been touted that there are not 
as many foreclosures as compared to the other areas across the 
country, I would just caution that we realize the population 
density and compare that to the number of foreclosures; and 
when you look at those two, you will see that it is still 
significant, and that we should really be moving toward getting 
these issues worked out. And there will be some that will have 
to go to foreclosure, but our goal would be to eliminate those 
numbers significantly.
    Senator Casey. Thank you very much.
    Thank you, Senator.
    Senator Specter. Well, thank you very much, President Judge 
James and Sheriff Mullen, for initiating this program, and I 
thank all of you for coming in. I believe this has been a very, 
very important hearing because it goes to the core problem of 
keeping people in their homes, and that is where the full 
problem got started, and that is the critical factor.
    We have moved a great distance from there when Senator 
Casey and I very reluctantly backed this $700 billion bailout 
program, and we did not do it to save Wall Street. We did that 
to save the ripple effect which would have drastic consequences 
for the economy on credit to small business, student loans, and 
more evictions.
    In a free enterprise society, people have the right to take 
risks to make money, but if they use bad judgment and those 
risks turn out to produce losses, they ought not come to the 
Federal Government for a bailout, which ends up with the 
taxpayers. And we have seen a critical situation on Wall Street 
with highly sophisticated kinds of commercial paper which no 
one understands. You have these derivatives, which are 
extraordinarily complicated, and you have these credit swaps, 
which are even more complicated. And there is talk about some 
$62 trillion involved in these derivatives, which makes $700 
billion look like a small sum of money.
    So we are wrestling with this issue, and there is going to 
have to be some regulation on operations like Fannie Mae and 
Freddie Mac. And, again, in our line of work in the Congress, 
we have to be careful we do not overregulate as we did with 
Sarbanes-Oxley. So it is a delicate matter.
    But to the extent that there is action at the local level, 
that is best. If you take the matters right here to the county 
level, it is best--not to Harrisburg and not to Washington. So 
what is going on here is very, very important, and Senator 
Casey and I have an eye out to what we can do at the Federal 
level to supplement what is going on here.
    A wrap-up, Senator Casey?
    Senator Casey. Well, thanks, Senator Specter, and I want to 
thank the panelists here, especially Judge James for the use of 
your courtroom, the use of this courtroom, as well as your 
participation in leading this effort at the county level in a 
big county like Allegheny County, taking on a tough issue and 
not just waiting for some solution to arrive from Washington, 
but helping us to point to good models at the local and county 
level that can be, I think, replicated not only throughout this 
region but throughout the State and throughout the country. So 
we are grateful for your advocacy and for your willingness to 
take on a tough problem and try to solve it.
    Thank you very much.
    Senator Specter. Well, that concludes the hearing. Thank 
you all.
    [Whereupon, at 10:45 a.m., the Committee was adjourned.]
    [A submission follows.]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

 KEEPING FAMILIES IN THEIR HOMES: HOW TO PREVENT FORECLOSURES--PART II

                              ----------                              


                        FRIDAY, OCTOBER 24, 2008

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 10:00 a.m., at 
the Philadelphia Court of Common Pleas, Courtroom 653, 
Philadelphia, Pennsylvania, Hon. Arlen Specter presiding.
    Present: Senator Bob Casey, Jr.

 OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM 
                   THE STATE OF PENNSYLVANIA

    Senator Specter. The hearing of the U.S. Senate Judiciary 
Committee will now proceed on the program at issue at the Court 
of Common Pleas in Philadelphia County to try to keep people in 
their homes and not to be evicted through sheriff's agencies.
    I am joined by my distinguished colleague, Senator Bob 
Casey--to courtroom--spend so many days a few weeks ago as an 
Assistant District Attorney, and then as--walk down the hall--
which had for years been the District Attorney's office, and 
walked through the corridor where there had been a sheriff's 
cell room which went upstairs. This was before the--and all of 
the big--murder cases were tried there, where they had a lot of 
security problems.
    In 1968, there was a beginning program on CBS. You may have 
heard about it: it was called 60 Minutes. I would--Mike Wallace 
was the coordinator and we had a major investigation that year 
about--young boys in the sheriff's cell room at--taking them to 
Holmesburg. Mike Wallace was in that back room filming, and an 
Assistant D.A. named Allen Davis and myself. It was the first 
investigation into brutality in prisons conducted in the United 
States and it was featured on 60 Minutes. Later when they went 
back for the highlights, they chose that as one of the 
highlights.
    Well, ex-D.A.s are allowed up to 3 minutes to reminisce in 
this room, but only 3 minutes.
    This hearing involves a matter of great importance to the 
city of Philadelphia and has very serious application on the 
national level. Last year, there were over--was higher than the 
national average. Under the very effective leadership of--
Darnell Jones and Judge Annette Rizzo, a program has been 
initiated here which I think has--national model. The--in some 
detail, but it is what I would characterize as a win-win 
situation where people can stay in their homes by--mortgages 
and that obviously helped the--and the lenders are assisted in 
not having the cost of foreclosure and taking over property 
which is greatly depreciated in value, and the neighborhood is 
benefited by not having a house foreclosed. The tax rolls 
remain--the city is not confronted with greater fiscal--cutback 
in services.
    The program received considerable national acclaim. There 
have been inquiries on it from Miami and Chicago and Prince 
George's County, Maryland,--Texas, and Florida, and New Mexico, 
and is quite a tribute to the working here of our colleagues 
who have come up with this kind of a program.
    Senator Casey and I had a similar hearing last week in 
Pittsburgh and Senator Casey, I, and others in the Congress 
have been prepping the Treasury Department--to--authorized to 
the most basic level to keep people in their homes. We've taken 
steps for $250 billion of infusion of capital into banks. Well, 
that's fine. We've worked through bailouts of major companies, 
Bear Stearns and AIG.
    But we think we need to deal with the people who really -
and we're making some progress. The FBI--are now starting to 
look at the issue of guaranteeing mortgages. That would be a 
big step forward. The current fiscal crisis started with the 
mortgage problem and it ought to be addressed head on. But in 
the interim, it is really very gratifying to see a community 
like Philadelphia and the leadership of the Common Pleas Court 
digging into this issue with very--program that can keep people 
in their homes.
    I now defer to my distinguished colleague, Senator Casey, 
who has many important committee assignments in Washington. He 
is--as an ex officio of the Judiciary Committee, which is not 
too bad for a first termer.
    [Laughter.]
    Senator Specter. Senator Casey.

     STATEMENT OF HON. BOB CASEY, JR., A U.S. SENATOR FROM 
                          PENNSYLVANIA

    Senator Casey. Senator Specter, thank you very much. I want 
to thank Senator Specter for having us here in Philadelphia 
today and to be, as he mentioned, a member of the Judiciary 
Committee for a brief period of time. He's allowed me to do 
this every couple of weeks and then I have to go back to my 
other committees. But I am grateful for this opportunity.
    I wanted to thank the witnesses who were here with us today 
who have been, shall I say, in the trenches: Judge Jones, Judge 
Rizzo, and so many others, whether as part of the Court of 
Common Pleas, Mayor Nutter and his work at the city at the 
municipal level, the people who are advocates who are in the 
lending community, advocates for homeowners, so many people 
coming together and working night and day to make sure that 
this program works.
    What we know is the Philadelphia Residential Mortgage 
Foreclosure Diversion Program is now becoming one of the best 
programs of its kind in the country, as Senator Specter 
mentioned. And I'll tell you, we need it. When you look at the 
numbers just yesterday, when you look at third quarter 2007 to 
third quarter 2008 nationally, foreclosure filing is up 71 
percent. In Pennsylvania, third quarter 2007 versus third 
quarter 2008 is up 73 percent.
    So Pennsylvania as a whole has had a real spike in the 
number of foreclosures from last year to this year, so we need 
it badly. We know the challenge here in Philadelphia. I saw a 
chart today where Philadelphia was number 68, I think, out of 
the top 100 Metro areas. I hope that number continues and I 
hope we keep getting closer to 100, which means we're not as 
bad off. But we know the numbers here are too high, as they are 
in lots of parts of Pennsylvania.
    This program is already succeeding. We know that. We also 
know that a lot of counties have been trying to replicate this 
program throughout Pennsylvania. We want to push that very 
hard. Back in July of this year, I wrote to Housing and Urban 
Development Secretary Preston and I sent a copy to Treasury 
Secretary Paulson, urging them to consider this program as a 
model for other cities and regions in the country to replicate 
and to emulate.
    In August of this year, we had a roundtable session here in 
this building with Judge Jones, Judge Rizzo, and other 
participants from across Pennsylvania and throughout 
Philadelphia about the program and how to replicate this in 
other counties in Pennsylvania. Since that roundtable in 
August, we've had a great response from counties from western 
Pennsylvania, from Allegheny County out in the west, to my home 
county, Lackawanna County, throughout the Lehigh Valley, and 
throughout the region.
    In September of this year, again, I urged Secretary Paulson 
and also urged Chairman Bernanke, chairman of the Federal 
Reserve, to consider this program as a model nationwide for 
foreclosure prevention efforts. I'm happy to be here again 
today to listen to important testimony.
    Here's the final point I'll make. We are now at a point 
where there are 10,000 foreclosures every single weekday in 
America. We have to do everything possible to do more at the 
national level to prevent foreclosures, and this program is one 
of the best ways to do that. Thank you very much.
    Senator Specter. Thank you very much, Senator Casey.
    We will now proceed with our very distinguished panel of 
witnesses. In accordance with Judiciary Committee policy, 
witnesses will be allotted 5 minutes. We ask that everyone 
observe the time because we have many witnesses and we want to 
have some dialogue with Senator Casey and myself asking some 
questions. So, the light will signify green when 5 minutes 
begin, yellow when there's a minute left, and red on the 
interdiction to stop.
    We will not bang the gavel--Chief Justice Rehnquist--
President Judge Ed Becker had once commented that Chief Justice 
Rehnquist so enjoyed interrupting lawyers, that he'd interrupt 
someone in the middle of the word ``if''.
    [Laughter.]
    Senator Specter. Short of that, we do want to keep on time 
because we have time constraints and we hope to conclude the 
hearing by 11:30.
    It is a pleasure to be in the courtroom of President Judge 
C. Darnell Jones. He's had a very distinguished career and is 
not long for these premises. He is--soon to the Federal 
courthouse, where Senator Casey and I had recommended him to 
the participant. Judge Jones was so warmly received, that he 
had--on Tuesday. The Judiciary Committee--confirmation on 
Thursday. The Senate, which hasn't confirmed any judges in a 
long time, confirmed him on Friday.
    [Applause.]
    Senator Specter. Thank you for your hospitality today in 
his courthouse, and thank you for your innovations on this 
important program. We look forward to your testimony.

  STATEMENT OF HON. C. DARNELL JONES, PRESIDENT JUDGE, FIRST 
  JUDICIAL DISTRICT OF PENNSYLVANIA, COURT OF COMMON PLEAS OF 
                      PHILADELPHIA COUNTY

    President Judge Jones. Thank you very much. Good morning, 
Senator Specter and Senator Casey.
    As President Judge of the Court of Common Pleas and Chair 
of the Administrative Governing Board of the First Judicial 
District, I welcome you and the Committee as you continue to 
supply much-needed support to help an ever-increasing 
population in our communities.
    Senators, your presence signifies that we in the First 
Judicial District are on the right track locally and 
nationally, and most assuredly underscores the need for us to 
continue what we have begun.
    Senator Casey, we sincerely appreciate your letter to the 
Secretary of Housing and Urban Development acknowledging and 
praising the First Judicial District's program and urging them 
to support its implementation nationwide, as well as chair the 
roundtable to which you referred earlier. Senator Specter, that 
you would bring this Committee to this venue to investigate 
this problem and find solutions therefor is truly magnificent 
and well and deeply appreciated.
    The genesis of our program was a resolution introduced in 
our City Council, supported by our sheriff, and made legal, 
feasible, and highly effective through the diligence of Judge 
Annette Rizzo, Administrative Judge D. Webster Keogh, 
Supervising Judge Esther Sylvester, and a number--a large 
number--of court support personnel.
    The First Judicial District recognizes how vital home 
ownership is to the stability of any city. We know that 
neighborhoods and lives, locally and nationally, are on the 
brink of social and financial ruin due to the problem of the 
growing number of residential foreclosures.
    We are acutely aware of what does and what does not work. 
In this instance, the foundation of our successful program is 
the cooperation between the court and the private bar, public 
interest bar, lender bar, and social agencies. Our program 
simply could not work without them.
    Last night, I attended a town meeting in my neighborhood in 
East Oak Lane. More than one resident lamented that the by-
product of having a home next door in foreclosure would be 
broken windows, and undesirables using it for crime and other 
illicit behavior. Add to that, when this occurs, other 
residents on the block and the blocks on either side abandon 
their homes. The tax base and vital services decline, and the 
downward spiral of once vibrant cities becomes uncontrollable.
    We thank you, Senator Specter and Senator Casey, for your 
valiant efforts to assist the Nation in this much-needed and 
very successful program, as evidenced, by the way, Senator 
Specter, by your op-ed letter which appeared this morning in 
the Philadelphia Inquirer. Again, on behalf of the First 
Judicial District and the citizens of this Commonwealth and 
this country, we sincerely thank you.
    [The prepared statement of Judge Jones appears as a 
submission for the record.]
    Senator Specter. Thank you very much, President Judge 
Jones.
    We have just been joined by a distinguished visitor, the 
Chief Justice of Pennsylvania, Ron Castillo.
    Chief Justice Castillo. Good morning, Senator.
    [Applause.]
    Senator Specter. The Chief Justice has been heard to say 
that his most distinguished position, among many others, 
including the elected as District Attorney of Philadelphia, was 
his service as an Assistant District Attorney.
    Chief Justice Castillo. Absolutely.
    Senator Specter. I'm glad to have that admission on the 
record. Thank you for joining us, Chief Justice Castillo.
    Chief Justice Castillo. It wasn't under oath, though.
    [Laughter.]
    Senator Specter. But it was said in open court.
    [Laughter.]
    Senator Specter. Our next witness is Judge Annette M. 
Rizzo, who has been the driving force behind this very unique 
and important program.
    Judge Rizzo, we welcome you to the hearing. The floor is 
yours.

   STATEMENT OF HON. ANNETTE M. RIZZO, JUDGE, FIRST JUDICIAL 
DISTRICT OF PENNSYLVANIA, COURT OF COMMON PLEAS OF PHILADELPHIA 
                             COUNTY

    Judge Rizzo. Thank you. ``Build it and they will come! '' 
Senator Specter, Senator Casey, Councilman Jones, elected 
officials, Chief Justice Castillo, judicial colleagues, and 
distinguished members of the bar and community. A special 
thanks to you, Senator Specter and to Senator Casey, for 
bringing to the forefront our actions in Philadelphia to stem 
the burgeoning rise in residential foreclosures in our local 
community.
    Our efforts here have been publicized in a variety of media 
outlets which span the country, and even the world. Just 
yesterday we were in conference and there was a TV crew there 
from Sweden for their national TV to film what our activities 
were. Requests have come in from numerous jurisdictions within 
the Commonwealth and across the Nation, which see us as a 
national model for early and direct resolution of foreclosure 
matters.
    Senator Specter, Senator Casey, our mission here in 
Philadelphia is very simple: early intervention in the legal 
path to foreclosure and ultimate sale of owner-occupied 
residences, with the hope that homes may be saved one address 
at a time.
    First and foremost, I want to share with you what the First 
Judicial District's Pilot Mortgage Foreclosure Diversionary 
Program. It is not about entitlements, it is not about give-
aways, support of delay tactics, unwarranted breaks, abuse of 
legal process, coercion to make deals, or the abrogation of any 
legal rights. What it is about, is about setting the stage to 
promote good-faith negotiations for parties to come to the 
table responsively, with the hope of borrowers remaining in 
their homes.
    Our program was established in the spring of this year in 
response to our Sheriff, John Green, canceling the entire 
Sheriff's list in April of this year. He really was the 
catalyst for this program to kick off. His actions came on the 
heels of our City Council passing a resolution to request that 
our sheriff and President Judge Jones declare a moratorium on 
residential sales. In quick response, Judges Jones and Keogh 
took affirmative action by establishing our present program.
    To understand what we are now in the present, one has to 
understand what we were in the past. The true genesis of our 
current program, which became fully operational in just 7 
weeks, actually began in 2004. At that time, Sheriff Green had 
taken the step at that point to also cancel the sheriff's sale 
list for a given month. He then came to the court to seek 
injunctive relief to have a moratorium declared by the courts.
    I was the judge sitting in the program at the time which 
heard the matter. It was before me, and though I did not grant 
the direct relief sought, I did establish what would amount to 
be the prototype of the program we now have, taking time to 
look at cases and homeowner situations on a micro basis and 
foster the opportunity for lenders and homeowners, through 
counsel, to negotiate favorable resolutions. Success was seen 
with many of the homeowners based on newly available State 
funding criteria, being the HEMAP program.
    Now the Sheriff--came before me and argued to the court 
that the Sheriff's sale system was ``Fundamentally broken'' and 
needed to be fixed. I challenged them and the consumer and 
lender bar to work together ``to fix it! '' Such was the birth 
of the Mortgage Foreclosure Steering Committee, which has been 
in force for some 4 years. During that time, meeting on a 
monthly or bi-monthly basis, the group has come together to 
tackle several procedural fixes to the local foreclosure 
process. Though advocates on opposing side of the issue, we 
have come together to make the process work, such as working on 
the reduction of advertising costs in the foreclosure process.
    Now, let's fast-forward to 2008. This group was primed to 
face the present challenges and move swiftly to form our 
diversionary program. It has been chaired by counsel to the 
Sheriff, Ms. Lasia Kuzma, with member stakeholders who were on 
all sides of this issue, including representatives of the 
consumer bar, the lender bar, housing counselors, the Office of 
Housing and Community Development, our Sheriff's office, the 
Philadelphia Bar Association, and other related community 
groups, some of whom are present today. At this point I would 
just ask them to stand and be recognized.
    [Members of the audience stood to be recognized.]
    Judge Rizzo. Thank you.
    [Applause.]
    Judge Rizzo. Senators, I never miss an opportunity to 
openly acknowledge their efforts.
    There are two major criteria of our program, and they're 
simple. That is, only cases in foreclosure which deal with 
residential owner-occupied properties are part of the program. 
The regulation put into force by Judge Jones and Judge Keogh 
indicate that no property of that like, owner-occupied 
residential, can go to Sheriff's sale without the scheduling of 
a conciliation conference.
    The intent of our ``Day Forward Program'' is, at the moment 
a complaint in foreclosure is filed, a notice comes from the 
court to have a conciliation conference scheduled. Our hope 
then is to put the homeowner in what I affectionately call 
``the chute'', to get them into housing counseling as quickly 
as possible so when the conference comes up with the hope and 
help of pro bono counsel, the conciliation conference can be 
fruitful, that is, with the lender bar. That is our intent. Our 
intent has always been early intervention so that there are 
less arrearages that we're likely to find for homeowners, and 
that the property will be in a better state.
    The program as well, just from a statistical standpoint, 
has seen, from April to September, some 1,500 cases coming 
through, with about 63 percent of homeowners participating, and 
of that, successes in approximately 490 properties where we 
have seen some type of settlement of the case or resolution 
wherein they did remain in their property, a postponement so 
either deals can be worked out or deals have been made out.
    With that, we have to give great credit, of course, to the 
fact that creative solutions are given to what would be 
standard problems. We will have the opportunity to hear from 
several homeowners today about their stories and how they have 
been impacted in a positive way from our program.
    The most frequently asked question to me is: how did you 
get the lenders to ``buy in'' to the program? The question is 
most simply answered: because they helped create it. I do 
believe, Senators, in this discussion of a national model, 
there has to be the suggestion that those who live under the 
rules of a program must have buy-in to help develop it. That, I 
believe, is a key success of the program we have here.
    In addition, to stage such theater in the courtroom 
requires coordination of housing counselors, volunteer lawyers, 
and our beloved judge pro tems, extensions of our court who are 
senior members of our bar who volunteer their time and have to 
this point given in-kind services which amount to almost 
$50,000 of fine legal advice from retired judges, senior 
chancellors, and other very, very prestigious members of our 
bar.
    It's a collective effort and the true spirit of the 
program. Senator Casey, you got to see that energy. I believe 
you even were pushed aside to make sure that some particular 
counsel got to his client. It all takes cooperation and 
coordination, both among the bar, the courts, and the local 
officials, but also our Mayor, our City Council, and, of 
course, leadership within our courts and our wonderful, 
wonderful court administrators.
    In sum, we continue to be a pilot program with a capital 
``P''. We are evolving as a living process as we gain more 
experience with these cases. Our mission, however, never 
waivers. We are here to provide the micro focus to citizen 
homeowners and lenders in the hopes of achieving as many 
performing mortgage agreements as possible for the sanctity of 
these individuals, their families, and our community.
    With the continued support and input from our valued 
stakeholders and the commitment of the wonderful members of the 
court and our First Judicial District staff, we are encouraged 
that our efforts will continue to be fruitful. We invite other 
jurisdictions within our Commonwealth and across the country to 
partner with us in this endeavor, and we avail ourselves for 
that purpose.
    Senator Specter, Senator Casey, we appreciate the radar 
that you have placed on our program. Your interest and outreach 
to other jurisdictions has put a real face to the current 
national--no, let's say international--debate. We applaud you 
for not forgetting that the undercurrent of the mammoth 
financial challenges now facing us as a Nation begin with a 
Tania Harrigan, a Jean Ruffin, an Arlene Richardson, an Eric 
Rhaney, individuals who you will hear from, and the countless 
others like them.
    Senator Specter, Senator Casey: build it and they will 
come. Thank you.
    Senator Specter. Thank you very much, Judge Rizzo.
    [Applause.]
    [The prepared statement of Judge Rizzo appears as a 
submission for the record.]
    Senator Specter. The next witness is Councilman Curtis 
Jones. Thank you for joining us, Councilman Jones. We look 
forward to your testimony.

   STATEMENT OF CURTIS JONES, JR., MEMBER, PHILADELPHIA CITY 
                            COUNCIL

    Councilman Jones. Good morning, Senator Specter, Senator 
Casey, and members of the Judiciary Committee. My name is 
Curtis Jones, Jr., and I am a member of the Philadelphia City 
Council, representing the Fourth Council District.
    I actually represent Senator Specter; he is one of my 
constituents, and I am honored to serve you, as well as share 
with this Committee my perspective of how the city of 
Philadelphia has been able to help stop mortgage foreclosure 
sales in a process of helping to create a Mortgage Foreclosure 
Diversion Program. This is the first of its kind in the Nation.
    I have also shared this information on our program with all 
of the Presidential candidates. The importance of the 
Philadelphia experience is two-fold. First, it is provocative, 
and second, it is collaborative. In January of this year, I 
introduced a City Council ordinance that passed unanimously, 
Resolution 08-90095, which authorized the Council's Committee 
on Housing, Neighborhood Development, and Homelessness to hold 
hearings on the issue of foreclosures.
    This resolution anticipated the scheduled re-set of over 2 
million subprime adjustable rate mortgages, ARMs, over the 
ensuing 18 months, which would create an economic tsunami of 
foreclosures, if not preventive measures taken.
    The hearing was held February 21, 2008 and brought together 
advocacy groups such as the Philadelphia Unemployment Project, 
ACORN, Community Legal Services, bar--and representatives from 
our courts and our sheriff's office. The one weakness in the 
hearing was that there were no representatives from the lending 
community present.
    In the--weeks, that led to a second council resolution, 
number 08-0331, which called upon the sheriff and the Court of 
Common Pleas to impose a moratorium on residential foreclosure 
sales in Philadelphia. Thus, this began a meeting of the 
lenders that brought them into the process. It was our belief 
that if lenders and borrowers could agree to convert 
unaffordable loans into performing ones, it would create a win-
win scenario. This would occur by keeping homeowners in their 
homes, preventing deteriorating neighborhoods, and sparing 
lenders the cost of both time and money for mortgage 
foreclosure sales.
    I view this action taken by the Council as the beginning of 
a relay race. I would be remiss if I did not acknowledge the 
groundbreaking work of my colleague, Councilwoman Marian Tasco, 
who has been a champion against predatory lending practices, 
who recognize the role of these unscrupulous loans, and how 
they created a crisis in both her District, my District, and in 
the city of Philadelphia.
    The race was run, and vigorously run, by those who are in a 
relationship with us. Also, the courts, the sheriff's office, 
the mayor's office also were--at the time. The court was 
successful in creating and implementing a residential mortgage 
foreclosure diversion program, which I believe can be 
replicated throughout the Nation.
    The pilot also, in most cases, has brought reworking loans 
back onto the books. The--of our city, if replicated, could 
pave the way toward rebuilding communities ravaged by 
foreclosures in our country. The biggest problem we face, 
Senators, is fear. People won't open the mail, won't realize 
that they're in trouble, and won't seek help.
    Congress recently passed legislation that will deal with 
this pilot program in Philadelphia and could be replicated on a 
national level, bringing bar owners and lenders together in a 
court-ordered process that could re-work loans that could not 
only help Main Street, but help to save Wall Street.
    Other financial mortgage foreclosure diversion programs 
should be expanded to a Federal level. I would suggest that 
there be a national suspension of foreclosures throughout our 
Nation for the next 90 days. This would allow the agencies to 
develop help, to allow the agencies to develop programs that 
could be brought to local levels and create a win-win scenario 
for citizens in this country.
    The bottom line is that if we do help create this win-win 
scenario, it will help Wall Street and help Main Street. I 
believe that what was done here today can be replicated 
throughout the Nation, and I urge you to bring that process 
forward.
    Thank you.
    Senator Specter. Thank you very much, Councilman Jones.
    [The prepared statement of Curtis Jones appears as a 
submission for the record.]
    Senator Specter. At the suggestion of Judge Rizzo, some of 
the homeowners have been invited in today. Judge Rizzo 
suggested that this would be a good spot to hear from them, on 
a limited basis, trying to adhere to a one-minute time limit.
    So, Judge Rizzo, you may proceed.
    Judge Rizzo. Yes. Thank you. Thank you, Senator Specter.
    We are blessed with the attendance of certain homeowners 
who have been through various conference phases of our program 
in this early offering, and want to share with you and the 
Committee some of the successes that they personally have 
experienced, but not only that, what had brought them to the 
point of having a situation such as this come into the court.
    Before we go to our witnesses at table, I'd like to 
reference a Jean Ruffin in the audience, who is accompanied by 
Ian Phillips from ACORN. Jean was one of the true success 
stories when--Senator Casey visited. The mortgage commitment 
that she had from GMAC, based on a hearing and understanding 
the underpinnings of it and her situation as a senior in a 
residential home, which she had been in for many, many years, 
GMAC took the step to forgive the entire loan.
    So, it is a success story to keep a woman who has had her 
homestead for many, many years there in residence with her 
family, so for that we always like to talk about Ms. Ruffin. 
She likes to come and participate, due to her gratefulness for 
the program. Ms. Ruffin.
    [Applause.]

              STATEMENT OF ERIC RHANEY, HOMEOWNER

    Judge Rizzo. We have at table some other homeowners who 
have gone through the recent process, and I would like to start 
with Eric Rhaney, who is first, to speak just briefly about his 
experience.
    Senator Specter. Thank you for joining us, Mr. Rhaney. We 
look forward to your comments.
    Mr. Rhaney. Good morning, Senators, panel. My name is Eric 
Rhaney. I'm a union construction-laborer for Local 332. I've 
been a member for some 20 years. I live on West Oak Lane. I've 
been in my home for 40 years. My mother brought me in, raised 
me there. Later, we purchased the property. I assumed the 
property in 1986. How I got behind in my mortgage, I was hurt, 
job-related, unable to collect Workman's Comp.
    During the same period of time, I went through, and 
continue to go through, a separation with my wife. That kind of 
messed up my funding. I'm also getting custody of my two 
children right now, so I'm having to pay a lawyer as well. 
Also, I didn't qualify for unemployment until February of 2008, 
and by that time it was too late for me to try to talk to the 
mortgage company.
    Eventually I did manage to borrow some money and I 
approached my mortgage company, Citicorp, with $15,000. They 
refused the $15,000 because they wanted $16,000. During this 
time, I was working with the housing counselor, Tony Grant, 
from the Housing Association Information program, and he 
introduced me to this court and got me through all the hard 
work and late nights. He just got me through with this.
    Judge Rizzo. Mr. Rainey, just to assist in this, you were 
in conference just recently, as of yesterday. Is that correct?
    Mr. Rhaney. Yes, Your Honor.
    Judge Rizzo. Yes. Okay. And actually a deal was struck 
yesterday with the help of a volunteer lawyer from Philadelphia 
VIP, Dan Siegel.
    Mr. Rhaney. Dan Siegel, yes.
    Senator Specter. So Mr. Rainey, you came into the program 
that Judge Rizzo administers. Then what happened?
    Mr. Rhaney. Well, we struck a deal and I'm supposed to 
start my mortgage payments in December.
    Senator Specter. You say you struck a deal and you're still 
in your home?
    Mr. Rhaney. Yes.
    Senator Specter. Okay. That's a good story.
    Judge Rizzo. Yes.
    Senator Specter. Next, Judge Rizzo?
    [Applause.]
    Judge Rizzo. Again, with the competent help of our housing 
counsel and our volunteer counsel. But let's hear also from 
Cynthia Henderson.
    Ms. Henderson. I'm sorry. Can we go to the next witness?
    Judge Rizzo. We can. Deborah Jackson Smith. Please.

         STATEMENT OF DEBORAH JACKSON-SMITH, HOMEOWNER

    Ms. Jackson-Smith. Good morning. Good morning, Senator 
Casey, Senator Specter.
    Senator Specter. Good morning.
    Senator Casey. Good morning.
    Ms. Jackson-Smith. Thank you very much, Judge Jones, and 
especially Judge Rizzo. I want to thank you for being here. I'm 
a homeowner as well. I've been in my home for approximately 20, 
25 years. I am now in foreclosure. I originally started, in 
1999, to have home repairs done and there was so much paperwork 
that had taken place, I was signing this, signing this for the 
home repairs, that I really and truly was not told what I 
really and truly was signing. I was just happy with getting the 
home repairs done.
    Down the line, the home repairs fell through. The roof 
collapsed. It just was a disaster. I tried to make arrangements 
for them to come out to repair the home. Throughout the years, 
things just escalated, and escalated, and escalated. I'm paying 
them. I'm paying them. Before you know it, now I'm being told I 
have, now, another loan, another banker that has now taken over 
this loan.
    Originally it started with the home repair service, then it 
became a bank. Then from the bank it became another bank, and 
then another bank, and during this time the interest increased, 
increased, increased. During this time I became a single parent 
of two, divorced. My job. I no longer had it after 13 years. I 
became in arrears. During this time, I'm trying to still pay, 
trying to still struggle and pay. Before you know it, boom. Now 
I have a letter that is sent out to me that--
    Senator Specter. Did they then proceed for eviction?
    Ms. Jackson-Smith. Yes.
    Senator Specter. And you became part of Judge Rizzo's 
program?
    Ms. Jackson-Smith. Judge Rizzo's program. And I want to 
say--
    Senator Specter. And what happened?
    Ms. Jackson-Smith. And from this I've had--thank goodness, 
I was introduced to PUP, which is the Public Unemployment 
Project, and I was introduced to a counsel by the name of 
Pamela Kinnebrew and Thurston Hymen, and the director, John 
Dodds. They have now introduced me to Judge Rizzo's program, 
which is the Foreclosure Diversion Program, which now has 
helped me.
    Senator Specter. You're still in your home?
    Ms. Jackson-Smith. I'm still in my home today because of 
this program.
    Senator Specter. And you've worked out arrangements through 
Judge Rizzo's program to work it out?
    Ms. Jackson-Smith. Yes. We are now in the process of that. 
I've had one--I've come to one conference. I've had one 
conference. Now what has happened is that, from that 
conference, we're going back again and we're going to be 
handling this outside of court because the bank did not have 
all of their paperwork correct on the day.
    Senator Specter. But you're on your way to solving it?
    Ms. Jackson-Smith. Yes. Yes. It's a good program and I want 
to say thank you.
    Senator Specter. Judge Rizzo, let's see the next witness.
    Ms. Jackson-Smith. Yes.
    Judge Rizzo. Okay. Thank you. All right.
    Tania Harrigan.

             STATEMENT OF TANIA HARRIGAN, HOMEOWNER

    Ms. Harrigan. Good morning, Senator Specter and Senator 
Casey. Thank you for taking time to hear our testimonies. My 
name is Tania Harrigan, and I'm also a member of the 
Philadelphia Unemployment Project. I reside in south Philly and 
I've been in my home for 8 years. I refinanced my mortgage 
because I needed renovations done after we bought the home. The 
broker came to my home and my interest rate was 9.75 percent. 
Our trouble began when my husband got laid off of work. We 
became behind in our mortgage and filed for bankruptcy. Our 
bankruptcy was dismissed because we could no longer afford the 
bankruptcy.
    I came to PUP and my counselors were Pamela Kennebrew and 
Thurston Hymen, directed under the fellowship of Johnny Dodds. 
I've learned about the Foreclosure Diversion Pilot Program, 
which afforded me to have reconciliation with Judge Rizzo and 
able to obtain and stay in my home.
    I was able to get a modified low interest, which went from 
9.75 percent to 7 percent. The mortgage payments were reduced 
from $437 to $411. If it wasn't for the diversion program, I 
would have been facing a sheriff's sale on November 4th.
    Senator Specter. Were you able to come to a figure that you 
could pay and stay in the house?
    Ms. Harrigan. Yes.
    Senator Specter. And you're in your house now?
    Ms. Harrigan. They were able to work out a figure which 
would afford me to stay in my home, to have a place to live, 
and still continue to pay my mortgage payments.
    Senator Specter. So you have a place to live and you're 
paying your mortgage payments, and it's all because of the 
program you've worked through with Judge Rizzo?
    Ms. Harrigan. Yes. I thank God for Judge Rizzo for having 
great compassion, taking this in her bosom and just being able 
to live it.
    Senator Specter. Thank you. Thank you very much for your 
testimony.
    Is there another witness, Judge Rizzo?
    Judge Rizzo. Our last witness, just briefly, would be 
Deborah Jackson-Smith to share her comments. I'm sorry, I 
apologize. Cynthia Henderson. I apologize.

           STATEMENT OF CYNTHIA HENDERSON, HOMEOWNER

    Ms. Henderson. Good morning, Senator Arlen Specter, Senator 
Casey, staff officials, and staff. I'm honored, first of all, 
to have the opportunity to speak on behalf--on my own behalf, 
as well as for some others, particularly my friends and family 
who find themselves in this very challenging position. Thank 
you for taking the time to listen.
    I'm here to share with you the benefits and/or advantages I 
received from the HACE program, H-A-C-E, which, after some 
research I did, which was begun by ACORN, which is another 
housing counseling agency in this city, helped me to navigate 
some of the bill, if you will, with the foreclosure program.
    As a teacher, I had an inkling to do some research and got 
it. This is what was given to me by LeAnn Washington--couldn't 
really understand all of the bill that was supposedly passed. 
After several encounters with the helpful people at HACE--
beginning with Marybell Rosario, I was able to unravel some 
things concerning my home after facing the ARM.
    I'm sure you're familiar with the adjustable rate mortgage. 
My home became problematic--divorce settlement and using my 
TSA--tax sheltered annuity--my mortgage changed from Challenge 
Financial Investors in Florida to Wells Fargo M&A Bank, which 
did not include, by the way, the tax and insurances.
    Judge Rizzo. Ms. Henderson, could you share with the 
Senators your experience in our program?
    Ms. Henderson. Yes.
    Judge Rizzo. That would be great.
    Ms. Henderson. I was allowed to propose--help to have a 
proposal written for me from Brendy Lopez and I was able to 
come down and meet with the attorney and Judge Anne Rizzo, who 
was phenomenal in helping to sort through some of these things. 
I'd still have to get a fixed rate and the adjustable ARM, 
we're still negotiating. I am still in my home.
    Senator Specter. You are? You say you are still in your 
home?
    Ms. Henderson. Yes, sir.
    Senator Specter. And have you worked out an arrangement 
through Judge Rizzo's program to stay there?
    Ms. Henderson. Yes, sir. We're still working on some things 
because--simply because--
    Senator Specter. You're still working on it, but you think 
you're on your way to getting it worked out?
    Ms. Henderson. Yes, I do, sir. I'm very confident of that. 
I'd like to have this not as an option, but mandatory for--
situation that have had catastrophic effect on their lives--
illness, medical situations, because if I did not seek the help 
that's there, I may not have known. I'd like to see something 
in place for people who are--
    Senator Specter. We're going to come to that in our--Judge 
Rizzo, do you have one more final witness here?
    Judge Rizzo. Not at this point with respect to our 
homeowners.
    Senator Specter. Let us proceed with the final witness from 
the people who have been helped.
    Judge Rizzo. Thank you.
    Senator Specter. Who is the witness, Judge Rizzo?
    Judge Rizzo. We will then go to George Gould, who is with 
Community Legal Services. He's managing attorney.

   STATEMENT OF GEORGE GOULD, MANAGING ATTORNEY, HOUSING AND 
      ENERGY UNIT, COMMUNITY LEGAL SERVICES, PHILADELPHIA

    Mr. Gould. Thank you very much, Senators Casey and Specter, 
for holding the hearing here today. My name is George Gould. I 
am the managing attorney of the Housing and Energy Units at 
Community Legal Services in Philadelphia.
    Our office has been substantially involved in the problems 
of mortgage foreclosures for many, many years. In addition to 
having represented thousands of individuals in mortgage 
foreclosure cases, our office has also been involved in 
numerous broader issues to try to confront the serious problems 
that foreclosures cause in this country.
    For example, in 1983, working with the Philadelphia 
Unemployment Project, PUP, John Dodds, sitting next to me, and 
the local sheriff, we were able to obtain through the Common 
Pleas Court a postponement of sheriff sales on owner-occupied 
properties for almost a year until our State legislature passed 
the Homeowners Emergency Mortgage Assistance Program, HEMAP, a 
program which provides substantial foreclosure relief to 
homeowners facing financial problems because of the country's 
economic recession.
    In 2004, we again petitioned the Common Pleas Court with 
the sheriff to postpone foreclosure sales, which Judge Rizzo 
mentioned, which again led to the resolutions of hundreds of 
cases. Out of that case, the Honorable Annette Rizzo, Judge of 
the Common Pleas Court, instituted the Mortgage Foreclosure 
Steering Committee which created a court-supervised dialog 
between foreclosure attorneys and consumer attorneys and 
advocates.
    In March of this year, President Judge Jones and Judge 
Rizzo convened an emergency meeting of the committee and 
informed the committee of the framework of the proposed 
residential diversion program. The committee has since had 
substantial input into the formulation and implementation of 
the diversion program.
    Our office, along with the Philadelphia Legal Assistance, 
PLA, our sister agency, which also provides legal services to 
low-income persons, have continued to play an important role in 
the program. We have been actively involved in the training of 
the counseling agencies, private attorneys recruited by VIP, 
and JPTs, judge pro tems, who preside over the conciliation 
conferences. Our office also represents individual homeowners 
involved in the process and we continue to play an active role 
in the steering committee's involvement in the implementation 
of the program.
    The Residential Mortgage Foreclosure Diversion Program is a 
bold and creative measure taken by our local Common Pleas Court 
under the strong leadership of Judge Jones and Judge Rizzo to 
address this most pressing problem.
    There are numerous problems in communication between 
lenders and homeowners. Homeowners have often had great 
difficulty in trying to communicate with lenders or mortgage 
loan servicers regarding their mortgage problems. Under-staffed 
servicers of mortgage loans also had difficulty in trying to 
communicate with the homeowner, who was often overwhelmed by 
their circumstances and sometimes not able to adequately deal 
with the problem on their own.
    The project created by our court helps to resolve many of 
these issues. It brings together both parties in a structured 
and organized way to help bring about a resolution of the 
issues. By postponing the sheriff's sale and setting up a 
conciliation conference presided by a judge pro tem, it gives 
the homeowner an opportunity, with the help of professional 
counseling and attorneys, to try to resolve their problems.
    However, unlike the past where many of the problems were 
solely related to the financial circumstances of the homeowner, 
today we are faced with situations where the mortgage itself is 
often predatory and unaffordable, one that must be modified to 
become affordable and a performing loan.
    The pilot created by the diversion program is a major step 
forward, however, it is not one without cost. Monies are needed 
to fund the counselors and foreclosure hotline operated by PLA 
that takes calls from homeowners and connects them with 
counseling agencies to help them prepare a financial analysis 
and suggested modification or work out other loans, VIP, and 
our office and PLA to help provide individual representation.
    While the Housing and Economic Recovery Act of 2008 
provided $30 million for legal assistance to homeowners facing 
foreclosure, the law had been recently interpreted to preclude 
any funding for legal assistance after a foreclosure action has 
been filed in court. This must be changed.
    In addition to these resources, what has also proved to be 
extremely effective is outreach to the homeowner. What we have 
found is that the time the person is in foreclosure, they 
receive numerous mailings and are often very confused. If 
someone can literally go to their door, knock on it, and 
explain the program, this has been extremely helpful. Many 
groups, including ACORN in this city, have been extremely 
effective in getting people involved and getting people to 
participate in the program.
    The program has been successful because it brings people 
together who often would have great difficulty or not even 
communicate with each other, but the program has some limits. 
For example, while clearly it is in the lender's interests to 
modify the loan so as to create a performing loan, situations 
occur because of the mortgage servicer's contract where 
resolutions are not achieved even though--
    Senator Specter. Mr. Gould, how much more?
    Mr. Gould. Just about a minute.
    Senator Specter. Thank you.
    Mr. Gould. Where resolutions are not achieved, even though 
it would be in the financial interest for the investor to do 
so. This is so because some of the servicers' contracts create 
incentives for servicers to foreclosure--they will be 
reimbursed their fees--rather than to modify a mortgage, which 
will create no additional compensation for them.
    The recently passed financial rescue plan provides the 
Federal Government with the tools to make major inroads in the 
foreclosure problem. The Federal Government must take steps to 
obtain some of these mortgages and modify them to become 
affordable. By obtaining these mortgages, the government has 
the ability to make these loans affordable by reducing 
principal and interest rates and turn them into performing 
loans.
    Another alternative would be for the Federal Government to 
take over the servicing of these loans, or the Federal 
Government should require any bank it invests in--this is under 
the recent bail-out-bill--it adopt procedures that 
systematically modify loans.
    Senator Specter. Mr. Gould, your additional minute is now 
up.
    Mr. Gould. Excuse me?
    Senator Specter. Your additional minute is now up.
    Mr. Gould. Okay. Anyway, we strongly urge the passage of 
legislation also allowing the modifications of mortgages within 
the bankruptcy process. Thank you.
    Senator Specter. Thank you very much.
    [The prepared statement of Mr. Gould appears as a 
submission for the record.]
    Senator Specter. Our next witness is Mr. Brian Hudson, the 
CEO of the Pennsylvania Housing Finance Agency.
    Welcome, Mr. Hudson. You have 5 minutes.

 STATEMENT OF BRIAN HUDSON, CEO, PENNSYLVANIA HOUSING FINANCE 
                             AGENCY

    Mr. Hudson. Thank you, Senator Specter and Senator Casey. 
Thank you for the opportunity to speak to you today, and thank 
you for your support of affordable housing. I applaud your 
efforts to keep Pennsylvanians in their home. I also want to 
applaud Judge Rizzo, Judge Jones, and Councilman Jones.
    PHFA was created in 1972 to provide safe, decent, 
affordable housing for Pennsylvanians. I would like to talk 
this morning about our foreclosure preventions. You heard the 
acronym HEMAP, Homeowners Emergency Mortgage Assistance 
Program, which was created in 1983 as a result of the downturn 
in the steel industry, which quickly spread throughout the 
Commonwealth.
    HEMAP is funded by the general assembly. The requirement is 
that the homeowner has to be in default or in foreclosure 
through no fault of their own. In most cases, the homeowner 
receives a foreclosure notice after they are 60 days 
delinquent, which is known as an Act 91 notice. Applications 
may be made at any of the 100 counseling agencies that we have 
throughout the Commonwealth. If approved, the Agency will pay a 
partial or full mortgage payment on behalf of that homeowner 
for up to 24 months, and HEMAP would also serve two separate 
mortgages, if need be. We can be in no less than a third lien 
position.
    Homeowners are only required to pay, at a minimum, $25 per 
month. Act 91 specifies that the home has to be the principal 
residence, and it has to be through no fault of their own. The 
qualifying criteria is that the homeowner must show the ability 
to resume its mortgage payments within 24 months. The average 
HEMAP model is about 11,000. To give you a comparison, the 
average cost of foreclosure runs about $35,000.
    The Homeowners Emergency Mortgage Assistance Program is an 
example of how State government has, for a quarter century, 
successfully put its financial resources into helping 
homeowners, having saved 41,000 Pennsylvania homes from 
foreclosure, which is 170,000 separate individuals, to avoid 
the loss of their home.
    The Commonwealth has appropriated $239 million since 
inception of the program. We have lent $430 million under this 
program. Repayments total approximately $240 million. HEMAP is 
recognized by Harvard University for two consecutive years as a 
top innovation in American government. A number of places have 
begun to duplicate the HEMAP program, Delaware and North 
Carolina, to name a few; 19,500 have fully repaid their loan to 
the Commonwealth.
    But HEMAP was not designed to deal with our current crisis 
that we find ourselves in now, so I want to talk about some 
initiatives that we launched over a year ago: two refinance 
products to refinance homeowners who were in trouble.
    The first one is called REAL, Refinance Through an 
Affordable Loan. That's for those homeowners who are just 
beginning to slip in their mortgages. They are no later than 
two late payments, just realizing that they're struggling with 
their mortgage. We have over 80 lenders' networks throughout 
Pennsylvania that will help underwrite that loan on behalf of 
PHFA, and then we will service that loan in-house and we will 
buy that loan from that lender.
    We will do up to 100 percent loan-to-value for the REAL 
program. But REAL doesn't cover all of the problems that we're 
having, so we created another product called HERO, Homeowner 
Equity Recovery Opportunity. Now, this is for those homeowners 
who are clearly upside down in their mortgage, they were loaned 
more than the property's value. In that case, PHFA will 
negotiate on behalf of the homeowner with the lender to do a 
reduced mortgage and assign that mortgage to PHFA.
    Again, we will do 100 percent of the loan-to-value. We do a 
new appraisal for the property and then have that loan assigned 
to PHFA. Over overriding criteria is, can we improve the 
financial situation of that homeowner? PFHA is going to the 
table with HERO to negotiate on behalf of that homeowner. In 
some cases, we are just beginning to see some of the lenders 
step forward. If not, lenders are willing to do modifications. 
We just want to make sure that homeowner stays in their home.
    PHFA has put aside about $21 million so far. We've helped 
170 homeowners in both REAL and HERO stay in their homes, and 
we are doing a direct mailing to over 20,000 Pennsylvanians 
that have adjustable rate mortgages, to have them come in and 
seek the help of either HERO, REAL, or get through the 
counseling network. We have a state-wide counseling network of 
over 120 agencies designed to analyze these loans and see if 
they fit for REAL or HERO.
    What are the issues? A recent survey showed that 
Pennsylvania has 194,000 subprime mortgages. Of those total 
subprime mortgages, 132,000 were fixed rate that are at 15.3 
percent delinquent, and 63,000 are adjustable rate mortgages, 
or ARMs, at 24 percent delinquent. So we're targeting those 
ARMs to get those people into our counseling network to see if 
we can get them refinanced into a HERO or REAL loan.
    Many services or lenders are very slow and reluctant to 
negotiate and restructure their loans for fear of being held 
liable by investors. The service will allow them to modify 
their loans and--
    Senator Specter. Mr. Hudson, how much more time will you 
need?
    Mr. Hudson. I'm just about done, Senator. Thank you. We 
will help restructure them. Establishing a reserve fund as a 
National Housing Trust Fund that the Senators have endorsed 
would be helpful to conserve the lost reserve. I hope this 
brief review of the programs being offered to the citizens of 
Pennsylvania will assist Congress and the members of the Senate 
in its efforts to hard-pressed homeowners.
    Thank you very much for the opportunity today. Please, my 
best wishes, and your continued service is needed and 
appreciated. Thank you very much.
    Senator Specter. Thanks very much, Mr. Hudson.
    [The prepared statement of Mr. Hudson appears as a 
submission for the record.]
    Senator Specter. Our next witness is Ms. Stephanie Seldin, 
managing attorney for the Philadelphia Law Works/Philadelphia 
VIP.
    Thank you for joining us, Ms. Seldin. We look forward to 
your testimony.

STATEMENT OF STEFHANIE SELDIN, MANAGING ATTORNEY, PHILADELPHIA 
                   LAW WORKS/PHILADELPHIA VIP

    Ms. Seldin. Thank you for having me. Good morning, Senator 
Casey, Senator Specter, and distinguished witnesses and 
audience members. As the Senator said, I am managing attorney 
at Philadelphia VIP, and a member of the Mortgage Foreclosure 
Steering Committee.
    VIP's mission is to promote equal access to justice for the 
poor. We work to secure pro bono civil legal services for more 
than 1,000 low-income individuals and families annually, and 
have done so since our inception in 1981.
    We created the Philadelphia foreclosure rescue effort to 
recruit, train, and provide private lawyers to represent low-
income homeowners attending the conciliation conferences. 
During the conciliation conferences in June, July, August, and 
September, VIP attorneys assisted 233 clients. VIP volunteers 
provided approximately $325,000 in free legal services to 
homeowners in just four months.
    One hundred and fifty private practitioners from mostly 
small- and medium-sized law firms or solo practices are helping 
homeowners negotiate affordable workouts to avoid foreclosure 
through the diversion project. I want to express my 
appreciation to the Philadelphia Bar Association, Chancellor 
Michael Pratt, Business Law Section Chair Steve Foxman, and 
Mike Balent of the Real Property Section for their untiring 
efforts to promote and support this effort.
    However, VIP needs help to continue to provide that 
service. Our volunteers are representing two, three, or four 
clients and cannot take on any more. Even with 150 volunteer 
lawyers, we still need more attorneys to sign on, particularly 
from the large law firms.
    VIP enjoys extraordinary relationships with the large law 
firms of this city. They have told us they want to participate 
in the Mortgage Foreclosure Diversion Project, but their hands 
are tied by conflicts of interest because many large law firms 
represent lenders, or they want to represent lenders.
    The American Lawyer magazine reported that pro bono efforts 
across the country are stymied because of the conflicts issue 
mentioned by Senator Specter in your op-ed in today's 
Philadelphia Inquirer.
    The New York Federal Reserve recently asked 10 banks to 
provide conflict waivers to their outside counsel to allow them 
to participate in a New York City Bar Association Mortgage 
Foreclosure Pro Bono Project. Five of them said yes and sent 
their firms' waivers, only five, and only for the New York City 
Bar Association effort.
    We need all banks involved in residential mortgage lending, 
especially those receiving bail-out money from the Federal 
Government, to not only allow, but to encourage, their outside 
counsel to participate in pro bono opportunities to negotiate 
affordable work-outs everywhere in this country.
    I am asking the Senate Judiciary Committee to help make 
this happen, and I am encouraging the Pennsylvania Bankers 
Association to endorse my proposal today.
    The second way you can help grow this pioneering project is 
to invest resources. First, we need money for the attorney 
experts who are providing valuable expertise and mentoring to 
VIP attorneys. Those experts are the legal services attorneys 
at Community Legal Services and Philadelphia Legal Assistance. 
Most of the VIP volunteers knew nothing about mortgage 
foreclosure until they came to a training led by CLS's Beth 
Goodell.
    Second, I want to endorse more funding for housing 
counselors who work hand-in-hand with our volunteers to help 
keep homeowners in their homes.
    Third, VIP wants to measure the success of this program, 
but frankly we do not have the expertise or the staff to do it. 
I request funding for an evaluation of the diversion project to 
be implemented by the Fels Institute of Government in 
collaboration with VIP and the Court of Common Pleas. VIP 
reached out to John Kromer, an expert in neighborhood recovery, 
from the--Fels Institute at the University of Pennsylvania to 
help us not only measure the impact of our work, but also to 
summarize and promote this effort nationally.
    Finally, VIP's management of this new initiative is a 
significant investment of time and resources on an already 
tight budget and overworked staff. With the 233 mortgage 
foreclosure clients, we have increased our capacity by over 50 
percent with no new staff.
    Please consider using some of the new money that was spoken 
of at yesterday's Senate Banking Committee hearing where 
Senator Casey was to support the Mortgage Foreclosure Diversion 
Project and to implement new projects across the country so 
other jurisdictions can benefit from Philadelphia's success.
    I conclude by applauding President Judge Darnell Jones and 
Judge Annette Rizzo for their extraordinary vision and hard 
work on this exceptional collaboration. Also, thanks so much to 
the amazing staff at the FJD, and to my colleagues on the 
Mortgage Foreclosure Steering Committee, including the lenders' 
representatives. Together we are doing groundbreaking work.
    Senator Specter. How much more time do you need?
    Ms. Seldin. That's it. I'm done.
    Senator Specter. Okay. Thank you.
    [The prepared statement of Ms. Seldin appears as a 
submission for the record.]
    Senator Specter. We now turn to Mr. John Dodds, Director of 
the Philadelphia Unemployment Project.
    Thank you for joining us, Mr. Dodds. We look forward to 
your testimony.

 STATEMENT OF JOHN DODDS, DIRECTOR, PHILADELPHIA UNEMPLOYMENT 
                            PROJECT

    Mr. Dodds. All right. I've been asked to be brief, so I 
will be brief.
    This program has really made a difference for homeowners in 
the city of Philadelphia. Our organization has been doing these 
cases since the inception. Just real briefly, of 55 cases that 
we have handled since back in June, 27 of those have had their 
mortgages modified, 13 have had the modification in process, 
which is 73 percent of these homeowners that have programs--
modified loans.
    These are all homeowners who were severely behind on their 
mortgages, were already scheduled for sheriff's sales, so we 
think that's a fairly incredible solution but it will be 
difficult to become a national model. The only concern that we 
have is that the interests of the servicers of the loans are 
not the same as the interests of the investors or the 
homeowners. Very often, financially, they do not have that same 
financial interest.
    I think what's key, and I think Sheila Bair from the FDIC 
is starting to talk about this, is that we somehow step in and 
do the modifying of these loans. If we're going to go to a 
national program, I don't think the services are set up to 
handle the volume we'll have. I think we really need the 
government to take a step to say that it's in the interest of 
the investors of the financial institutions, of the families, 
and the homeowners to have performing loans.
    It's very unlikely that with the current situation with 
loan servicers in this country that that will happen. It's 
working in Philadelphia because we're the first, but I don't 
know that it'll happen nationally. I think it's very important 
that the Congress and the government find a way to modify these 
loans, make them performing loans that work for everybody. 
That's going to be a step that we need to take beyond the 
current program. So, I thank you very much.
    Senator Specter. Well, thank you very much, Mr. Dodds.
    [The prepared statement of Mr. Dodds appears as a 
submission for the record.]
    Senator Specter. We now turn to Mr. Michael White from the 
Pennsylvania Bankers Association.
    Mr. White.

  STATEMENT OF MICHAEL WHITE, PENNSYLVANIA BANKERS ASSOCIATION

    Mr. White. Thank you, Senator Specter and Senator Casey, 
for this opportunity to meet with you today. My name is Michael 
White. I'm a senior vice president at VIS Financial, a 
financial services company that does bank insurance investment 
and mortgage services, based in Wyomissing, Berk's County, 
Pennsylvania. I'm here today in my capacity as a member of the 
Pennsylvania Bankers Association's Credit Access Task Force 
Committee.
    The PBA's members include 186 commercial banks, savings 
institutions, trust companies, and their affiliates in 
Pennsylvania, from the smallest to the largest. Elected 
officials, regulators, lawyers, financial institutions, and 
homeowners share a common goal in preventing home mortgage 
foreclosure wherever possible.
    Effective home mortgage foreclosure prevention starts long 
before a homeowner ever misses a single payment. In fact, it 
starts long before a home is purchased. Home buyer and 
financial education are key components to any mortgage 
foreclosure plan. Many loan programs that require home buyer 
education have seen favorable results in reducing mortgage 
delinquency.
    As a member of the board of directors of Neighborhood 
Housing Services of Reading, I have seen firsthand the benefits 
of budget counseling. October 16th was ``Get Smart About Credit 
Day''. Twenty-five hundred bankers visited schools across our 
Nation to teach credit management skills to elementary and 
secondary students.
    Since 2003, over 400,000 students have been reached through 
this volunteer banker program. Bankers invest their time to 
educate kids because we firmly believe that good credit 
management is best learned early in life. That being said, the 
values of living within one's means, guarding assets, and 
saving for the future are best exemplified at home.
    Other witnesses have outlined foreclosure prevention from 
their perspective as judges, attorneys, government 
administrators, and housing advocates in their communities. I 
speak from my 23 years as a commercial bank mortgage lender. I 
lend through federally and State regulated financial 
institutions. My institution and other members of the PBA are 
highly regulated and examined at either the State and Federal 
levels. Strong and solvent banks are critical to the health of 
our local communities. Bank officers and employees live where 
they work.
    The banking industry has every incentive to treat our 
customers and our communities well, and has absolutely no 
reason to do otherwise. As commercial banks and savings 
institutions, we depend on our customers' financial well-being. 
Risky lending or mistreatment of borrowers would expose us to 
negative scrutiny not only from our regulatory agencies, but 
also from our shareholders and the communities in which we 
operate.
    My institution is not a mortgage loan investor in the sense 
some investment banks were, nor are we a stand-alone mortgage 
loan company or broker. Non-bank lender-brokers or investors 
are primarily interested in selling mortgages to generate fees 
or commission and that has differed markedly from commercial 
banks and savings institutions.
    Bankers understand that some of our borrowers will face 
tough financial times and need our assistance working through 
them. If there's one message I could leave here today, it's 
that homeowners who foresee difficulty coming their way must 
contact their lenders immediately.
    If they wait until they have missed one or more payments, 
their lenders' ability to help them has been greatly 
diminished. Some lenders will reach out to customers even prior 
to the assessment of late charges, while most lenders will make 
contact by phone and mail upon payments exceeding the grace 
period, which is typically only 15 days. Reputable lenders such 
as PBA members are anxious to work with their troubled 
borrowers to avoid foreclosure and will actively continue to 
attempt contacting the borrower through available avenues.
    Those customers that have made contact and responded to 
lenders will often begin the process of evaluation of their 
particular situation and potential solutions. Some strategies 
that banks use are skipping payments, extending payments, 
accepting reduced payments, refinancing the current loan, 
modifying the current loan rate, or terms.
    In addition, an additional solution to avoiding foreclosure 
may be the liquidation of the home. Although we would always 
prefer to keep the homeowner in the property, there are 
situations where selling the property and benefiting from the 
equity do make sense. Most lenders will work with borrowers who 
are actively attempting to market their homes in an effort to 
satisfy their mortgage.
    If the home value exceeds the amount remaining due on the 
mortgage, the homeowner may want to ask the lender to agree in 
writing not to seek further collection remedies and grant a 
reasonable period of time to find alternative housing and 
vacate the premises in an orderly fashion. Some lenders may be 
able to work out an orderly exit, even where proceeds of the 
sale will not cover the amount of the remaining mortgage.
    There is other assistance available. Borrowers who 
anticipate payment issues can also work with reputable local 
credit counseling organizations. Pennsylvania Housing Finance 
Agency is here today and discussed the longstanding and highly 
regarded state-wide Homeowners Emergency Mortgage Assistance 
Program, known as HEMAP, which can provide relief for many 
homeowners.
    A newly launched--
    Senator Specter. Mr. White, how much more time will you 
need?
    Mr. White. Thirty seconds. The newly launched Hope for 
Homeowners program, which was created by Congress to help those 
at risk of foreclosure to refinance into more affordable, 
sustainable loans, is also available.
    Although mortgage foreclosure is a bank's last source for 
repayment of a loan, banks would prefer to work toward a 
solution that avoids the foreclosure process. That said, banks 
also have an obligation to follow safety and soundness 
regulations and make attempts to limit their losses that may 
negatively impact the institution, its depositors, and 
shareholders.
    Foreclosures not only affect borrowers and lenders, but 
also the community. It is in everyone's best interests to have 
a program that provides an equitable solution for all parties 
in a cost-effective and expeditious timeframe.
    Thank you very much for the opportunity to appear before 
you today to share the banking industry's perspective on this 
critical issue, and I stand ready to answer any questions you 
may have regarding my testimony. Thank you.
    Senator Specter. Thank you, Mr. White.
    [The prepared statement of Mr. White appears as a 
submission for the record.]
    Senator Specter. Our final witness is Mr. Hiram Carmona, 
Assistant Contract Administrator, Housing Counseling, for the 
city. Thank you for being here today. The floor is yours.

 STATEMENT OF HIRAM CARMONA, ASSISTANT CONTRACT ADMINISTRATOR, 
            HOUSING COUNSELING, CITY OF PHILADELPHIA

    Mr. Carmona. Good morning, Senator Specter, Senator Casey, 
and members of the audience. My name is Hiram Carmona and I 
oversee the city of Philadelphia's Housing Counseling program.
    I want to talk briefly about the costs associated with this 
program and the resources that the city has put into it. First 
of all, as you may know, the city of Philadelphia funds the 
largest and longest-standing housing counseling program in the 
Nation, for over 30 years. This year, the city supports 29 
housing counseling agencies, with $3.6 million of CDBG funds. 
In order to meet the additional number of homeowners facing 
foreclosure, we have put an additional $700,000 of City funds 
into the housing counseling program, for a total of $4.3 
million. Even though we might think that's a lot of money, to 
tell you the truth, we need more.
    The city of Philadelphia has established a hotline. It's 
called ``Save Your Home, Philly'' hotline, which is managed by 
the Philadelphia Legal Assistance Corporation. The number of 
the hotline is 215-334-HOME. It's an easy number to remember. 
We have put additional resources to fund the hotline--the way 
that the program works, homeowners will get letters from the 
court telling the homeowners to contact the hotline. Homeowners 
must contact the hotline. They will get an appointment with the 
housing counselor. The housing counselor then will meet with 
the client and they both attend a conciliation conference. So, 
the hotline is a crucial part of the whole program.
    Another important part of the program is the outreach. The 
City has been able to do outreach through our Neighborhood 
Advisory Committees--we call them NACs--through housing 
counseling agencies, and other City agencies. The outreach 
program has been very successful in making sure that homeowners 
attend the conferences. In fact, we did a comparison of the 
successes and we found that 73 percent of the people that are 
contacted door-to-door attend the conferences; 43 percent of 
those that were not contacted attend the conferences. So face-
to-face contact with the homeowner is definitely an important 
part of the program. We've heard some stories of all the 
successes, so I really don't want to get into it for lack of 
time. But in conclusion, I do want to recommend that the 
diversion program be replicated throughout the country.
    Now, on the resources for the diversion program, I want to 
say this, that unfortunately the Housing and Economic Recovery 
Act of 2008, as it stands now, cannot be looked upon to assist 
with the implementation of the programs throughout the country. 
I would recommend, and the city of Philadelphia would like to 
see, an amendment to the Act to allow funding for the 
implementation of diversion programs throughout the country.
    I know that Judge Rizzo mentioned over 200 home have been 
saved. We had 4 days of conferences last week. We had another 
day of conference yesterday. It's over 300 homes saved since 
the inception of the program. Just to let you know, the crucial 
role that housing counselors have with the program, we have 
over 700 cases still being negotiated. So the housing 
counselors are doing a lot of work and that's how we're going 
to make the program successful. We just want to make sure that 
we replicate it. I would ask you to provide funding to 
replicate this throughout our great Nation.
    Thank you.
    Senator Specter. Thank you very much, Mr. Carmona.
    [The prepared statement of Mr. Carmona appears as a 
submission for the record.]
    Senator Specter. President Judge Jones, we will now turn to 
the questioning by Senator Casey and myself. We will have 5 
minutes as well.
    President Judge Jones. Yes, sir.
    Senator Specter. The suggestion was made by Councilman 
Jones about having a national moratorium legislated by 
Congress. I think Congress does have the authority to do that. 
But the question that Councilman Jones raises in my mind is as 
to whether it's better to have an act that came out of 
Washington or to rely upon State governments where States may 
have different kinds of problems, or even beyond that, to rely 
on innovative programs like the one which was initiated here in 
Common Pleas Court. What do you think?
    President Judge Jones. Well, initially, Senator, it has 
been our experience--and I say ``our'' meaning Judge Rizzo and 
myself--that we would not want to interfere with the 
contractual relationship between parties, recognizing that the 
mortgage is a contract, on a scale that would allow or would 
encourage the undermining of the intent of the two entities to 
bargain for a mortgage.
    That having been said, to me it is most important that the 
local municipalities and the State-level governments be 
sufficiently funded to be able to implement the kind of program 
that we have, and we know, frankly, by reason of our budgets 
here in the city of Philadelphia, and perhaps the one state-
wide, we simply don't have enough money to be able to do that. 
That's why I think there's a call upon the Federal Government 
to put some funds into this process.
    But in terms of control, I, frankly, think that no one 
knows better what needs to be done than those of us who are at 
the local level.
    Senator Specter. Judge Rizzo, a big issue has been bringing 
the homeowners to the table. They're inundated with letters, 
documents, and legal papers in a very, very confused state.
    What is the best way to approach this? To what extent have 
you structured proactive matters so that people like Mr. Gould 
and other counseling services, Ms. Seldin, will go out and look 
for them and sort of bang on their doors, to grab them by the 
scruff of their neck and bring them in to help them help 
themselves?
    Judge Rizzo. Well, in that situation I think there's been a 
description of the process. To get the people in the chute, the 
outreach is critical. I call it hand-to-hand combat, people 
going into neighborhoods, knocking on the door, handing a cell 
phone to a homeowner that--
    Senator Specter. In a lot of neighborhoods, it is hand-to-
hand combat. How about that?
    Judge Rizzo. I can tell you, that's right. But we 
appreciate the fact that when people come in befuddled and 
hopeless on many occasions, we have an infrastructure that can 
address those issues through our wonderful housing counselors, 
through our Community Legal Services groups, and other 
volunteer lawyers. But we have to get them there. That's my 
point: build it and they will come.
    We have to do the outreach that actually gets the process 
started, and it's one of education and hopefulness that may 
lead to some success of them remaining in the home, or, as I 
may affectionately say, a graceful exit, where there is control 
of how they will leave the property in a dignified manner and 
then have to look forward to what that next phase will be in 
terms of their living relationship. In many respects, Senator, 
I call that a success as well.
    Senator Specter. Councilman Jones, there has been a concern 
about predatory lending practices, people being loaned money 
which they cannot afford to repay. The bankers have not been 
concerned to get a down payment, at least to some extent, to go 
through the financial status of the individual with other 
obligations to see to it that they can make the payments. 
Bankers have relied upon the guarantees of Fannie Mae and 
Freddie Mac.
    To what extent do you think that this has arisen because of 
over-reaching by the lenders?
    Councilman Jones. Well, clearly, I think I wouldn't say 
either party was trying to be overtly predatory. It's by virtue 
of rate of return that people saw an opportunity, where people 
had bad credit, they could charge more, and took advantage of 
that in a business model.
    Where we are now, however, is where can we get to a win-win 
scenario. When you mentioned about the moratorium on the 
sheriff's sale, what that moratorium did was bring all parties 
to the table. That is why we suggested that maybe a national 
moratorium--and also, Senator Obama agrees with that notion and 
has said it publicly, because what it does is get all parties 
to the table earnestly to work it out. So no matter how we got 
there, it will take good will to work it out. That's what I 
hope to do, whether at a Federal level or at local levels' 
discretion.
    Senator Specter. Before turning to Senator Casey, on the 
same question, Mr. White, I appreciated your comments about 
education, letting people have information and instruction as 
to what is realistic. What do you suggest should be done in the 
future to guard against even the semblance of a predatory 
practice, where the lenders--and you represent lenders--would 
be under some sort of a code, or perhaps even a statutory 
obligation, to see to it that the borrowers are counseled so 
that they know what the realism is on repaying the loans.
    Mr. White. Yes. I think that there are several programs out 
there that have home buyer education required based on either 
credit level, income level. As I say, my work with Neighborhood 
Housing Services, which we work with low-and moderate-income 
people, our delinquency rate is less than 1 percent because of 
home buyer education and specific financial budget counseling.
    Senator Specter. If yours is less than 1 percent, where are 
these foreclosures coming from?
    Mr. White. Well, that's just for the loans in Neighborhood 
Housing Services of Reading. That's a fairly small pool of 
loans. Obviously, the foreclosures are coming from a national 
level. But we have found that education has definitely made an 
impact on the performance of loans, at what level that's going 
to be implemented.
    A lot of the credit criteria have been established by, and 
are established by, the GSEs, so Freddie, Fannie are 
establishing the credit criteria under which most of the 
lenders operate, even in the conforming sector. Those credit 
criteria may have to tighten up, and a component of that I 
would recommend would be the educational criteria.
    Senator Specter. Senator Casey.
    Senator Casey. Thank you very much. I was listening to 
Judge Rizzo and was reminded of the day we were here for the 
roundtable in August. We had a roundtable, which was very 
productive. We had people from all over the State. Then we went 
across the hall, or on to a different floor. We went into a 
courtroom. Judge Jones, I'm not sure what courtroom that was, 
but it was yours. So we went in and I was watching this program 
live. I mean, with all the intensity of courtrooms across the 
country, except a lot more people gathered in that courtroom.
    The reason I'm telling the story, to give you a sense of 
the intensity, I was in the back, or to the side of the room. I 
sat down, or I was standing there--I forget which--and there 
was a counselor, I think, there. She was very intense about her 
work. She wanted to make sure that they had a modification and 
had it coming together. I was standing there. She looked at me 
and said, ``Sir, I have a counseling session going on here. 
Please move.''
    [Laughter.]
    Senator Casey. So it gives you a sense of the intensity of 
that effort. That's good news. I didn't mind being shoved aside 
for the good of the order.
    But I wanted to get a sense of the numbers. My numbers--I 
want to read this so I get it right. Judge Rizzo and Judge 
Jones can correct me if I'm wrong. But to date, nearly 230 
properties have been saved from sheriff's sale, and an 
additional 200 properties have been postponed after 
conciliation conferences due to reasons--and then it lists the 
reasons. Is that right, the numbers that I--
    Judge Rizzo. Basically, going through September--we didn't 
crunch our numbers yet for October--of the 1,500 homes, 230 we 
note as being saved outright by having the sheriff's sale 
stayed.
    Senator Casey. Two hundred thirty out of 1,500?
    Judge Rizzo. No, it's more reduced. It was the people who 
came in, which would be another 700; 230 were saved, but 
another 330 homeowners were permitted to remain in the 
household because postponements were by agreement of lenders to 
have a window of time in which further loan modifications or 
other agreements could be worked out. They could be forbearance 
agreements. They could be forgiveness for a brief period of 
time.
    What we found in these conciliation conferences is that, on 
a micro basis, again, creative ideas are brought forward that 
really are pertinent to this particular home situation. So, 
various things are crafted, whether it's a down payment and 
then there's, say, a lapse of a couple of months before they 
catch up, or waiting for certain benefits which would kick in 
for the certain homeowners. So, creativity abounds. But we do 
consider homeowners who have postponements of sale as a success 
and an opportunity to give time to work things out.
    Senator Casey. A really simple thing for me, and I think 
for others who aren't as involved in the work day to do, what 
percent would you categorize as successful? I realize that's a 
broad term. But can you put a number on that, an estimate?
    Judge Rizzo. Well, I believe, Senator Specter, in your 
outreach letter to the other jurisdictions, to president 
judges, for which we're ever grateful, it's a figure of 
approximately 80 percent. That figure constitutes success in 
various forms. Of the homeowners who availed themselves of the 
program--we did have those who failed to appear for whatever 
reason, had vacated the property, gave up hope, or did not 
avail themselves for whatever reason or follow through--those 
numbers reflect an average of approximately 80 percent, 78 
percent, who have gotten some success from the program of 
either outright sale, loan modification, or postponement so 
that deals could be worked out. There is that small percentage 
as well, which I mentioned, of graceful exit, which I do see as 
a success in situations which really means that the person has 
got to move on.
    One, in particular I think of, there were two disabled 
adults in the property. The lender gave a significant amount of 
time in which they had to vacate, and also provided $4,000 in 
moving costs for them, to assist them in that graceful exit 
with dignity and compassion.
    Senator Casey. I couldn't help but note in the testimony, 
the word kept coming back over, and over, and over again, and 
I'm glad it did because it's getting to the point: counselors, 
or counseling. Counseling, counseling, counseling. It's so 
successful across the country.
    I was one of the leaders in the Senate to insist upon 
getting $180 million of Federal money that's already been 
spent. I think it was spent this spring. We got another $150 
million. We've got to keep getting money, tens, if not hundreds 
of millions more, for counseling because it works. It's a good 
an expenditure of taxpayer money as you can think of to keep 
people in their homes. The Treasury Department told us that 
even in the subprime context, if you get counseling even in 
subprime, don't have a problem. So for those who are making 
policy in this country, whether it's us in the Senate, whether 
it's the House, or whether it's State government or municipal 
government, counseling dollars work real well. Councilman 
Jones, I appreciate the fact that you've been an advocate for 
that, as well as Councilwoman Tasco, and so many others who 
have pushed hard on this.
    Finally, my time is up, but I wanted to to commend--I won't 
ask them a question, but I did want to commend the people who 
were here giving personal witness. You are courageous to be 
here and to tell your own stories. I want to make sure I got 
all the names right: Jean is here, We met Jean in August. Eric, 
Deborah, Tania, and Cynthia. Anyone else? Any first name that I 
missed?
    [No response].
    Senator Casey. Thank you very much for your personal 
witness and telling your own stories.
    Senator Specter. Thank you, Senator Casey. I believe that 
you're really on to something here, Judge Jones, Judge Rizzo. 
We appreciate your coming in. I think Senator Casey is exactly 
right. When we've heard from the people who have gone through 
the process, the expression is widely used, it puts a human 
face on the nature of the problem. We are wrestling with this 
at the national level.
    Senator Casey is on key committees, Banking and Housing & 
Urban Development, and I'm on the Judiciary and Appropriations. 
The proposals that we're talking about now to have the FDIC or 
the Federal Government come in and guarantee mortgages, I have 
some doubt about because it just may encourage what happened 
before with the guarantees of Fannie Mae and Freddie Mac, where 
people didn't take the individual responsibility, as you are 
doing here. You're putting the people who loaned the money and 
the people who borrowed the money into a room and you're trying 
to work it out.
    If the Federal Government is going to solve all the 
problems by saying we'll take care of it, there is no incentive 
to try to work it out. There may be, and doubtless are, some 
cases where you can't quite close the gap. It's very close, but 
you can't quite close the gap. Now, there, I think the Federal 
Government has a role. But I believe we ought to operate out of 
Washington only as a last resort.
    We are all concerned about the national debt and the 
deficit, but we put greater emphasis on the daily problems of 
people being ousted from their homes, evicted, just very, very 
seriously. So we thank you for what you're doing here. I am 
enormously impressed with all the inquiries that have come to 
you from all over the country. Senator Casey and I can give it 
some greater publicity. There are people here from Financial 
Times in London, I understand, Reuter's, and--like dropping a 
pebble in a pond and it spreads out. It's really very 
encouraging to see this kind of innovation coming from this 
courthouse and our State.
    Senator Casey, closing comments?
    Senator Casey. Very briefly. I want to thank Senator 
Specter for bringing the Judiciary Committee to Philadelphia 
for this critically important issue to our Commonwealth and our 
country.
    [Applause.]
    Senator Casey. I do want to thank Judge Jones and Judge 
Rizzo for having us here in this courtroom, and all of our 
witnesses.
    [Applause.]
    Senator Casey. Judge Rizzo, you had mentioned, and I failed 
to mention in my opening comments when I was summarizing all of 
the parties that are represented here, and I probably missed 
some, but I failed to mention Sheriff Green and his early 
leadership on this. We are grateful for his work.
    We have a long way to go, but today it is clear that a lot 
of the good ideas come from communities across the country. All 
the answers are not, everyone knows, in Washington. So we're 
grateful to be here to learn more and to hope that this becomes 
the model for the rest of the country. We're going to work hard 
to make it so.
    Thank you very much.
    [Applause.]
    Senator Specter. Thank you very much. That concludes the 
hearing.
    [Whereupon, at 11:36 a.m. the hearing was adjourned.]
    [Submissions for the record follows.]

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