[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



                              May 6, 2009


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