    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

                           LEGISLATIVE SOLUTIONS FOR
                          PREVENTING LOAN MODIFICATION
                          AND FORECLOSURE RESCUE FRAUD

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

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                       HOUSING AND COMMUNITY OPPORTUNITY

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  MAY 6, 2009

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 111-28

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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                     BARNEY FRANK, Massachusetts, Chairman

    PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
    MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
    CAROLYN B. MALONEY, New York         PETER T. KING, New York
    LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
    NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
    MELVIN L. WATT, North Carolina       RON PAUL, Texas
    GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
    BRAD SHERMAN, California             WALTER B. JONES, Jr., North
    GREGORY W. MEEKS, New York               Carolina
    DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
    MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
    RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West
    WM. LACY CLAY, Missouri                  Virginia
    CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
    JOE BACA, California                 SCOTT GARRETT, New Jersey
    STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
    BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
    DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
    AL GREEN, Texas                      TOM PRICE, Georgia
    EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
    MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
    GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
    PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
    KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
    RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
    CHARLES A. WILSON, Ohio              KEVIN McCARTHY, California
    ED PERLMUTTER, Colorado              BILL POSEY, Florida
    JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
    BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
    ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
    JACKIE SPEIER, California            LEONARD LANCE, New Jersey
    TRAVIS CHILDERS, Mississippi
    WALT MINNICK, Idaho
    JOHN ADLER, New Jersey
    MARY JO KILROY, Ohio
    STEVE DRIEHAUS, Ohio
    SUZANNE KOSMAS, Florida
    ALAN GRAYSON, Florida
    JIM HIMES, Connecticut
    GARY PETERS, Michigan
    DAN MAFFEI, New York

            Jeanne M. Roslanowick, Staff Director and Chief Counsel
               Subcommittee on Housing and Community Opportunity

                     MAXINE WATERS, California, Chairwoman

    NYDIA M. VELAZQUEZ, New York         SHELLEY MOORE CAPITO, West
    STEPHEN F. LYNCH, Massachusetts          Virginia
    EMANUEL CLEAVER, Missouri            THADDEUS G. McCOTTER, Michigan
    AL GREEN, Texas                      JUDY BIGGERT, Illinois
    WM. LACY CLAY, Missouri              GARY G. MILLER, California
    KEITH ELLISON, Minnesota             RANDY NEUGEBAUER, Texas
    JOE DONNELLY, Indiana                WALTER B. JONES, Jr., North
    MICHAEL E. CAPUANO, Massachusetts        Carolina
    PAUL E. KANJORSKI, Pennsylvania      ADAM PUTNAM, Florida
    LUIS V. GUTIERREZ, Illinois          KENNY MARCHANT, Texas
    STEVE DRIEHAUS, Ohio                 LYNN JENKINS, Kansas
    MARY JO KILROY, Ohio                 CHRISTOPHER LEE, New York
    JIM HIMES, Connecticut
    DAN MAFFEI, New York

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        May 6, 2009..................................................     1
    Appendix:
        May 6, 2009..................................................    37

                                   WITNESSES
                             Wednesday, May 6, 2009

    Anderson, John W., Vice Chair, Federal Housing Policy Committee,
      National Association of Realtors (NAR).........................    26
    Coakley, Hon. Martha, Attorney General, Commonwealth of
      Massachusetts..................................................     7
    Drexel, Scott J., Chief Trial Counsel, The State Bar of
      California.....................................................    22
    Freis, James H., Jr., Director, Financial Crimes Enforcement
      Network (FinCEN), U.S. Department of the Treasury..............     4
    Saunders, Lauren, Managing Attorney, National Consumer Law Center    20
    Story, Robert E., Jr., Chairman-Elect, Mortgage Bankers
      Association (MBA)..............................................    24
    Twohig, Peggy, Associate Director, Division of Financial
      Practices, Bureau of Consumer Protection, Federal Trade
      Commission (FTC)...............................................     5

                                    APPENDIX

    Prepared statements:
        Anderson, John W.............................................    38
        Coakley, Hon. Martha.........................................    49
        Drexel, Scott J..............................................    57
        Freis, James H., Jr..........................................    66
        Saunders, Lauren.............................................    75
        Story, Robert E., Jr.........................................    98
        Twohig, Peggy................................................   104

                  Additional Material Submitted for the Record

    Waters, Hon. Maxine:
        Written responses to questions submitted to John W. Anderson.   117
        Written responses to questions submitted to Hon. Martha
          Coakley....................................................   120
        Written responses to questions submitted to Scott J. Drexel..   126
        Written responses to questions submitted to James H. Freis,
          Jr.........................................................   131
        Written responses to questions submitted to Lauren Saunders..   138
        Written responses to questions submitted to Peggy Twohig.....   145
    Capito, Hon. Shelley Moore:
        Written statement of Florida Attorney General Bill McCollum..   153

                           LEGISLATIVE SOLUTIONS FOR
                          PREVENTING LOAN MODIFICATION
                          AND FORECLOSURE RESCUE FRAUD

                                  ----------

                             Wednesday, May 6, 2009

                 U.S. House of Representatives,
                            Subcommittee on Housing and
                                 Community Opportunity,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 10:03 a.m., in
    room 2128, Rayburn House Office Building, Hon. Maxine Waters
    [chairwoman of the subcommittee] presiding.
        Members present: Representatives Waters, Lynch, Cleaver,
    Green, Ellison, Driehaus, Himes, Maffei; Capito, Jones, Putnam,
    Jenkins, and Lee.
        Also present: Representative Moore of Wisconsin.
        Chairwoman Waters. This hearing of the Subcommittee on
    Housing and Community Opportunity will come to order. Good
    morning, ladies and gentleman. I would like to thank our
    ranking member, Shelley Moore Capito, and the other members of
    the Subcommittee on Housing and Community Opportunity, for
    joining me today at this hearing entitled, ``Legislative
    Solutions for Preventing Loan Modification and Foreclosure
    Rescue Fraud.''
        I believe that this hearing is critical, given the
    emergence of a new type of criminal actor in the housing
    market, at a time when the U.S. economy is still reeling from
    subprime meltdown. We are witnessing homeowners being taken
    advantage of by predators claiming they can modify their loans
    or prevent foreclosure.
        Today's hearing will help identify legislative solutions to
    put an end to loan modification and foreclosure rescue fraud.
    These scam artists portray themselves as foreclosure
    consultants, and offer to rescue or help struggling homeowners
    stay in their homes through aggressive marketing campaigns. For
    a fee, these individuals or entities promise to help save homes
    from foreclosure, but either charge an excessive fee for
    services that can be obtained for free by a qualified nonprofit
    counseling agency, or deliver little or nothing for the money
    received.
        In addition, loan modification consultants are also
    entering the market, claiming to have established relationships
    in the mortgage industry which will enable them to negotiate
    better loan modification terms than borrowers could do for
    themselves. They can charge as much as 2 percent of the loan
    amount to negotiate with the homeowner's market servicer, but
    often deliver either nothing or a higher payment than the
    homeowner was paying before contacting these companies. These
    companies often use terms such as ``Federal,'' to mislead
    borrowers into thinking they are official U.S. programs.
        In response to this growing crisis, Federal agencies have
    begun to take action. Earlier this month, Treasury Secretary
    Timothy Geithner announced the establishment of the multi-
    agency task force to address foreclosure rescue and loan
    modification fraud, including the Department of Justice, HUD,
    and the FTC, State investigators and prosecutors, civil
    enforcement authorities, and the private sector.
        States have also taken action to protect their citizens and
    stop these criminal actors. I commend those States that are
    aggressively addressing foreclosure rescue scams. For example,
    earlier this month, Massachusetts Attorney General, the
    Honorable Martha Coakley, a witness on our first panel, filed
    lawsuits against four individuals claiming to be loss
    mitigation specialists who were falsely claiming to be 1 of 14
    firms recruited by the government to provide foreclosure
    prevention services.
        Although a number of States have enacted foreclosure rescue
    fraud statutes that would prohibit advanced fees and/or require
    written contracts for all foreclosure-related services, many of
    these statutes exempt attorneys or real estate brokers. Because
    attorneys are allowed to charge up-front fees, fraudulent loan
    modification companies contract with law firms to use their
    name. For example, the Federal Loan Modification Law Center was
    able to skirt California law by contracting with lawyers so
    they could receive up-front fees.
        During the Financial Services Committee mark-up of H.R.
    1728, the Mortgage Reform and Anti-Predatory Lending Act, I
    worked with Congresswoman Gwen Moore on an amendment she
    authored and withdrew, which was similar to her bill, H.R.
    1231, the Foreclosure Rescue Fraud Act of 2009, that would
    prevent the practices of foreclosure consultants such as
    charging up-front fees for services, acquiring interest in the
    property, or receiving a lien on the property.
        In addition, Ms. Moore's amendment renewed the exemption
    for attorneys, except for those filing non-frivolous bankruptcy
    petitions or proceedings to prevent a foreclosure.
        As this bill moves through Congress, we want to make sure
    that it will effectively put a stop to the deceptive practices
    of foreclosure rescue and loan modification scam artists. That
    is why this hearing is so important today.
        Again, I look forward to hearing the witnesses' views on
    this very important issue, and I would now like to recognize
    Ranking Member Capito for her opening statement.
        Mrs. Capito. Thank you. I would like to thank Chairwoman
    Waters for recognizing me. I would also like to ask unanimous
    consent to submit for the record the written testimony of
    Florida Attorney General Bill McCollum on this very topic.
        Chairwoman Waters. Without objection, it is so ordered.
        Mrs. Capito. Thank you. While many Americans across the
    Nation continue to struggle with meeting their obligations,
    there are those in our society, unfortunately, who are taking
    advantage of families who are already stressed, which I believe
    is unacceptable. The actions of these unscrupulous individuals
    are an example of the worst in human nature, and they should be
    held to the most stringent criminal procedures and penalties.
        According to the Mortgage Bankers Association, in the most
    recent national delinquency survey a record number of borrowers
    are delinquent on their mortgages, and entering foreclosure.
    Given the recent uptick in distressed borrowers facing
    delinquency, borrowers often--some borrowers have fallen victim
    to foreclosure prevention and loan modification fraud scams.
        On February 10, 2009, the Treasury Secretary announced a
    series of plans intended to help struggling homeowners. As a
    follow-up to increased reports of fraud, on April 6, 2009, the
    U.S. Department of the Treasury's Financial Crimes Enforcement
    Network, FinCEN, issued guidance to financial institutions on
    filing suspicious activity reports regarding loan modification
    foreclosure rescue scams.
        In addition, States like Florida--as the chairwoman noted--
    Nevada, California, Illinois, Maryland, and Minnesota have all
    taken action to combat mortgage and foreclosure assistance
    fraud.
        Following the FinCEN announcement of guidance on April 6th,
    the regulators must continue to utilize existing authority to
    protect consumers, and maintain the safety and soundness of
    home financing.
        One key aspect that will aid in this are the national
    licensing standards and registration database for all mortgage
    originators that was signed into law last year. This will help
    in preventing bad actors from preying on borrowers and
    homeowners by providing greater accountability and
    professionalism in the industry. But it is critical that
    Congress exercise rigorous oversight to ensure these abusive
    practices are halted, and those responsible for carrying them
    out are punished.
        I would like to thank the chairwoman for holding this
    hearing. I would also like to thank Ms. Moore for offering her
    legislative proposal on foreclosure, H.R. 1231. I look forward
    to hearing from our witnesses, and learning their thoughts on
    how Congress and regulators can prevent further abuse and
    fraud.
        And I yield back. Thank you.
        Chairwoman Waters. Thank you very much.
        Mr. Lee?
        Mr. Lee. I do not have an opening statement.
        Chairwoman Waters. No opening statement? Thank you very
    much. Then we will go right to our panel.
        Our first witness will be Mr. James Freis, Director of the
    Financial Crimes Enforcement Network at the U.S. Department of
    the Treasury.
        Our second witness will be Ms. Peggy--I think that's
    Twohig--when you come, you can correct me--Associate Director
    in the Division of Financial Practices at the Bureau of
    Consumer Protection at the Federal Trade Commission.
        And our third witness will be the Honorable Martha Coakley,
    attorney general of Massachusetts.
        Would you please come forward? There we are. Thank you very
    much. And, Ms. Peggy Twohig, would you please tell me the
    correct pronunciation of your name?
        Ms. Twohig. ``Twohig.''
        Chairwoman Waters. ``Twohig?'' All right. Thank you. We
    will start with Mr. ``Freis,'' is it? Is that the correct
    pronunciation?
        Mr. Freis. That is correct.
        Chairwoman Waters. Thank you.

     STATEMENT OF JAMES H. FREIS, JR., DIRECTOR, FINANCIAL CRIMES
     ENFORCEMENT NETWORK (FinCEN), U.S. DEPARTMENT OF THE TREASURY

        Mr. Freis. Good morning. Chairwoman Waters, Ranking Member
    Capito, and distinguished members of the subcommittee, I am Jim
    Freis, the Director of FinCEN. I appreciate the opportunity to
    appear before you today to discuss our work in combating
    mortgage loan fraud, and our role in the Administration's
    efforts to address the current foreclosure rescue fraud
    problem.
        FinCEN has unique authorities to make contributions to this
    regard. Congress placed us at the intersection of law
    enforcement and the regulatory communities, as well as the
    financial industry. FinCEN's basic purpose is to safeguard the
    financial system from the abuses of financial crime. Pursuant
    to the Bank Secrecy Act, FinCEN issues regulations, notably
    including requirements that financial institutions monitor for
    and report suspected fraudulent activity. FinCEN analyzes these
    suspicious activity reports, also known as SARs, in support of
    its regulatory and law enforcement functions.
        FinCEN first focused on analyzing trends and patterns
    related to mortgage fraud back in 2002. It has since become
    apparent that SAR data was a leading indicator that mortgage
    loan fraud was a serious escalating problem.
        In November 2006, FinCEN published the first in a series of
    analytical reports in an effort to provide the financial
    industry with red flag indicators that could help them protect
    their financial institutions and their customers from being
    victims of fraud. We greatly value our partnership with the
    financial industry to advance our shared goals of protecting
    against abuse of the financial system.
        Subsequent FinCEN mortgage fraud studies have focused on
    the role of complicit insiders, how fraud can be uncovered
    during foreclosures, and how criminal activity is
    interconnected, transcending multiple financial sectors.
        In addition to the published analytical reports, FinCEN
    provides both strategic and tactical support to Federal and
    State law enforcement and financial regulatory communities to
    investigate and prosecute fraud.
        FinCEN has a long history of supporting law enforcement
    efforts to root out fraud, waste, and abuse in government
    programs. Recently, FinCEN joined a multi-agency task force
    headed by the Special Inspector General for the Troubled Asset
    Relief Program, the SIGTARP, as part of a proactive initiative
    to deter, detect, and investigate instances of fraud in some of
    the Administration's programs under the financial stability
    plan.
        Broad new policy initiatives must be accompanied by
    increased vigilance to protect against criminal abuse that
    could undermine them. On April 6th, Secretary Geithner, along
    with Attorney General Holder, Secretary Donovan, FTC Chairman
    Leibowitz, and Illinois Attorney General Madigan announced a
    major inter-agency effort to combat foreclosure rescue scams.
    This included two specific FinCEN initiatives:
        First, FinCEN issued an advisory with red flags to help
    financial institutions spot and report questionable schemes
    that may indicate a loan modification or foreclosure rescue
    scam.
        Second, the Treasury Department announced an advanced
    targeting effort coordinated by FinCEN to combat fraudulent
    loan modification schemes. FinCEN is marshaling information
    from the financial industry and participating industries to
    identify possible loan modification fraud suspects, and to
    refer them to appropriate enforcement authorities for civil and
    criminal investigations.
        By serving as a networking and deconfliction center, FinCEN
    is also helping law enforcement agencies streamline and
    coordinate their efforts. While Federal criminal investigators
    and prosecutors are committed to pursuing the most egregious
    organized criminal actors, it is critical that we involve our
    State and local partners to avoid letting criminals slip below
    the radar screen.
        FinCEN can play a natural role here, through its
    relationships not only with all major Federal law enforcement
    agencies, but also FinCEN's longstanding support of law
    enforcement in all 50 States. Collectively, we must send a
    strong deterrence message to criminal opportunists tempted to
    prey upon struggling homeowners.
        On behalf of the just-over-300 men and women of FinCEN, we
    are proud to play our part in supporting the Administration's
    and the Treasury Department's broader efforts under the
    financial stability plan, including the Making Home Affordable
    programs.
        At least as important as our law enforcement efforts to
    hold criminals accountable, are efforts to prevent this illegal
    activity from happening in the first place. We can promote this
    goal by educating financial institutions and homeowners about
    risks and vulnerabilities and, where possible, using regulatory
    authorities to help mitigate risks.
        Thank you for raising awareness of this important issue. I
    am happy to answer your questions.
        [The prepared statement of Mr. Freis can be found on page
    66 of the appendix.]
        Chairwoman Waters. Thank you very much.
        Ms. Twohig?

      STATEMENT OF PEGGY TWOHIG, ASSOCIATE DIRECTOR, DIVISION OF
      FINANCIAL PRACTICES, BUREAU OF CONSUMER PROTECTION, FEDERAL
                         TRADE COMMISSION (FTC)

        Ms. Twohig. Chairwoman Waters, Ranking Member Capito, and
    members of the subcommittee, I am Peggy Twohig, Associate
    Director of the Division of Financial Practices at the Federal
    Trade Commission. I appreciate the opportunity to appear before
    you today to discuss the FTC's efforts to protect consumers
    from foreclosure rescue and loan modification scams.
        With the rapid increase in mortgage delinquencies and
    foreclosures, the Commission has intensified its efforts to
    halt the proliferation of, and to warn consumers about, these
    types of scams. Today, I will briefly describe the FTC's recent
    law enforcement, consumer education, and policy development
    efforts to protect financially distressed homeowners from
    mortgage relief scams.
        There are many varieties of mortgage relief scams. But, in
    most cases, the perpetrator makes misleading promises that they
    will be able to stop foreclosure or obtain a loan modification.
    These scams often share these characteristics.
        First, they use terms like ``guarantee,'' or ``97 percent
    success rate,'' to mislead consumers about their chances of
    getting what the company is promising.
        Second, they charge large up-front fees, as high as $1,000
    to several thousand dollars for these promised services.
        Third, after collecting the fee, they typically do little
    or nothing to help consumers obtain a loan modification or stop
    foreclosure.
        Some of these companies use copycat names, or look-alike
    Web sites to appear to be affiliated with a nonprofit or
    government entity when, in fact, they are not. The Commission's
    latest case illustrates this tactic. The FTC alleged that the
    Federal Loan Modification Law Center misrepresented, through
    its advertising, that they were affiliated with or endorsed by
    the United States Government. The Commission also alleged that
    they misrepresented that they could obtain a loan modification
    or stop foreclosure in all or virtually all instances.
        On April 24th, the court issued a preliminary injunction
    prohibiting the company from making misleading claims and
    collecting up-front fees. In a little over a year, the FTC has
    brought 11 cases targeting foreclosure rescue or loan
    modification scams. In our law enforcement program, we are
    working closely with other Federal agencies, such as FinCEN, as
    well as State law enforcers who are also actively pursuing
    these scams.
        In addition to its recent enforcement actions, the
    Commission announced a new consumer outreach and education
    initiative to reach homeowners directly, with the help of other
    government agencies, nonprofit organizations, and mortgage
    industry members. Through this initiative, homeowners are
    receiving materials, such as this flyer, about how to spot and
    avoid mortgage rescue scams.
        Most recently, the Commission provided mortgage servicers
    and others with an audio public service announcement from the
    FTC that they can use when consumers call. These announcements
    warn consumers about mortgage foreclosure scams, and provide
    tips on how to avoid them.
        The FTC also will be considering what rules are warranted
    to more comprehensively protect consumers in this marketplace.
        The Omnibus Appropriations Act of 2009 authorized the FTC
    to issue rules to prohibit unfair or deceptive practices with
    respect to mortgage loans. Using this new rule-making
    authority, the Commission intends to address unfair or
    deceptive practices by those selling mortgage loan modification
    or foreclosure rescue services. New Federal rules have the
    potential to greatly increase the protection the FTC can
    provide to financially distressed homeowners.
        In conclusion, the Commission is committed to protecting
    consumers throughout the credit life cycle, including
    preventing harm to the many American consumers who struggle
    with mortgage debt. And the FTC is employing all of its tools--
    enforcement, consumer and business outreach, and policy
    development--to protect consumers from mortgage relief scams.
        Thank you for the opportunity to testify at this hearing
    today.
        [The prepared statement of Ms. Twohig can be found on page
    104 of the appendix.]
        Chairwoman Waters. Thank you very much.
        Ms. Coakley, Attorney General Coakley? Thank you.

     STATEMENT OF THE HONORABLE MARTHA COAKLEY, ATTORNEY GENERAL,
                     COMMONWEALTH OF MASSACHUSETTS

        Ms. Coakley. Thank you. Good morning, Chairwoman Waters,
    Ranking Member Capito, and members of the subcommittee, my
    Federal colleagues here, this morning. I am Martha Coakley, and
    I serve as the attorney general of the Commonwealth of
    Massachusetts. I just want to note that my colleague in
    Florida, Attorney General McCollum, has been a leader on this
    issue, as have many of us at the State level, looking at the
    problems coming out of predatory lending.
        I appreciate the opportunity to testify this morning on
    H.R. 1231, and the important issue of protecting homeowners
    from fraud related to specifically loan modification and
    foreclosure rescue.
        While we have some concerns about H.R. 1231 as originally
    filed, we support the amendment offered by Congresswoman Gwen
    Moore, and we urge you to adopt it, so that consumers will be
    further protected from foreclosure rescue fraud.
        Let me note that it has been apparent to me that there are
    few times when homeowners will be more desperate or more
    vulnerable than when they are facing losing their homes, or it
    has already occurred. In fact, it is the reverse of the
    American dream, and it has been most unfortunate, and it
    continues.
        In Massachusetts, as in many parts of the country, we have
    experienced a dramatic surge in home mortgage foreclosures,
    due, in large measure, to unsound and predatory lending
    practices. Many foreclosures and delinquencies have resulted
    from loan practices and products that were, in fact, destined
    to fail, which is important to understand when you look at this
    crisis.
        In response to this situation, our office has sought
    accountability through regulation under our powers under
    chapter 93(a), through litigation, and other advocacy, both
    with our fellow attorneys general and with Federal partners.
        For instance, in June of 2007, our office enacted an
    emergency regulation under our chapter 93(a) for unfair and
    deceptive practices around foreclosure rescue schemes. We
    issued other regulations after hearing, but we felt that the
    issues around the kinds of schemes I'm going to discuss in a
    minute were so apparent that it was important to issue the
    emergency regulation.
        In addition, we have brought litigation around and against
    attorneys, brokers, and loan modification assistance companies
    who have preyed upon homeowners facing foreclosure. We have
    brought suits against subprime lenders who promoted and
    originated risky loans, and finally, against mortgage
    professionals who engaged in loan application fraud.
        For instance, our office filed suit against two major
    subprime lenders, Fremont Investment and Loan, Fremont General,
    and H&R Block, owned by Option One Mortgage Corporation, for
    predatory lending practices. In Option One we also brought a
    claim that minority borrowers were targeted for subprime
    lending.
        In both actions, we were able to obtain injunctions,
    injunctive relief, that restricted foreclosures on certain
    loans because of the specific combination of ultra-risky loan
    features and, most importantly, allowed us to essentially
    freeze those loans in time, so that they either had to be
    modified or come back before us before the holders were able to
    foreclose.
        That has been our goal--in addition to enforcement,
    obviously--is to try to seek loan modification. So it is most
    disturbing to see the kinds of fraud that have arisen around
    those people who are already in trouble, and who, once again,
    are victims of predatory action. We have seen an increase in
    that. We think it will continue.
        I want to just say we have seen two specific types of
    fraud. They include those who attempt to convince desperate
    homeowners to transfer ownership of their homes. That was
    really the first wave that we saw in 2006 and 2007, and really
    was our entree into looking at regulating predatory lending
    issues.
        The second, which is what we see more frequently now, those
    who charge up-front fees with faulty promises to help
    homeowners obtain loan modification, often with little or no
    qualifications to do so, or ability to do so. That first scheme
    claims to assist consumers facing foreclosure by promising
    replacement mortgage financing. Owners would turn over title to
    their home. They would essentially become renters in their own
    home, but then couldn't pay the rent either, and would be
    evicted. So they would lose not only their home, their equity,
    and any chance of recovery.
        More frequently, we have seen the fraudulent loan
    modification scheme that allows people, we believe, to make a
    quick profit by claiming to help consumers obtain loan
    modifications.
        It has been apparent to us that by issuing these
    regulations in our State, it has allowed us to give quick and
    effective relief, particularly because these practices now are
    known to be illegal, and so we believe it has had a deterrent
    effect. And when it has not, we have been able to act quickly
    in court, by seeking injunctive relief, which is really what is
    necessary in these situations.
        Particularly for the Federal legislation, we think that it
    will be effective to do it, and that Federal legislation will
    provide that kind of consistent Federal deterrent, as well as
    allow for State enforcement. The preemption issue is paramount
    for many of the attorneys general, and this allows us to
    continue to enforce our own State regulations, as well as this
    one.
        We believe that many of the features of this would be very
    effective in the issues that we have seen. And so, we support
    it. We think it's particularly important that you not exempt
    brokers and attorneys. Many of the schemes that we have seen
    involved attorneys and brokers, and they are the very group of
    people who are most able to, frankly, unfairly and deceptively
    advertise and get business along these lines.
        If I could make one other note, we would ask that you look
    at least at the allowable fees foreclosure cap. Our concern is
    that, in our experience for instance, that would allow, on the
    second prong, the sum of 2 monthly mortgage payments, as much
    as $6,000. We would observe that if a homeowner facing
    foreclosure is unable to make their monthly mortgage payments,
    or they're in imminent danger of falling behind, they will
    likewise be unable to afford 2 months' payment.
        And indeed, we are concerned that cap might become a floor
    for what people would charge. So we just ask that you visit
    that.
        We think it's crucial, as I mentioned, that States be
    allowed to bring these actions. We believe we have had success
    in Massachusetts in doing that. And we think that this trend of
    predatory loan foreclosure schemes will continue, but this
    would provide a very effective deterrent, and an effective way
    to enforce.
        I appreciate today's opportunity, and we look forward to
    working with you, as I know my other colleagues do, on any
    other issues that arise around this legislation or this issue.
    Thank you.
        [The prepared statement of Attorney General Coakley can be
    found on page 49 of the appendix.]
        Chairwoman Waters. Thank you very much. I will recognize
    myself for 5 minutes.
        I thank you for coming today to give us testimony on this
    very important amendment that was offered by my colleague, Ms.
    Moore. And I think you can be very helpful to us in our
    strengthening this amendment to make sure that we accomplish
    what we would like to accomplish.
        There are several things I would like to get a better
    handle on. Lawyers--as you know, lawyers are basically exempted
    in the amendment. And, because they are able to charge fees for
    their services not directly related to loan modifications, they
    are in the position of being able to offer services as any
    lawyer could offer various kinds of services on loan
    modification.
        But I, too, have discovered that they are responsible for
    most of the problems we are having. I was in--I think it was--
    Detroit, Michigan, recently, where I learned about what some
    lawyers were doing.
        And, of course, I have been paying a lot of attention to
    the Federal Loan Modification well-advertised program on TV,
    where I took the opportunity to call late one night, and made
    up a case for needing a loan modification. And, of course, they
    did what these fraudulent representatives do. After playing a
    little music, after hearing my story, they came back and told
    me how lucky I was that they would accept me for a loan
    modification, and asked me for $3,500.
        These are the same people who had a blog that had me in the
    blog, having picked up some testimony that made it appear that
    I was supporting them. And then, of course, there is another
    blog with the President in it, making it look as if the
    President is supporting them. One is the United Law Group, and
    the other arrives from the Federal Home Loan Modification. I
    understand the founder of the Federal Loan Modification Group
    is a lawyer.
        So, the question becomes, what do we do about lawyers? Some
    States have already exempted them. I attempted to offer a
    modification to Ms. Moore that was accepted that would deal
    with frivolous lawsuits, but I'm not so sure that covers it
    all. Do you have any thoughts about that? Let me start with
    FinCEN.
        Mr. Freis. Thank you, Madam Chairwoman. FinCEN has
    certainly seen, with respect to mortgage fraud problems more
    broadly, that insiders to the industry, including lawyers, have
    often been a part of the problem. I hope to say--and I believe
    it's true--that that's the exception, rather than the rule,
    that most lawyers do seek to serve their clients in productive
    ways. But I certainly agree with you, that certain lawyers have
    been bad apples.
        But in terms of the aspect of how to exempt them, I defer
    to my colleagues who are responsible for the enforcement and
    the prosecution side with how it would affect them in the
    individual cases. But FinCEN does have broader familiarity with
    this issue under the aspect of our Bank Secretary Act
    regulations--
        Chairwoman Waters. No, I appreciate that. But I want to
    focus right in on lawyers and this amendment. This is an
    important amendment that could do a lot of good. We don't want
    to have a big loophole in here, though.
        How do you feel about the exclusion of everybody who does
    not fit the qualifications that are being identified, Ms.
    Twohig?
        Ms. Twohig. In terms of attorneys, as you noted yourself,
    one of the primary defendants in the Federal Loan Modification
    Law Center case that we have brought was an attorney. And so we
    have seen it firsthand in our law enforcement actions, that
    some attorneys are trying to use their bar license to basically
    set up shop as a mortgage relief company, and, in the process,
    we think--we have alleged--deceiving consumers about the
    services they are going to get.
        So, I think, to the extent that there is any exemption for
    attorneys, it needs to be very narrowly drawn. They should not
    be able to exempt their telemarketers, the folks that you
    called when you called their number. There is no reason why
    those employees on the other end of the line should be exempt.
        So, I think there could be ways to carve out a narrow
    exemption. Pro bono work likely should be carved out. But I
    think it needs to be very carefully considered, so that there
    is not a loophole that attorneys can drive through.
        Chairwoman Waters. Attorney General Coakley?
        Ms. Coakley. We have considered that. And it's our belief
    that competent and ethical attorneys can be a valuable asset
    for homeowners trying to avoid foreclosure. Many people do
    employ attorneys for filing for bankruptcy, or representing
    them in connection with court proceedings.
        But we have also found that many of the scams that we have
    investigated and prosecuted--for instance, one recently was
    called Loan Mods By Lawyers, and that was--that goes to the
    point that lawyers carry with them the authenticity that they
    will do this fairly and correctly.
        I think the key is to stress that this does not prohibit,
    in Massachusetts, someone from taking a retainer, for instance,
    that then may be charged against services that are incurred--
    time incurred or other valuable service. What is concerning to
    us is that lawyers and others take a fee up front--$1,000,
    $1,500, as you indicated--and that is an entry fee. That does
    not go to anything that's useful or beneficial.
        Particularly when there are lots of nonprofits around to
    help people, people are getting more success now in trying to
    modify their own loans, that's the advice we give to folks.
        We believe lawyers, frankly, would have a problem of their
    own if they continued to take these fees without providing
    services. And so we had no problem in Massachusetts saying,
    ``We are going to declare for everybody that you cannot take a
    fee up front.'' It does not prohibit an ethical lawyer from,
    again, charging a retainer for which services afterwards could
    be charged against it.
        But the fee for, frankly, no service involved, we have
    determined to be unfair and deceptive in Massachusetts.
        Chairwoman Waters. Thank you very much. Ms. Capito?
        Mrs. Capito. Thank you, Madam Chairwoman. I want to start
    with the attorney general. I think you covered this in your
    statement, but I am curious to know.
        For the States who have existing laws that deal with
    mortgage and foreclosure fraud on the books, and this
    particular bill, I think you stated that there isn't a
    conflict, and that your State statutes would still hold up, and
    the Federal statute wouldn't take over--could you explain that
    to me a little bit?
        Ms. Coakley. My understanding is that this statute, unlike
    many other Federal statutes, does not preempt current State
    law, so that a State, for instance, that had higher measures or
    higher standards around this could still enforce those.
        I think the nice piece of this is that these standards,
    though, will be consistent across the States so that they can
    be enforced either by the Federal Government or, in a State,
    for instance, where there has not been legislation passed, an
    attorney general could enforce this in a way--again,
    particularly in this area, I think we would have a huge
    deterrent effect on this activity.
        And so, we see it as a complement to Federal legislation.
    It's not duplicative, and it does not disadvantage the States
    by preempting us from the field.
        Mrs. Capito. All right. Thank you. Just an informational
    question. With these--are you finding in your investigations
    of--or when you're bringing suit, that a lot of these
    fraudulent scam artists--we will put it that way--are they
    national in nature? Are they targeted in, let's say, Florida or
    Massachusetts or Nevada or California? You know, what's the
    nature of that?
        And my additional question is, we know that this exists.
    Just for my information, are there legitimate businesses that
    actually carry forth this business of helping people prevent
    foreclosure that exist throughout the country? I'm sure people
    have assistances, but are there businesses created just for
    this?
        Ms. Twohig. I can take that one. Starting with your first
    question, clearly some of these companies are national. The
    Federal Loan Modification Law Center had nationwide advertising
    on TV, radio, and the Internet. And they were nationwide.
        Some are not. Some are more local in nature. I think, in
    the old days, we used to see people knocking on doors,
    literally going door-to-door. I think more often now they are
    using the Internet and telemarketing and telephones to reach
    out more broadly. And I think what is true is almost always
    they are clearly crossing State lines. So, that's the picture
    that we see.
        And, in terms of--your second question?
        Mrs. Capito. Are there legitimate businesses--
        Ms. Twohig. Oh--
        Mrs. Capito. --created on a national level, more
    interestingly, that are playing by the rules, although there
    are really no rules for this?
        Ms. Twohig. I think that's a hard one for--from the Federal
    Trade Commission's perspective, to answer. Because, of course,
    we zone in on the ones we think are problems. And so, we see
    the bad practices and the bad actors. We spend our time there.
    And so, from what we see, we see very troubling practices.
        I will say, though, that there are some things that no one
    can legitimately promise. No one can guarantee that you will
    get a loan modification. No one can guarantee that they will
    stop a foreclosure. So no one can legitimately do that. That's
    just not possible, to promise that.
        Mrs. Capito. Mr. Freis?
        Mr. Freis. Ranking Member Capito, if I can add, in response
    to your first question about the national nature, first it must
    be said that we have seen schemes that cross the entire
    country, from California to Massachusetts, from Washington
    State to Florida, and multiple places in between.
        With respect to the targeting effort that we have ramped up
    in the past month, one of the successes that we have had, on an
    initial basis, is the ability to bring together the attorneys
    general from different States with respect to specific actors
    that are operating in multiple States. And, more broadly, with
    respect to the mortgage fraud issue that we have been focusing
    on for years, we do indeed see national organized criminal
    groups.
        Mrs. Capito. Just in closing, I would like to reiterate
    something the attorney general said, that--and we have had this
    in our committee several times, trying to get, you know, help
    for homeowners, and all the assistance to help people really
    figure their way out of this problem. There are a lot of great
    nonprofits all across this country that are daily trying to
    help folks figure out a way to stay in their home and keep
    their home.
        And, additionally, I would say that if there is anybody out
    there who has an 800 number that advertises, the chairwoman
    will be calling you on one of her sleepless nights, because she
    always has them on speed dial, I think. So I yield back. Thank
    you.
        Chairwoman Waters. Thank you. Mr. Lynch.
        Mr. Lynch. Thank you, Madam Chairwoman. I want to thank you
    for holding this important hearing. And also, I want to thank
    our witnesses, especially my own attorney general from the
    State of Massachusetts, Martha Coakley. I appreciate the work
    that you have been doing on this, all of you.
        A while back, in my district, the Town of Randolph was kind
    enough to give me the high school auditorium, and we did a
    foreclosure prevention workshop. We expected maybe 100 people
    to show up. We had over 400 families coming in.
        And the one thing that I did like was the fact that we had
    already vetted a group of banks, mortgage companies, and
    nonprofits, to come in and help with these work-outs. Would
    that type of model--you know, if we had--and I know in
    Massachusetts, we have--at least in Brockton--we have some good
    groups that are nonprofits that are working to help families
    out of this, and to work with banks to get these modifications
    accomplished.
        Is there a way that we might intervene, do these town
    meetings, bring in the legitimate folks to conduct these, or
    assist with these modifications the way they should be done, as
    opposed to just trying to fly the red flag about, ``These are
    the guys you need to watch out for?''
        Ms. Coakley. If I can answer that, I think they are not
    mutually exclusive, and I think they complement each other. On
    the one hand, you need to make those folks who need help aware
    of what the resources are. And I know we do that through our
    Web site. I know there are lots of other organizations that
    have tried to do that, bar associations that do volunteer work.
        But it still is the individual who doesn't pay attention to
    that until they get the notice in the mail, and then they
    panic, and then they're going to be victimized, potentially, by
    one of these e-mails, faxes, telephone calls.
        And I agree with the assessment. They are national, but
    there are also very local ones.
        Mr. Lynch. Yes.
        Ms. Coakley. Our first case was against an individual in
    one of our communities who, frankly, preyed upon his neighbors
    and friends and church members, and took all the titles to
    their homes. And it was pretty discouraging to see that happen.
        Obviously, with the economy, and with brokers out of work,
    and attorneys looking, this is a scam that can be lucrative
    with quick hits on the small level and on the national level.
        So, I think we need to continue to advise people of how
    they can get loan modifications, and banks have been a little
    better about trying to do that without help. But with not-for-
    profits available, that is the route to go. And for someone to
    say, ``I can guarantee you that I will help you modify your
    loan,'' it's too good to be true, so it isn't.
        Mr. Lynch. Right. Mr. Freis, yes?
        Mr. Freis. I concur with the attorney general, that the
    education aspect is critical, and must underscore the
    Administration's commitment as part of the Making Home
    Affordable program to promote the work of financial
    institutions to help homeowners who have a legitimate ability
    to modify their loan.
        But, of course, bringing in--some of the banks only get
    part of the parties involved. You need to ultimately bring in
    the servicers with respect to the individual homeowner's loan.
    And, once again, I think that needs to be a national effort. We
    know that the mortgage market is no longer just on a local
    basis.
        Mr. Lynch. Director, let me ask you. I work with FinCEN a
    lot, as you know. We just worked on opening the financial
    intelligence unit in Morocco about 3 weeks ago. It's tough to
    get my head around the fact that you're dealing with all that,
    you know, anti-terrorist financing--I happen to co-chair the
    task force on terrorist financing and non-proliferation--and
    you're also doing this.
        I can only imagine the volume of suspicious activity
    reports and cash transaction reports that you're getting from
    banks under the Bank Secrecy Act and all the other statutes
    that are steering information through your office. And now
    you're dealing with this, which is more generic and home-
    grown--insidious, nonetheless.
        But how are you handling it, as an Agency within Treasury?
    How are you handling the responsibility of screening all this?
    And is this something that is coming to you regularly? And how
    do you deal with that, from a workload perspective?
        Mr. Freis. Congressman Lynch, first let me thank you. You
    have been a great supporter of FinCEN, and in particular in
    reintroducing the Reauthorization Act. We appreciate that
    ongoing support for all of the work that we do.
        Basically, with respect to your question, it's true. FinCEN
    is a very small agency of a little over 300 persons with a
    broad mandate. And, basically, it's all about following the
    money. Criminals, they don't respect the law. They certainly
    don't respect the borders.
        So, one unique authority that Congress has given us is the
    ability to go beyond the jurisdictional limits that constrain
    some of the work of our law enforcement partners, and to reach
    out to our counterpart agencies around the world. Exactly as
    you mentioned, the financial intelligence units, now we have
    relationships with more than 100 countries.
        So, in the past, when a criminal sent money abroad--and we
    have seen multiple instances, including those suspects involved
    in mortgage fraud who have shuttled money out of the country,
    that's detailed in the March 2009 report that we published--we
    have the ability to reach out to our counterpart agency and not
    lose that trail.
        In other cases, agencies literally--they give up. They say,
    ``It gets too hard for us to follow the money when it leaves
    the country,'' and we have an ability to extend that effort
    along the continuum.
        In terms of the resource issue, focusing on domestic fraud
    has been a core part of FinCEN's mission from its very
    inception. And, next to all the work that we're doing with
    respect to mortgage fraud, loan modification schemes, and the
    like, the next biggest area where we're working on is the
    southwest border and Mexico-related threats from the homeland.
        Chairwoman Waters. Thank you very much. Mr. Driehaus?
        Mr. Driehaus. Thank you, Madam Chairwoman, and thank you
    very much for conducting this hearing on, as Mr. Lynch
    indicated, a very important matter. And I want to thank Ms.
    Moore for her efforts in this area, as well.
        As I have heard each of you testify, and read your
    testimony, I am pleased with the fact that we are moving in the
    right direction, in terms of cracking down on some of these
    fraudulent schemes. But I continue to be very concerned about
    local enforcement, and the resources going into local
    enforcement.
        You know, for years, we have seen these predatory
    activities. And even when we knew that fraud was occurring, and
    prosecution could take place under existing State law, it
    didn't happen. And it didn't happen, in many cases, because it
    was either not on the radar screen of the attorneys general and
    the various States that we represent--I happen to be from
    Ohio--and certainly it wasn't on the radar screen of local
    county prosecutors who are worried about robberies and murders,
    and things of that nature.
        How do we--you know, in your experience, how do we better
    help local prosecutors and attorneys general to become aware of
    the issues regarding mortgage fraud? And how do we get them the
    needed resources? And what types of resources do you think they
    need in order to fully investigate and prosecute this type of
    behavior?
        I appreciate the testimony, Ms. Coakley, about what you are
    doing, and what some of your colleagues are doing in the
    various States, but I would like your opinion on whether or not
    we're going nearly far enough, given the scope of the problem.
        Ms. Coakley. I think in this particular area, which is
    limited appropriately to these kinds of frauds, I think this
    is--in fact, goes far enough, and will be very helpful.
        In general--and it's a bigger issue than I think we can
    address today--many of the State attorneys general have been
    held back because they specifically have been preempted from
    taking action for banks and other areas. So we have, in
    beginning this effort, been limited to those companies over
    which we had jurisdiction, and weren't preempted from.
        For instance, we have no ability to look at credit card
    interest rates, because we're totally preempted from that. So I
    just use that as an example.
        We could always use more resources. Everybody could in
    Massachusetts. It is the DAs who, as you indicated, do the
    violent crime. We try to focus on both civil and criminal,
    these kinds of issues.
        But I guess I feel that this particular problem was one
    that caught everyone on Wall Street, Main Street, Elm Street,
    AG's office, Federal level, we all kind of saw it coming, but
    we didn't. And, to the extent that we are able to start to
    identify pieces of it, we did what we could where we were not
    preempted.
        And I would just ask for this committee, as we go forward,
    to look at this model and this bill, which says, ``We're not
    going to preempt States, we want a consistent model. We will
    let States enforce the Federal model,'' which I think is a
    workable way to go about this issue. But we are the ones who do
    see these problems first. They start out small, often, and we
    see them, in some States and not in others, well before they
    reach the level that Washington can respond to them.
        And it is incredibly important, I think, as the AGs have
    worked together on many of these issues, that we can--and I am
    hopeful that we will--work more closely with the Federal
    Government in ways that do not duplicate these kinds of
    actions, that we have consistent standards for those that we
    are going to regulate, and that we complement both the
    deterrent effect that the legislation or regulations have, and
    our ability to enforce violations of them.
        Mr. Freis. Congressman, certainly we see every day the
    resource limitations that the State and locals have, in terms
    of going forward with enforcement actions, particularly in this
    economic environment.
        But I think one of the critical things that we can do--and
    what FinCEN has always tried to do--is serve a multiplier
    effect in leveraging resources. We do that in a number of ways.
        We have relationships in every State, with the State law
    enforcement coordinator, such as the Massachusetts State Police
    Department which operates a fusion center, together with other
    local entities in Massachusetts. We provide them with
    information, and we provide them with leads in areas such as
    this, with respect to loan modification fraud.
        Another thing that we actively do is try to share
    expertise. We go out there and we train them as to what are the
    modus operandi that the criminals are following, and what are
    some of the successful ways we have been able to do that in law
    enforcement.
        Basically, what we're trying to do is move away from the
    compartmented model so that every single field office, every
    single State entity, has to reinvent the wheel with a recurring
    problem. I think that has been very successful. We would like
    to do more. And, with respect to this effort in particular, we
    have established relationships with 38 States' attorneys
    general. Every one of those is multiplying and building off of
    successes of one another.
        Chairwoman Waters. Thank you very much. Mr. Ellison?
        Mr. Ellison. Thank you, Madam Chairwoman, for this very
    important hearing. I appreciate it. As usual, you are leading
    the way.
        Ms. Twohig, how would H.R. 1231 enhance the FTC's
    enforcement powers with respect to stopping these fraudulent
    actions?
        Ms. Twohig. I think what it would do would establish some
    Federal standards, some Federal rules of the road, if you will,
    that would help us protect consumers. Without that, we are
    using the tools we have now, which is primarily the Federal
    Trade Commission Act, which prohibits unfair and deceptive acts
    and practices. And that is what we are using to go in and
    charge the companies with deceptive practices when they promise
    things that they can't deliver to consumers, a loan
    modification or rescuing them from foreclosure.
        But, with that said, it would be helpful, in my view, to
    have some standards in place that would outline exactly where
    the lines are, what's legal, what's not, and to rein in and
    prevent some of the practices, such as the taking fees up
    front.
        Mr. Ellison. Does the FTC have adequate staff to carry out
    the new clarifying powers that it would have?
        Ms. Twohig. We have stepped up our efforts in this area
    considerably, both enforcement--and we have new authority under
    the Omnibus Appropriations Act to do rule-making with respect
    to mortgage loans. So the Commission has said it intends to use
    that authority to also see what it can do under that authority
    to put some rules in place.
        Mr. Ellison. Do you have enough staff?
        Ms. Twohig. Yes.
        Mr. Ellison. Would the FTC essentially do the investigative
    work, and then refer the case for prosecution to the U.S.
    Attorney?
        Ms. Twohig. The cases we do we bring ourselves--
        Mr. Ellison. Okay.
        Ms. Twohig. --in Federal court. We have to refer to the
    Department of Justice if we are seeking civil penalties under a
    particular statute. But under the Federal Trade Commission Act,
    we file the suit in the name of the Federal Trade Commission
    directly, ourselves, in Federal court.
        Mr. Ellison. Okay. So, for the cases that you might refer
    to Justice, in your view, do you have any view on whether
    they're adequately staffed to handle the cases you might refer
    to them?
        Ms. Twohig. Well, right now, in this area we are bringing
    them under the Federal Trade Commission Act. So right now,
    that's not an issue in this area.
        Mr. Ellison. Okay. One of the issues that has come up quite
    a bit--well, let me ask you this. In your written testimony you
    state that the FTC has rule-making authority to prohibit unfair
    and deceptive practices with respect to mortgage loans, and is
    working on a rule to restrict foreclosure consultants.
        What is the FTC's progress on the rule? And when will a
    proposed rule be issued?
        Ms. Twohig. We just got that authority recently in the
    Omnibus Appropriations Act, and so we are currently busily
    formulating a recommendation to make to the Commission, which
    would get that rule-making process started. We expect that to
    be very soon.
        Mr. Ellison. You know, in some of my conversations in my
    own district in Minneapolis and the surrounding suburbs, we
    have heard people complain about high re-default rates after
    there has been a loan modification. How is this foreclosure
    prevention fraud related to re-defaults? Or is it?
        Ms. Twohig. I think it's really two separate issues. The
    issue that we have been focusing on, that the testimony focuses
    on, is the segment of the market place as trying to prey on
    consumers--
        Mr. Ellison. Right.
        Ms. Twohig. --who are desperate, in desperate straits, and
    reaching out for an answer, and they are falling victim to the
    companies that are promising them something they just can't
    promise.
        Mr. Ellison. I understand.
        Ms. Twohig. I think a whole separate issue is when the
    mortgage servicers themselves and the legitimate nonprofit
    sector are obtaining actual modifications for consumers, and
    whether--what the standards are there, and whether they're
    actually succeeding.
        Mr. Ellison. So these companies engaging in fraud are not
    setting people up to re-default?
        Ms. Twohig. Mostly, from what we have seen, they're not
    getting their modifications at all.
        Mr. Ellison. Okay, I got it.
        Ms. Twohig. Exactly.
        Ms. Coakley. I agree with that, that they have been totally
    ineffective in any way, so they are not--the re-default loan
    rate is due to something else.
        Mr. Ellison. They don't even get to re-default, because
    they never even get the modification.
        Ms. Twohig. Right.
        Ms. Coakley. Correct.
        Mr. Ellison. All right. I think that is all of my
    questions, Madam Chairwoman. Thank you very much.
        Chairwoman Waters. Thank you very much. Without objection,
    Representative Moore will be considered a member of this
    subcommittee for the duration of this hearing, and we thank Ms.
    Moore for her amendment and the work that she has done. And I
    will recognize Ms. Moore for questions.
        Ms. Moore of Wisconsin. Thank you so much, Congresswoman
    Waters. And you promised me early on that, even though I'm not
    a member of this subcommittee, that you would honor me when I
    came. And I thank you so much.
        I do want to thank Congresswoman Waters publicly for all of
    the work that she has done on this. California, of course,
    has--they passed a law back in 1979 with respect to mortgage
    fraud problems. Were you in the State legislature then, in
    1979?
        Chairwoman Waters. Yes, I was there.
        Ms. Moore of Wisconsin. Yes. And so I appreciate all of the
    sage experience that she has had. And, of course, being the
    subcommittee chair, she has worked very closely with me on this
    issue of exemptions, in particular, for attorneys. And given
    her 2\1/2\ hour long vigils on the phone, she has really been a
    point person, and known up front the toxicity of this problem.
        And I can tell you that, while this has been a problem all
    along, with the mortgage meltdown this has just created an
    environment where there has been an 800 percent increase. So I
    appreciate questions like the one Mr. Ellison has made, with
    respect to whether or not there are enough resources to do
    that.
        And I might just add, knowing that I am consuming my time,
    Madam Chairwoman, but what I continue to hear is that
    legitimate help, like with the HUD-sponsored counseling,
    homeowners counseling, it's very, very underfunded. And perhaps
    that's an avenue for putting a lot of these folks out of
    business, to make sure that we take seriously--when I bought my
    first home, I had a certified HUD counselor, and I just took
    that for granted, that people would have those kinds of
    services available to them.
        I also want to thank Ms. Twohig from the FTC for helping us
    work on developing this bill, and appreciate your having
    stepped up.
        Now, let me ask some questions. Ms. Twohig, the authority
    that you have gotten through the omnibus with respect to
    mortgage fraud, is that for just non-banking institutions, or
    for all financial institutions?
        Ms. Twohig. It--
        Ms. Moore of Wisconsin. Because I noticed in your testimony
    that you were recommending that you have power over, you know,
    banking mortgage, as well as the--your current stewardship over
    non-banking activity.
        Ms. Twohig. Right now, the authority we would have would be
    the same authority we have under the FTC Act, which is non-bank
    entities. So, under the FTC Act, we do not have authority over
    banks.
        In this area, however, I would say that the foreclosure
    rescue and loan modification services that we're concerned
    about, the ones that are taking advantage of consumers, are in
    the non-bank sector. So we believe we can cover pretty much
    what needs to be covered there.
        Ms. Moore of Wisconsin. Okay. I am only asking that because
    I noticed in your testimony that you were seeking authority
    over all financial institutions, and I was wondering if you
    thought that that was important toward ending this activity, or
    was that just a suggestion for some other point.
        Ms. Twohig. Right. I think what you're referring to is the
    Commission's views that, in the larger scheme of things, when
    it comes to broader-based financial services regulatory reform,
    that if those issues are considered and a new agency is thought
    to be needed, that the Commission be considered and consulted
    in that calculation.
        On this area, I think it's--as I said, I think we could
    basically cover what needs to be covered with our jurisdiction
    because it's non-banking entities that are taking advantage of
    consumers.
        Ms. Moore of Wisconsin. Okay. Ms. Coakley, I believe that
    you spoke to us about the caps on fees. And I guess I--you said
    that 1 percent or 2 monthly payments would be too much.
        And so, I was wondering, number one, what you thought would
    be appropriate. And I also would like--because I see my time is
    expiring--you to make a little bit more clarification about the
    exemption for attorney's fees. And, you know, what--the problem
    we ran into in trying to craft a perfect amendment is that we
    don't want to stop attorneys from helping people with
    legitimate work regarding, you know filing for bankruptcy, and
    so on.
        And so, please--Madam Chairwoman, with your indulgence, can
    she answer?
        Chairwoman Waters. Yes.
        Ms. Moore of Wisconsin. Thank you.
        Ms. Coakley. Let me answer it this way, because we agree
    with you. We want attorneys who do the work who are qualified--
    and people certainly are entitled to engage attorneys for that
    work.
        But attorneys have a way in which they either bill their
    time or enter into a contingency fee agreement. This is neither
    of those. This is an up-front fee, basically as an entry fee
    that doesn't go towards the result.
        And so, we firmly believe--and, frankly, when we issued
    this regulation, we did not hear from the bar. We did not have
    problems that lawyers felt that this was unfair, because we
    think that those who are competent and ethical and who do play
    by the rules--and, again, they can take a retainer if the party
    agrees and the lawyer agrees. But the retainer has to then be
    counted against time that the attorney has spent on the
    process, as he or she would bill any client for work done.
        Ms. Moore of Wisconsin. So the question is--okay, like I'm
    thinking now--what we want to do is regulate the relationship
    between the attorney and non-lawyers. So if I am a delivery
    service delivering stuff to the court because I'm filing some
    papers, the attorney might need to pay me to do--
        Ms. Coakley. Correct.
        Ms. Moore of Wisconsin. --to that. So, what we're trying to
    do is regulate that relationship without stopping the attorney
    from doing it.
        So, we do need help in the rule-making process, Ms. Twohig,
    to narrow it, as you suggested it, but still keep the normal--
    Madam Chairwoman--legal relationships intact. And just, very
    quickly, the other question that I asked, about the caps?
        Ms. Coakley. Oh. I talked with our folks yesterday about
    this, because our experience, at least in Massachusetts, and it
    may differ in other States, is that these fees have been
    around, you know, $1,000, $1,500. But with this cap, it could
    be as high as $6,000. We think that second prong, 2 months of a
    payment, would essentially become a floor that people would
    start to charge.
        And so, I'm afraid I don't have an absolute, but just to
    consider whether there may be a lower cap, in terms of a dollar
    amount or a percentage. And I would assume my colleague may be
    able to help with that, also. But that seemed high to us, given
    our experience in the field.
        Ms. Moore of Wisconsin. Okay. Thank you. Thank you so much.
    My time has expired. I would love to continue, but I don't want
    to get gaveled.
        Chairwoman Waters. Thank you.
        Ms. Moore of Wisconsin. You have been very generous, Madam
    Chairwoman.
        Chairwoman Waters. Thank you very much. And let me thank my
    witnesses, particularly the attorney general, who has done so
    much work in Massachusetts on this. And, of course, the Federal
    Trade Commission that we have turned to, and you have been very
    effective in shutting something down.
        But we want to remind you that the blog, KeepmyHouse.com,
    is still up, even though the Federal Loan Modification Web site
    is not connected to it any more. So stay on top of them. And we
    are going to do everything we can, working with Ms. Moore, to
    give you more help.
        Thank you all very much for being here today. We will get
    our second panel up. The Chair notes that some members may have
    additional questions for this panel, which they may wish to
    submit in writing. Without objection, the hearing record will
    remain open for 30 days for members to submit written questions
    to these witnesses, and to place their responses in the record.
    Again, I dismiss this panel and call on our second panel.
        Our first witness will be Ms. Lauren Saunders, managing
    attorney at the National Consumer Law Center.
        Our second witness will be Mr. Scott Drexel, chief trial
    counsel at the State Bar of California.
        Our third witness will be Mr. Robert E. Story, chairman
    elect at the Mortgage Bankers Association.
        And our fourth witness will be Mr. John Anderson, vice
    chair of the Federal Housing Policy Committee at the National
    Association of Realtors.
        Without objection, your written statements will be made a
    part of the record. And I will recognize each of you for 5
    minutes, beginning with Ms. Saunders.
        Thank you for being here.

       STATEMENT OF LAUREN SAUNDERS, MANAGING ATTORNEY, NATIONAL
                          CONSUMER LAW CENTER

        Ms. Saunders. Thank you. Thank you, Chairwoman Waters,
    Ranking Member Capito, and members of the subcommittee. I
    appreciate the opportunity to testify before you today.
        Yesterday's home equity strippers have become today's loan
    modification specialists, charging thousands of dollars for
    work, if any, that often leads nowhere and leaves the homeowner
    closer than ever to foreclosure. Lead generators are selling
    the names of homeowners who are 30, 60, or 90 days late, to
    loan mod mills.
        Firms are springing up from and recruiting among the ranks
    of the same people who were offering subprime loans and no doc
    loans of the type that led us into this crisis. The primary
    qualification for the jobs that are being advertised on the
    Internet seems to be the ability to ``close,'' the ability to
    pressure a reluctant homeowner into agreeing to the contract.
        Many of the loan mod firms are outright crooks, who have no
    intention of doing anything. But others are operating in a gray
    zone, perhaps making some unsuccessful efforts to contact the
    lender. But, from the homeowner's perspective, there is really
    no difference between a crook who takes the money and runs and
    somebody else who says, ``Sorry, I tried, but you can't have
    your money back.''
        The sheer number of people in foreclosure is an obvious
    attraction to the scammers. But loan mod scams are flourishing
    because, as the chairwoman well knows, servicers have been
    unresponsive, and homeowners are not able to get loan
    modifications directly.
        I will get to the scams in a moment, but I would be remiss
    if I didn't point out that the most important work that
    Congress can do to prevent these scams is to attack the
    servicing problem, as the--the chairwoman, of course, has been
    a lead on this issue, and to mandate access to a decision-maker
    at the servicer, somebody who has the information and authority
    to actually deal with the loan modification, and to require
    that the servicers engage in loss mitigation efforts before
    they foreclose. People are going to these middlemen because
    they can't do it directly. And if they could do it directly, I
    think a lot of this would go away.
        Regarding the scams themselves, many States have been
    active in passing laws to address them. Others have been
    slower. As long as stronger State laws are not preempted, as
    they are not under this bill, Federal legislation can be
    helpful, as long as it creates strong, substantive protection,
    as H.R. 1231 does, and not just disclosure hoops for scammers
    to jump through. Any law or rule will do more harm than good if
    it simply is sanitizing the Web sites, but allowing the
    operations to continue.
        Effective legislation should prohibit up-front payments for
    foreclosure consultants. And, setting aside the lawyers for a
    moment, I think that should include taking money and putting it
    in escrow, but then charging against it.
        Second, it should require results. The fee should not be
    earned unless and until the homeowners receive an affordable,
    sustainable loan modification, and that gets to, I think,
    Congressman Ellison's point about the re-defaults. A loan mod
    that increases your payments isn't worth paying for.
        The level of the fees should be tied to the results
    achieved. And I agree with the concerns about the 2-month
    standard as being too high. I would urge that you look to
    Illinois, which has capped the fees at 50 percent of the
    monthly payment, unless the modification results in a reduction
    for 5 years, in which case it can go up to 100 percent, a full
    month.
        And we need to avoid unnecessary exemptions that open wide
    loopholes. I don't think legitimate mortgage brokers and real
    estate brokers need an exception for advance fees, because
    they're not normally paid until they sell a house or obtain a
    mortgage. But if they're operating outside of the scope of
    their traditional activities, the mere fact that they possess a
    license should not insulate them.
        Lawyers are a trickier case. I fully recognize that lawyers
    are part of the problem. I support the efforts of the FTC to
    crack down on those lawyers who are engaged in deceptive
    conduct. But I am concerned that we not go too far in stopping
    the work of the front-line people who are actually helping the
    homeowners who are confronted with foreclosure rescue scams, or
    predatory mortgages.
        I note that Attorney General Coakley interprets her
    regulation to permit a retainer. But we don't want that loose
    standard to infect the rest of the bill as well. My own office
    offers a paid consulting service, even though we're a
    nonprofit, where other lawyers can pay us to review loan
    documents and advise on claims. Certainly, legitimate lawyers
    may send a demand letter and engage in activities short of
    litigation, and they should be able to charge for those.
        So, on the other hand, we do want to crack down on the
    lawyers who are offering the cloak of their license to shield
    the work of non-lawyers, whether it is a loan mod firm that
    contracts with an attorney, or an attorney who is running a
    large mill operation which really has nothing to do with the
    practice of law.
        To the extent that the FTC adopts rules in this area, we
    think it's essential that they use their unfairness authority
    to ban up front fees and fees with no results, and not merely
    its deception authority to require disclosures or sanitize Web
    sites.
        Finally, Congress does need to increase funding for the
    HUD-approved counseling agencies which are really the best next
    step, after the servicer themselves, to get homeowners the help
    they need.
        Thank you for inviting me to testify, and I welcome your
    questions.
        [The prepared statement of Ms. Saunders can be found on
    page 75 of the appendix.]
        Chairwoman Waters. Thank you very much.
        Mr. Scott Drexel?

     STATEMENT OF SCOTT J. DREXEL, CHIEF TRIAL COUNSEL, THE STATE
                           BAR OF CALIFORNIA

        Mr. Drexel. Thank you, Madam Chairwoman, Ranking Member
    Capito, and members of the subcommittee. I am the chief trial
    counsel of the State Bar of California. California has a total
    of more than 225,000 attorneys, more than 165,000 are whom are
    active members and entitled to practice law in our State.
    Approximately 1 of every 7 attorneys in the United States is a
    California attorney. My office is responsible for the
    investigation of complaints against California attorneys, and
    for the disciplinary prosecution of those attorneys who have
    violated our rules of professional conduct or our State Bar
    Act.
        Since approximately November 2008, we have received an
    average of more than 900 telephone calls per month to our 1-800
    complaint line, an annual rate of more than 10,000 telephone
    calls, on the subject of mortgage foreclosure scams and loan
    modification scams alone. Clearly, this is a problem of
    significant, if not crisis, proportions in California.
        The problem is so serious that in February 2009, our
    committee on professional responsibility and conduct issued an
    ethics alert to all California attorneys and to the public
    about the dangers of loan modification and foreclosure rescue
    fraud, warning attorneys about the possible ethical
    implications of their involvement in these sorts of activities.
        In response to the large number of written complaints
    received by my office on this subject, we have created a staff
    task force to focus solely on complaints of foreclosure rescue
    and loan modification fraud. We are working extensively with
    other agencies to address the issues, especially the California
    Department of Real Estate, which regulates mortgage foreclosure
    consultants in California.
        We have tried to be proactive in our response to suspected
    involvement of California attorneys in this area. Pursuant to
    our statutory authorization in March 2009, we successfully
    petitioned a California superior court to assume jurisdiction
    over the practice of a California attorney who was engaged in
    loan modification fraud.
        Pursuant to court order, and with the assistance of local
    law enforcement, we seized more than 2,300 of the attorney's
    files, downloaded records from his computers, froze his bank
    accounts, both his client trust account and office accounts,
    and redirected his telephones and mails to the State Bar
    offices. We are in the process of returning files and advance
    fees to the attorney's clients, and assisting them in obtaining
    services from legitimate practitioners.
        We have also attacked the accuracy and propriety of
    advertisements by attorneys in this area. Under our rules of
    professional conduct, attorneys are prohibited from making
    false, misleading, or deceptive statements in advertisements,
    and can neither guarantee success nor advertise past successes
    without appropriate disclaimers.
        We have, therefore, been demanding copies of the attorneys'
    advertising, and demanding documentation to substantiate the
    claims made in their advertising. Our goal is to force the
    removal of all false and misleading advertisements from the
    media, thereby making it more difficult for these unethical
    practitioners to prey upon members of the consuming public.
        We have initiated more than 175 active investigations of
    attorneys suspected of engaging in these activities. And we are
    especially targeting those practitioners against whom we have
    received multiple complaints, or who appear to be particularly
    egregious in their victimization of consumers.
        Tomorrow morning, in Los Angeles, I will be meeting with
    representatives of the United States Attorney's Office, the
    California Attorney General's Office, the Department of Housing
    and Urban Development, the Federal Trade Commission, the
    Department of Real Estate, and local DA representatives to work
    cooperatively and to try to develop a plan for attacking these
    loan modification and fraud schemes in our State.
        H.R. 1231, in my opinion, will provide significant
    assistance in preventing foreclosure rescue fraud by
    prohibiting foreclosure consultants from demanding or receiving
    advance payments from homeowners, and by requiring loan
    services to notify homeowners of the dangers of these
    fraudulent activities, and to direct them to the Department of
    Housing and Urban Development and others for instance in
    avoiding foreclosure.
        H.R. 1231 currently excludes attorneys, as does our
    California statute. California, as Representative Moore has
    indicated, has had regulated mortgage foreclosure consultants
    since 1979. However, attorneys are excluded from the definition
    of a mortgage foreclosure consultant.
        Currently in California, there is pending a bill, Senate
    Bill 94, which would extend the prohibition upon advance fees
    to attorneys, as well as to others. The board of governors of
    the State Bar will be considering, next week at their meeting,
    whether they support or oppose that legislation. However, as an
    independent prosecutor, I have already gone on record as
    supporting that measure and that limitation upon attorneys'
    fees.
        Attorney fees in California are regulated in other areas,
    in medical malpractice actions. Attorneys' fees are limited by
    statute. In workers compensation, probate proceedings and the
    like, attorneys' fees are regulated. I see no reason why they
    cannot and should not be regulated here. Therefore, I
    personally support Representative Moore's proposed amendment.
        And again, I thank you for the opportunity to appear today.
        [The prepared statement of Mr. Drexel can be found on page
    57 of the appendix.]
        Chairwoman Waters. Thank you very much.
        Mr. Robert Story?

      STATEMENT OF ROBERT E. STORY, JR., CHAIRMAN-ELECT, MORTGAGE
                       BANKERS ASSOCIATION (MBA)

        Mr. Story. Chairwoman Waters, Ranking Member Capito, and
    members of the subcommittee, thank you for inviting me and the
    Mortgage Bankers Association to discuss the very important
    issue of foreclosure rescue scams.
        I am here today because MBA shares your concerns about the
    rapid rise in these scams. There is no doubt we need to protect
    innocent homeowners. Those committing fraud prey on people at
    the end of their financial rope. Their scams start with a phone
    call, a mailing, or an advertisement promising help. These
    scammers are difficult to distinguish from organizations
    offering real help. They even use similar names. They are all
    designed to achieve one thing, and one thing only, to lure the
    person who is desperate for help.
        When a fraudster makes contact, the borrower is told that
    their situation is dire, and they are going to lose their home.
    The scammer does everything possible to raise the anxiety level
    of the borrower. When the borrower is at their lowest point,
    the scammer says, ``There may be a solution.'' But the solution
    comes with a price. The borrower must agree to cooperate, and
    the borrower is told to cease any communication with their
    lender, to avoid being detected.
        These scams take many forms. Scammers promise to complete
    paperwork and obtain a loan workout in exchange for fees that
    can escalate into thousands of dollars. Then the scammers
    either don't follow through, or perform menial tasks that a
    servicer or HUD-approved counselor could complete for free.
        Scammers convince homeowners that they can save their homes
    from foreclosure through deed transfers and promises to lease
    or sell back the property, which never happens. In extreme
    instances, scammers sell a home or secure a second loan without
    the homeowner's knowledge, stripping the property's equity for
    personal gain.
        So, what can be done to stop these cruel practices? First
    and foremost, borrowers need to turn to the right sources for
    help. MBA encourages borrowers in financial trouble to call
    their mortgage servicer right away. Mortgage servicers want to
    avoid foreclosure. They have an economic incentive to do so.
    Servicers have the legal authority to create repayment plans,
    refinance, or modify a mortgage. Borrowers should contact
    trustworthy sources for advice and counseling. The HOPE Hotline
    at 1-888-995-HOPE, or a HUD-approved counselor are trustworthy
    resources. State and local governments across the country have
    also set up hotlines.
        Raising consumer awareness of scams is a vital function of
    government and industry efforts. The Treasury Department and
    banking regulators have issued alerts for consumers. And the
    FTC has produced a fact sheet warning consumers about servicers
    that promise to stop the foreclosure process.
        We also need to redouble our efforts to go after those who
    prey upon vulnerable homeowners. The legal tools needed to
    investigate and prosecute fraud are already in place. The
    Federal mail and wire fraud laws reach all possible varieties
    of foreclosure rescue fraud. What's missing are the resources.
        MBA has asked Congress to appropriate additional funding
    for the FBI to investigate and prosecute fraud. The funding
    will pay for new FBI field investigators. It would also allow
    the Justice Department to hire additional prosecutors focused
    on this area. The funding would also support the operations of
    the FBI inter-agency task force in the 15 areas with the worst
    problems.
        MBA is particularly pleased that today the House is taking
    up S. 386, the Fraud Enforcement and Recovery Act. This bill
    includes $245 million for law enforcement to crack down on
    financial fraud, including foreclosure rescue fraud.
        On behalf of the MBA, I would like to thank the
    subcommittee for the opportunity to testify today. Foreclosure
    rescue fraud is a growing problem that is becoming more
    expensive for homeowners and lenders. MBA believes increased
    enforcement, better communication, and further innovation are
    required to adequate protect borrowers from the cost of
    foreclosure rescue fraud. Thank you.
        [The prepared statement of Mr. Story can be found on page
    98 of the appendix.]
        Chairwoman Waters. Thank you very much. Mr. Ellison, will
    you introduce our next witness?
        Mr. Ellison. Thank you, Madam Chairwoman. Madam Chairwoman,
    members, John Anderson has been a licensed Realtor with Twin
    Oaks Realty in Crystal, Minnesota, as a sales person and broker
    since 1980. He is the present owner of the family business
    started by his father in 1961. John has assisted and counseled
    thousands of buyers and sellers over the years as, primarily, a
    residential broker. He has also been active in the industry,
    serving as a volunteer on national, State, and local levels of
    the Realtors Association.
        One of his key interests, because of his personal
    involvement, has been in the area of government financing,
    specifically FHA/VA mortgages, and their importance to the
    customer. He has been recognized as Realtor of the Year on both
    local and State levels, and has been named as ``Super Real
    Estate Agent,'' by Minneapolis St. Paul Magazine every year
    since 2003. He is married and has three children. Thank you,
    and welcome.

      STATEMENT OF JOHN W. ANDERSON, VICE CHAIR, FEDERAL HOUSING
        POLICY COMMITTEE, NATIONAL ASSOCIATION OF REALTORS (NAR)

        Mr. Anderson. Thank you, Representative Ellison. Thank you,
    Chairwoman Waters, Ranking Member Capito, and members of the
    subcommittee. I want to thank you for the opportunity to
    testify today on foreclosure rescue scams and the need for
    mortgage reform. I am testifying on behalf of NAR's 1.2 million
    members. I can tell you firsthand that the more lending abuses
    we see, the higher the prevalence of foreclosures. Foreclosures
    are like mold; once they start, it's difficult to get rid of
    them. Foreclosures lead to families losing their homes, as well
    as their savings, and can cause all homes in a neighborhood to
    lose value.
        Foreclosure rescue scams and loan modification scams are
    becoming more and more prevalent. One of the most pervasive
    foreclosure rescue scams that I have seen is the reconveyance.
    In this situation, a so-called foreclosure counselor tells a
    homeowner that, in exchange for paying the mortgage debt, the
    homeowner will sign a quit-claim deed, and can remain in the
    house as a renter.
        The scammer says the homeowner can make lower monthly
    payments to the scammer's company, and the payments will be
    credited the principal of the original mortgage. While the
    homeowner is making these payments, the scammer is keeping the
    money, and often using a home equity line of credit to suck out
    any remaining home equity. Soon the homeowner learns he or she
    is in further debt, and has added the burden of new liens from
    the scammer's home equity loans on the house. In almost every
    case where there is no legal intervention, the homeowner loses
    the home to foreclosure, all the money paid to the scammer as
    rent, and home equity that has built up over the years.
        Based on our experience, Realtors would like to share six
    recommendations on how to prevent foreclosure scams. First, we
    recommend that Congress enact legislation that puts disclosure
    requirements and minimum levels of service on people who offer
    to rescue homeowners from foreclosure. My home State of
    Minnesota passed such a law in 2004, which has proven
    successful and resulted in 12 lawsuits against predatory
    programs in just the last year.
        H.R. 1231 creates a fair balance between legitimate housing
    counselors and consultants that provide beneficial services to
    struggling homeowners and those predatory practices that take
    advantage of families who are facing foreclosure. As
    introduced, this bill provides an exemption for licensed real
    estate professionals similar to the 2004 Minnesota bill.
    Exempting these professionals when they are engaged in their
    normal business practices will allow Realtors to continue to
    offer these valuable services to their clients. Consumers rely
    on Realtors for their professional service, and trust their
    code of ethics. We urge passage of this important legislation.
        Second, lenders and servicers should be more aggressive in
    helping distressed homeowners. Too often we hear from Realtors
    that borrowers seeking help from a lender are told that nothing
    can be done until they are at least 90 days delinquent. We
    believe this increases the chance that a homeowner may turn to
    a mortgage rescue scam in order to get help.
        Third, Realtors believe legitimate foreclosure prevention
    options need to be widely advertised, especially in areas where
    rescue scammers like to operate.
        Fourth, the process for closing a short sale needs to be
    considerably shortened. NAR hears every day from members
    frustrated that servicers take months to even consider a short
    sale. Potential buyers, in the mean time, get frustrated and
    give up, while homeowners become even greater prey for
    scammers.
        Fifth, the private sector should be actively educating home
    buyers about safer affordable mortgage products.
        And, finally, NAR believes that the government needs to
    increase funding for financial counseling and consumer
    education programs to help borrowers avoid foreclosure.
        In conclusion, Realtors across the Nation believe anti-
    predatory lending reforms are required to restore consumer
    confidence in the housing industry, and avoid another housing
    crisis in the future.
        Historically low mortgage interest rates and significant
    tax credits for first-time home buyers have enticed consumers
    back into the housing market. However, we believe that
    wholesale reform of the mortgage lending sector will give
    consumers the protections they need and will remove the last
    impediment to a housing recovery.
        NAR supports lending reforms that protect the consumer, but
    ensures them reasonable access to mortgage capital, so that the
    American dream of sustainable homeownership can still be
    available.
        Thank you very much for your time, and I look forward to
    any questions.
        [The prepared statement of Mr. Anderson can be found on
    page 38 of the appendix.]
        Chairwoman Waters. Thank you all very much for your
    testimony. I recognize myself for 5 minutes. Let me first say
    to Mr. Scott Drexel, chief trial counsel of the State Bar of
    California, I really appreciate your no-nonsense attitude. We
    do have a copy of the ethics alert that you did, which I think
    was very, very good, and it certainly should have put everybody
    on notice. But I guess there are some people who just don't
    believe, as the old folks would say, fat meat is greasy.
        So, we're going to have to do what is necessary to avoid
    the opportunity for these scam artists to continue to harm our
    would-be homeowners that find themselves in foreclosure
    problems. And so, I am opposed to exemption for anybody. I
    think that it is very, very hard to nuance it so that you can
    track it.
        Now, I do have some sympathy for--or some questions about--
    the filing of bankruptcy. That is legitimate work for lawyers.
    And in the filing of bankruptcy, if it is considered that, in
    that work, it is loan modification, and it would prevent the
    lawyer from proceeding with legitimate bankruptcy work, then I
    think that needs to be looked at.
        So, Mr. Drexel, could you help me to understand whether or
    not we have a problem exempting lawyers if, in fact, they are
    involved with--we have a problem trying to protect lawyers so
    that they can do this work, if, in fact, they do do this work
    by way of bankruptcy?
        Mr. Drexel. Well, Madam Chairwoman, I would not have a
    problem with that. The fees charged by attorneys in bankruptcy
    proceedings are reviewed and approved by a bankruptcy judge or
    trustee. And so, that provides some measure of protection to
    the consumer. My concern is that with receiving fees in
    advance, even in the loan modification area, attorneys are free
    to provide services for clients. The preclusion would simply be
    upon getting money up front.
        And so, we would look to find ways to encourage attorneys--
    and many attorneys do, on a pro bono basis, assist people in
    this area. But even on a compensated basis, we're not seeking
    to preclude them performing the services, but simply from
    receiving money up front for that, but rather charging it as
    they perform the services.
        Chairwoman Waters. And isn't it true that in the final
    analysis, when you have foreclosure that would end up in a
    bankruptcy, that--if our bankruptcy legislation is signed by
    the President--in the final analysis, isn't it the judge who is
    determining whether or not there is going to be a write-down of
    principal, or a deduction of interest? And they, indeed, are
    the ones who are doing the modification?
        Mr. Drexel. That is my understanding.
        Chairwoman Waters. All right. So, having said that, you're
    sitting next to the Realtors, who think that they have some
    special knowledge and concern, certainly, in this area. Should
    they be exempted?
        Mr. Anderson. Well, thank you for the question. You know,
    on a daily basis--
        Chairwoman Waters. I was asking Mr. Drexel.
        Mr. Anderson. Oh, I'm sorry.
        Mr. Drexel. I'm sorry.
        Chairwoman Waters. I know what--
        Mr. Drexel. No, Madam Chairwoman, I do not. And in
    California, real estate brokers and sales people are not
    exempted, they are not permitted to receive money in advance of
    performing the services. And it has been that way for the last
    30 years now.
        Chairwoman Waters. And so, Mr. Anderson, what do you think
    about that?
        Mr. Anderson. Well, I would agree. I believe right now
    Realtors don't get any fees up front. I would be very cautious
    of any type of exemption that would be broad-based, and the
    reason being is I know right now, on a daily basis, I am
    meeting with people because they trust me and they come to me
    and ask me for advice. So anything that would tie my hands I
    would be very concerned about.
        So, I guess we would have to go and discuss that, you know,
    if the exemption came through. But we would agree with the up-
    front fees, because right now we don't collect up-front fees.
        Chairwoman Waters. Let me just also say, before my time is
    up, that this problem really lies with the servicers. The
    servicers, whether they are independent, or whether it's a
    servicing company, such as the one that's owned by Wells
    Fargo--they have their own servicing company--it seems to me
    our responsibility is to make sure that they have adequate
    numbers who are servicing, that they have ways by which people
    can reach them more easily than they are able to do now, having
    enough telephone lines, having competent, trained servicers.
        They are the ones who are holding this paper. They're the
    ones that are initiating these foreclosures, these loan
    initiators. And we just have to make them do what they are
    supposed to be doing.
        All right. Thank you. And with that, I will turn to, I
    suppose, Mr. Cleaver for 5 minutes.
        Mr. Cleaver. I just wanted to express my appreciation to my
    colleague, our colleague, Ms. Moore, for introducing this
    legislation. And when you consider that mortgage fraud is up 26
    percent from last year, it shows that people will take
    advantage of anything. And I appreciate those of you who came
    today to provide us with information. I yield back the balance
    of my time.
        Chairwoman Waters. Thank you. Mr. Green, for 5 minutes.
        Mr. Green. Thank you, Madam Chairwoman. I would like to
    associate myself with the remarks of Mr. Cleaver and the
    chairlady. I think that we do have a problem, in terms of
    servicers having a limited amount of capacity. And I think that
    capacity is what allows these fly-by-night businesses to do
    what they do.
        I would like, if I may, to ask someone, any one of you, how
    can we, in your opinion, enhance the capacity--as the chairlady
    has said, it is a problem--how do you perceive us enhancing
    that capacity? And I would like for Ms. Saunders, if you would,
    to give your opinion.
        Ms. Saunders. Enhance the capacity among the servicers?
        Mr. Green. Yes, ma'am.
        Ms. Saunders. By telling them to do it. I mean, for years
    we have been trying to rely on voluntary efforts, and they are
    not working. And we have new program after new program, and we
    say, ``Aha, this one is going to give them the incentive to
    participate. Well, maybe this one will give them the
    incentive.''
        And it's time to give up on voluntary efforts and say,
    ``You have to give somebody a contact person who you can reach,
    who has the authority and information you need, and you have to
    go through this process to consider a reasonable loan
    modification, before you can embark on foreclosure.''
        Mr. Green. Mr. Story?
        Mr. Story. Well, I think we all agree that it's unfortunate
    that there is a capacity issue, or there has been a capacity
    issue with servicers. But there is a financial incentive for
    servicers to make sure that they can modify loans that are able
    to be modified.
        So, the servicers are actively trying to do this as quickly
    as possible. They're hiring more people, they're putting in
    sophisticated technology in their telephone systems in order to
    get to the customers as soon as possible when they call. So
    there is a big effort out there. It could always be better, but
    there is a true incentive for them to get this done as quickly
    as possible.
        Mr. Green. Mr. Anderson?
        Mr. Anderson. You know, it's interesting that we have given
    them the money in order to shore them up, but I can tell you
    from someone who meets with these consumers every single day,
    the reason why they are struggling so badly is that they call
    their lenders, they call the loan servicers, and they don't get
    any help. And then I will get on the phone with them, I will
    try to assist them.
        And someone asked the question previously about why loan
    modifications go back into foreclosure again. The reason being
    is that they don't modify it enough. And if they really truly
    want to keep them in the homes, then they need to say, ``We are
    willing to take something and cut it right now in order to keep
    these people in homes,'' because it's not just good for them,
    it's good for their neighborhoods.
        I work in Mr. Ellison's neighborhood, I work in--all around
    there. And we need to help these people get--be able to get in
    contact and get a reasonable amount of time to get answers back
    on modifications, short sales, and advice.
        Mr. Green. Mr. Drexel?
        Mr. Drexel. Representative Green, with all due respect, I
    don't feel qualified to intelligently respond to your question,
    since my area is more the regulation of attorneys.
        Mr. Green. Let me just have one follow-up. Do you think
    that the $1,000 incentive, the incentives that we have given to
    maintain a loan, that those things are helping to some extent?
    Ms. Saunders?
        Ms. Saunders. The numbers are getting better, but they are
    just not there yet. And, sure, every little incentive helps a
    little bit, but I think it is time to stop with the carrots,
    and we need some sticks, too. The numbers still are that, even
    for the people who get loan modifications, only about half of
    them are getting a reduction in payment. About half of the loan
    modifications are ending up in foreclosure.
        And so, we need to say, ``This is what you have to do. You
    have to consider it, and it has to meet these standards.'' And,
    by the way, the standards need to be transparent. That is one
    of the things that we are asking for in the Administration plan
    is that everybody ought to know what is the formula, what do
    you have to do to qualify, so we can hold them to it.
        Mr. Green. Mr. Story, is it helping at all?
        Mr. Story. I think that the $1,000 is not necessarily an
    incentive, but it is helpful in covering the costs. And there
    are areas where--I mentioned HOPE NOW in my talks, and we have
    seen over 3 million modifications with that organization. So
    there is some modification--
        Mr. Green. Just one follow-up with you, Mr. Story. I--you
    are among the first to tell me this, that you had--did you say
    3 million?
        Mr. Story. Right.
        Mr. Green. Do you have any empirical evidence to support
    the premise?
        Mr. Story. I don't have it with me today, but I can get you
    that information.
        Mr. Green. Okay. And, if you would, in so doing, give me
    the definition of modification you are utilizing.
        Mr. Story. Sure, no problem.
        Mr. Green. Thank you. I thank you, Madam Chairwoman, I am
    going to yield back.
        Chairwoman Waters. Thank you very much. Next, we have Mr.
    Ellison.
        Mr. Ellison. Thank you, Madam Chairwoman. Thank you, Madam
    Chairwoman, very much.
        Mr. Anderson, I would like to ask you a question about, you
    know, a Minnesota approach. Thanks for discussing the
    foreclosure reconveyance statute in our home State. Can you
    talk to us today about how that statute defines a foreclosure
    consultant? And how does that differ from the scope of H.R.
    1231?
        Mr. Anderson. Thank you. Actually, it is very close in
    relationship, the bill--the two bills. And it is--it does
    exempt Realtors and those who are legitimate types of
    organizations that are trying to give advice. It prohibits up-
    front fees. It prohibits an automatic conveyance to the person
    that is, you know, the provider, and so forth.
        So, the Minnesota bill did a terrific job, and went a long
    way. And I think this bill, likewise, does a terrific job and
    matches up very closely in lots of ways.
        Mr. Ellison. Do you feel it has had a chance to demonstrate
    some results? I mean, do you think it is working?
        Mr. Anderson. I think it is working, and the statistics
    prove that it is working. I think what the Federal bill would
    do will help in a broader scope, because I know that one of the
    large companies that our attorney general went after just
    recently was out of Florida. And so it does cross State lines.
    And so I think the Federal bill, then, I think will assist
    State attorneys general in doing this.
        Mr. Ellison. Thank you. Ms. Saunders, do you think that the
    foreclosure prevention fraud legislation should only cover
    foreclosure consultants and loan modification specialists?
    Should we cast the net a little wider?
        Ms. Saunders. Are you talking about the sale lease-back
    transactions? Or what are you getting at in terms of--
        Mr. Ellison. I am talking about the scope of H.R. 1231.
        Ms. Saunders. Okay.
        Mr. Ellison. Yes.
        Ms. Saunders. I think the scope is appropriate. And,
    frankly, my concern, from the attorney perspective, is how
    broad it is. We all have in our mind what these loan mod firms
    look like. But the language, of course, is written more broadly
    to govern a variety of services that are represented will help
    with foreclosure.
        And so, I think you need that flexible language in order to
    address the variations that these schemes can take. I mean,
    this bill is patterned after State legislation that was written
    long before anybody had heard of a loan modification. And yet,
    it is useful.
        But, to the extent you do have a broad definition, you have
    to be careful about what you are catching within that. A lawyer
    who looks at a predatory loan and charges a fee to review the
    documents and identify claims and write a demand letter, well,
    they are doing that to try to stop a foreclosure. But we don't
    want to stop that.
        Mr. Ellison. Right.
        Ms. Saunders. So, yes, I think the scope is appropriate,
    but we need to be careful about how it relates to legitimate
    attorney services.
        Mr. Ellison. Do you think that the penalties in H.R. 1231
    are sufficient?
        Ms. Saunders. I would recommend strengthening them. I think
    simply returning the fee isn't much of a penalty. You get a lot
    of fees from 1,000 people, and if a couple of them speak up and
    squawk, well, that is the cost of doing business.
        So, you know, I would say that double or treble damages
    would be more appropriate.
        Mr. Ellison. You know, I just want to observe that if you
    are talking about a Realtor, a licensed Realtor, or an
    attorney, if they do something that is unethical, they are
    going to have to deal with much more than returning a fee. But
    for people who are--don't fit in either category who do operate
    in this area, all they are doing is returning the fee. So the
    incentive to stop is not as strong.
        What would you recommend, in addition to what is in the
    bill?
        Ms. Saunders. You could add in statutory penalties, or
    triple the amount of the fee, the damages or triple the amount
    of the fee.
        But damages, you are going to get into a fight about
    whether the person was going to lose their home anyway. So you
    are not always going to get those damages. So, I would say
    triple the amount of the fee.
        Mr. Ellison. I see. Now again, Ms. Saunders, I want to ask
    you, in your opinion, would a reporting requirement be useful?
    And, if so, should--would a reporting requirement be useful?
    And then, if you think so, then I have some follow-up for you.
        Ms. Saunders. Okay. If you--in terms of the loan mod firms
    reporting their data, what they are doing?
        Mr. Ellison. Yes.
        Ms. Saunders. I think that is something that States might
    want to consider. I am not sure that it really works so much at
    the Federal level.
        I do have concerns about some of the State laws that have
    gone down the licensing route, because we don't want to
    legitimize these firms. On the other hand, if you tie that to a
    heavy bond requirement and a requirement to actually report
    data to the State agencies that can look at it, definitely at
    the State level, I think that can be useful. I'm not sure it
    makes sense in the Federal bill.
        Mr. Ellison. Okay. You noted in your testimony that
    California passed mortgage foreclosure fraud legislation back
    in 1979. Yet we still have the problem. What do you think
    caused the law to--why do you think we still have it? Was the
    State law not strong enough? Do you think it was ineffective?
    Do you think it helped some, but not enough? How do you see the
    situation?
        Ms. Saunders. It does help some. And I am actually a
    California lawyer. I spent 15 years with a legal services
    office in Los Angeles. And we used California's law, among
    others, to go after the equity-stripping scams that were
    prevalent back then.
        It does have a number of exemptions. And, we have talked
    about the problems that those create.
        I also think it does allow certain fees that are not always
    appropriate. Like I said, we recommended that the fees be tied
    to results, both in State legislation as well as Federal.
        Mr. Ellison. My time is up, so let me thank all the
    panelists, and thank the Chair.
        Chairwoman Waters. Thank you very much. Ms. Moore?
        Ms. Moore of Wisconsin. Oh, thank you so much, Madam
    Chairwoman, and I want to start out by thanking my colleagues
    for remaining through this second panel, and really, really
    delivering these--offering these very sage questions that
    really are, I think, going to improve this legislation.
        And so, with that, I am going to try to follow up on some
    of the things that my colleagues have asked. And before I do
    that, I want to single out Ms. Saunders for working with me and
    with Chairwoman Waters on this legislation to try to perfect
    it. And I also want to thank Mr. Drexel and Mr. Anderson, in
    particular, for traveling and coming here with their great
    examples of what is happening in their States.
        The chairwoman started out, Mr. Drexel, by asking you about
    the attorneys' fees. And I thought there was some really
    important information that was conveyed there. She talked
    about, in the case of a bankruptcy, that the fees are typically
    approved by judges. And loan modifications are approved by
    judges.
        So, are you saying--and I don't know the answer to this
    question, I'm not a lawyer--but that lawyers will enter into
    this bankruptcy work, knowing that, as the process moves
    forward, that the judge--it can start out pro bono, and that
    the judge will approve monies that maybe they take from their
    own accounts and pay--and reimburse them for work that they
    have done? Is that what I need to understand?
        Mr. Drexel. Well, my understanding is, Representative
    Moore, that in bankruptcy proceedings, that the court does have
    to approve all the fees that are paid, that monies that are
    paid in advance go against the amount that the court approves.
    But, in most cases, I don't believe that attorneys in
    bankruptcy proceedings are allowed to get advance retainers.
        So, I think the protection provided by the bankruptcy judge
    or trustee, in reviewing the fees that are received, provides a
    protection to the consumer that those--that the bankruptcy is
    legitimate, and the fees that are charged by the attorney are
    for services that are actually performed.
        Ms. Moore of Wisconsin. So I mean, do people--do attorneys
    get retainers from people or not in bankruptcies before they
    are approved?
        Mr. Drexel. In my experience, they--
        Ms. Moore of Wisconsin. What we are trying to prevent
    here--and I think Ms. Saunders mentioned it as well, I mean--we
    were trying, when I was working with Ms. Waters, we were trying
    to come up with a middle ground where we don't stop legitimate
    activities. I mean, some of these people's homes may be able to
    be saved, and we are not trying to prevent legitimate
    activities of attorneys for being contracted for--you say your
    folks are not getting any money, and you even said you are not
    against that.
        Mr. Drexel. Right.
        Ms. Moore of Wisconsin. So, we are trying to craft
    something that is going to make sense. So--
        Mr. Drexel. To my knowledge, they do not.
        Ms. Moore of Wisconsin. Okay. So, you're saying--so if my
    legislation exempts attorneys, it wouldn't have any impact on
    whether or not an attorney would get involved in stopping a
    bankruptcy?
        Mr. Drexel. It does not preclude them from doing that,
    that's correct.
        Ms. Moore of Wisconsin. Okay. Okay. Same thing--what about
    stopping a foreclosure?
        Mr. Drexel. Well, the same thing. Whether they can get a
    retainer or not in advance does not preclude them from
    performing services and for reaching an agreement with the
    consumer as to what the fair compensation for the services they
    provide.
        Ms. Moore of Wisconsin. Okay, so--
        Mr. Drexel. The problem with getting the money up front, of
    course--
        Ms. Moore of Wisconsin. Okay. So, Ms. Saunders--because my
    time may expire--I want you to get involved in this a little
    bit.
        What I am trying to prevent, you know, I don't want to put
    something in law, or in statute here, that would be so heavy-
    handed that it would prevent these other activities that aren't
    related to rescue scams.
        In your opinion, if I did not exempt attorneys at all, did
    not put any language in, would that have a chilling impact on
    legitimate work that attorneys were doing?
        Ms. Saunders. If there were no exemption for attorneys, and
    no qualifications on that lack of exemption, yes, I think that
    would be a big problem.
        Without trying to write the language here--obviously we are
    all trying to get to the same result, to try to figure out how
    to define that middle line. Maybe there is something in terms
    of how you define an advance fee with an exemption for a
    retainer, an attorney who is acting in compliance with all
    ethical rules of their State.
        As you long as you carve out the non-attorneys who are
    using the cloak of the attorney license, there may be ways in
    which you can narrow that attorney exemption so that it doesn't
    expand.
        Ms. Moore of Wisconsin. Thank you--
        Chairwoman Waters. Will the gentlewoman yield for--
        Ms. Moore of Wisconsin. Absolutely.
        Chairwoman Waters. Yes. As I understand it, your amendment
    does exempt attorneys who are filing bankruptcies. And we
    further modified that to make sure that they were not frivolous
    lawsuits, or something like that.
        So, are you asking about something beyond that?
        Ms. Moore of Wisconsin. Well, I--you know, I want to make
    sure that--okay, you accepted that amendment from me, but I was
    wondering whether we should go further. And, if we were to go
    further, would that have a chilling impact?
        So, I am just trying to make sure we have the right
    balance.
        Ms. Saunders. Can I respond?
        Ms. Moore of Wisconsin. It is up to the Chair, because my
    time has expired.
        Chairwoman Waters. Go right ahead.
        Ms. Moore of Wisconsin. Okay.
        Ms. Saunders. Okay. The concern about the language in the
    amendment as offered last week is that it ties the exemption to
    litigation, to being in court. And attorneys do things short of
    going to court. Like I said, we review loan documents for a
    fee. We don't promise to go to court. Others write demand
    letters. Any good lawyer is going to try to resolve it out of
    court before going to court.
        So, if you make the line be you're okay if you go to court,
    but you're not if you don't, that can be a problem.
        Chairwoman Waters. Okay--
        Mr. Drexel. Representative Moore, I wonder if I could--
        Chairwoman Waters. If the gentlewoman would yield further--
        Ms. Moore of Wisconsin. It is up to the Chair at this
    point.
        Chairwoman Waters. Yes. Who is it who wants to speak? Yes,
    sir.
        Mr. Drexel. I am sorry, I just wanted to make a comment. I
    think the distinction here is between--I know part of the issue
    was whether the receipt of fees should--or compensation should
    be dependant upon results, you know, versus getting money up
    front.
        And I think, with attorneys, for instance, that the issue
    should be whether they are being paid for services they have
    already provided, not necessarily results, because sometimes
    the--they can't get the results, but they have definitely
    performed services--versus getting money up front.
        In California, attorneys who get advance fees are not
    required to place those fees in a trust account until they are
    earned. And so, getting the money up front basically encourages
    the fraud, encourages these loan modification consultants and
    the like to try to hook up with attorneys, to get them to get
    large parts of--large amounts of funds up front, which they
    then share with them.
        By allowing attorneys only to bill for services that they
    have actually performed themselves after the fact, I think that
    eliminates that problem, and does not require them to perhaps
    not get paid if they are not successful in getting the loan
    modification.
        Ms. Moore of Wisconsin. So, in other words, if they found
    some papers and it cost them $200 for a filing fee, they would
    have to pay that out of their own attorney accounts and then
    get reimbursement for it.
        Mr. Drexel. Correct.
        Ms. Moore of Wisconsin. But that would solve it. Okay. I
    just have a comment. Would--
        Chairwoman Waters. Please, go right ahead.
        Ms. Moore of Wisconsin. One of my other colleagues who is
    no longer here--a couple of them have made some really good
    points, Madam Chairwoman, that--we were talking about the
    limited capacity of servicers, and there was a--you know, I
    think that 84.3 percent of the folk who got us into this mess
    with poor underwriting were non-banking entities.
        And so, those people have sort of disappeared from the
    marketplace, you know, now. So now we are asking servicers and
    banks to modify them, and they, in fact, may not have the
    employees, and may have to hire them. Maybe we need to figure
    out how to do that. But I do believe we need to give up on
    volunteerism.
        And Mr. Ellison made a point, that the penalties need to be
    strengthened, and I just wanted to clarify that you thought
    treble damages was the right balance?
        Ms. Saunders. Yes.
        Ms. Moore of Wisconsin. Okay.
        Ms. Saunders. That is what is in some other statutes.
        Chairwoman Waters. Thank you very much, Ms. Moore. We have
    legislation that we are proposing to put something in law to
    oversee and regulate servicers. This is an unregulated
    industry. And we are taking a very, very close look at how to
    do that.
        Some of the people here today have testified that we need
    to give more support to the housing counselors who are trying
    to help homeowners. However, we have found--I convened housing
    counselors. They, too, cannot get in touch with the servicers.
    They have the same problems--calling the telephone numbers, not
    getting answers, or getting a menu that does not work.
        And so, it is not so much we need more counselors, as we
    need the banks to hire--and the servicing companies to hire--
    more people, make them more accessible, and be willing to
    really do loan modifications with trained people. And we are
    really taking a look at how to do that.
        Thank you, ladies and gentleman, for your participation.
    Ms. Capito, I understand you don't have any questions. Do you
    have a statement?
        Mrs. Capito. No, I don't. I have no questions. I just
    wanted to thank the panel. I'm sorry I was in and out so much,
    but I appreciate your input. Thank you.
        Chairwoman Waters. Thank you very much. And, of course, we
    may have additional questions, and the record will remain open
    for 30 days for those members who would like to raise
    additional questions about this hearing.
        With that, this hearing is adjourned. We are going to go to
    the Floor, where another important bill is on the Floor, and
    see if we cannot participate in that. Thank you very much.
        [Whereupon, at 11:57 a.m., the hearing was adjourned.]

                                A P P E N D I X

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