[House Hearing, 111 Congress] [From the U.S. Government Publishing Office] THE RECENTLY ANNOUNCED REVISIONS TO THE HOME AFFORDABLE MODIFICATION PROGRAM (HAMP) ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION __________ APRIL 14, 2010 __________ Printed for the use of the Committee on Financial Services Serial No. 111-122 ---------- U.S. GOVERNMENT PRINTING OFFICE 57-740 PDF WASHINGTON : 2010 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 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: April 14, 2010............................................... 1 Appendix: April 14, 2010............................................... 43 WITNESSES Wednesday, April 14, 2010 Baker, Dean, Co-Director, Center for Economic and Policy Research 22 Caldwell, Phyllis, Chief Homeownership Preservation Officer, U.S. Department of the Treasury..................................... 5 Cohen, Alys, Staff Attorney, National Consumer Law Center........ 24 Fiorillo, Vincent, Trading/Portfolio Manager, Doubleline Capital LP, on behalf of the Association of Mortgage Investors (AMI)... 26 Jakabovics, Andrew, Associate Director, Housing and Economics, Center for American Progress Action Fund....................... 28 Kling, Arnold, member, Mercatus Center Working group on Financial Markets, George Mason University............................... 30 Stevens, Hon. David H., Assistant Secretary for Housing/FHA Commissioner, U.S. Department of Housing and Urban Development. 4 Story, Robert E., Jr., CMB, Chairman, Mortgage Bankers Association (MBA).............................................. 32 White, Alan M., Assistant Professor, Valparaiso University School of Law......................................................... 33 APPENDIX Prepared statements: Baker, Dean.................................................. 44 Caldwell, Phyllis............................................ 51 Cohen, Alys.................................................. 61 Fiorillo, Vincent............................................ 90 Jakabovics, Andrew........................................... 97 Kling, Arnold................................................ 105 Stevens, Hon. David H........................................ 108 Story, Robert E., Jr......................................... 118 White, Alan M................................................ 128 THE RECENTLY ANNOUNCED REVISIONS TO THE HOME AFFORDABLE MODIFICATION PROGRAM (HAMP) ---------- Wednesday, April 14, 2010 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 2:08 p.m., in room 2128, Rayburn House Office Building, Hon. Maxine Waters [chairwoman of the subcommittee] presiding. Members present: Representatives Waters, Cleaver, Green, Donnelly, Driehaus, Himes; Capito and Jenkins. Also present: Representatives Watt and Bean. Chairwoman Waters. This hearing of the Subcommittee on Housing and Community Opportunity will come to order. Good afternoon, ladies and gentlemen. I would like to thank the ranking member and other members of the Subcommittee on Housing and Community Opportunity for joining me today for this hearing on the recently announced revisions to the Home Affordable Modification Program, commonly referred to as HAMP. Today's hearing will again revisit the Administration's program to prevent foreclosures. This is the third subcommittee hearing on the topic since the Administration announced the program just over a year ago. In that time, we have seen about 1.4 million trial loan modifications take place, but only 230,000 modifications have been made permanent. At the same time, performance on home mortgages serviced by the largest national banks and thrifts continued to decline through the end of 2009. While foreclosure activity decreased from January to February of this year, the February 2010 numbers are still 6 percent higher than the numbers from February 2009. So, I am pleased that the Administration addressed something that had long been clear to me and many of us in Congress: the original HAMP program was not doing enough to address the foreclosure crisis as it exists today. While the original program helped borrowers get lower interest rates, it did nothing to address the concerns of unemployed homeowners or underwater borrowers. In my hearings, my conversations with agency and bank officials, and my discussions with homeowners impacted by these policies, I have advocated for stronger foreclosure intervention programs. In December of last year, the Wall Street Reform and Consumer Protection Act included a provision I authored to provide $3 billion in assistance to unemployed borrowers nearing foreclosure, a much more robust program than what the Treasury Department has proposed. I hope that a provision similar to what I authored will be included in the Senate's Wall Street Reform bill. And I have likewise been a strong proponent for principal reduction programs, seeing the devastation in Los Angeles. A recent study by First American CoreLogic estimated that the average borrower in Southern California would not get out from being underwater until 2016. So I'm curious today to hear from the Administration and from advocates about how these new initiatives will address these pressing issues. Though I am concerned that these programs won't be operational until the fall, I am also interested to hear the Commissioner elaborate on how these policy changes will impact FHA's capital reserve level, given the important legislation I am crafting to address that issue. And I am also interested in hearing from advocates about what we should expect from these new initiatives. Will it be enough? Or do we need to mandate that these banks take steps to more seriously assist homeowners? Increasingly, I am unconvinced that these voluntary programs are going to provide the assistance that homeowners desperately need. I find it curious that some major banking institutions have said publicly that principal reductions for struggling homeowners are unfair, and cause market distortions. However, when these financial institutions find themselves underwater on their own real estate investments, they themselves often stop making payments. For example, Morgan Stanley recently decided to stop paying on five underwater office buildings in San Francisco. And when the Mortgage Bankers Association found itself underwater on its headquarters, they were able to rely on other lenders to get out from under this unsustainable mortgage. Unfortunately, it seems that many of their members oppose giving homeowners the right to do the same. And I also remain troubled by the behavior of servicers who continue to construct barriers for some in search of loan modifications. I will continue to demand more accountability for servicers, and I will work with Chairman Frank to enact mandatory loss mitigation legislation. I would now like to recognize our subcommittee's ranking member, Mrs. Capito, for 5 minutes to make an opening statement. Mrs. Capito. Thank you. I would like to thank the chairwoman for holding this hearing today. Last month, the Treasury and the Department of Housing and Urban Development announced another round of revisions to the Administration's Home Affordable Modification Program, commonly referred to as HAMP. Rolled out with the fanfare of promising to help nine million struggling homeowners, the HAMP program has fallen woefully short. As of March 12, 2010, Treasury disclosed that only 170,000 homeowners had received permanent modifications. From the beginning, I have had significant concerns about the over-promising of assistance by these programs from this Administration. For families who are struggling, all this fanfare accomplishes is raised expectations about a program that is providing assistance to a fraction of the population that it is supposed to help. I also have concerns about the precedents set by the changes of this program. There is no doubt that some homeowners were victims of mortgage fraud in the years running up to the housing bubble. However, the problems we are now seeing in the housing markets are less related to exotic mortgage products. Are we creating a moral hazard here for future home buyers that will give them less incentive to pay their mortgages on time, and purchase a home that is well within their means? Is it fair to the vast majority of Americans who rent, own their home outright, or are current on their mortgage, that some Americans who are not as responsible with their financial decisions are now receiving these benefits? The newest revisions allow borrowers to refinance into the FHA program, which is already struggling with their capital reserve fund below the mandated 2 percent level. We are in the process of crafting legislation to address the issues facing the FHA, but it concerns me that we are utilizing a program with significant challenges as part of foreclosure mitigation. It is tough to predict the effect these additional refinances will have on FHA. I look forward to hearing from our witnesses and, again, I would like to thank the chairwoman for holding this important hearing. Chairwoman Waters. Thank you very much. Mr. Green, for 2 minutes. Mr. Green. Thank you, Madam Chairwoman. I thank the witnesses for appearing, and would like to assure you that I am very much interested in hearing about principal reduction programs that are being made available. My understanding is that on March 26th, Treasury and FHA announced a program, and on March 26th, the HAMP program was also reconstructed, or it was modified such that it would emphasize principal reductions, as well. So, principal reductions are being implemented currently, as I understand it, by Bank of America. And I will be interested in knowing if you have some knowledge or empirical evidence as to how Bank of America is doing this, and doing it effectively. My belief is that at some point, we will have such a large number of persons who are underwater that principal reduction would become more appealing to private enterprise. Initially, the servicers had concerns with no incentives. We provided incentives. Then, one of the concerns was too much liability. We passed some measures to help with liabilities. We have gone through tranche warfare. Any number of reasons why we can't do what they say can be done but does not get done on a large scale. So, I am interested very much in hearing what you have to say about these things. And I thank you, Madam Chairwoman, for hosting this hearing today. I yield back. Chairwoman Waters. Thank you very much. Mr. Donnelly, for 2 minutes. [No response.] Chairwoman Waters. Mr. Donnelly does not wish to speak. We will go right to our witnesses. I am pleased to welcome our distinguished first panel. Our first witness will be the Honorable David Stevens, Assistant Secretary for Housing/FHA Commissioner, U.S. Department of Housing and Urban Development. Our second witness will be Ms. Phyllis Caldwell, Chief Homeownership Preservation Officer, U.S. Department of the Treasury. Thank you for appearing before the subcommittee today. And, without objection, your written statements will be made a part of the record. You will now be recognized for a 5-minute summary of your testimony. STATEMENT OF THE HONORABLE DAVID H. STEVENS, ASSISTANT SECRETARY FOR HOUSING/FHA COMMISSIONER, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Mr. Stevens. Chairwoman Waters, Ranking Member Capito, and members of the subcommittee, thank you for the opportunity to testify today on the Administration's recently announced adjustments to FHA and HAMP to prevent more avoidable foreclosures, and to better assist homeowners who owe more than their home is worth. The Obama Administration's goal is to promote stability for both the housing market and homeowners. To meet the objectives, we have developed a comprehensive approach, using State and local housing agency initiatives, tax credits for home buyers, neighborhood stabilization and community development programs, mortgage modifications and refinancings, support of Fannie Mae and Freddie Mac to stabilize mortgage and securities markets, and several reforms to restore confidence in FHA. With this past year's record low mortgage rates, thanks in large part to these initiatives, more than four million homeowners have refinanced their mortgages to more affordable levels. This helped save homeowners more than $7 billion last year, and more than 1 million families are saving an average of $500 per month through the Administration's mortgage modification program. Home equity increased, on average, by more than $13,000 for homeowners in the last 3 quarters of 2009. These efforts have begun to restore the confidence we need to get our economy moving, creating 162,000 jobs last month, the best job report in 3 years. Even with the success, we continue to see challenges. Our strategy to address the housing crisis must evolve, because our challenges have also evolved. In addition to housing affordability, the recently announced FHA and HAMP initiatives are designed to tackle two of the biggest threats to our housing recovery: unemployment; and underwater borrowers. Our housing initiatives must balance the need to help responsible homeowners struggling to stay in their homes, with the recognition that we cannot stop every foreclosure. Some people simply cannot afford to stay in their homes. The Home Affordable Foreclosure Alternatives program includes a variety of options to help homeowners transition to more affordable housing, including incentives for expanded use of short sales and deeds in lieu, as well as relocation assistance. For those homeowners who can be helped, the Administration has also expanded efforts to prevent avoidable foreclosures by providing responsible borrowers with opportunities to sustainably modify or refinance their loan. Last month, we announced the FHA refinance option, which will provide more opportunities for lenders to restructure loans for families who owe more on their home than it is now worth, due to price declines in their communities. This option is voluntary for the lender and borrower. To qualify for a new FHA loan, a borrower must meet FHA's fully documented underwriting requirements, must be current on their mortgage, and the lender must reduce the amount owed on the original loan by at least 10 percent. We have also included incentives to encourage the private sector to write down second liens. Total mortgage debt after refinancing cannot be greater than 115 percent of the current value of the home, giving homeowners a path to regain equity in their homes, and an affordable monthly payment. These adjustments support principal reduction efforts already under way in the private market, and offer incentives to expand their reach. The vast majority of the burden of writing down these loans will fall where it belongs: on lenders and investors, not the taxpayer. I have appeared before this committee several times to discuss the reforms we have made to strengthen FHA. It is because we are in a strong position today that we are able to facilitate these efforts to assist more struggling homeowners. Furthermore, the Administration has designated $14 billion of TARP funds allocated to supporting the housing recovery, to provide incentives to write down second liens, and to mitigate risk to the FHA fund. This FHA refinance option, in addition to changes to the Home Affordable Modification Program which Chief Homeownership Preservation Officer Phyllis Caldwell is here to discuss, will help the Administration meet its goal of assisting three to four million homeowners avoid foreclosure. I have submitted more detailed testimony about these efforts for the record. Madam Chairwoman, taken together, the Administration's broad housing initiatives and these newly announced flexibilities will offer a second chance for millions of responsible American families to stay in their homes. These expanded efforts build upon the substantial progress that has already been made, and will further help stabilize our neighborhoods and communities, and contribute to economic recovery. Thank you. [The prepared statement of Commissioner Stevens can be found on page 108 of the appendix.] Chairwoman Waters. Thank you very much. Ms. Caldwell? STATEMENT OF PHYLLIS CALDWELL, CHIEF HOMEOWNERSHIP PRESERVATION OFFICER, U.S. DEPARTMENT OF THE TREASURY Ms. Caldwell. Chairwoman Waters, Ranking Member Capito, and members of the subcommittee, thank you for the opportunity to testify today on the recently announced enhancements to the Home Affordable Modification Program, or HAMP, a key component of the Administration's Making Home Affordable initiative. These program enhancements will better assist responsible homeowners who have been affected by the economic crisis. The program modifications will provide greater protections for borrowers at risk of foreclosure, expand the program's flexibility to assist more unemployed homeowners, and help more people who owe more on their mortgage than their home is worth. Costs will be shared between the private sector and the Federal Government. Funding from the Troubled Asset Relief Program, TARP, will not exceed the $50 billion originally allocated for housing programs. At the time we launched HAMP in March 2009, President Obama said that the program would enable as many as 3 million to 4 million homeowners to modify the terms of their mortgages. Through March, over one million homeowners were in active trial or permanent modifications, and nearly 230,000 homeowners are in active permanent modifications. An additional 108,000 permanent modifications have been offered and are waiting only for the borrower's signature. Borrowers and permanent modifications are saving a median of 36 percent or more than $500 each month. And HAMP has proven it is helping borrowers who have faced real financial hardship. Nearly 60 percent of borrowers in permanent modifications have faced a reduction in income, including loss of wages, hours, or unemployment of a spouse. HAMP has demonstrated real progress in the first year of the program, and we continue to improve it, based on lessons learned and feedback from homeowners, investors, servicers, and borrower advocates. Despite the progress, however, we have encountered a number of policy and operational issues that have been challenging to address. These include difficulties converting trial modifications to permanent status, confusion surrounding the concurrent foreclosure and modification process, and significant economic challenges posed by unemployment and severe negative equity. After working with stakeholders at nearly every stage of the housing finance process, we have moved aggressively to implement program changes and expansions to help at-risk homeowners. To ensure that borrowers will not be caught in a long trial period, we have increased up-front document requirements for a trial modification, and established concrete time frames for servicer response. We have made improvements around borrower solicitation and communication that will take effect in June, ensuring that homeowners are evaluated for HAMP prior to foreclosure proceedings, and requiring servicers to consider borrowers and bankruptcy upon request. To further assist certain unemployed homeowners, servicers will be required to reduce their mortgage payments temporarily to an affordable level for a minimum of 3 months while they look for a job. If a homeowner does not find a job before the assistance period is over, the homeowner will be evaluated for permanent HAMP or possibly may be eligible for a short sale program. To expand the use of principal write-downs, servicers will soon be required to consider an alternative modification approach that emphasizes principal relief. Under the alternative approach, servicers will be asked to consider principal write-down balances above 115 percent current loan- to-value, and eligible homeowners will earn this forgiveness on a pay-for-success basis, with principal forgiven in three equal steps over time, as long as the borrower remains current. And lastly, four servicers, representing over half of the second lien mortgage market, have signed on to participate in the second lien program, or 2MP, which provides for concurrent modification or extinguishment of a second lien when the first is modified in HAMP. We believe these changes will better enable us to reach our goal of preventing avoidable foreclosures. Thank you. [The prepared statement of Ms. Caldwell can be found on page 51 of the appendix.] Chairwoman Waters. Thank you very much. I will now recognize myself for questions to our first panelists. First of all, let me thank you for being here. Mr. Stevens, as you know, we are working on legislation to empower FHA to increase its capital reserves. Please elaborate on how the Administration's proposed refinance program will interact with FHA's capital reserves. Should we be worried that this creates more risk for FHA? Mr. Stevens. So let me start by making one point very clear about the FHA refinance option. The option that we announced utilizes the existing FHA program as it stands today with no changes to policy within the FHA program to utilize it. So all we are doing is using existing resources currently available within the FHA guidelines. Furthermore, to protect any unknown risk--and I want to emphasize that we do not expect--we have looked at a lot of modeling on this particular option, and do not expect necessarily to use these funds. However--these funds to be needed--TARP funds will be made available, $14 billion of TARP funds will be made available, to offset lender claims on defaulted loans, and will reduce a portion of the FHA risk on these loans. That, combined with the fact that these are existing policies, leads us to the conclusion, based on our analytics, that this should not expose FHA to further risk and their own MMI funding the portfolio. Chairwoman Waters. That's good, and that helps me to understand how you are going to do this. But when does the new refinance program begin? In the fall, is it? Mr. Stevens. The new--I'm sorry, Madam Chairwoman, when-- Chairwoman Waters. The program that you announced for refinance-- Mr. Stevens. Yes. Chairwoman Waters. --does not begin right away. It starts some time in the fall? Mr. Stevens. That's correct. We have to issue a mortgagee letter, some guidance to the industry. We have to pull together the industry participants so that the dialogue can begin to occur. One of the fundamental challenges we have had with many of these modification efforts is that the industry is very fragmented between servicers, originators, investors, and the borrower, who all have to come together in order to form this union that can result in the principal write-down. For this program, this option under the refinance guideline, to be effective, we need to pull those components together and give clear guidance to the industry, not only how to make the operations work, but, as well, to ensure that the fundamentals associated with the TARP execution related to this for the lenders when they submit claims down the road is also effective and available at that time. So, for that reason, we do not expect this to be operational until the fall--late summer, at best. Chairwoman Waters. I'm a little bit worried about many homeowners who have paid their bills on time for the length of the mortgage that they are holding. They have gotten into trouble, they have missed payments, they are trying to get loan modifications, they are trying to get refinanced, they are trying to do whatever they can. But under your program, for example, if you use the same criteria that you use for your FHA mortgages, are they going to be eligible? Mr. Stevens. The FHA program, FHA refinance option, is merely one of a variety of options that's provided by this Administration, particularly with the recent announcements that we just made a couple of weeks ago that helps provide a series of alternatives to help affect responsible homeowners who we are able to effectively reach. We do need to be clear, and the President has said that not everybody will avoid foreclosure. And to that extent, there will be some borrowers who cannot qualify. However, given the FHA guidelines, we believe that there will be a significant opportunity for homeowners who are in distress, underwater in their homes, who can afford a mortgage if it was written down to an appropriate level, who will be able to make their payments for the long term. And that is who this particular portion of the Administration's programs are designed to reach. Chairwoman Waters. Thank you very much. Mrs. Capito? Mrs. Capito. Thank you. Let me make sure I get how this is going to work. If you're in an underwater mortgage, and let's say you have a second lien, like a lot of people do, you are going to extinguish that. Who pays for that? Mr. Stevens. Let me just walk--I will give you the full scenario. What will happen is--let's assume there is a second lien in the case you are using as an example. The first lien investor will most likely have an underwater loan to begin with. They have to do at least a 10 percent principal write- down, and the borrower has to benefit from that transaction and write down the principal to our maximum loan-to-value available in FHA, which is roughly 97 percent. Mrs. Capito. Okay. Let me stop you there. When they write it down, is that what Ms. Caldwell--I think in her testimony-- said the cost is shared by the private sector and TARP? Mr. Stevens. No, this--the entire cost for the first lien write-down by the investor is borne by the investor. There are no TARP funds associated whatsoever with the investor-- Mrs. Capito. What's the incentive-- Mr. Stevens. --portion of the write-down in the FHA program. Mrs. Capito. Is the $1,500 increased fee for the lender to do this, is that what they're-- Mr. Stevens. No. The motivation for the investors--and we have had a multitude of investors come visit a variety of the agencies in Washington, and talk about their concern about some of the at-risk borrowers in the population--is that by writing down a portion of the loan, they are willing to take that loss for the benefit of ultimately having a loan that gets refinanced out of their portfolio, rather than risking it to potentially go into default at a deeply underwater level, simply because that borrower may be at risk for strategically defaulting, or have had income reductions that no longer allow them to support the loan as it stands today, and have no other alternative but to refinance out. So, again, the lender will take a portion of that write- down for the security of knowing that the underlying loan that ultimately gets restructured will perform. And that's in their--that, in many cases-- Mrs. Capito. But then it goes off their books, because it goes into the FHA-- Mr. Stevens. It goes into an FHA. Mrs. Capito. Okay. So the hit to the lender, really, is the write-down in the--say if it goes to the FHA for 100 and they have it at 200, they take $100,000-- Mr. Stevens. That's correct. And that's one of the unique attributes-- Mrs. Capito. But what's going to prevent the lender--excuse me for interrupting-- Mr. Stevens. Go ahead. Mrs. Capito. --but I only have a little bit of time--what's going to prevent the lender from saying, ``Well, now, we started out with this, and then we moved to that, and refinancing, and remodifications, and now it's going to be this. You know what? I might just wait another 6 months. There might be another program coming down the road that's going to be better for me.'' Mr. Stevens. Look, the key about this program is it's entirely optional. It does require these participants in the market to make this decision on their own. If investors want to take the gamble and delay, thinking that some new option is going to be available, that's a risk that they have the opportunity to take. I think-- Mrs. Capito. Or-- Mr. Stevens. I think that's a very high-risk-- Mrs. Capito. Or they could force the borrower into foreclosure, correct? Mr. Stevens. Yes, the alternative--they have the traditional alternatives they have today. One is the borrower may go into foreclosure, at which point most of these loans would ultimately be complete losses to their balance sheet. They could delay, hoping--to your point--that something new down the road is coming. I think that's a fairly high-risk option, given the realities of the market together. Mrs. Capito. Well, they have had several options, so I don't think it's that high risk. Mr. Stevens. Well, they have--except as we all know, they all had effectiveness at relative levels. So they--there is no single solution here that has been provided that gives mass relief, particularly to these mortgage investors who are very concerned about broad-based impacts to the capital levels and their balance sheet. So, there is no question that they will look through their portfolio, they will look at borrowers who are most at risk for default, based on negative equity, perhaps income reductions, who are stressed. And they will recognize that a portion of these borrowers, if they were re-underwritten to their actual new income levels that have been adjusted during this recession, and a new appraisal, based on the actual property value, that this borrower would actually qualify for a new loan. So, they will take that proportional write-down for the benefit of not incurring the complete loss in the event of that loan going to foreclosure. Mrs. Capito. Well, a complete loss would be--it wouldn't be a complete loss, because they--wouldn't they become owners of the property? It has some value. Mr. Stevens. That's correct. It would be the net difference of the post-foreclosure expense against the resale price of that real estate--to your point, that's why we do not believe these numbers will be of the magnitude to solve the housing crisis. We think this is another solution that can be combined with the variety of solutions offered by this Administration--which, again, have just been enhanced a little bit further--to help provide more alternatives for investors, servicers, and borrowers to deal with this particular climate. But it will not be a fix-all solution, by any means. Mrs. Capito. Okay. Let me just ask Ms. Caldwell, in the part of your statement where you said the cost will be borne by the private sector and by the TARP, what cost are you referring to there? Ms. Caldwell. Thank you. In the HAMP modification, to get to affordability, a homeowner comes into HAMP because they are having trouble paying their mortgage. And so, the HAMP modifies the mortgage to 31 percent of the homeowner's debt to income. To the extent--for the-- Mrs. Capito. So--but that could be through extending the life of the loan, or-- Ms. Caldwell. Correct. Mrs. Capito. --lowering the interest payment. It's not necessarily a write-down, correct? Ms. Caldwell. But the--not a write-down on the principal balance. Mrs. Capito. Right. Ms. Caldwell. But a write-down on the monthly payment. Mrs. Capito. Right. Ms. Caldwell. And so, the difference between that write- down from 38 to 31 percent debt-to-income is shared through incentives from the Treasury and incentives--and reduced payment from the investors. On the-- Mrs. Capito. And how does that split out, like half and half or-- Ms. Caldwell. Half and half. On the short sale deed in lieu program, for example, if a homeowner goes to short sale, there are incentives for the servicer for doing that, yet the second lien holder must release the lien. There is some compensation, but not full. And the second lien holder has to discharge future obligation from that borrower. So the-- Mrs. Capito. So the second lien holder is compensated by the Treasury? Or is it split? Ms. Caldwell. It's partially--it would depend on the amount of the lien split. There is incentive available to pay up to $6,000 for release of the second lien, but that lien could be $20,000, it could be $30,000, or it could be some other amount. Mrs. Capito. Well, my time is up, but I will say this: all of this is so darn confusing. I don't see how people could plan into the future when the programs keep changing. And I understand the motivation here is to try to stem the tide and you find the bottom, I guess, for want of a better term. But if we keep moving the boundaries around here, increasing the program--I went around to my district in the last 2 weeks and tried to explain this program that we're going to have forbearance for people who have lost their jobs. This is not selling in the American public, the ones who have been sitting there paying their bills, doing what they want to do, cutting back on all of their daily expenses to try to make sure they meet that one big thing in their life, which is their mortgage payment, I just have concerns about the changes, the confusion, who is taking the hit. Is it just another hit to the taxpayer? Thank you. Chairwoman Waters. Mr. Green? Mr. Green. Thank you, Madam Chairwoman. Is it fair to say that homeowners who are playing by the rules, who made all of their payments timely, and been blessed to keep their jobs, that they have a stake in this, as well? Is it fair to say that because property values decline when we have foreclosures in a community, that those who have played by the rules are impacted by the foreclosures that take place? I have some evidence that property values decline on an average of about $150,000-plus in some communities. So we all have a stake in this. Whether it is a direct impact or indirect, we still have an impact upon us. Is that a fair statement, Mr. Stevens? Mr. Stevens. Absolutely. And I think it relates a bit to the previous statement, in that even homeowners who have been able to pay responsibly get impacted when a home goes to foreclosure in their neighborhood and drives down home values. So, that is a key component to making sure this program is managed responsibly. The thing I would absolutely highlight, to your point, is that the issue of negative equity, for example, is heavily concentrated in a select number of States in this country. And in those States--take Nevada as an example, where the average loan-to-value is over 100 percent--any event that impacts a family living in a home--loss of job, something that impacts a family--would make it literally impossible for them to get out from that home or afford that mortgage without some other solution. And that is a result of no fault of their own, necessarily, it's a fault of the depression of the entire market. Mr. Green. And my suspicion is that there is empirical evidence to support the notion that the prices receding, being devalued, will impact homes on the market, which will impact housing starts, which will impact employment, which impacts employment, by the way, in housing but also in people who lay carpet, people who manufacture carpet, people who sell appliances, people who make appliances. The domino impact is one that is felt throughout the economy. So we have to do something to stop this slide in housing prices and foreclosures, because of the impact that it has on the economy, as a whole. So, we all have a stake in it. And I understand the moral hazard argument, but there is also what I call an immoral hazard argument. It is immoral to do nothing, and just watch as the economy slides into some sort of abyss from which it may be difficult to extricate itself. Now, let's talk for just a moment about empirical evidence necessary to evaluate these programs. The servicers are key. Do we have in place a requirement of some sort that servicers provide evidence of rejections, number of rejections, why the rejections took place? And are there sanctions available, in the event the servicers don't provide the empirical evidence necessary to evaluate the programs? Ms. Caldwell. I will take that question. It's a very important question, something that we spend a lot of time thinking about. And the short answer is yes. Servicers that are part of the HAMP program have signed a servicer participation agreement that specifically spells out their obligations under the program, including fair lending, including reporting of denials, and including modifying according to HAMP guidelines. I think it's also important, though, to remember that this is a voluntary program. And so, at the beginning, as we try to get servicers, investors, and homeowners together at the table, this is fundamentally shifting how the servicing business is done. And so, some of the challenges that we have seen in the first year, as servicers have ramped up, has been a result of a rapid growth in the program and adjusting to the program. But yes, absolutely, we do. We publish a monthly servicer performance report, and we released our most recent one today, that highlights, by servicer, their delinquencies, the number of homeowners they have on trial modifications, and the numbers they have converted to. Mr. Green. Will the raw empirical evidence be made available to the public for those organizations that take this information and massage it in such a way as to come to conclusions about how efficacious the program is? Ms. Caldwell. At this point, part of the program is very committed to transparency. We began collecting denial codes, as well as race and gender information in December. At this point, we are beginning to get those first collections in. But our intention is to make that data available to the public as soon as it is scrubbed and ready. Mr. Green. [presiding] I yield back. Thank you. Ms. Jenkins is now recognized for 5 minutes. Ms. Jenkins. Thank you, Mr. Chairman. Some analysts are predicting losses as great as $30 billion between the 4 banks currently participating in the 2MP program associated with home equity lines. Are these estimates within the projections Treasury anticipates, and are banks prepared for this much damage to their revenues? Ms. Caldwell. I think the question of second liens and valuation--I will let the respective institutions speak to the estimates for on their balance sheet. But I do think it is important, in the context of 2MP, to know that we worked very closely with the second--with these second lien investors. It was a voluntary program to sign up for, and we got the four largest servicers to sign up in February. And that was after each of them looked at their second lien portfolio, understood what it meant, and made a commitment to modify those second liens that were behind a first mortgage that had been modified in HAMP. And so, it is our expectation that they will do that in accordance with the program guidelines. But I can't speak to the accounting treatment on their own balance sheets, as a result of their participation. Ms. Jenkins. Okay. And the roll-out of the Treasury Department's second lien modification program will not be effective until September of this year, under the-- Ms. Caldwell. The--oh, sorry, go ahead. Ms. Jenkins. Under the HAMP program, a servicer cannot execute a foreclosure until all available modification options have been tried. Does the September 2010 start date for the 2MP initiative amount to a 6-month foreclosure moratorium? Ms. Caldwell. Let me clarify two things. The September date for 2MP is actually the date that the Treasury systems will be up and running to report on the second lien program. As with all things in HAMP, servicers may implement the program when they are ready. At this point, those servicers that have a second mortgage behind a first mortgage that they service--meaning they know when they have the first being modified and they hold a second--they have indicated that they will begin modifying those loans immediately. One of the key components of the second lien program is a matching system that notifies a second lien holder when the first lien has been modified, even if that first mortgage is done by another servicer. And so, that matching system should be in place within the next month. And then, second lien holders will know when they have a junior lien on a mortgage that has been modified. And again, our expectation is they will begin making those modifications, even though they will not be able to report them and receive incentives, they will just accrue them. To your second point regarding the borrower notice and outreach and solicitation, that takes effect in June. And that is specifically about those trial modifications where a homeowner has provided up-front documentation to get into a trial. That guidance clarifies that if a homeowner is in a trial modification and making payments, they may not be referred to foreclosure. So I would not characterize the 2MP timing as related to anything on the foreclosure process. Ms. Jenkins. Okay, thank you. I yield back, Madam Chairwoman. Chairwoman Waters. Thank you very much. Mr. Driehaus? Mr. Driehaus. Thank you, Madam Chairwoman. Just to follow up, if Ms. Caldwell or Mr. Stevens could provide clarification, because this remains a problem in Cincinnati for folks that we are dealing with, in terms of folks who are seeking modification--and it might be--it's usually the huge entities. It's dealing with one of these--Deutsche Bank, or one of these massive entities, where at the same time they're dealing with a modification, someone else at the institution is proceeding with a foreclosure. And I apologize if I'm asking you to repeat yourself. But if you could, help me better understand specifically what you're doing to prevent that from happening, and what type of clarification we are requiring of the financial institutions, so that this isn't occurring. Ms. Caldwell. Absolutely. And that's a very important issue in the HAMP program. When the program was originally announced, servicers were allowed to have dual track foreclosure, meaning they could go down the modification process, but could also continue along the foreclosure. That has been a standard practice in the industry. And very often, it was a practice used to get homeowners' attention. That was--HAMP guidelines have always prohibited a home from going to foreclosure sale while a homeowner was in HAMP. But there was confusion between what is a foreclosure process, meaning actions leading up to sale, and actual sale. And so, what the new guidance did is require servicers to clarify the difference between process and sale in those cases where there might be homeowners already in a simultaneous foreclosure. But for new homeowners coming into the program, servicers must provide outreach to the homeowner, and try to contact them before initiating a foreclosure action. And to the extent that homeowner has been evaluated for HAMP and is in HAMP, they cannot refer the loan to a simultaneous foreclosure, as long as that homeowner is making the three trial payments. Mr. Driehaus. So, if they're being evaluated for HAMP, they still are provided those protections. This isn't--because there was a distinction being made between the evaluation process and the actual, in the program, being modified, and having been approved for modification and they're in the program, and therefore we would stop the foreclosure proceedings. But now, if they're being evaluated, we can no longer proceed with the foreclosure proceedings? Ms. Caldwell. That is correct. For those homeowners who are being evaluated effective June 1st, in those evaluations where the homeowner has provided up-front documentation, the loan may not be referred to foreclosure until a decision has been made that they are not in HAMP. And if they are in a HAMP trial and they are making payments, they may not be referred. There are some circumstances where there are homeowners where the foreclosure process has already started, and they are already in the trial process. In that, servicers will be required to send notice to explain that they are already in a simultaneous foreclosure process, but that their house will not go to sale until they are declined from HAMP. Mr. Driehaus. And we aren't able to put a freeze on that process? Why are we doing this prospectively, beginning in June, rather than saying, ``Hey, look, this is a problem right now with folks who are experiencing this.'' We are sending a lot of mixed messages, especially to people who are getting confused about the information that is coming to them. They are doing everything they can. They understand that the government is on their side, trying to help them stay in their home, yet they are getting a notice from the same bank, telling them they're being foreclosed on, and they're proceeding with the foreclosure action. So, what we're saying is that, well, in June we are going to change the process. But if you're already there, you're already there. Is there any way for us to prohibit them from proceeding with the foreclosure process for those who are already in the system? Ms. Caldwell. That's a good question. For those who are in the process, it's sometimes very difficult and often more expensive to stop and start a foreclosure action. And so, based on feedback from multiple stakeholders, we made the decision, from a process standpoint, with the number of changes coming out we should do something prospectively, but just aggressively communicate what has been happening to address the confusion that had been in the program. But in terms of going back and retroactively changing process for one million homeowners in trial modifications, we focused on going forward. Mr. Driehaus. I guess my concern is that is one million problems in terms of, if we aren't going back and trying to address--because there are so many people who are experiencing this right now, and if we are not addressing it right now-- that's great, that we're fixing the problem prospectively. But there are a lot of people stuck in that situation right now. And I hope that the communication is enough. But my fear is that it's not. Thank you, Madam Chairwoman. Chairwoman Waters. You're welcome. Representative Bean is in attendance. Without objection, Representative Melissa Bean will be considered a member of the subcommittee for the duration of this hearing. Ms. Bean. Thank you, Madam Chairwoman. My question is, why is the FHA rolling out a new FHA refinance plan, instead of working with the existing HOPE for Homeowners program that has been ready to go? And now that the new guidelines are finalized, how many refinances do you expect would be done through HOPE for Homeowners this year? Mr. Stevens. Just to be clear, we look at the HOPE for Homeowners as a complementary program to the FHA refinance option. As--HOPE for Homeowners was, obviously, created legislatively. That program still exists today. It has not had the volume that was originally anticipated. That's clear. We have just--we made some recent adjustments to it in the fall, and have re-added those to the roll-out. While we have seen some increase, it has still been extremely moderate, in terms of take-up. And while I'm not passing--come to the point where I can draw conclusions as to why, it is a very different program in terms of documentation standards, requirements for servicers, etc. And so, that program exists and we are hoping that it does sort of pick up steam, in terms of success. The refinance option that FHA has announced is really utilizing an existing FHA refinance option that already was available. It just adds some additional advancements to it, in combination with our partnership with Treasury to help facilitate that relationship between the servicer, the investor, and the originator, to make it utilized as well. So, we're hoping, between the two, we can reach a broader segment of the distressed homeownership population. Ms. Bean. So you are expecting some increase in HOPE for Homeowners participation? Mr. Stevens. Yes, we have already seen some increase. It is extremely moderate. Ms. Bean. My other question is for Ms. Caldwell. On average, how many hours are spent modifying a loan through the HAMP program? And how does this compare to when it first started? And besides delays caused by the borrowers themselves, what's the biggest internal delay mortgage servicers face in completing a loan mod? Ms. Caldwell. The--I think it's--as we think about the delays and modifications, we have seen three things. The first has been the servicer capacity to overhaul the business that had been a payment collection and processing business to what looks much more like an origination business, and an origination business for homeowners facing real distress. So, first would be servicer capacity. The second one would be understanding the changes and the requirements of the program. As homeowners, investors, and servicers have had to come together and learn a program that was started from scratch to address a problem at huge scale, just the understanding and ramp-up and learning and coordinating among all those parties has taken a lot of time. And then third would be the documentation issue. Last year, Treasury made a decision to open up trial modifications to homeowners, based on stated income in an effort to get more people into the program, and more immediate savings into American homeowners. What we underestimated was the challenge that would result in getting the documentation in, getting it reconciled, and getting those homeowners and trials converted. And that has really been the bulk of the focus of the last few months, is getting that backlog of trial modifications that came in, where people are saving on their mortgage, decisioned and converted. Ms. Bean. We know that also contributed, the fact that people got into trial mods without documents, and then later it turned out they didn't have enough unemployment to justify a permanent mod, that we sort of set some people up to think they were on track to get a permanent modification, only to find out later that they were never going to be eligible. So we are glad to see some changes in that regard. What specific changes have been instituted as a result of the auditing on servicers by HAMP compliance officers? Ms. Caldwell. From the compliance we have done a number of things. The first has been the institution of the temporary review period that we announced at the end of December, where we said servicers could not decline anyone from HAMP until they did a thorough review--or decline anyone from HAMP unless the property was ineligible. That was done, in part, because our compliance showed that the servicers had not yet put--were not yet understanding all of the rules of the program. So we had servicers go back and do a temporary review. In addition, there have been some servicers that have been instructed to re-run the net present value test, as we have also learned that the net present value test coming in and coming out has been confusing. And so, we have really focused the compliance effort on making sure the homeowners are not inappropriately denied a HAMP modification. And that's why we have kept people in trial modifications longer than many would have liked, but it's really to make sure that when someone is declined a HAMP mod, it is really for the right reason. Ms. Bean. Thank you. I see my time has expired. I yield back. Chairwoman Waters. Thank you. Mr. Cleaver? Mr. Cleaver. Thank you, Madam Chairwoman. I have one question. I am a little bewildered by the fact that I think it's a generally accepted fact that minorities were targeted for subprime loans and all the exotic products were made available to minorities at a much, much higher level. And so, I am concerned, if that is a fact--which I believe it is--I can't understand why Treasury has not released the data that they have been collecting, and pledging to make it public. And we have no data on the applications for HAMP based on race, sex, or national origin. Can you give me some indication, either, as to when Treasury is going to release that data? Ms. Caldwell. Absolutely. At Treasury, we are very focused on the impact on low and moderate income and ethnic minority communities, in terms of mortgage modifications. And we partner with NeighborWorks and housing counselors, and have targeted outreach events to try and reach all populations in HAMP. In terms of the data, we began collecting it in December of 2009. And we will begin reporting it, making it publicly available in raw form as soon as it has been scrubbed and is ready. I will say a few things. One, it is--in terms of the modification program, the servicers can only report what people self-identify on their modification documents. And the early results are coming in that many people are opting not to identify. So we are a bit concerned. I don't want to set expectations that the data will be complete. Second, we are also finding that many of the low and moderate income and ethnic minority communities are adversely impacted by other conditions, such as unemployment, that are also making it very difficult to qualify for a HAMP modification. But we are very, very focused on the program. And all servicers that are part of HAMP are required to comply with fair lending guidelines. Mr. Cleaver. Yes. But even if we get partial data, it will still give us, I think, some indication as to who the applicants are, and it can even provide much clearer information about the people who were steered into these subprime loans. So, do you have any indication of when maybe the Chair can receive that? Ms. Caldwell. The target date for release has been by the end of June. And that's assuming we have collected--we should have it collected in, and it allows some time for scrubbing of the data and removing of all personally-identifying information and compliance with all privacy guidelines to make sure that it's in a format that can be released. But we are certainly on track, to get that made public. Mr. Cleaver. Thank you, Madam Chairwoman. Chairwoman Waters. You're welcome. Without objection, the Chair is going to have a second round with this panel. Mr. Himes just came in. Mr. Himes, for 5 minutes. [No response.] Chairwoman Waters. Not yet? The Chair is going to initiate a second round with this panel. It is so important, because we are all confused. The public gets confused. We are not getting the modifications that are being represented. And let me just quote you Elizabeth Warren, who released an Oversight Panel report strongly criticizing HAMP today, saying in the end it will only prevent 276,000 foreclosures. As you know, we have listened to you, and you have told us that the Administration claimed it would prevent three to four million foreclosures. Now, the reason that I am going to go a second round with you is this: I think it's very important for you to share everything that you can with us, and for us to be very honest with you about what we're feeling about the Administration's foreclosure programs. I know that, as you start your testimony with us, and as we see your representations in the press, you talk about progress, and you talk about things are better, etc. But the fact of the matter is our constituents are unhappy, and they are constantly bombarding us with the problems of your voluntary modification programs. For example, your document requirements are awesome. And many of the folks who are in foreclosure--and some are elderly--who are attempting to comply--I say ``your document;'' the document request of the various institutions--we don't know how much you monitor the servicers. We know that the servicers have been slow. We know that some of them appear not to be as well-trained, or to understand the program as well as they should. And now the program is changing, and so we're going to have to go through another period of time where servicers are not fully informed about what the Administration's program is. And so, voluntary, not enough oversight with servicers, a complete misunderstanding of the HAMP program, as it relates to the--what is it, the 3-month period that you allow the homeowner to be in a program based on their income, prior to determining whether or not they get a loan modification? Is it 3 months? What is it? Ms. Caldwell. Correct, a 3-month trial modification period. Chairwoman Waters. Trial modification. We have complaints that people are going into foreclosure while in trial modification. We have many of those complaints. And it goes on and on and on. We are going to have to make some decisions about what we must do. And it seems to me there must be a combination of something mandatory and voluntary, and there must be a way by which to speed up these modifications. And despite the fact--we are working very closely with FHA to make sure that program is solid--we get a little bit worried. Even when you talk about using some of the TARP resources, we get a little bit worried about a lot of refis being thrown into FHA. And so, I want to make sure that I use my period of time to say to you that on both sides of the aisle, we're not happy, and that we're really concerned about the inability to really, really move something substantially. For example, let me ask you about unemployed individuals. You just referred to maybe you're finding with some of the minority populations that it's a little bit harder, because maybe the unemployment is higher. It is higher. But as you know, the Administration, I think the President, came up with an Executive Order based on my bill about dealing with unemployed homeowners, and making it possible for them to stay in their homes that's patterned after the program in Pennsylvania. Is that working yet in the--is that program working yet for the unemployed? Ms. Caldwell. There is a--the program I believe you're referring to is the hardest-hit fund that President Obama announced to target five States. And one of the options they could use to address unemployment or negative equity are programs similar to the Pennsylvania-- Chairwoman Waters. The program is in the Wall Street Reform bill that we passed out of this committee and off the Floor. That's the one. He targeted five States. Ms. Caldwell. Five States? Chairwoman Waters. Is that working yet? Ms. Caldwell. The proposals for the program from the various States are due Friday, for how they would like to use those funds. And we expect funding to go out the door in June. So it is operating. Chairwoman Waters. Thank you very much. Mrs. Capito? Mrs. Capito. I have no further questions for the panel, Madam Chairwoman. Thank you. Chairwoman Waters. Thank you. Mr. Cleaver. Mr. Cleaver. Are there some adjustments that you would recommend that we make, legislatively, to empower the Treasury to respond more favorably and quickly? As soon as I turned on the television this morning, the first news story was the failure of this program. Diane Sawyer--did you hear a report? Does anybody tell you about it? Ms. Caldwell. I did not see Diane Sawyer's report this morning, but I am familiar with the Congressional Oversight Panel report that was released. Mr. Cleaver. Right, that's what she used to start out by saying--which some of us would like--would rather not hear--the President's housing program is a failure. What can we do? We have people who are angry with us because they don't know that we don't go out and actually do the modifications, although all of us will probably have to get involved on the telephone with some of the lending institutions, mortgage companies. Is there anything we can do to help you do a lot more than is being done? Ms. Caldwell. I think the most important thing is to make sure that homeowners understand that there is help available, and they should not be paying a cost or paying scammers for any of that help. Mr. Cleaver. Is that the number one problem we have? Ms. Caldwell. It is a big problem. Mortgage fraud scams in the modification business are a huge problem. But we do have a number, a call center number, 888-995- HOPE. And what we do is we--when we hear from homeowners, it helps us understand where servicers are failing, it enables us to go back and intervene on their behalf, and it enables homeowners to be in touch with a homeownership counselor to help guide them through the process. So, I think the most important thing is to make sure that we do outreach to the homeowners, that we do continue to follow up on all those reports that we understand, and keep the pressure on for modifications. Mr. Cleaver. Yes. Do we need to try to meet with the FBI to ask for more agents? If fraud is the number one inhibitor, then we need to hire more FBI agents or Lassie, Rin Tin Tin, whatever. I don't know. Ms. Caldwell. I don't know that it's the number one inhibitor, but it is an inhibitor. But this is a crisis at a scale that we have not seen before. And as we try to pull together multiple parties, including homeowners, servicers, investors, and counselors, to come together and address this program, I do think we have a lot of very complex issues and a lot of different sides, and scams are one of them. Understanding the program is another one. And the fact that it is a program where we have a lot of people who are in distress, but it's not a program that is designed to help everyone. And so, we do have to make sure that we don't set the expectation that everyone is going to be helped. This is for people who live in their homes, own their homes, have an ability to stay in their homes, but have a hardship. And so there are many people with second homes or jumbo mortgages who are also facing hardship. Mr. Cleaver. Yes, okay. You're actually frustrating me, but I will--that's what the program was designed to do, all the people you just--I don't know of anybody who is trying to help somebody who is not in their home. Everything you said, that's what we're trying to-- And I admit, Madam Chairwoman, that this is a difficult program to do, and I don't want to suggest, even lightly, that it's not. Maybe this is self-defense because of the pressure that's being applied to us. And then I'm sure that after this latest report hits, and the pressure will increase. So out of my frustration, I am raising these issues. I yield back. Chairwoman Waters. Thank you. Mr. Green. Mr. Green. Thank you. The number of persons who don't qualify for the program, my assumption is that this is something that is quantifiable perhaps after the fact, if not before. You can get some notion of it. And my assumption is that the program, having been designed specifically for persons who do qualify--my question is, do we over-emphasize that line of--remember now, we have a lot of people who won't be able to qualify, and that's understandable, but is that being overly emphasized, do you think? Ms. Caldwell. I don't think it's being overly emphasized. But one of the reasons that we made the changes that are moving the program to up-front documentation is to make sure that the program is focused on those homeowners who are qualified for the program and can stay in the program. One of the things that we did learn from opening the program up based on stated income is that many times the stated income versus the verified income didn't match. And so someone may have thought they were eligible for the program, and they weren't. So, as we go through this trial period, we are going to have some people who thought they were eligible and they were not. And the importance of this change is to make sure that homeowners going into trial modifications have been screened and determined to be eligible. And the only responsibility that homeowner will have is to make the three trial payments on time. But, yes, you're correct. In the trial population we do have to focus on making sure that people understand whether or not they are eligible. Mr. Green. You mentioned second homes, and that persons who have second homes, maybe third, that they are not eligible, correct? Ms. Caldwell. Correct. Mr. Stevens. Correct. Mr. Green. They do have something that they are eligible for, a bankruptcy. Not that anybody wants to go into bankruptcy. It's a horrible thing. But they are eligible for bankruptcy, as a means of preserving those second and third homes, true? Or do you know? Maybe that's something you're not familiar with. Ms. Caldwell. Yes, I can't speak to the full range of bankruptcy on primary and secondary residences. Mr. Green. All right. Thank you, Madam Chairwoman. Chairwoman Waters. You're welcome. Ms. Melissa Bean, you have about 8 minutes left before we go to the Floor. We will recess after your questions. Ms. Bean. Thank you, Madam Chairwoman. I just have one very specific question. How many HAMP compliance officers are there in the field, and what's the ratio of those officers to servicers? How does that compare to, say, bank examiners to banks? Ms. Caldwell. In terms of the HAMP compliance officers, Freddie Mac has a separate organization, a Making Home Affordable compliance that has been set up to do the compliance on HAMP. I don't know the exact head count of how they staff it, and how it would compare to bank examiners, but it is set up to provide an audit-like function. So it is designed to do random sampling across all of the servicers. They have been out, they have done second looks at each of the servicers. They have done test audits of declines, and they have also done testing around outreach. So it is--and they do have the ability to staff up and contract as needed to get the job done. Ms. Bean. And can I ask you to just provide that in follow- up? Ms. Caldwell. Yes. Ms. Bean. Thank you. I yield back. Chairwoman Waters. This committee will stand in recess. We have to go and take some votes. 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. This panel is now dismissed. And thank you so very much. We will call the second panel upon our return. [recess] Chairwoman Waters. The Subcommittee on Housing and Community Opportunity will come to order. I thank all of the witnesses for remaining. This is quite unfortunate, that we had to spend the time on the Floor. It was unavoidable. But I do appreciate your patience, and I am going to introduce the second panel. I am pleased to welcome my distinguished second panel. Our first witness will be Dr. Dean Baker, co-director, Center for Economic and Policy Research. Our second witness will be Ms. Alys Cohen, staff attorney, National Consumer Law Center. Our third witness will be Mr. Vincent Fiorillo, trading/ portfolio manager, Doubleline Capital LP. Our fourth witness will be Mr. Andrew Jakabovics, associate director for housing and economics, Center for American Progress Action Fund. Our fifth witness will be Dr. Arnold Kling, member, Mercatus Center Working Group on Financial Markets, George Mason University. Our sixth witness will be Mr. Robert E. Story, Jr. chairman, Mortgage Bankers Association. And our seventh witness will be Mr. Alan White, assistant professor, Valparaiso University School of Law. Thank you. We will start with our first witness, Dr. Dean Baker. STATEMENT OF DEAN BAKER, CO-DIRECTOR, CENTER FOR ECONOMIC AND POLICY RESEARCH Mr. Baker. Thank you, Chairwoman Waters. I appreciate the opportunity to address the committee today. The main point I would like to raise is the fact that I think, in considering the various mortgage modification programs, and certainly the new ones being put forward by the Administration last week, there has been a failure to consider the underlying state of the housing market. And I think this has been a real tragedy, not just in these modification programs, but this is really the problem that got us here to begin with. Specifically, we had a hugely overvalued housing market. By my calculations, we had an $8 trillion housing bubble which is in the process of deflating. That is the underlying cause of the problems facing homeowners today. And as much as these programs might be well-intentioned, I have to say that even in a best case scenario, it's very unlikely that you're going to benefit more than 15 or 20 percent of homeowners with permanent modifications. And, perhaps even more seriously, I think because of the state of the housing market, many of those homeowners will not end up benefitting at the end of the day. And what I mean by that is we should care at the end of the day whether we have actually helped homeowners in terms of saving them money on housing costs, and also providing equity for them in their home. And what I would argue is that because in many markets the bubble has yet to deflate, we are going to still be in a situation where homeowners are likely paying much more in ownership costs than they would pay to rent a comparable unit. And secondly, because house prices are going to fall further, even if we are able to negotiate a permanent modification that leaves them at least temporarily with a little equity in their home, because prices are going to fall further they will end up again underwater in 2 or 3 years, and likely end up in a similar situation, when they're prepared to sell their home. Very quickly, what I just would point to is if you look at the long-term trend in house prices, we have a 100-year-long trend, 1895 to 1995, where house prices had just kept even with the overall rate of inflation. That's a nationwide average. There are, of course, huge variations around the country. You have markets like California, Manhattan, and other markets where home prices rose more rapidly. But it's a nationwide average. We have 100-year-long data, which should be pretty compelling evidence as to what you should expect to see in housing prices. In the period from 1996 until the peak of the bubble in 2006, house prices rose by more than 70 percent in excess of the rate of inflation. There was no explanation for this in the fundamentals of the housing market, nothing on either the supply side or the demand side. And also, for those who need further confirmation, nothing in the rental market that was remotely corresponding to that. Now, since the housing bubble began to decline, began to deflate in 2006, house prices have fallen back, but they still are somewhere between 15 to 20 percent above their trend levels. What happened was that Congress put in--or I should say government put in several policies last year to slow the decline in house prices, and it at least temporarily had that effect. The three obvious ones are, first off, the first-time buyers tax credit, the $8,000 tax credit is about 5 percent--a little less than 5 percent--of the median house price. Second, the Fed's policy of quantitative easing that pushed mortgage rates to 50-year lows. And the third part of the story was the huge expansion of the Federal Housing Authority in the housing market, guaranteeing 30 percent of purchased mortgages in 2009. All three of these supports are gradually being retracted from the housing market. The Fed ended its policy of quantitative easing last month. First-time buyer's credit, the extended credit, ends at the end of this month. And, of course, the FHA is being forced to cut back its role in the market, as a result of the fact that it's now below its minimum capital requirements. For these reasons, I expect house prices to resume their fall, and there is some data that already suggests that. Other factors that would suggest house prices are going to continue to fall are record vacancy rates--these are the highest vacancy rates we have seen since the Commerce Department kept data in the early 1950's--and also, we know that rents are now falling for the first time that--at least the Consumer Price Index measure of rent is falling. Other measures of rent are falling more rapidly. This leads to a situation where, as I say, I think it's virtually certain that in many, if not most markets, house prices will fall further. And any program that's not designed to take that into account will lead to serious problems. What I would advocate, just very quickly, as an alternative, is a proposal, the Right to Rent proposal that's being introduced as a bill in Congress tomorrow by Representatives Grijalva and Kaptur, which would give people the right to stay in their home, as renters, paying the market rent for--I believe it's a 5-year period of time. This addresses the problem of giving homeowners who are underwater housing security, which I think is the most important thing we could do. It prevents the blight of vacancies that are afflicting many neighborhoods. And, thirdly, it does give banks incentive to act on their own to try to prevent foreclosure. And this costs no taxpayer money, requires no bureaucracy, and the day it goes into law, it immediately affects all underwater homeowners. So, I will cut off there and end my time. [The prepared statement of Mr. Baker can be found on page 44 of the appendix.] Chairwoman Waters. Thank you very much. Ms. Cohen? STATEMENT OF ALYS COHEN, STAFF ATTORNEY, NATIONAL CONSUMER LAW CENTER Ms. Cohen. Thank you, Chairwoman Waters. Thank you for inviting me to testify today regarding HAMP and its effect on foreclosures. I am a staff attorney at the National Consumer Law Center, and I am also testifying today on behalf of the National Association of Consumer Advocates. HAMP has sought to change the dynamic that leads servicers to refuse even loan modifications that would be in the investor's best interests by providing both servicers and investors with payments to support successful loan modifications. Yet, an entire year into the program, only a little over 200,000 modifications have been provided, and homeowners and their advocates still report a stunning degree of noncompliance with the program rules. Both SIGTARP and GAO have been critical of implementation and transparency issues. And to date, Treasury has not levied any penalties on servicers for noncompliance, and no loan level data have been released to the public. While the Administration's recently-announced changes to HAMP acknowledge that no foreclosure prevention program can do its job without principal reduction, assistance for the unemployed, and stopping the foreclosure process during consideration for a modification, even these enhanced measures threaten to be an empty promise without meaningful transparency, accountability, and enforcement. Moreover, until the HAMP program or legislation addresses servicers' incentives to foreclose rather than modify loans, and mandates program compliance, new initiatives are unlikely to dampen the country's economic distress. I just want to pause here for a moment and respond to a couple of points in the MBA's testimony. One is that the foreclosure stops themselves are costly and should be reconsidered. If a loan is not referred to foreclosure, there are no costs on behalf of the servicer. And if the servicer gets their job done quickly, and the person qualifies, and it's NPV-positive, the investor is in a better situation. And if it's done quickly, and it's not NPV-positive, then they can move to foreclosure so the investor doesn't lose too much money. Second, there is a claim in the MBA testimony that mandating principal reductions is a violation of the takings clause of the Constitution. We have looked at that question and we don't think there is any basis for that. Back to the other measures that Treasury has passed, the unemployed measure itself offers short-term payment relief without any debt relief, and for a period far shorter than the current average period of unemployment. A Federal bridge loan program, or broadly available funding for State bridge loan programs would provide the type of relief needed. The principal reduction program is based on voluntary principal write-downs, an approach that heretofore has not produced significant results, and that adds complexity without providing transparency or accountability. The proposal introduces a second net present value test, when even the simple one-step NPV analysis has been the subject of criticism for lack of transparency and poor implementation. Because the principal reduction will result in a hit to the servicer's largest source of income, the monthly servicing fee, servicers have a strong incentive to avoid principal reductions. Modest incentives are unlikely to change this picture. Even the most promising initiatives--the mandatory stop of foreclosures and the access to HAMP for homeowners in bankruptcy--will not succeed without transparency and accountability. Servicers' interests often do not align with those of investors or homeowners. Servicers, unlike investors or homeowners, do not necessarily lose money on a foreclosure. The result is that servicers are often indifferent, at best, as to whether a delinquency ends in a modification or in a foreclosure. Until this situation is addressed more directly, loss mitigation will favor the interests of servicers over those of homeowners and investors. In addition to improving the program's transparency, accountability, and enforcement, several core program elements must be reformed. Trial modifications are leaving many homeowners in limbo, while increasing their principal balances and damaging their credit ratings. The Administration must mandate automatic conversions for homeowners who make the required payments, and apply all payments as specified under the permanent modification. The program should also better meet the needs of homeowners with negative amortization loans, folks who re-default for a second time, including for unemployment, and those with debt below 31 percent of income, but who have high fixed expenses. In order to overcome the misalignment of incentives between servicers and the other stakeholders, mortgage servicing needs to be regulated by Congress. That's why we support your bill. We also recommend that Congress take other additional steps to ensure that the current crisis is not repeated. That includes legislation to require loan modification offers to qualified homeowners, funding quality, foreclosure mediation, allowing bankruptcy judges to modify home loans, removing negative tax consequences of principal reduction, and ensuring that predatory lending is not legal in our country. Finally, Congress should establish an independent consumer financial protection agency that can pass strong rules to govern the market. Thank you for the opportunity to testify today. [The prepared statement of Ms. Cohen can be found on page 61 of the appendix.] Chairwoman Waters. Thank you. We will call on our next witness. How do you pronounce your name? Mr. Fiorillo. ``Fiorillo.'' Chairwoman Waters. ``Fiorillo?'' Mr. Fiorillo. Yes, ma'am. Chairwoman Waters. Mr. Vincent Fiorillo. Thank you. STATEMENT OF VINCENT FIORILLO, TRADING/PORTFOLIO MANAGER, DOUBLELINE CAPITAL LP, ON BEHALF OF THE ASSOCIATION OF MORTGAGE INVESTORS (AMI) Mr. Fiorillo. Thank you, Madam Chairwoman, and thank you for inviting me to testify today. My name is Vincent Fiorillo, and I am testifying on behalf of the Association of Mortgage Investors, or AMI, a trade group organized to develop investor consensus on current public policy initiatives. I have spent nearly 35 years working in the mortgage finance industry, and have seen the mortgage market from the perspective of investors, and from the perspective of brokers and issuers. In general, mortgage investors include charitable institutions, endowments, foundations, universities, mutual funds, and sovereign wealth funds. My testimony today represents the views of the AMI. AMI supports a mortgage solution that will help homeowners stay in their homes, rebuild equity, address affordability, and provide a new and fully vetted and underwritten FHA mortgage. The recent crisis demonstrates that the process of originating mortgages and securitizing those mortgages into marketable securities can and must be reformed to ensure greater transparency and integrity. In fact, the fact remains that, without a responsible and viable mortgage securities market, homeownership will be an unfulfilled dream. The delayed implementation of HAMP resulted in a lower- than-projected number of permanent loan modifications. Investors and first leads have experienced a degradation of their position, while subordinate liens have been enriched in recent months. This has happened without benefitting the troubled homeowner who is still saddled with the excessive debt, and a mortgage far in excess of the home's value. Based on our expertise in the mortgage finance industry, and our experiences with recent foreclosures avoidance programs, I would like to make two important points today regarding the current HAMP program. First, there is a high risk of re-default, because calculations used to evaluate a borrower's application do not factor in the borrower's total debt obligation. Of the nearly 170,000 HAMP permanent modifications, half of them are saddled with extraordinary amounts of total debt, which leaves very little income to pay for necessities, such as food and clothing. Second, the current mortgage modification program permits trial loan modifications on the HAMP without any income verification. The AMI endorses the changes in June that will require income verification prior to qualifying for a trial modification. In our view, the most important impediment to the success of any program is the conflict that exists when bank-owned servicers hold second-lien mortgages. The four biggest banks service approximately 40 percent of our Nation's mortgages, and hold roughly $419 billion of second liens on their balance sheet as of December 31, 2009. Under temporary loan modification programs, banks have been able to defer the recognition of losses on the second lien portfolios. In fact, the current program actually improves the cash flow available to the second mortgage, at the expense of the first. For over a year, mortgage investors have advocated that any successful solution to our housing crisis must address two key components: affordability; and negative equity. Everyone must share the burden. Madam Chairwoman, we mortgage investors are willing to forgive principal at their expense, allowing borrowers to re- establish themselves and stabilize their housing situation. But solutions cannot be a windfall for certain stakeholders at the expense of others. Relief must come from significant principal forgiveness on both the first and the second lien, in connection with the refinancing of the overextended homeowner into a new low-interest mortgage. AMI supports the framework of the FHA's new short refinancing program for homeowners who owe more on their mortgages than their home is currently worth. Taxpayers are protected, because investors are using their money to reduce principal, while homeowners must qualify for a fully underwritten FHA refinanced mortgage. In order for the program to work, Treasury and FHA must specify its details and hold all parties accountable for its implementation. Our fear is that these details could easily be overlooked. For example, it is unclear whether a servicer can approve a reduction in the first lien, and then have the holder of the second lien opt out, avoiding principal reduction. This is problematic because it is completely counter to the needs and the interest of the homeowner, ignores the priority of liens, and results in an unjust enrichment of the bank's second liens position. This situation is not only bad for investors now, but projecting forward, investors in the mortgage finance marketplace will be reluctant to invest in mortgages because of this additional risk. This risk will ultimately result in increased borrowing costs for future home buyers. In conclusion, mortgage investors believe that the Administration's newly announced program for principal reduction leading to an FHA refinance program is an important step forward, and can be a permanent solution to the homeowner's problem. The Nation's foreclosure crisis must be solved by addressing both the problem of ability to pay and willingness to pay. With the current lack of detail, investors are extremely worried there are significant execution risks to the program. Madam Chairwoman, in order to ensure the program's success, the participation of both first and second lien holders is critical. Rebuilding the mortgage market of the future will only be more difficult, as long as the priority of liens is not respected. Investors will hesitate before investing the capital necessary to jumpstart consumer lending. Thank you for the opportunity to share our views. [The prepared statement of Mr. Fiorillo can be found on page 90 of the appendix.] Chairwoman Waters. Thank you very much. Mr. Andrew--is it ``Jakabovics?'' Mr. Jakabovics. ``Jakabovics.'' Chairwoman Waters. ``Jakabovics?'' Mr. Jakabovics. Yes. Chairwoman Waters. Okay, thank you. STATEMENT OF ANDREW JAKABOVICS, ASSOCIATE DIRECTOR FOR HOUSING AND ECONOMICS, CENTER FOR AMERICAN PROGRESS ACTION FUND Mr. Jakabovics. Thank you very much, Madam Chairwoman, and Ranking Member Capito. It's an honor to be here today to discuss with you the recently-announced changes to the Home Affordable Modification Program, as well as the program's successes and failures to date. I will share my analysis of those changes, as well as recommendations for further action. Through the end of March, approximately 1.2 million homeowners have been offered trial modifications under HAMP, but only 230,000 have successfully negotiated the seemingly Byzantine process for getting into a permanent modification. While there remain significant operational barriers to HAMP's full-fledged success, the Administration's new initiatives are likely to bring relief to an additional subset of homeowners struggling to pay their mortgages. In moving to offer underwater but otherwise creditworthy borrowers an FHA refinancing, and in bringing principal write- downs into the HAMP modification process, the Administration is attempting to tailor its response to address the current problem of prime loans going bad. There are nearly a million more prime loans that are seriously delinquent or in foreclosure than subprime loans. Writing down the amount of outstanding mortgages to bring them in line with the current values of the properties provides an opportunity to create the conditions for homeowners to keep paying their mortgages over the long term, while minimizing the walk-away risk that threatens their neighbors' financial health. Since the housing crisis began, we have argued that the best solution has been to restructure mortgages to reflect the current property values. And, indeed, the new FHA program is essentially a modern version of the New Deal's Home Owners Loan Corporation, which helped homeowners in the 1930's weather the Great Depression. Commissioner Stevens, in his testimony, laid out the details of the FHA program, so I just want to touch on a few reasons why I believe it is an important step forward. Given the much larger losses that lenders and investors face if borrowers in these underwater properties defaulted, cash in hand equal to 97.75 percent of value may be sufficiently attractive to allow these short refinancings to proceed. I would also note that this is actually a sweeter deal than they got under the Home Owners Loan Corporation, when they only got paid out $.80 on the dollar. The new FHA refinance program will allow existing mortgagees to retain almost a fifth of the property's current value as a junior lien on the property, effectively giving them some upside beyond the cash in hand. Realistically, this program will likely help borrowers with a first lien only, given the challenges that we have already heard about--around extinguishing seconds. In addition to the short refinances through FHA, principal reductions will be promoted in the HAMP waterfall. While current HAMP allows for principal reductions, the NPV test will now be run a second time to calculate the value of a modification that includes the principal write-down. The results of two NPV tests will be compared so that servicers will see the value of doing a write-down where appropriate. Principal write-downs will remain optional, even when the NPV results show it to be more valuable. But servicers' existing legal obligations to lenders and investors to get the best possible returns from modifications should--and I emphasize should--make it difficult for servicers to choose the standard HAMP modification, when the principal write-down alternative yields better returns under the same NPV run. Unfortunately, the lack of transparency around servicers' activities makes it difficult, if not impossible, for investors to know if servicers are leaving money on the table by not doing the write-downs. Principal write-downs will probably actually be more valuable, compared to the current HAMP modifications, because of the reduced re-default risk from a lower LTV, compared to the standard waterfall. Moreover, the program incentivizes borrowers to remain current in the modified loans, because the forgiveness will be phased in over 3 years, as long as the borrower does remain current. As with the FHA short refinancing, this policy's success will also likely be determined with the ability to modify second liens or eliminate them. And if 2MP proves ineffective at eliminating those liens, it is unlikely that the first liens will be written down. Crucially, neither Fannie Mae nor Freddie Mac has issued guidance to their servicers indicating that they are going to participate in the principal reductions when the NPV test shows them to be more valuable. But nearly 60 percent of all modifications to date have been made for GSE loans. Adopting a preference for principal reduction by the GSEs would ultimately benefit the enterprise's bottoms lines, and by the extension of taxpayers. And Treasury and FHA must direct the GSEs to participate, and certainly congressional pressure in that direction would be welcomed. Another facet of the changes to HAMP is assistance for unemployed borrowers. But in the interest of time, I will refer you to my written testimony for my comments on that element. But looking at HAMP in total, the biggest barrier to the program's success has been servicers' ability to quickly and accurately modify loans. And while Alys's testimony was focused on many of the outstanding issues, I want to use the remaining time that I have to strongly urge Treasury, with congressional support, to adopt or develop a Web portal as a single point of contact for borrowers and their advocates, as well as servicers. This will speed the rate of implementation of changes to the program, which has been a frustration for everyone, as well as implementing changes to the NPV model, and would dramatically improve the overall throughput of the program. Compliance would also be much easier if Treasury developed and maintained a single point of contact for borrowers and participating servicers. Specifically, it would allow borrowers and their advocates to submit applications for modifications and allow people to know what their status is in the process. Servicers would securely access the applications for loans they control and would be able to quickly provide borrowers with a response. There are relatively few variables that servicers can change. So even the NPV tests could be run on this central platform, once borrowers and servicers have submitted their respective information. This also sidesteps the issue of servicer capacity. In the interest of time--I am actually out of time--I will look forward to any questions that you might have. [The prepared statement of Mr. Jakabovics can be found on page 97 of the appendix.] Chairwoman Waters. Thank you. Dr. Arnold Kling? STATEMENT OF ARNOLD KLING, MEMBER, MERCATUS CENTER WORKING GROUP ON FINANCIAL MARKETS, GEORGE MASON UNIVERSITY Mr. Kling. Thank you, Chairwoman Waters, for the opportunity to testify. With your permission, I would like to submit my written testimony for the record, and speak to some questions that you and your colleagues raised this morning. One of the--both you and Mr. Cleaver expressed some frustrations with how this program is working. And my comment on that is keep in mind that this program is taking two business processes--loan servicing and loan origination-- combining them in a way that they have never been combined before, and redesigning them on the fly. So these are two well- developed business processes that you are attempting to redesign on the fly from Washington, when they have historically been done at a very local level. Particularly the loan servicing; it's done on a case-by-case local level. I just don't think it's possible to do that effectively, and it doesn't surprise me that we are having frustrations and complaints. I think what we are trying to do is just too difficult to do from Washington. And that--it needs to be rethought, if for no other reason than that. Representative Capito, you mentioned the issue of finding a housing market bottom, and I think that is an important issue. Dean Baker referred to that. If we modify loans and we have not yet reached a bottom, what we are doing is setting borrowers and lenders up to fail, once again. And I would guess that approximately half of them will. A very large percentage will fail again. And so that--and I think we would be better off if we would put this housing crisis behind us. Trying to modify loans and keep the same borrowers in their homes means that the crisis is going to still be in front of us, and we may have another hearing like this in 5 years. Putting it behind us may be difficult and painful for some people. But I think, overall, we would be better to have it behind us, and allow the market to reach a natural balance of supply and demand, rather than have to guess where the bottom is. And that finally brings me to Mr. Green's question--isn't there a benefit to this program for other homeowners, the people who are not receiving modifications? And my answer to that is that's very questionable. Let's say I am in a neighborhood--and actually, my neighborhood does have a number of foreclosures--suppose that preventing foreclosures means that home values stay up for a while. That doesn't benefit me unless I happen to sell my home over the next couple of years. Because, presumably, in the long run, the market will reach its natural level whether there are modifications or not. So if I'm going to wait in my home for 8 to 10 years, then it doesn't matter to me whether house prices are temporarily above their natural level or not. But if they temporarily raise prices by putting off foreclosures, at best what that means is that the people who happen to sell over the next 2 years will be lucky. And the people who happen to buy over the next couple of years will be unlucky. So I am thinking also of the people who would like to buy homes right now. And they deserve a chance to buy homes at the appropriate price. They shouldn't have to face prices that are artificially raised by these sorts of programs--or they certainly don't benefit from those programs. So, I think, overall, there--it's not clear that there are benefits for other people from these mortgage modifications. And keep in mind that people who have been paying their mortgages every month, it's not just that they have been paying their mortgages every month. They are taking the same capital losses that the HAMP borrowers took. In fact, they are taking more, because since they have paid their mortgages, they take the full capital loss, whereas somebody somebody whose mortgage is underwater can walk away from it, and the bank takes most of the loss. So, in dollar terms, the biggest losers are the people who have held on to their homes and made their mortgage payments. They have lost more in dollar terms than the people who have to go through foreclosure. So I think it's a pretty hard sell to say that they are the big beneficiaries of this program. And I will stop there. Thank you very much. [The prepared statement of Dr. Kling can be found on page 105 of the appendix.] Chairwoman Waters. Thank you. Mr. Robert Story? STATEMENT OF ROBERT E. STORY, JR., CMB, CHAIRMAN, MORTGAGE BANKERS ASSOCIATION (MBA) Mr. Story. Chairwoman Waters, Ranking Member Capito, thank you for the opportunity to testify this afternoon. MBA members are committed to helping financially troubled borrowers retain homeownership and avoid foreclosure. Many are participating in the Administration's Home Affordable Modification Program, and all servicers for Fannie Mae and Freddie Mac loans are participating in HAMP. As we speak, servicers are working hard to implement the recent changes announced by the Administration. We are also working with Treasury to suggest improvements to HAMP, in order to increase efficiency and ensure better outcomes. During these trying times, servicers continue to hire staff, reach out to borrowers, and employ new strategies to keep people in their homes. According to Treasury, more than 1.4 million borrowers have been offered trial modifications under HAMP, 1 million borrowers are in active modifications, of which almost 230,000 represent permanent modifications. An additional 100,000 permanent modifications are pending borrower acceptance. And servicers have substantially increased the pace in which the permanent modifications are being done. In addition to HAMP, servicers are providing their own home retention solutions. Since July 2007, HOPE NOW data shows that the industry completed an estimated 2.7 million propriety modifications. During the month of February 2010, nearly 96,000 families received loan modification outside of HAMP. Combined with HAMP, a total of 148 permanent modifications were granted in February. Servicers are also engaged in modification and loss mitigation activities through FHA and VA. These are additional and important efforts by the industry and the government to help distressed borrowers. I would now like to turn to HAMP changes announced by the Administration. With the jobless rate near 10 percent, assisting unemployed borrowers must take priority. MBA fully supports the creation of a temporary forbearance program to address the unique circumstances of unemployed borrowers. Features outlined in the Administration's program are consistent with MBA's own recommendations represented to Treasury in February. That includes the recognition that borrowers should continue to pay a portion of their income toward their mortgage. We also support allowing different periods of forbearance to help ease financial institutions' concerns with the accounting and regulatory treatment of assets that remain delinquent for 6 months or longer. MBA recommendations have other important features that we hope are considered, as the Administration designs the details of the program. For example, there should be a source of loans to allow financial institutions to carry delinquent mortgages during the forbearance program. Servicers advance principal and interest payments to investors during this time, despite not receiving such payments from borrowers. They also advance funds to pay for the borrowers' taxes and insurance premiums. While the servicer ultimately gets reimbursed for most of these advances, the carry time and cost is substantial. This is especially true for non-bank institutions that must borrow the funds. Servicers should be given the tools to succeed, and a loan program that is repaid with interest would not cost taxpayers. MBA also recommends applying a cost sharing feature to offset the investor's risk of delaying foreclosure when a forbearance plan fails. Treasury announced an optional principal write-down component to HAMP. While MBA is concerned that this may increase delinquencies, we are not opposed to it, provided it remains voluntary. We urge the Treasury to monitor the program to gauge whether it is causing strategic defaults, and to make adjustments if necessary. One area of substantial concern is the announcement that servicers must re-underwrite all borrowers with modifications using the alternative net present value test. Given all the concerns about server capacity, this is a burden that will not yield the results anticipated. We suggest limiting such reviews only to borrowers and loan products that lien holders deem eligible for principal reduction. With respect to FHA refinance and modification enhancements, the new rules will make it more attractive for underwater borrowers to refinance into affordable mortgages. MBA also supports the incentive payments proposed by Treasury. Finally, on the important subject of second liens, the Administration's changes are likely to make modifications more attractive. The fact that the largest servicers are participating will have a positive impact on the number of borrowers receiving help. The 4 largest banks hold or service $427 billion in second liens, representing approximately 60 percent of outstanding second mortgages. Chairwoman Waters, HAMP is a critically important effort that is assisting hundreds of thousands of homeowners. We hope to continue working with the Administration and this subcommittee on successfully implementing the new programs so that we can help the maximum number of financially distressed homeowners. Thank you. [The prepared statement of Mr. Story can be found on page 118 of the appendix.] Chairwoman Waters. Thank you. Mr. Alan White? STATEMENT OF ALAN M. WHITE, ASSISTANT PROFESSOR, VALPARAISO UNIVERSITY SCHOOL OF LAW Mr. White. Thank you, Chairwoman Waters, Ranking Member Capito, and members of the committee, for this opportunity to share some thoughts with you about the HAMP program and the foreclosure crisis more broadly. I think at this point, the HAMP program overall can only be judged a failure if we consider the two overarching goals that this program obviously should be serving. The national foreclosure crisis means that at this point we are looking at foreclosures that are approximately quadruple their historical level, in unprecedented historical levels. So the first goal of this program, obviously, is to reduce the number of foreclosures. And that has not been achieved. And the second--I think equally important--goal that we need to keep in mind is to bring down the overall level of mortgage debt that is hanging over the American consumer. Mortgage debt, in line with housing prices, experienced a huge bubble in the past 10 years, and went from something like $5 trillion to almost $11 trillion, a level of debt that's just simply not sustainable for the American homeowner, and that has all sorts of consequences for the economic recovery that we're all hoping for. So, I think any intervention using taxpayer funds should be designed to achieve these two goals of reducing foreclosures and hopefully what I call the deleveraging of the American homeowner. If we look at the level of foreclosures and modification activity over the last year, as far as I can determine, the HAMP program thus far has been a negative. It's important to keep in mind that, prior to the announcement of HAMP last March, the mortgage industry, servicing industry, was voluntarily modifying about 100,000 to 120,000 mortgages each month. The largest number reported so far, the number reported for the last month, for March, of HAMP modifications has been about 60,000. Even if we combine HAMP modifications with the other modifications servicers are doing completely outside of HAMP--which raises some separate questions--I think we are just now returning roughly to the level of modification activity we saw a year ago that, as I say, was being done entirely without taxpayer subsidy or incentive. And this is troubling. Obviously, as other speakers have mentioned, setting up this program is a daunting task. It has involved huge administrative problems. But it still seems troubling that, at the end of a year, the overall level of modification activity has not risen. And I think it's also important to compare that number to the number of new foreclosures that are being filed every month. And that's about 200,000. So, at this point, we are trying to bail water out of a bathtub, when there is water pouring in at about twice the rate that we're getting the water out. And I think there are a number of reasons that HAMP has not produced an increase in modification activity and a reduction in foreclosures. I think, in hindsight, it may have been overly prescriptive in the types of modifications and exactly what was expected of servicers. It might make sense at this point to think about simply providing incentives and rewards for servicer performance, rather than specifying so prescriptively what type of modifications need to be done. And in that respect, I think it's interesting that we still have about half of all modifications being done outside of HAMP without HAMP subsidies, and, in many cases, better quality modifications. For example, when we look at principal reduction, so far I think only about one percent of all HAMP modifications have involved any actual write-down of principal. Meanwhile, something like 10 to 20 percent of propriety modifications done by lenders without HAMP subsidies have included principal write-downs. A lot of those may be option ARMs, they may be investor loans. There may be reasons for the differences. But I think it would be important, going forward, to look at why it is that servicers think that they can have greater success outside the HAMP program guidelines. I do also want to briefly mention what's mentioned at greater length in my written testimony, that there is a serious issue with servicer performance under the HAMP contracts. And while participation in HAMP is voluntary, once servicers participate, they have mandatory contractual obligations that I think it's pretty clear at this point they are falling very short of meeting. I cite, among other things in the testimony, the HAMP call center report that gives statistics on the number of borrower complaints about servicer activity, including such things as 5,000 people reporting that their documents have been lost, and so forth. And I think there is more than anecdotal evidence at this point that servicers are not meeting their obligations, and Treasury really ought to be doing something about that. Thank you. [The prepared statement of Mr. White can be found on page 128 of the appendix.] Chairwoman Waters. Thank you very much. I will yield myself 5 minutes for a few questions. First to you, Mr. Baker. You talked about a rental program possibility allowing homeowners who are defaulting or who have defaulted on their loans to work out some agreement with the mortgage holder for rental possibility. Are you referring to the banks coming up with rental programs where they now have to set up a situation inside the bank or with a subsidiary or a contractor to manage rental properties for them until they can go back on the market? What are you referring to? Mr. Baker. Well, the idea would be that you would temporarily change the foreclosure process, so that homeowners who are facing foreclosure--and you could put a cap on the house price that applied to the bill put forward by Representatives Grijalva and Kaptur puts the cap at the median house price--that they would have the right to stay in the house as a renter, paying the market rent. It would be up to the bank, how they chose to do that. So, you would have--as part of the foreclosure process, you would have an appraisal where the appraiser would determine what the market rent is for a house at that point in time. And whether the bank opted to rent directly, whether they opted to contract with the management agency, that would be up to the bank. What would not be up to the bank is whether or not the person got to stay there as a renter. That would be a right given to them under the law for whatever period of time. Again, I believe it's 5 years-- Chairwoman Waters. Who would be responsible for the upkeep of the property, for capital improvements, etc., etc.? Mr. Baker. That would be subject to the landlord-tenant laws that are in--it's the bank's property, the bank owns--the investor owns the property, so it is their property. But the specifics, in terms of have they done adequate maintenance, that would be dependent on the landlord-tenant laws in the jurisdiction. Chairwoman Waters. So your suggestion is that, with Mr. Grijalva's legislation--I have not seen it--that we would mandate a program that would cause the banks to have to allow the person to stay in their property under some kind of market rate rental agreement period. Mr. Baker. That's right, and the idea is this would be a temporary period, recognizing the extraordinary circumstances that we're faced with in the housing market today. And the idea is that, once that was in place, it immediately provides help for everyone in the situation, without having to go through a complex process. Chairwoman Waters. Ms. Cohen, you pointed out several weaknesses in the HAMP program, and talked about alternatives, and talked about support to my bill dealing with servicers--a number of issues involved with this mess that we're all in. I agree with you, certainly, that we need to regulate the servicers. There is a lot that we have all learned, as we have had this meltdown, about the servicers, who they are and what they do, etc. But what would be your basic foremost recommendation for dealing with this foreclosure problem? Mr. Baker just talked about rental agreements that would be mandated on the lenders, the mortgage holders. Do you agree with that? Or do you think that perhaps principal write-down would be more effective? What would be your one big recommendation that you would have to deal with this issue? Ms. Cohen. First of all, I read Mr. Baker's testimony, and I think his proposal is very interesting. It is important to consider it, and for Congress to take a close look at it. That proposal may have an effect on people who are staying in their homes. It is, to some extent, focused more on people who are unable to stay in their homes. One question is, what directly can we do to help people stay in their homes? Principal reduction is an issue that is focused on folks who can and cannot afford their mortgages. And the foreclosure crisis is primarily being fueled by people who cannot afford their mortgages. And so, I think it's interesting to think about what Professor White said, which is in the end what we care about is the result and not the details. And so, the reason that requiring loan mod offers and allowing cram-downs in bankruptcy matters, is because it's the result. And we don't necessarily need to say it looks like this or it looks like that. HAMP is well-intentioned in looking at DTIs and at other things. But in the end, what we really want is for people to be given a chance to stay in their house before they're put in foreclosure. And right now, that isn't happening. Chairwoman Waters. Thank you. I think it was you, Mr. Story, who gave recognition to our frustration and some of the comments that were made by Mr. Green, myself, and others. Was that you, Mr. Story? Mr. Story. That wasn't me. Chairwoman Waters. Was it Mr. Kling? Who was it? Mr. Kling. That was me. Chairwoman Waters. Oh, okay. Thank you very much. Mr. Kling, you correctly identified the frustration that we have obviously exhibited here today. If we were to come up with a way of dealing with this that was simpler, that would help to take care of more of the mortgage holders out--more of the homeowners out there who were in trouble, etc., do you think we should scrap all of this, the HAMP program and the changes that are made to the HAMP program with the refinance possibilities with FHA and the five cities that--five States that now have available to them a program for unemployed people, and on and on and on? Do you think that somehow we need to get a handle on a program that is clear, concise, and more helpful to more people, and scrap all of what we have been attempting? Mr. Kling. Thank you, Congresswoman Waters. I guess that would be my instinct, because again, loan servicing and loan origination are complex business processes that are very difficult to redesign on the fly. And there--you are constantly going to run into things that you didn't expect, issues that you didn't have. And every time you change something to fix one problem, some new problem will crop up. So, searching for simplicity, I think, is a good idea. It could be that Dean Baker's idea simplifies things for lots of people. It could be that just writing a check to troubled homeowners for a certain amount, which they could use for moving expenses, if they have to move, for making up their payments if they're only a little bit behind, that's a much simpler task than trying to build a whole new servicing origination process on the fly. That's just my opinion. Chairwoman Waters. Thank you very much. Mrs. Capito? Mrs. Capito. Thank you. Mr. Kling, I would like to follow up with you. One of the issues that I think--when we had Mr. Stevens in before, and Mr. Donovan--was trying to find the time and when there is going to be less Federal involvement through Fannie, Freddie, or FHA in the housing market. And I am curious to know if you think that the next iteration of this program obviously involves FHA more. And between the three of them, they continue to dominate the market, I don't know, 90 percent, or something of that nature. How do we inject and get more private capital back into the housing market? Mr. Kling. So your question is, how do we get more private capital back into the housing market? Well, certainly, if you have Freddie Mac and Fannie Mae using the government's borrowing rate to set rates, there is no way that there will be private capital in the market. So something has to be done to phase Fannie Mae and Freddie Mac out of the market to give room for private capital to come in. And this is one of those things that I am sure everyone wants to do, but not now. And now is never the time when you're going to want to do it. But if you--one approach would be to take the loan limits for Freddie Mac and Fannie Mae, and over, let's say, a period of 3 years, bring them down by a couple hundred thousand a year and get to the point where they're no longer originating loans. You eventually bring the loan limits down to zero. And then you--that would allow private capital to work its way into the housing market. Mrs. Capito. Thank you. Mr. Story, in your testimony you mentioned that servicers are offering their own modification and home retention solutions to borrowers who might not qualify for Federal programs. What do you think some of the reasons are why a borrower might not qualify for some of these Federal programs, but still qualify for a servicer program? Mr. Story. Some of the reasons are that the debt-to-income ratios are more flexible in the non-HAMP programs. I think that's probably one of the biggest reasons why they are going outside that program. Mrs. Capito. Do you have any-- Mr. Story. We have some more flexibility, in terms of what the payments may be. Mrs. Capito. Do you have any sense of how it's breaking out, in terms of percentages, people going to the Federal--the numbers that we heard are pretty--I think maybe that was--I can't remember who it was--it's the end of the day here, but somebody had said the numbers being serviced by HAMP, and then the numbers being serviced by servicers outside of these programs is exponentially larger. Was that you, Mr. White, who had those figures? Mr. White. Yes, I think it is actually about half and half. Mrs. Capito. Half and half? Mr. Story. We can probably get you better numbers. We will check to see what we have, in terms of the numbers. Also, FHA and VA aren't included in HAMP, either. So that sometimes makes a difference there, as well. Mrs. Capito. Until HAMP part two-- Mr. Story. Yes. Mrs. Capito. --then FHA is in that, which brings me to another--I will make a comment. If anybody wants to comment on it--and I think both the chairwoman and I mentioned this in our opening statements, that the capital reserve issue with FHA-- and here we are, creating another avenue for access to FHA when we have a time when FHA is facing some problems financially, even though there have been some reactions to that by the Administration to try to help that, and we are trying to work on our own solutions. But at the same time, to me, that's another red flag of why we really need to scrutinize this particular effort. Does anybody have a comment on that, on the FHA involvement with this? Yes? We will go with Mr.--if I can say his name-- Mr. Fiorillo. It's not that hard. We had a mayor in New York-- Mrs. Capito. Okay. Both of them. Mr. Jakabovics. Okay. Mrs. Capito. So I will go with Mr. Jakabovics first. Mr. Jakabovics. Close enough. So, I think that you have to recognize that the piece that FHA would be responsible for under the short refinancings that are being allowed under the program are actually potentially less costly to FHA than their standard activities, because the first loss position would be held by TARP. So, my understanding-- Mrs. Capito. Wait a minute. That's the taxpayer. Mr. Jakabovics. Right, but-- Mrs. Capito. TARP is the taxpayer. Mr. Jakabovics. But it's a separate piece, and that money has already been set aside, so you're not further risking the capital. You asked about the capital ratios and capital-- Mrs. Capito. Right, on-- Mr. Jakabovics. No, I understand. But the other thing that's important is you're bringing these loans back down below 100 percent loan to value. And all the evidence that's out there is that the risk of walkaway exists when the loan is worth a lot more than the home. So, I think that under the program, if you qualify, so you're creditworthy, you have to have been current on your mortgage to get into the FHA refinancing, so it's not people who have been delinquent. So if people can still qualify for the refinancing, they are choosing to refinance into a more affordable option. So, if they are otherwise going to re-default, or default, I think that by allowing them to refinance into FHA, it's similar to the HARP program, in terms of allowing the Fannie/ Freddie, but without the write-down in loan-to-value. So I think there is a lot of benefit for the FHA component. Mrs. Capito. Okay. Mr. Fiorillo? Mr. Fiorillo. Similar theme. What you're doing is basically taking a homeowner who is above 115, taking him down to 115, but only asking FHA to guarantee the 96.5 percent. So the loan has been performing, the loan has been under-written, all of the documentation has been filled out. They are actually getting a better loan than what they have had. And, to be perfectly honest, after-- Mrs. Capito. Who is getting a better loan? Mr. Fiorillo. FHA. Mrs. Capito. Well, they didn't have the loan before. Mr. Fiorillo. Well--but they are getting a loan that's probably better than one walking in off the street. And, more importantly, in 35 years there have been enough FHA loans to understand and to know what the rules are. So if you can qualify--they're very stringent. So if you can qualify at 96.5 percent, which is what the goal is, it's probably a better loan than what, again, somebody who would be walking in. And to answer your question about is there one simple way to handle this problem, over a year ago several investors sat around Treasury and said HAMP, help for homeowners can work, and help for homeowners is one loss, one time. The problem with the program was you had to extinguish seconds, and there was nobody willing to do that. But that's a simple way to handle it. But the losses could be pretty dramatic on the bank balance sheets. Mrs. Capito. Thank you. Chairwoman Waters. Thank you. Mr. Cleaver? Mr. Cleaver. Thank you, Madam Chairwoman. I just have one question, actually. Home prices have been devalued in my community in Missouri 30 percent in some areas and higher. I am just wondering, Mr. Kling, if we let the market determine who goes into foreclosure and eventually loses their home, do you have any view of what would happen to neighborhoods that are already devastated? And when you have a large number of foreclosures, does that not reduce the value of everyone's home, including the people who make their payments on time every month? So, while we may say, you were bad, you have a bad loan, you're not a good person, and so you deserve to lose your home, what about the next door neighbor, and the neighbor on the other side, and on down the street? I live in a--our church is in a neighborhood where there are probably five foreclosures. Everybody is in trouble in the neighborhood, even the people who go to work every day. What is the solution to that? Mr. Kling. Well, I don't think the solution is to say that people are bad because they go into foreclosure and they're not because they don't. I think--I don't know if you're from St. Louis, I'm from the St. Louis area, originally, myself. Mr. Cleaver. No, I'm from the largest city. [laughter] Mr. Kling. But I now live in Silver Spring, and there are a lot of foreclosures in our neighborhood. I think it's possible that having loans in foreclosure-- that keeping people out of foreclosure would temporarily keep home prices above what they would be. And, as I said before, that would certainly benefit anyone who needs to sell a house right now. So, let's say I have made good on my mortgage, but I got a new job somewhere and I want to sell right now. And there are a bunch of foreclosures in my neighborhood. And, because of those foreclosures, when I sell I'm not going to get such a good price. And if you could prevent those foreclosures, I will get a good price. But that means that somebody who buys my house when I sell it, because I have a new job in a new city, is actually overpaying for it. And so, at some point they are going to pay the price for that. And I have seen that. I saw it in my neighborhood, some neighbors had sold at a peak that--probably the house sold for $200,000 more than what it's worth now, and I feel very sorry for those borrowers. So we are-- Mr. Cleaver. I do, too, because I have a 3 year old who would not take that deal. Mr. Kling. Yes. Mr. Cleaver. That is not happening where we-- Mr. Kling. Well, but-- Mr. Cleaver. That's not happening in Kansas City. Mr. Kling. Right. The--I guess my point is it's a redistribution from people who have to sell now to people who are anxious to buy now. Or from--sorry, the-- Mr. Cleaver. But you do understand that people are not selling because they can't even get their investment out of it. Mr. Kling. Yes, that's true. And they--in the short run, those people would be helped by anything that artificially raises house prices. But the people--but eventually the price is going to hit a market level. And if you--so, if I am somebody with more of a long-term horizon, that I'm in this neighborhood for 6 or 8 years, then I think what I would like is for my neighborhood to have people who genuinely own the home, who are not at risk of defaulting, I'm willing to have new immigrant families, other families, other people trying to climb the ladder come in and buy these foreclosed houses and live in them, and try to make their living, rather than tell those people, ``No, we need to keep these original home buyers in, and we need to artificially boost prices and keep them out of reach for you, in order to temporarily boost my house price.'' There is no way we can make this all good, and make house prices go back up to what they were 2 years ago. Mr. Cleaver. But are you suggesting that it's not--if we just allow everybody who is on the precipice of foreclosure to go into foreclosure, that is not as bad as somehow trying to go through this very difficult, complicated process of trying to save homes? Mr. Kling. Again, there is no perfect solution. You can't bring those home prices back up to where they were. Mr. Cleaver. They will eventually get there, don't you-- Mr. Kling. Eventually, they will go back to where they belong. And in the meantime, I do think the least bad option is to get the foreclosures behind us, get the crisis behind us, get people in those neighborhoods who can afford the payments because they're buying them at lower prices, and to have everybody in the neighborhood know that this isn't hanging over us, that there aren't these people who are on the precipice-- because they will stay on the precipice, if you keep them in there--but that everyone in our neighborhood is here for the long term. I think, ultimately, that actually could be better for the neighborhood. Mr. Cleaver. Okay. Mr. Baker? Mr. Baker. Yes. If I could just speak to that very quickly, because I think there is an important point to distinguish here, because I am sympathetic with this idea that prices have to adjust. I don't think you can keep a bubble inflated, and I don't think it's desirable. But I think there is a second point here, that the fact that you have a neighborhood that's subject to a lot of foreclosures, that fact itself lowers the prices. You have vacant homes that are havens for crime; they can be drug houses. That lowers the price. That's an artificial lowering of the price. I think we have every reason in the world to try to prevent that. So, I don't think we could maintain bubble prices indefinitely. I don't see any social value in trying to do that. There absolutely is a social value in trying to prevent a neighborhood from being run down because you have a lot of houses that are in this foreclosure process, where they are abandoned, boarded up, not properly maintained. And that, I think, is very much what Congress and this committee should be focused on. Mr. Cleaver. Yes. We are not doing it at the optimum level of success. But that's what we are trying to do. Thank you, Madam Chairwoman. Chairwoman Waters. Thank you very much. If I may, what Mr. Cleaver is referring to is what we are trying to do with the NSP program, neighborhood stabilization, where we have now funneled in about $6 billion. We're into a second round of funding. Unfortunately, most of the cities don't know how to use the money. They have not been able to implement the program very well. And we are going to hold some hearings on that, and we are going to try and get some technical assistance. Because you're right, we are too interested in maintaining some kind of stability and not driving down the prices further because of the foreclosures and the abandonment and all of the problems that go with that. Let me thank all of you for your patience today. It has been a long day. And I am very appreciative for the time that you have given to us. If I had my way, I would put all of you on this panel in a room, because I think you could come out with something that makes good sense. I have appreciated your testimony very much here today, and you obviously have given a lot of thought to this, and you understand very well what is and what is not happening with the HAMP program. I feel if we continue to go in the way that we are going, that we are simply going to further complicate the process and we are not going to be able to forestall foreclosures, or to maintain people in their homes in the way that we are going. So, I am hopeful that you will allow us to call on you. My staff has been here, listening very carefully and taking a lot of notes. And some of you traveled from afar, I know, and we can't ask you to keep doing that. But we can conference call with you and talk with you by telephone. And I think that we will continue to do that. 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. The panel is now dismissed. Do we have any written submissions for the record? [No response.] Chairwoman Waters. If not, the hearing is adjourned, and I thank you very much. [Whereupon, at 5:49 p.m., the hearing was adjourned.] A P P E N D I X April 14, 2010 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]