[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
FORECLOSURE PREVENTION PART II: ARE LOAN SERVICERS HONORING THEIR
COMMITMENTS TO HELP PRESERVE HOMEOWNERSHIP?
=======================================================================
HEARING
before the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
JUNE 24, 2010
__________
Serial No. 111-97
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
FORECLOSURE PREVENTION PART II: ARE LOAN SERVICERS HONORING THEIR
COMMITMENTS TO HELP PRESERVE HOMEOWNERSHIP?
FORECLOSURE PREVENTION PART II: ARE LOAN SERVICERS HONORING THEIR
COMMITMENTS TO HELP PRESERVE HOMEOWNERSHIP?
=======================================================================
HEARING
before the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
JUNE 24, 2010
__________
Serial No. 111-97
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
U.S. GOVERNMENT PRINTING OFFICE
63-041 WASHINGTON : 2011
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania DARRELL E. ISSA, California
CAROLYN B. MALONEY, New York DAN BURTON, Indiana
ELIJAH E. CUMMINGS, Maryland JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio JOHN J. DUNCAN, Jr., Tennessee
JOHN F. TIERNEY, Massachusetts MICHAEL R. TURNER, Ohio
WM. LACY CLAY, Missouri LYNN A. WESTMORELAND, Georgia
DIANE E. WATSON, California PATRICK T. McHENRY, North Carolina
STEPHEN F. LYNCH, Massachusetts BRIAN P. BILBRAY, California
JIM COOPER, Tennessee JIM JORDAN, Ohio
GERALD E. CONNOLLY, Virginia JEFF FLAKE, Arizona
MIKE QUIGLEY, Illinois JEFF FORTENBERRY, Nebraska
MARCY KAPTUR, Ohio JASON CHAFFETZ, Utah
ELEANOR HOLMES NORTON, District of AARON SCHOCK, Illinois
Columbia BLAINE LUETKEMEYER, Missouri
PATRICK J. KENNEDY, Rhode Island ANH ``JOSEPH'' CAO, Louisiana
DANNY K. DAVIS, Illinois BILL SHUSTER, Pennsylvania
CHRIS VAN HOLLEN, Maryland
HENRY CUELLAR, Texas
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
PETER WELCH, Vermont
BILL FOSTER, Illinois
JACKIE SPEIER, California
STEVE DRIEHAUS, Ohio
JUDY CHU, California
Ron Stroman, Staff Director
Michael McCarthy, Deputy Staff Director
Carla Hultberg, Chief Clerk
Larry Brady, Minority Staff Director
C O N T E N T S
----------
Page
Hearing held on June 24, 2010.................................... 1
Statement of:
Das, Sanjiv, CEO, Citimortgage, Inc.; Barbara J. Desoer,
president, Bank of America Home Loan; David Friedman,
president and CEO, American Home Mortgage Servicing, Inc.;
Michael J. Heid, co-president, Wells Fargo Home Mortgage,
Wells Fargo & Co.; David Lowman, CEO, Chase Home Finance,
Inc., JPMorgan Chase Bank; and Edward J. Pinto, Real Estate
Financial Services Consultant.............................. 15
Das, Sanjiv.............................................. 15
Desoer, Barbara J........................................ 26
Friedman, David.......................................... 35
Heid, Michael J.......................................... 51
Lowman, David............................................ 63
Pinto, Edward J.......................................... 74
Letters, statements, etc., submitted for the record by:
Connolly, Hon. Gerald E., a Representative in Congress from
the State of Virginia, prepared statement of............... 122
Das, Sanjiv, CEO, Citimortgage, Inc., prepared statement of.. 18
Desoer, Barbara J., president, Bank of America Home Loan,
prepared statement of...................................... 28
Friedman, David, president and CEO, American Home Mortgage
Servicing, Inc., prepared statement of..................... 37
Heid, Michael J., co-president, Wells Fargo Home Mortgage,
Wells Fargo & Co., prepared statement of................... 53
Issa, Hon. Darrell E., a Representative in Congress from the
State of California, prepared statement of................. 120
Jordan, Hon. Jim, a Representative in Congress from the State
of Ohio, prepared statement of............................. 9
Lowman, David, CEO, Chase Home Finance, Inc., JPMorgan Chase
Bank, prepared statement of................................ 65
Pinto, Edward J., Real Estate Financial Services Consultant,
prepared statement of...................................... 76
Towns, Chairman Edolphus, a Representative in Congress from
the State of New York:
Letter dated June 30, 2010............................... 104
Prepared statement of.................................... 4
FORECLOSURE PREVENTION PART II: ARE LOAN SERVICERS HONORING THEIR
COMMITMENTS TO HELP PRESERVE HOMEOWNERSHIP?
----------
THURSDAY, JUNE 24, 2010
House of Representatives,
Committee on Oversight and Government Reform,
Washington, DC.
The committee met, pursuant to notice, at 10:06 a.m., in
room 2154, Rayburn House Office Building, Hon. Edolphus Towns
(chairman of the committee) presiding.
Present: Representatives Towns, Cummings, Kucinich, Clay,
Watson, Lynch, Connolly, Quigley, Kaptur, Norton, Davis,
Cuellar, Speier, Driehaus, Chu, Issa, Duncan, Turner, McHenry,
Bilbray, Jordan, and Luetkemeyer.
Staff present: John Arlington, chief counsel--
investigations; Beverly Britton Fraser, counsel; Kwame Canty
and Gerri Willis, special assistants; Velginy Hernandez, press
assistant; Adam Hodge, deputy press secretary; Caria Hultberg,
chief clerk; Marc Johnson, assistant clerk; Mike McCarthy,
deputy staff director; Jason Powell, senior counsel; Brian
Quinn and David Rotman, investigative counsels; Ophelia Rivas,
assistant clerk; Shrita Sterlin, deputy director of
communications; Lawrence Brady, minority staff director; John
Cuaderes, minority deputy staff director; Jennifer Safavian,
minority chief counsel for oversight and investigations; Adam
Fromm, minority chief clerk and Member liaison; Benjamin Cole,
minority policy advisor and investigative analyst; Seamus
Kraft, minority director of new media and press secretary;
Justin LoFranco, minority press assistant and clerk;
Christopher Hixon, minority senior counsel; Hudson Hollister,
minority counsel; Mark Marin, minority senior professional
staff member; Brien Beattie, minority professional staff
member; and Sharon Casey, minority executive assistant.
Chairman Towns. The committee will come to order. Good
morning, and thank you for coming.
It took massive Federal intervention, using billions of
taxpayer dollars, to save the banks from the edge of complete
disaster. The banks and the financial system are now
stabilizing, and, in fact, the major banks are even beginning
to make money again. Unfortunately, the same cannot be said for
millions of people who are unemployed or who are in danger of
losing their homes.
The threat of foreclosure is still at an all time high.
More than 3.1 million Americans are delinquent on their
mortgages by 60 days or more. A letter from the banks or phone
call from the mortgage company is still keeping many homeowners
awake at night agonizing over the potential loss of their home.
For these people, the economic crisis is far from over.
As I have said before, to its great credit, the Obama
administration recognized early on that an important part of
the Nation's economic recovery is keeping as many people as
possible in their homes. This makes sense from both an economic
standpoint and a public policy standpoint, and I salute him for
that.
The Home Affordable Modification Program [HAMP], is a
central piece of the Treasury Department's effort to carry out
that objective. HAMP had a troubled start, but it appears that
some significant improvements have recently been made.
More than 1.2 million homeowners have now started a HAMP
trial modification, and 346,000 have obtained a permanent
modification. The median savings to these homeowners is a
little over $500 per month. Moreover, the number of permanent
modifications has more than doubled in the last 3 months.
But there are still major problems with HAMP. The chief
complaint is the slow pace at which servicers are permanently
modifying troubled mortgages. There is still considerable
concern over confusing and conflicting communications from loan
servicers to borrowers. And while more permanent modifications
are being made, fewer delinquent borrowers appear to be
qualifying for HAMP.
Perhaps most important, many of the borrowers who obtain a
trial modification drop out of the program later. In fact, it
appears that a majority of the mortgage modifications obtained
under HAMP may not be successful.
A separate and deeply troubling issue is raised by a new
study by the Center for Responsible Lending, which found that
minority communities continue to experience significantly
higher foreclosure rates than whites, regardless of their
income levels. This confirms similar findings reported by the
National Community Reinvestment Coalition in the committee's
last hearing on HAMP. Today, I would like to hear from the
banks exactly how this disparity can be addressed. Clearly, we
need to do a lot better than we have done in the past.
But this is not just about HAMP. I think the mortgage
banking industry has to recognize that HAMP cannot be the only
solution to the foreclosure crisis.
Some of the banks appearing today have begun to save homes
from foreclosures with principal reductions, second lien
modifications and other help for the unemployed. These sound
like good first steps, but I want to hear more, and I want to
see broad participation throughout the mortgage loan industry.
Foreclosure is a losing proposition for everyone involved
if you stop and analyze it. The homeowner loses the house, the
bank loses a big chunk of its investment, and the community
loses a family with a stake in the community. What I am asking
the banks to do is to help us find an effective way to stop
these foreclosures.
I want to thank our witnesses today for appearing, and I
look forward to your testimony.
I will now yield 5 minutes to the committee ranking member,
but let me just say this before we move any further that we are
going to give 5 additional minutes on each side, of course
after your opening statement, we will give 5 minutes on the
Democratic side and 5 minutes on the Republican side, and that
can be split up five ways, six ways, as many ways as you want
to split it up. But you have 5 minutes.
[The prepared statement of Chairman Edolphus Towns
follows:]
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[GRAPHIC] [TIFF OMITTED] T3041.002
[GRAPHIC] [TIFF OMITTED] T3041.003
[GRAPHIC] [TIFF OMITTED] T3041.004
Mr. Jordan. Thank you, Mr. Chairman.
Mr. Chairman, thank you for holding today's hearing to
examine the continuing failure of this administration's
response to the foreclosure crisis.
At the outset, I must express my extreme disappointment
that the committee will not hear from the Treasury Department
today. Since the committee's last hearing on HAMP 3 months ago,
Treasury has continued its pattern of secrecy, dishonesty, and
failure.
Treasury has refused to implement the Special Inspector
General's recommendations for reform of the program; it
continues to misrepresent the original goals of the program so
as to disguise its ineffectiveness; and, most importantly, the
Obama administration's technocratic tinkering in the housing
markets has continued to fail the American people.
Just this week, we learned that Treasury has kicked
substantially more people out of the HAMP program than have
received sustainable mortgage modifications. As the Wall Street
Journal recently reported, many of these Americans are actually
worse off for relying on the administration's promises.
I look forward to hearing from the mortgage servicers here
today. They play a vital role in the process, and their
perspective is necessary and helpful in examining this Federal
program. But inviting the implementers of the program while
ignoring the designers of the program and the people ultimately
responsible for the waste of $75 billion of taxpayer money is
simply a failure of oversight.
I am also disappointed, Mr. Chairman, that GAO was
disinvited from today's hearing. GAO has been investigating
HAMP on an ongoing basis and they published a report this
morning focused on the performance of mortgage servicers to
coincide with their expected testimony at this particular
hearing. Their perspective would also have been valuable for
this committee to hear.
Mr. Chairman, I respectfully urge you to invite the
Treasury Department to answer for its failures at another
hearing in the near future. We have a joint responsibility to
the American people to hold this administration accountable,
regardless of political affiliations.
The servicers we hear from today have worked to comply with
800 HAMP rules issued in over 15 different sets of guidelines.
Not surprisingly, they have been able to offer far more
mortgage modifications privately outside of HAMP than within
it. Ultimately, however, the best mortgage modification is a
job, and, unfortunately, this Congress and this administration
has stifled private sector job creation through their big
government anti-economic growth agenda. The implications of
these policy mistakes are being felt by former homeowners
across this great country.
Thank you, Mr. Chairman, and I yield back.
[The prepared statement of Hon. Jim Jordan follows:]
[GRAPHIC] [TIFF OMITTED] T3041.005
[GRAPHIC] [TIFF OMITTED] T3041.006
Chairman Towns. I thank the gentleman for his statement.
But let me just indicate to you that we did have Treasury in,
we did have GAO and we had SIGTARP. And, of course, you can't
do but so much in 1 day.
Mr. Jordan. GAO's report came out this morning, Mr.
Chairman. That is what we needed to hear about.
Chairman Towns. The gentleman from Maryland, Mr. Cummings.
Mr. Cummings. Thank you very much, Mr. Chairman. Mr.
Chairman, first of all, thank you for holding the hearing.
I am concerned about the claims published in the Washington
Post this past Monday that a growing number of borrowers are
failing to move from the HAMP program's initial stage into a
permanent loan modification.
More than 100,000 borrowers lost their mortgage aid in May.
About half of those dropped from the Federal program received
another type of loan modification from their banks, according
to the government data. But housing counselors have complained
that those alternative loan modifications are typically not as
generous as what the government program offers and often come
with hefty up-front fees.
I am interested to see how these options have been
communicated with the borrowers. Getting started and
understanding the process can be one of the toughest steps in
loan modification efforts.
Mr. Chairman, for over the last 15 months I have held four
foreclosure prevention workshops in my district, and I can tell
you that the key is that we have to have effective and
efficient programs. It is one thing to talk about them. It is
another thing to actually carry them out. Hopefully, the people
who are testifying before us today can help us get better
insight as to how we can keep people in their homes.
I have told my constituents that they must protect their
house. The house is their No. 1 investment in most instances,
and a very, very important investment, and I think that we need
to be doing more and more to help people retain their home so
that they can have stability, and so they can keep their
families stable and also, of course, so that we can keep
neighborhoods stable.
With that, Mr. Chairman, I yield back.
Chairman Towns. The gentleman yields back. I now recognize
Mr. Turner.
Mr. Turner. Can you clarify for us how the time is
allocated? Are you saying there is 5 minutes over there and
there is 5 minutes over here?
Chairman Towns. He yielded back. We still have 3 minutes
left on this side. Now you have your entire 5 minutes on your
side.
Mr. Turner. OK, great.
Mr. Chairman, you said, as you know, you acknowledged the
request by the ranking member for a representative from
Treasury, and you said we can only do so much in 1 day. I can
tell you that we would come back. We are a hard-working
committee and everybody would be delighted to be here.
Chairman Towns. Would the gentleman yield for a second? We
have had Treasury.
Mr. Turner. You haven't had them since Monday when they had
their report issued that said that this program is failing, and
I have some very serious questions. You know, just yesterday,
just yesterday, the Treasury Secretary appeared before the
congressional oversight panel where he was asked a question
about HAMP, and do you know what he said?
He said, ``This program was not designed to prevent
foreclosures. It was not designed to sustain homeownership at a
level that would be unachievable, imprudent to try to do.'' He
goes on to say when someone asked him, ``Well, do you think it
should go to 65 percent of homeownership level?'' He said, ``I
think you are describing exactly the objectives that have
shaped this program.''
The chair of the congressional oversight panel responding
to his comments said this: ``I was very surprised and very
frustrated by the notion that the Secretary seemed to be saying
that a program that helps only a tiny handful of families
facing foreclosures is a successful program because in effect
the rest deserves to lose their homes.'' She says, ``I thought
that was shocking.''
I find it shocking. I find it inconsistent with the
chairman's opening statement about what this program is to do,
and certainly Secretary Geithner is responsible for ensuring
the success of the program. I also find it inconsistent with
what the President told the American people this program was
going to do.
Now, we have an absolute crisis, and it is not over. I am
from Montgomery County, OH, and the foreclosure rate is
staggering in my community. Ohio has seen the foreclosures
continue to mount. And clearly this needs to be addressed, not
only by Treasury addressing this program and giving people real
answers as to its goals and objectives, but also for the
financial institutions, because we cannot lose focus here that
the financial institutions got us in this mess, this is not a
government-created mess, by their lending practices that did
not make sense, that were not sound business decisions, that
did not protect the banks, and did not protect capital
investments.
The concern that I have as I looked at Treasury and then to
the financial institutions is that decisions are being made
currently that don't protect capital. Every Member of Congress
can tell you that the realtors in their communities tell them
that it is virtually impossible to get loan servicers, banks,
financial institutions, to work with the home buyer, to get a
short sale, to do things that would avoid foreclosure. This is
what I don't understand, and I am looking forward to some
information today.
The test under the HAMP program, it is supposed to preserve
capital for the banks, but apparently it is not a program that
even the banks are with zeal pursuing.
When you look at the market, any time that we can avoid
foreclosure, you make more, you preserved your capital; the
market sustains more because when the home goes into
foreclosure, prices in the neighborhood drop; and families are
sustained.
So I am interested today in why isn't this program working,
why isn't Treasury here, but also from you guys, why aren't you
operating in what we would all believe a market standard of
capital preservation, because we are continuing to proceed
toward foreclosure at rates where we all know people are
approaching the financial institutions with deals and offers
that are being rejected that would have a higher return than
foreclosure does. I am interested in some of those answers
today.
I yield back.
Chairman Towns. I now recognize Mr. Kucinich.
Mr. Kucinich. Thank you very much, Mr. Chairman.
Chairman Towns. You have 3 minutes.
Mr. Kucinich. I am going to take 1 minute, if you will let
me know when that is done.
We know that the State of Ohio received another $172
million so that people could be counseling individuals on how
to stay in their home, and I am grateful to the administration
for that. But we also know that servicers have been referring
eligible borrowers to foreclosure until they have been
evaluated for HAMP. Treasury had to intervene to try to put a
stop to that practice.
We know that Bank of America has 13 percent permanent
modifications; JPMorgan Chase, 20 percent; Wells Fargo, 22
percent; CitiMortgage, 23 percent; American Home Mortgage
Servicing, 16 percent. This whole program is about keeping
people in their homes, and yet we are finding that the
servicers apparently are not stepping up in a way that can
encourage more and more people to stay in.
We know that people are not given reasons, understandable
reasons, why their home affordable mortgage modification
program is denied, that it is sketchy as to how people appeal a
denial, and to have their denials reviewed before they face
foreclosure. These are all things that this hearing is going to
get into. We are glad you are doing what you are doing, but it
is not enough.
Chairman Towns. The gentleman's 1 minute is up.
The gentleman from Virginia, he has 2 minutes left.
Mr. Connolly. I thank the chairman.
I just want to say I appreciate the steadfastness of our
friends on the other side of the aisle in wanting to look at a
program and make sure it is better and working. But I think it
is important to remember that our friends on the other side of
the aisle are the same ones that stood by and allowed for no or
loose regulation that created the subprime mortgage bubble in
the first place, and to a person they opposed helping anybody
who was under water or threatened with foreclosure, including
in Ohio. Not one person in America would have been helped if
their vote had actually been the majority vote when we looked
at the Recovery and Reinvestment Act.
So when we are looking at the subject and we are looking at
imperfect models----
Mr. Turner. Will the gentleman yield?
Mr. Connolly. I will not yield--that are not succeeding to
the fullest extent. Lets's remember that there are some among
us who it would have helped not at all.
Thank you, Mr. Chairman. I yield back.
Mr. McHenry. Mr. Chairman.
Chairman Towns. The gentleman from North Carolina has 1
minute.
Mr. McHenry. I would just say to the chairman that my
colleague on the left is flat wrong. What he is saying is
actually not the case. We want a workable program that will
actually help homeowners, not a failed program that is
expensive to the taxpayers and doesn't actually help
homeowners. It has been an absolute failure.
GAO report after report, if we talk to folks in our
communities and our districts, they will tell you it is not
working. And I have been front and center on this issue trying
to help homeowners at home and here in Washington with
policies, and it was the party over there that would do nothing
about Fannie Mae and Freddie Mac, which really added fuel to
the fire of subprime and this mortgage crisis that we are
inheriting and that we are trying to work through right now.
So rather than this guy blaming Bush, let's move forward.
Let's try to do something reasonable for homeowners. They are
sick and tired of this kind of petty politics. We want to fix
this problem, not simply throw some money at it. We want a
workable solution, not some empty rhetoric.
So, with that, I would be happy to yield back.
Chairman Towns. The gentleman's time has expired.
Let me just say to all of the members of the committee,
there is enough blame to go around. I want you to know that. We
just have sort of put things in the proper context.
We have had the Treasury Department, GAO and the SIGTARP to
testify at our first hearing on this issue. Treasury was
questioned by the committee for more than 3 hours on the
performance of HAMP at the first hearing. Now it is the banks'
turn, and we are going to hear from them today.
But more importantly, let me state, HAMP is not the only
way to address the foreclosure problem. HAMP is just a part of
the solution, but not the whole solution. We need the
wholehearted cooperation of everybody across the board, even
this committee.
On that note, I see no recognition. We have a minute left
on this side. Yes, 1 minute to the gentlewoman from California,
Ms. Speier.
Ms. Speier. Thank you, Mr. Chairman.
I think the American homeowners who are grieving right now
and pleading for some kind of modification don't care if it is
HAMP or something organized by the bank. They just want some
relief. And I think it is shameful that my colleagues feel
compelled to point fingers one way or the other.
The one issue that is really critical that we have to look
at is the conflict of interest that exists where there is a
mortgage and a second mortgage and the servicer has an interest
in the second mortgage and therefore will not negotiate a
modification with the first mortgage. That is a really serious
issue and one we should address here today.
I yield back.
Chairman Towns. All time has now expired. We will turn to
our panel of witnesses.
It is committee policy that all witnesses are sworn in. If
you would stand and raise your right hands.
[Witnesses sworn.]
Chairman Towns. Let the record reflect that all witnesses
answered in the affirmative.
Mr. Das is the chief executive officer of CitiMortgage,
Inc. Welcome, Mr. Das.
Ms. Barbara Desoer is the president of Bank of America Home
Loans, which is the Nation's largest home mortgage servicer.
Thank you, Ms. Desoer.
Mr. David Friedman is the president and chief executive
officer of American Home Mortgage Servicing, which is the
Nation's largest independent non-prime servicer.
Welcome, Mr. Friedman.
Mr. Michael Heid is the co-president of Wells Fargo Home
Mortgage, which services one out of every six mortgage loans in
the Nation.
Welcome, Mr. Heid.
Mr. David Lowman is the chief executive officer of Chase
Home Finance.
Welcome, Mr. Lowman.
Mr. Edward Pinto is a real estate financial services
consultant.
Welcome. We are delighted to have you here as well.
At this time I would ask the witnesses to deliver their
statement. Let me just explain, just in case you don't know how
it works. There is a light that comes on and it is green, and
then after 4 minutes it becomes caution, and then it turns red.
Now, red means stop. I just want to sort of remind you how it
works so we have that straight.
Mr. Das, why don't we start with you and come right down
the line. This will allow us an opportunity to raise questions.
STATEMENTS OF SANJIV DAS, CEO, CITIMORTGAGE, INC.; BARBARA J.
DESOER, PRESIDENT, BANK OF AMERICA HOME LOAN; DAVID FRIEDMAN,
PRESIDENT AND CEO, AMERICAN HOME MORTGAGE SERVICING, INC.;
MICHAEL J. HEID, CO-PRESIDENT, WELLS FARGO HOME MORTGAGE, WELLS
FARGO & CO.; DAVID LOWMAN, CEO, CHASE HOME FINANCE, INC.,
JPMORGAN CHASE BANK; AND EDWARD J. PINTO, REAL ESTATE FINANCIAL
SERVICES CONSULTANT
STATEMENT OF SANJIV DAS
Mr. Das. Thank you. Chairman Towns, Ranking Member Issa,
and members of the committee, thank you for the opportunity to
discuss Citi's efforts to help families stay in their homes and
describe our progress in implementing the Home Affordable
Modification Program [HAMP]. I am Sanjiv Das, CEO of
CitiMortgage, and I am honored to be speaking with you today.
As Citi CEO Vikram Pandit has said, we owe a debt of
gratitude to the American taxpayer and our government for
providing Citi with TARP funds. We believe it is our
responsibility to help American families in financial distress,
and in particular to help families stay in their homes. As one
recent example, just last week Citi became the first major
lender to announce a 90-day moratorium on mortgage foreclosures
in the Gulf Coast region. Our goal is to help families who have
been hard hit by the devastating oil spill to remain in their
homes.
At Citi, we are focused on two key priorities: Working hard
to make the HAMP program as successful as possible; and
providing solutions for distressed borrowers that do not
qualify for, or have fallen out of, the HAMP process. Our focus
has produced significant results. Citi is consistently ranked
among the top performing servicers, and since 2007 we have
assisted more than 900,000 families in their efforts to avoid
foreclosure.
We know that the HAMP process can be somewhat complicated,
so we strive to make it easier for our customers. We have hired
special staffers to focus solely on the HAMP process and given
them detailed training. In addition, we have added more than
1,400 new employees to support our foreclosure prevention
efforts.
We have invested in our HAMP processing systems so that
HAMP applicants can now view their application status and
documents online. Customers are also notified electronically
when they meet key milestones in the application process.
We have learned that borrowers can be reluctant to work
directly with servicers, so we increasingly work with third
parties in local communities on mortgage modification outreach.
We have also partnered with HOPE NOW to conduct document
collection events in face-to-face meetings with borrowers who
need help. Our goal is to give every, every distressed borrower
the opportunity to reach us for assistance.
We have designed and implemented procedures to ensure the
fair application of HAMP standards for all applicants.
Despite these initiatives, challenges remain. For example,
HAMP has been revised multiple times since March 2009. With
each change additional training and systems are required, which
in turn impact program efficiencies.
Further, factors beyond our control often prohibit
customers from moving from a trial modification to a permanent
HAMP modification. In the majority of these cases, the required
documents are not submitted, required trial payments are not
made, or the borrower is ineligible for the program.
Since the HAMP program does not fit every distressed
borrower's needs, Citi is providing solutions that helps
borrowers who do not qualify for the HAMP process or who have
not achieved HAMP modifications. As part of this effort, we
offer a number of supplemental modification programs that are
designed to address customer needs on a case-by-case basis.
These solutions are tailored to homeowners' unique
circumstances and deliver an outcome that is affordable and
lasting.
Citi's own proprietary programs assist customers with a
variety of solutions, addressing challenges such as
unemployment and imminent risk of default and utilizing a
variety of strategies to solve for affordability of payments.
These solutions are described in the appendix attached to this
testimony in more detail.
We believe the issue of affordability is the most important
consideration in modifications. We do not believe there is one-
size-fits-all approach to affordability. The proof of this is
in our low default rate, which continues to be significantly
below industry averages.
For those borrowers who face severe hardship, Citi
introduced dedicated Short Sale and Deed in Lieu teams in 2009,
which offer a number of customized solutions. Further, we are
participating in HAFA and will participate in the Second Lien
Modification Program when it becomes available this summer.
These programs enable borrowers to avoid foreclosure and allow
for a dignified transition to the next phase of their lives.
I understand there is much more work to be done. Citi
remains focused in achieving affordability, and we support the
Treasury's programs to help consumers.
Thank you for the opportunity to speak before this
committee. I would be happy to answer any questions you might
have, sir.
[The prepared statement of Mr. Das follows:]
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Chairman Towns. Thank you very much.
Ms. Desoer.
STATEMENT OF BARBARA J. DESOER
Ms. Desoer. Chairman Towns, Ranking Member Issa, and
members of the committee, thank you for holding a hearing on
this very important issue.
Since January 2008, Bank of America has completed more than
630,000 loan modifications. We continue to innovate, first with
our own proprietary loan modification programs, and more
recently with the adoption of 2MP and our own principal
forgiveness program.
With the acquisition of Countrywide in July 2008, Bank of
America's servicing portfolio changed dramatically, both in
loan type and in volume, more than tripling to nearly 14
million customer loans.
We have undertaken a massive retooling of the servicing
organization to address the needs of distressed homeowners. We
have built a new default management capability, new processes,
new technology, and a 60 percent increase in staffing to more
than 18,000.
Bank of America has participated in more than 360 community
outreach events, opened assistance centers for in-person
counseling, and gone door-to-door to help customers understand
their options. We are also participating in the HOPE NOW loan
portal so housing counselors can directly submit completed
customer applications.
There have definitely been rough spots and customers have
experienced service that is very inconsistent with our
standards. We continue to learn and improve as we work through
these difficult times, never losing sight of the impact that
foreclosure has on the individual or the community.
Since HAMP launched in March 2009, Bank of America has
built momentum in the program. For the past 3 months, we have
led servicers in the number of completed modifications. Bank of
America also became the first major loan servicer to begin
implementing the Treasury's second lien program on April 1st.
We took this step to provide customers a more affordable
combined monthly mortgage payment.
This March, we announced an industry leading principal
reduction program for qualifying customers who owe
significantly more than their homes are worth. We began mailing
offers May 17th to provide immediate relief to those in the
most imminent danger of foreclosure. Treasury also announced a
similar principal reduction program that will be effective
later this year, and we are working to align our own program
with theirs.
As we execute and evaluate programs that can expand HAMP's
reach, it is vital to understand the current eligibility of
delinquent customers. Many customers do not and will not
qualify for HAMP. Within Bank of America's servicing portfolio,
1.4 million first mortgage customers are more than 60 days
delinquent on their mortgage payment. Of those customers,
Treasury estimates that about 478,000 are potentially eligible
for a modification through HAMP.
As of the end of May, Bank of America has mailed more than
1 million solicitations, made trial offers to over 400,000
customers, started active trials with more than 300,000
customers, and we have 70,000 permanent modifications under
HAMP.
As our results demonstrate, HAMP has been largely
successful in making offers to customers. However, getting
customers to accept the offers and complete the requirements to
obtain a permanent modification has been a challenge.
In April, Bank of America began HAMP process changes that
will require income and other documentation up front before the
trial period is started, and we believe these changes will
improve the trial to permanent conversion rate.
Still, given the depth and length of the recession, a
considerable number of customers will not be able to afford to
stay in their home. In these cases, we invite customers to
consider short sales or deeds in lieu programs to support a
dignified transition from homeownership to alternative housing.
We inform customers about these options as part of the HAMP
decline process. For customers who have not met the
requirements of the trial period, they receive letters that
clearly state the reason for ineligibility. More than 40
percent of the declines we have mailed are because of missed
payments in the trial period.
Bank of America provides a dedicated toll-free number for
customers to appeal the decision, provide updated financial
information or discuss other options. We will not complete a
foreclosure sale until the appeal period has expired.
Innovative solutions have been created to help customers
sustain homeownership, and Bank of America is committed to
executing those programs well. All of us at Bank of America,
including the thousands of associates who work on these issues
every day, take seriously our role in helping customers through
this difficult cycle.
Thank you, and I will be pleased to take questions.
[The prepared statement of Ms. Desoer follows:]
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Chairman Towns. Thank you very much.
Mr. Friedman.
STATEMENT OF DAVID FRIEDMAN
Mr. Friedman. Chairman Towns, Ranking Member Issa, and
members of the committee, we at American Home appreciate the
committee's consideration of the complex issues surroundings
the efforts of servicers to implement HAMP.
American Home Mortgage Servicing is a non-prime residential
loan servicer that does not own, originate nor have any
interest in any of the loans that we service. Our focus is on
keeping borrowers in their homes while balancing our obligation
to provide continued cash-flows to investors.
Contrary to popular opinion, servicers do not make money on
foreclosures. They benefit no one and are undertaken only as a
last resort when other foreclosure solutions are not available.
We aggressively pursue any reasonable modification
opportunity in the best interest of the investor through early
intervention. All troubled loans are routinely reviewed for
HAMP or other loss mitigation workout consideration. Although
we already have made thorough solicitation efforts of our
portfolio, we are again in the process of resoliciting every
borrower that has potential for HAMP eligibility.
To assist borrowers in avoiding foreclosure, we have, among
other things, established a dedicated team of housing
counselors and trained our call center associates as to loss
mitigation opportunities. We have invested in the development
of improved proprietary information systems, built
relationships with housing agencies, counseling agencies and
housing alliances, participated extensively in outreach events,
considered borrowers for proprietary modifications in
situations where we are unable to offer a HAMP modification,
and we have offered other foreclosure alternative solutions
whenever a modification is not appropriate.
Several barriers remain, despite significant progress by
the industry in the implementation of HAMP. Even with relaxed
standards, the required underwriting documents are too
burdensome. Many borrowers are unable to provide these
documents or simply choose not to do so.
Servicers such as AHMSI who experience redefault rates that
are significantly less than industry averages should be allowed
to rely upon a proven, less stringent underwriting requirement.
Many borrowers delay in responding to standard HAMP
solicitations and others are confused by program enhancements
that are prematurely announced.
Frequent program changes have overtaxed servicer systems
and processes, and the newly announced HAMP principal reduction
program has increased the number of so-called strategic
defaulters, otherwise able borrowers who purposely stop paying
on their mortgages to seek HAMP assistance. By failing to
emphasize the necessity of a valid hardship, HAMP has not
discouraged this type of behavior.
The HAMP program has experienced significant issues in
converting trial period plans to permanent modifications. Many
borrowers fail to make the required trial payments and now are
permanently ineligible for HAMP. Many others failed to timely
return executed modification agreements, despite our extensive
efforts to collect those documents. Deficiencies in and
complexities of the HAMP reporting system, IR2, have made it
difficult to officially report many permanent modifications.
Not all borrowers qualify for HAMP modification. The top
three factors for denial are the property is not the borrower's
primary residence, the applicable securitization servicing
documents restrict or prohibit modifications, and the borrower
failed to provide a complete underwriting package.
AHMSI has established an appeal process for HAMP denials
and an independent team reviews and confirms denials. Borrowers
that do not qualify for HAMP mod are reviewed to determine if
other proprietary home retention options will prevent
foreclosure.
We maintain a robust complaint tracking and resolution
process that is dedicated to handling all borrower complaints.
We take our responsibilities under the HAMP program seriously.
We have been audited by MHA compliance twice. Each time there
were no major findings or enforcement actions.
HAMP compliance often imposes unnecessarily complex burdens
on servicers that divert resources away from more productive
customer facing activities. While performance is improving,
challenges persist even as the program matures.
In conclusion, AHMSI is firmly committed to HAMP and to its
goals and standards. We are anxious to see the program succeed
and look forward to working with the Treasury and Congress to
implement any needed improvements.
Thank you for your time.
[The prepared statement of Mr. Friedman follows:]
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Chairman Towns. Thank you very much.
Mr. Heid.
STATEMENT OF MICHAEL J. HEID
Mr. Heid. Chairman Towns, Ranking Member Issa, and members
of the committee, I am Mike Heid, co-president of Wells Fargo
Home Mortgage. Thank you for the opportunity to share the
results Wells Fargo has achieved in assisting homeowners across
America.
Because of the product choices we have made, our
disciplined underwriting and the manner in which we approach
foreclosure prevention, our delinquency and foreclosure rates
in the first quarter of 2010 were three-fourths of the industry
average, and on an annual basis, less than 2 percent of our
owner occupied servicing portfolio has gone to foreclosure
sale.
To begin with, just a few examples of the actions we have
undertaken to achieve these results. Since January 2009 through
May 2010, we have helped more than 2.2 million homeowners with
new low rate loans either to purchase a home or refinance their
existing mortgage. We have assisted about half a million loan
customers with trial or completed modifications, about one-
fifth of which are through the HAMP program.
We have assisted more than 100,000 unemployed customers
with short-term modifications. Starting in January 2009,
several months before the creation of HAMP, we led the industry
by permanently forgiving more than $3 billion in principal for
more than 55,000 customers, which amounts to more than $50,000
per loan. We have begun offering home payment relief to
customers affected by the oil spill in the Gulf Coast.
With respect to our loan modification efforts, while very
difficult to achieve, we believe we must continue to balance
the needs and interests of homeowners in financial distress
with those who have remained diligent in making their mortgage
payments. While much focus deservedly is directed to those
consumers behind on their payments, we cannot lose sight of the
fact that about 92 percent of Wells Fargo's mortgage customers
are current in their home payments as of the first quarter of
2010.
HAMP is a good option for people who meet certain criteria,
but it is only parts of the home retention story. By the
Treasury Department's own April 2010 estimates for Wells Fargo,
only 3 of every 10 customers 60 or more days past due on their
home payments are potential candidates for HAMP. As a result,
servicers and investors have additional programs for the vast
number of customers who are not eligible or likely will not
qualify for HAMP. Taking all of these programs into account,
about two-thirds of Wells Fargo's customers more than 60 days
behind on their home payments are provided an option to prevent
foreclosure.
Finally, with the benefit of hindsight, it is clear the
industry was not prepared for the significant number of
customers that would face financial hardships as the economy
continued to become more challenging.
Wells Fargo is not always consistent in providing the level
of service we expect to deliver to our customers, but over the
past year we have committed tremendous resources and believe we
have come a long way in providing and improving our service.
For example, we have hired more than 10,000 people, for a total
of 17,800 U.S.-based home preservation jobs.
By the end of this month, we will complete the process of
assigning one person to manage one loan modification from
beginning to end. In other words, our customers will know
exactly who they are working with from start to finish.
We continue our work with other industry participants to
accelerate the credit decision process setting a 5-day decision
target once all documents are in hand as compared to the HAMP
standard of 30 days. We have invested in improvements in
workflow systems and document imaging. We have participated in
more than 300 home preservation events, including 10 large
scale events solely for our customers, and established 27 home
preservation centers in six States where we have concentrations
of at-risk customers.
We now give Wells Fargo home mortgage loan customers a
short sale decision in 5 to 15 days and we continue to have a
dedicated phone line for your staff to use in the event one of
your constituents, our customer, has an issue that needs
resolution.
In conclusion, Wells Fargo will continue to lead the
industry in further improving methods and programs to assist
homeowners. We believe very strongly and feel very deeply about
our responsibility to help homeowners in a balanced and fair
way, and we believe our actions demonstrate our commitment to
achieving this goal.
Thank you for your time today.
[The prepared statement of Mr. Heid follows:]
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Chairman Towns. Thank you very much, Mr. Heid.
Mr. Lowman.
STATEMENT OF DAVID LOWMAN
Mr. Lowman. Chairman Towns, Ranking Member Issa, and
members of the committee, thank you for the opportunity to
appear before you today. My name is Dave Lowman, and I am the
chief executive officer of home lending at JPMorgan Chase.
JPMorgan Chase shares your commitment to helping home
owners and stabilizing our Nation's housing market. At Chase,
we are working hard to help families meet their mortgage
obligations and keep them in their homes by making their
payments affordable.
To date, we have helped prevent hundreds of thousands of
foreclosures through our own proprietary modification programs,
HAMP, and other agency programs. In addition, we have
refinanced nearly $21 billion of loans under HARP.
HAMP modification performance has been strong. At Chase, we
are now completing more than 10,000 permanent modifications per
month. On average, homeowners are seeing their monthly payments
reduced by more than $530, an average payment reduction of 28
percent.
We are also adopting and implementing the Federal
Government's Foreclosure Alternative Program and Second Lien
Modification Program to help more borrowers. We actively use
temporary forbearance agreements for unemployed borrowers,
similar to the program recently announced by the
administration.
You have asked us to focus our testimony on how we can make
foreclosure prevention initiatives, including HAMP, more
effective for borrowers.
From the beginning of 2009 through the end of May 2010,
Chase offered almost 850,000 modifications to struggling
homeowners and made 172,000 of these modifications permanent
under HAMP and other programs. HAMP is one of the tools we use
to help these borrowers. Chase has offered HAMP trials to
nearly 260,000 borrowers. Of these, 88,000 are in active HAMP
trials and 48,000 have converted to permanent modifications.
Our experience has demonstrated that HAMP loans with a
meaningful reduction in monthly payment perform very well. In
particular, once borrowers have successfully completed the 3-
month trial period, the loans redefault less frequently than we
or Treasury predicted, even where the loan was previously
delinquent or has a high loan-to-value ratio.
We conduct extensive outreach and have made significant
investments in people, technology, and infrastructure. In
response to our customers' needs, we have developed more
creative approaches to reach borrowers in ways that work for
them. We have opened 51 Chase Homeownership Centers in 15
States and the District of Columbia where 88,000 borrowers have
met face-to-face with our trained counselors.
On top of these efforts, we have also launched a national
outreach tour of the nine cities where our customers need the
most help. Events on the tour last 4 to 5 days and are staffed
over the weekend, 12 hours a day, where we can help borrowers
find solutions to the full range of challenges they face with
their mortgages. The customer response to these events has been
very positive.
In total, nearly half of our entire staff at Chase are
dedicated to helping homeowners. 7,600 of them are loan
counselors who deal only with loan modifications for borrowers
in financial difficulty.
There are several challenges in implementing HAMP. The
biggest challenge is that HAMP was designed to help a specific
population of borrowers. As illustrated in the Department of
Treasury's recent report, only one-third of borrowers who are
60 days or more past due are expected to be eligible for HAMP.
Now that income and other documentation are required up
front and we are no longer relying on stated income, we expect
the conversion rate from trial to permanent mod to increase
substantially. Going forward, failure to make its required
payment should be the primary reason that someone does not
convert from a trial plan to a permanent modification.
Another challenge has been HAMP's continuing evolution.
There are good reasons for the number of changes, but
nonetheless, we have had to adjust our systems and retrain our
people as the program evolves. The evolution of the program has
expanded the opportunities to keep people in their homes. We do
not want to miss an opportunity to help a borrower stay in
their home, so we individually review each case and will extend
the trial period in cases where we think the borrower is likely
to qualify for a permanent modification.
It is also important to note that where borrowers are
making their payments in HAMP trial modifications, but may not
ultimately qualify for a permanent HAMP modification, we
believe we are able to qualify those borrowers for other
modification programs.
Let me touch on fair lending. Similar to our loan
origination business, Chase is committed to full compliance
with the letter and spirit of all fair lending laws and seeks
to make available foreclosure prevention solutions to all
borrowers, regardless of race, national origin, religion, age,
gender, or any other prohibitive bias.
We are pleased to have this opportunity to share our
progress with you. We look forward to continuing to work with
Members of Congress, the administration, our banking
regulators, and our community leaders in implementing these
initiatives to help families and to stabilize neighborhoods and
the U.S. economy.
Thank you.
[The prepared statement of Mr. Lowman follows:]
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Chairman Towns. Thank you very much, Mr. Lowman.
Mr. Pinto.
STATEMENT OF EDWARD J. PINTO
Mr. Pinto. Chairman Towns and Ranking Member Issa, thank
you for the opportunity to testify today.
In discussing HAMP, it is useful to recall its original
goals. Those were to help as many as 3 to 4 million financially
struggling homeowners avoid foreclosure by modifying loans to a
level that is affordable for borrowers now and sustainable over
the long term.
Second, to provide clear, consistent loan modification
guidelines.
Third, to determine a borrower's eligibility up front.
Last February, I testified before the Domestic Policy
Subcommittee of this committee and advised that rather than
avoiding 3 to 4 million foreclosures, HAMP at that juncture
would likely help just 250,000 homeowners stay in their homes
without default. As I will explain, it appears that my estimate
from February was pretty close to the mark.
The success rate is so low due to government initiatives
mandating looser underwriting standards dating back to the
early 1990's. It is this legacy of government mandates for weak
loans that makes it so difficult to achieve successful
modifications. A high default rate also works to keep HAMP's
total successful modifications low. I expect that 40 percent of
permanent modifications will redefault.
Treasury promised clear and consistent loan modification
guidelines. There are only two words to describe HAMP's
guidelines, ``numbing complexity.'' At last count, HAMP had 800
requirements, and servicers are expected to certify compliance.
Treasury also promised that a borrower's eligibility would
be determined up front. As was recently observed in the Wall
Street Journal, ``Eager for results, the Obama administration
last year prodded banks to start people on trials without first
obtaining documents proving they were eligible. That has led to
many crushed hopes.'' Instead of a quick yes or no, homeowners
were placed in trial modification limbo.
Back in February, I indicated that HAMP's January pipeline
would likely yield only 250,000 homeowners who would ultimately
avoid foreclosure under HAMP, only about 6 to 8 percent of the
announced goal. HAMP activity has slowed markedly in the last
few months, with the number of new trial modifications
declining by two-thirds between December 2009 and May 2010. The
number of new permanent modifications last months was 30
percent below April's.
As of May 31, 2010, there were 340,000 active permanent
modifications. Assuming a 40 percent default rate, only 200,000
of these permanent modifications will likely be successful over
the long term.
There are another 468,000 active trial modifications. Of
these, perhaps only 75,000 will become successful long-term
permanent modifications. Discounting all the spin, the current
HAMP pipeline will yield about 275,000 successful long-term
permanent modifications, with perhaps another 100,000 successes
resulting from future trial modifications.
Treasury's many missteps with HAMP has had other
repercussions. It encouraged strategic defaults, homeowners who
are willing to default when the value of their mortgage exceeds
the value of their home, even if they can afford to pay off
their mortgage.
Researchers at the University of Chicago and Northwestern
University found that the percentage of foreclosures that were
perceived to be strategic was 31 percent in March 2010, and
that is up dramatically from the 22 percent in March 2009 when
HAMP started. With more and more borrowers believing that
lenders are failing to pursue those who default on their
mortgages, there is a risk that a growing number of borrowers
will walk away from their homes, even if they can afford the
monthly payment.
HAMP has slowed down the foreclosure process, pushing the
period of heightened foreclosure activity out to 2013 or 2014
and likely extending the time until the market corrects. But
perhaps HAMP's greatest shortcoming is that it derailed
burgeoning efforts of the private sector to effectively modify
loans.
The facts are in the Office of Comptroller of the Currency
Mortgage Metrics Report that is produced quarterly. There are
three charts.
Chart one demonstrates that the private sector had been
rapidly ramping up its modification efforts in 2008 and 2009,
and it was when HAMP started that those efforts were derailed.
Chart two indicates that the private sector was having
greater and greater success in reducing the redefault rate on
loans that were being done outside the HAMP program.
Chart three demonstrates the slowdown and effective wind-
down of the HAMP program as new trial modifications have fallen
off precipitously, and now the number of permanent mods has
also started dropping.
The committee should ask the Treasury Department, where are
the modifications that, but for HAMP, the private sector was on
track to produce? This committee and the American people
deserve an honest assessment as to HAMP's future.
Thank you, and I would be happy to answer questions at the
appropriate time.
[The prepared statement of Mr. Pinto follows:]
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Chairman Towns. Thank you very much. Let me begin by
thanking all of you for your testimony.
I guess the question is, why haven't there been more
permanent mortgage modifications? What is the problem? Just
quickly right down the line, start with you, Mr. Das. Why do
you think there hasn't been more? Is it a lack of money? What
is the problem?
Mr. Das. Chairman Towns, as we all collectively mentioned,
we have put an enormous amount of resources to make sure that
we opened this up to as many trial modifications as possible
based on stated income, as opposed to verified income. So we
really opened the door to as many people as we could. We----
Chairman Towns. How long should it take for the trial
modification?
Mr. Das. I'm sorry?
Chairman Towns. How long should that take? Trial
modification, how long should it take?
Mr. Das. It takes Citi about 4 months, which happens to be
amongst the fastest in the industry. But I don't believe--we
have three trial payments, and then that converts to a
modification, a permanent modification, after that.
But to answer your question, Chairman, I believe that the
reason the permanent mods are not as high as we would expect
them to be is because, in many cases, the documents that
actually come in don't match with what was stated at the time
of the trial modification, and many borrowers were not able to
make the trial payments. Those have been, I would say, the two
principal reasons for the fallout.
Chairman Towns. Ms. Desoer.
Ms. Desoer. Under the HAMP program, the primary reason is
40 percent of the borrowers who have been in a trial
modification have failed to make a payment. And I think that is
reflective of the ongoing stress of the economy on those
borrowers.
And I think it is important to look at the number of
permanent modifications holistically. And when you look at our
number, HAMP is a small number of a much larger total of the
630,000 modifications, to understand that it's one of many
tools that we use for borrowers.
Chairman Towns. Mr. Friedman, same question to you.
Mr. Friedman. In our particular situation, we service a lot
of loans that just don't qualify under the HAMP guidelines,
such as a conforming loan or nonconforming loans. We may have
certain restrictions under servicer guidelines.
But the vast majority of the real issue is really that we
are still limited under this 31 percent debt-to-income test and
the fact that, in our particular book of business, the borrower
must occupy the property as their principal place of residence.
And then, also, the documentation issue. Now, we initially
up front had done always verification and requested documents
up front. So once we've got a borrower into a plan, we have a
very high conversion rate. But, again, a lot of this is on the
borrower side, as well, or the complexities of the program
itself.
Mr. Heid. What I would like to add is, I think context is
important here. When you think about the half a million mods
Wells Fargo has done, about 80 percent of those are outside of
the HAMP program, and the vast majority of those are permanent
mods already or on their way to becoming permanent mods.
Inside the HAMP program, inside the 20 percent, the primary
factors in terms of converting from trial to permanent are the
same Treasury quoted in their report: lack of documentation
because of the stated income programs of last summer. That has
since changed. Once documents are received, customers are not
eligible for the program and, therefore, go through a
cancellation phase, and you typically get a modification
outside of the HAMP program. And then, finally, customers that
just don't make the three trial payments within the HAMP
program itself are the three primary HAMP factors.
But I would encourage you to continue to keep focus on the
fact that the vast majority of mods getting done are happening
outside of the HAMP program itself.
Chairman Towns. Mr. Lowman, real quick.
Mr. Lowman. Just echoing the same thing that my compatriots
here have spoken about. Missed payments and no documents
returned from borrowers are the major reasons why modifications
don't get completed. About a third of those that do give us
documents and do, in fact, make the payments, a third of the
total population ultimately end up in a mod.
Chairman Towns. When you say you don't get the documents, I
mean, is it a lack of communication? Because a person----
Mr. Lowman. We've made extensive refinements in our
process, including communicating with borrowers and, you know,
writing letters and knocking on doors and what have you. That
process, obviously, has evolved over time. I would say at the
beginning of the program that may have been the case, but I
would say now we are equipped to adequately communicate with
borrowers.
Chairman Towns. Is communication a problem here? Just very
quickly, yea, nay, could you sort of tell me?
Mr. Das. Mr. Chairman, I believe that the issue is
actually, as you sort of analyzed the contact rates, it seems
to us that at late a stage of delinquency a lot of customers
have a very low contact rate, primarily because they may have
checked out from the process. So this means early intervention
is really critical.
Chairman Towns. Yeah. Is there anything that we need to do?
Because, you know, people are losing their homes, and I just
can't see, if a person is losing his or her house, that they
are not going to cooperate in terms of documentation. Because,
I mean, they are asking for help. And that is the part I don't
quite understand.
Mr. Heid. Maybe a couple of examples might help.
I think there is a lot going on when a customer is in fear
of losing their home. And we are doing everything we possibly
can to make sure that doesn't happen. A couple of the documents
that are troublesome is that the HAMP program does require a
tax return. I think that conjures up fears, you know, will that
trigger an IRS audit? Those kinds of things are very real in
people's minds.
The HAMP modification agreement itself is a very
intimidating-looking piece of paper. It's five pages, single-
spaced, very intimidating, very scary kind of process, that I
think people are reluctant or fearful to--you know, what else
might happen here?
So I don't think it's the communication between servicer
and homeowner that is at issue here. I don't think there are
additional things that you should and can do. I think this is
really now a matter of working very diligently and very hard
with every single customer to make sure that foreclosure does
not happen.
Chairman Towns. I now yield 5 minutes to the gentleman from
Ohio, Mr. Jordan.
Mr. Jordan. Thank you, Mr. Chairman.
HAMP, I think, has not only failed to help people, it has
actually harmed families, I think in two ways. One is the
comments that the Wall Street Journal had and I related to in
my opening statement: the false hope it gave people who were in
the temporary or trial modification program, were never
qualified, and the financial implications of going through that
process or part of that process. I also think, second, the
point Mr. Pinto raised; I think his quote was, ``It derailed
private-sector efforts to help.''
So I think in two ways it's been, not just a failure to
help, but also potentially cause harm to the very families who
were trying to get the help and who we are trying to provide
help to.
The numbers you all gave, I have 900,000 for Citi; 600,000
for Bank of America; 135,000 for Home Mortgage Service, Inc.;
500,000 for Wells Fargo; and 846,000 for JPMorgan. Of those
numbers, I'm going to go down the list, 900,000 modifications
you have made. What number of those are HAMP modifications? I
took that as being all, the big number.
Mr. Das. Yes. Since 2007, we have helped 900,000
homeowners----
Mr. Jordan. Right. What percentage have been HAMP, or
what's the number for HAMP?
Mr. Das. Well, recently, we offered HAMP mods to 150,000
customers, and, out of that, about 30-odd-thousand have taken
HAMP.
Mr. Jordan. Thirty-eight?
Mr. Das. 30,000, 35,000.
Mr. Jordan. Small percentage.
Mr. Das. Yes.
Mr. Jordan. Go to Bank of America.
Ms. Desoer. 630,000 in permanent modifications since 2008;
70,000 of them are HAMP.
Mr. Friedman. We have reported out about 8,800, and we have
about 16,000 currently in trial periods.
Mr. Jordan. And permanent?
Mr. Friedman. For permanent--the 88 is reported out as
permanent, 8,800.
Mr. Jordan. 8,000 out of 135,000 modifications.
Wells Fargo?
Mr. Heid. We've got 500,000 mods, trials and permanents.
Twenty percent of them are inside of HAMP. And inside of HAMP,
there are probably 45,000 in trial yet, probably 40,000, 45,000
or so in permanent, so a total of about----
Mr. Jordan. Less than 10 percent; 10 percent has kind of
been the norm.
Go ahead.
Mr. Lowman. 257,000 in HAMP, of our 846,000.
Mr. Jordan. How many are permanent?
Mr. Lowman. Permanent, 47,000.
Mr. Jordan. So, again, very small number. We're talking
less than 10 percent.
Here is the question. I think we'll just cut to the chase.
The people who qualified for HAMP went through this cumbersome
process, 800 different rules, 15 sets of guidelines, all this
stuff they had to go through. Mr. Heid just described the
intimidating process they had to go through.
Of the folks in the HAMP, the 47,000, the small number that
you--how many of those--or let's ask it this way. The people
who qualified for HAMP, were any of those not qualified for
your own modification program?
Mr. Das. Let's put it this way. For the people that fell
out of HAMP, we were able to save about 15 percent more.
Mr. Jordan. So the ones who wouldn't qualify for HAMP you
were able to help?
Mr. Das. Yes.
Mr. Jordan. And it's working.
Mr. Das. And it's working.
Mr. Jordan. All right.
Ms. Desoer. I can't tell an exact number, but the potential
does exist because of the Treasury incentives, that it enabled
it to make more sense for the investor to be a HAMP
modification. But I think many of them would have qualified.
Mr. Jordan. Many?
Ms. Desoer. Many. But I don't know the exact number.
Mr. Jordan. Mr. Friedman.
Mr. Friedman. About two-thirds would qualify for
proprietary mod.
Mr. Jordan. Two-thirds of the permanent--I mean, what's the
number.
Mr. Friedman. The question, I believe, was, of the HAMP
participants, how many would have qualified under a proprietary
modification program? And about two-thirds of those would have.
Mr. Jordan. Let me ask it more specifically. Of those in
HAMP who got into permanent status in HAMP, would any of those
not have gotten into permanent status with one of your
programs.
Mr. Friedman. Only those who would be limited by certain
investor concerns under our pooling and servicing agreement. So
it would be a small amount.
Mr. Heid. I think a timestamp on this is important. If the
issue is right now, I think right now, with all the programs
available, the majority of customers that get a HAMP would
probably get a non-HAMP. I don't have an exact number.
To the other point about customers that are canceling out
of HAMP, Treasury provided some statistics on that earlier in
the week. In Wells Fargo's case, somewhere between 70 and 80
percent of the HAMP cancelations are resulting in some other
form of saving the home or avoiding foreclosure.
Mr. Jordan. Mr. Lowman.
Mr. Lowman. Most would qualify for the proprietary program.
Mr. Jordan. So, I mean, here we are. We got a program that
has promised $75 billion, 3 to 4 million folks it was going to
help. It has helped 346,000, to date, to get into permanent.
And yet, the vast majority of those who made it into the
permanent would have made it in one of your own modification
programs without putting taxpayer money--without this big
government hassle and mess. And then those who got kicked out,
we are also finding out the majority of them you could have
helped.
Mr. Pinto, I know you want to weight in on this. We've got
30 seconds. Go ahead.
Mr. Pinto. I will just add one fact. About 60 percent of
all HAMP mods are Fannie/Freddie. So this issue of--yes, there
are some investors outside of that, but Fannie and Freddie is
the majority of it. And, of course, they don't need to be paid
an incentive to do what they need to do.
Mr. Jordan. Great point.
Mr. Chairman, I think this points out--well, I think it is
obvious what it points out.
I yield back.
Mr. Cummings [presiding]. The gentleman's time has expired.
Let me just go to--Ms. Speier, when she was here, she said
something that I agree with. You know, HAMP is fine, but my
constituents want to have some kind of relief. And so, whatever
it takes to accomplish that, that is what we are trying to do.
In my district, we hold what we call foreclosure prevention
conferences. We have done 15 of them--four of them so far. We
just did one about a week ago. And as I listened to your
testimony, I understand better now why we are able to save at
least two-thirds of people's houses.
And a lot of it goes to, when you talk about documents,
what we found in our office is that, a lot of times, it is an
intimidating process with regard to these applications. And we
have two people on our staff and basically what they do almost
full-time is help people with foreclosure because it is a
difficult--it is not the easiest of processes.
So I want to go to you all and just ask the question--you
say that one of the reasons why it's so difficult and people
stay in the temporary phase is because they are not getting the
proper documents in and they are not turning in the way they
are supposed to. Well, what we have found is that, be it HAMP
or anything else, that a lot of times the mortgage companies
are understaffed. I mean, and I can tell you that for a fact.
Now, it has gotten better.
And so, when people would call in, first of all, they
couldn't get anybody on the phone. Then, if they got somebody
on the phone, they got the runaround. And then, if they got
somebody and was able to avoid the runaround, then the
paperwork got all mixed up. And I have seen instances where
paperwork has been sent to the mortgage company four or five
times, and then the mortgage companies, some of the same
companies sitting here now, have said to my people--and I know
this for a fact--that they never got it. And we have actually
sent paperwork from our office.
So I want to know what you all have done with regard to
staffing--that is, training staff. It's one thing to have
staff; it's another thing to have staff that is properly
trained. And what have you done with regard--it seems like
you're saying that, in order for people to move from a
temporary to a permanent, it seems like paperwork is one of the
main things that is holding them up.
And I heard, I think you, Ms. Desoer, say that some of
these people are not making payments during the temporary
stage. I think was it you who said 40 percent? See, we don't
find that to be the case. We find people that want to make the
payments. And we have actually found a lot of people who have
made payments and then the mortgage company told them they
didn't make payments. And, literally, my staff would have the
copy of the check or the money order in their hand. So, you
know, there is a disconnect here.
So the question is--I'll start with you, Mr. Heid, since
I'm kind of familiar with Wells Fargo. Why don't you tell us
what you all are doing with regard to that staffing? And have
you found that to be something of significance? And if you did
staff up, how did it affect the operation and your results?
Mr. Heid. Sure. I think your criticism is very fair a year
ago. We were not where we should have been a year ago. We have
made a lot of progress in the course of the last year. We have
attended your events, we have created our own events as ways to
gather the documents.
And I think, most importantly, what we have implemented--
and by the end of the month, we will be done--is our one-to-one
approach, where every single customer will know exactly who
they are working with and everybody on our side knows exactly
which customers they are accountable for in a one-to-one way.
In order to get there, we have added more than 10,000 people
over the course of the last year.
Mr. Cummings. It's kind of expensive, huh?
Mr. Heid. I'm sorry?
Mr. Cummings. Kind of expensive.
Mr. Heid. Yes, it is.
Mr. Cummings. Would you all rather see somebody stay in a
house than be foreclosed upon?
Mr. Heid. Absolutely.
Mr. Cummings. And why is that?
Mr. Heid. I mean, foreclosure is the absolute last resort.
I mean, a lot of reasons. I mean, one, it's the right thing to
do. Beyond the right thing to do, economically, it is always in
the investors' interest, our shareholders' interest, the
community interest, customer interest, to do everything you
possibly can to keep the customer in the home or find an
alternative to foreclosure.
I think every one of us sitting at the table would
completely say to you, foreclosure is absolutely the last
resort.
Mr. Cummings. Chairman Towns and I sit on the conference
committee for Wall Street reform, and there was an amendment
yesterday to make sure that there was a revolving loan fund for
$3 billion to help people who may have lost their jobs.
Every single Republican voted against it--every single one
of them. And I heard some of them say a little bit earlier that
they were concerned that not enough was being done by Congress.
Fortunately, it passed on the House side in the conference.
But I see my time is up, and perhaps I can get some answers
to whether you all believe such a thing is very important
later.
Mr. Turner.
Mr. Turner. Thank you, Mr. Chairman.
Thank you for all being here, and thank you for being so
helpful in your answers. Because, as you know, we are all
struggling and trying to figure this out. And, as we are trying
to figure it out, you have specific expertise, not just in your
view of the government program, but in the issue of what is
happening in the market, what is happening with homeowners, and
what needs to be done. So I appreciate that you have been so
forthcoming.
As I said in my opening, you know, Treasury Secretary
Geithner yesterday, when appearing before the congressional
oversight panel, said about HAMP, ``This program was not
designed to prevent foreclosures. It was not designed to
sustain homeownership at a level that would be unacceptable,
imprudent to try and do.''
He was then asked about the homeownership rate level, what
would it be, what would be a market-efficient number. Someone
offered 65 percent, and he tended to agree that was an
objective.
Reuters relates his statement as, ``Geithner said he agreed
with the assessment that housing will only stabilize as more
homeowners become renters again.''
Do you guys agree with that? Do you agree with our Treasury
Secretary that our market will only stabilize as more
homeowners become renters? Because that seems contrary to what
our whole goal was here, in trying to stabilize homeowners in
their home.
Mr. Das, I will start with you.
Mr. Das. Congressman, I'm not qualified to answer the
Treasury Secretary's response.
But I will say that, when we focused on HAMP as an
industry, we wanted to create a great uniform baseline across
the country. There was no baseline modification. There were all
kinds of proprietary programs. So, in the last year, HAMP has
done--we have done a great deal with respect to HAMP to get to
a uniform baseline.
However, there will be fallouts and there will be re-
defaults. And I believe that the issue needs to move--the focus
needs to move beyond modifications to foreclosure prevention.
And I believe that short sales and deeds in lieus are the
programs that we should really focus on. And I believe that is
where----
Mr. Turner. Ms. Desoer, do you believe more people need to
be renters?
Ms. Desoer. The HAMP program and other modification
programs are primarily built to ensure that the payment is
affordable. And what HAMP has done is set a new standard for
the industry at that 31 percent debt-to-income ratio of the
mortgage, taxes, insurance, homeowners association, to income.
And in that spirit, there are a large number of people who
would not qualify.
And I agree that, at some point, if they can't afford to
sustain a mortgage payment at a level commensurate with their
income, then they do need to move on to alternative kinds of
housing. And that is what short sales and deed in lieu and
other programs are attempting. And we are working hard to
ensure that there is a dignified transition as an alternative
to----
Mr. Turner. The comment the Treasury Secretary made, which
is why I'm asking the question--and I disagree with the
Treasury Secretary--is that, it is not that he is talking about
the individual decision of a homeowner as a borrower who finds
himself in an untenable debt position and then must make the
choice of leaving the home, surrendering it, going through,
then, the process of becoming a renter. He is actually saying
that, for housing prices to stabilize, that he personally
believes that more homeowners should become renters, according
to Reuters. And that seems contrary to this program.
And, of course, he characterizes it here as, ``This program
was not designed to prevent foreclosures,'' which I could have
sworn that's what President Obama said it was supposed to do.
Mr. Friedman, what do you think about more people becoming
renters?
Mr. Friedman. Well, again, you know, I wasn't around the
Secretary when he made the comment, but, I mean, I do believe
it is a fact that not all homeowners can afford their mortgage
payment. And, as a result, like many of us, if you spend too
much money on something, you have to cut something else out.
And I think, you know, that could very well be what he meant.
I think, as a general policy, I think homeownership is a
great thing if people don't get greedy and they can then pay
their mortgage and can afford all those things that go along
with homeownership.
Mr. Turner. Well, one other thing I want to add, because my
time is expiring, is that, in listening to all of your
testimonies about how you have been approaching homeowners, I
can tell you that the anecdotal stories that we hear from
realtors, from nonprofits that are trying to assist homeowners,
is that the loan servicers are not responsive; that, in fact,
it is an incredibly difficult process even when you have a
social worker that is sitting, guiding someone through the
process; that, in fact, you are making decisions that don't
follow the market; that, when there are short sales that are
offered, that, in fact, you allow the loans to go to
foreclosure.
And I wanted to say, Mr. Chairman, I think one thing that
would be really helpful is to have, not a panel of loan
servicers, but have loan servicers on one side of the room and
have realtors and nonprofits that are helping people on one
side of the room, and let these two people go at it. Because we
are hearing a different story than you're telling us today.
Mr. Cummings. The gentleman's time has expired.
Mr. Kucinich.
Mr. Kucinich. Thank you very much, Mr. Chairman.
To the gentlemen and gentlelady at the table, each of you
represents lenders or agents of lenders who would not exist in
their current form but for the beneficence of the U.S.
taxpayer. And I remind each of you that, without the continued
support of the American taxpayer, there would be virtually zero
residential housing market activity.
The issue before us today is, why in the world aren't you
giving loan modifications to more eligible borrowers? Why are
you denying loan modifications to my constituents, in spite of
the fact that we have a Federal program which pays you, the
mortgage holders, an incentive to modify the terms of the
mortgages and compensates you for many of your costs? I would
like to hear some justification.
Mr. Lowman, do you want to respond?
Mr. Lowman. Yeah. We are helping all the people that come
to us and that we contact. We have made extensive investments
in people, systems, infrastructure.
The folks that don't get a modification, it's generally for
two reasons: Either they failed to pay us during the trial
period or they don't qualify for the programs. Maybe their
income isn't enough to afford a home, or they don't provide the
required documents.
Mr. Kucinich. OK. Well, let me just share this with you. At
the end of May, my State of Ohio had 136,910 seriously
delinquent loans, and only 12.95 percent of those loans have
been modified. So here is Ohio, it is 42nd out of 51, including
the District of Columbia, in the ratio of HAMP modifications to
seriously delinquent loans.
Now, in early May, I held an open meeting in my district
with Treasury Assistant Secretary Allison. And in that meeting,
I want you to know, Mr. Lowman, that in Cleveland, OH, I heard
from numerous advocates and homeowners that your bank is the
most difficult one to deal with, when it comes to loan
modification. Over and over, I have heard that Chase has been
especially slow to process paperwork. I have heard that Chase
denies borrowers modifications without supplying a reason. I
have heard that Chase leaves borrowers facing foreclosure in
limbo.
Now, of the four largest mortgage servicers, all of which
are represented here today, why is the average length of trial
modification for Chase mortgagers nearly 7\1/2\ months, Mr.
Lowman?
Mr. Lowman. As we have mentioned, all of us have mentioned,
the resource needs for this program have outstripped our
ability to have the right number of people in seats performing
the functions. We have----
Mr. Kucinich. So you're saying you don't have enough people
to handle the program?
Mr. Lowman. We have historically not had enough people to
handle the demand for the program. We were one of the first out
of the box when the HAMP program was announced, and we started
accepting applications----
Mr. Kucinich. Here's what I don't--excuse me, because I
have limited time here. I'm sorry to interrupt you.
The program has been going on for 19 months.
Mr. Lowman. That's correct. And we----
Mr. Kucinich. Now, it seems to me----
Mr. Lowman [continuing]. Have hired thousands of people in
those periods.
Mr. Kucinich. I understand. It seems to me, you know the
demand. Your performance is very weak. If you know there is a
demand and you're getting incentivized anyhow from the
taxpayers, see, I just wonder how hard you're really trying.
That is the concern that I have.
And when I get reports from my own constituents that you're
denying modifications without supplying a reason and you're
leaving borrowers facing foreclosure in limbo, your explanation
doesn't cut it.
Mr. Lowman. We have increased our staff. We have invested
in our systems. We have, historically, had a backlog of loans
that are in trial, and now we are literally looking at every
loan that is in a trial, beyond its original trial period,
looking at it loan by loan, making sure that we don't leave any
stones unturned to give folks a modification. And----
Mr. Kucinich. What do I tell my constituents when they tell
me Chase won't work with them?
Mr. Lowman. They should call the 1-800 number.
Mr. Kucinich. Should I call the 1-800 number? Is there a
number I can call you, Mr. Lowman?
Mr. Lowman. Absolutely, there is.
Mr. Kucinich. On behalf of my constituents?
Mr. Lowman. Yes.
Mr. Kucinich. OK. We will chat afterwards.
Mr. Lowman. Yeah, absolutely. I'd be happy to do it.
Mr. Kucinich. I want to help you do more and do better.
Mr. Lowman. We have a number that I can put on the record,
1-800-335-0123, for anybody who has constituent complaints. I'd
be happy to personally deal with them.
Mr. Kucinich. I just want to make sure, Mr. Chairman, it's
not like those bumper stickers that say, ``You like my driving?
Call 1-800--``
Mr. Cummings. The gentleman's time has expired.
Mr. Duncan.
Mr. Duncan. Well, thank you, Mr. Chairman.
We have a memo that says more borrowers have been kicked
out of HAMP than have received permanent modifications.
Cumulatively, HAMP has now placed 346,000 borrowers in
permanent mortgage modifications, but this is overshadowed by
the fact that 429,000 temporary modifications and 6,300
permanent modifications have been canceled.
But I'm now told also that the Fitch ratings service
recently came out and said that they estimated that 75 percent
of those permanent modifications will ultimately default. And
then I'm also told that TARP set aside $75 billion for this
program but only $30 million to $40 million has been paid out
in the first year and a half.
At that rate, it would take 200 years, roughly, I guess, to
get all this money out, which it seems to me ridiculous that
they have set aside that much money for what it now appears to
be a failed or failing program. Because I just heard, in
response to questions from Chairman Jordan, that only about 10
to 20 percent of your loan modifications are under HAMP in the
first place.
And we were told before the hearing, and my understanding
is now that has been confirmed here by most of you, that almost
all of these modifications under HAMP you would have tried to
work out through your own private modification programs.
So I don't believe I have ever heard of a program that is
doing less or working in a worse way, just about.
And I'm wondering if any of you would dispute what Mr.
Pinto said when he estimated that HAMP will ultimately need
only 6 to 8 percent of its original goal. And he used the words
``numbing complexity.'' Do any of you dispute that estimate,
that very pessimistic estimate that he has presented here
today? Or would any of you dispute his description of the
requirements as being ``numbing complexity?''
Mr. Das. Congressman, I'm not sure that I would use that
phrase to describe HAMP. I believe that we all stood behind
HAMP and created it together, along with the Treasury
Department. We wanted to make sure that we had one uniform
program, and we really focused on scale on that program. And I
think it's important for us to understand that we all
collectively got behind this problem and focused on scale. Last
year, it wasn't the case.
More importantly, we got the GSEs to come behind the
program. And all our loss mitigators now had one program that
they had to deal with, as opposed to nuanced proprietary
programs. So I believe that HAMP worked and worked in scale
when it needed to.
However, I believe there is a part B to that, which is that
this problem is moving. It's moving forward. And I believe that
we now need to focus on the fallout from HAMP, we need to focus
on re-defaults, and we really need to focus on a targeted
foreclosure-prevention program.
So HAMP needs to evolve, no question, but I think that it
served its purpose when it did. And I want to applaud my
colleagues for having tried as hard as they did, along with
ourselves, in scaling what was an important response to
homeowners at the time.
Mr. Duncan. Any other comments?
Ms. Desoer. If I may, I'd just add one other thing. That
is, before HAMP, there was--I think one of the significant
advantages of HAMP has been the establishment of standards.
And, in particular, the debt-to-income ratio that was used even
on our proprietary programs prior to HAMP was higher than the
31 percent.
And to establish that as a standard that is usual and
customary, so that where we have the ability to work on behalf
of investors we can do so, has enabled the results we do have
with HAMP, but, equally importantly, the results that we do
have in our proprietary programs, as well. So that is a
significant advantage.
Mr. Duncan. Of course, if it was working the way it should,
your companies would stand to make a lot of money out of it and
become government contractors, at least to the extent for this
program.
Thanks very much.
Mr. Issa. Would the gentleman yield?
Mr. Duncan. Yes, yes, I'd yield.
Mr. Issa. Following up on that, ma'am, if you, in fact, had
the higher debt-to-income ratio, in other words, if Treasury
had effectively set it at 45, 55, wouldn't you have more loans
going out today?
I will ask on my own time. I'm sorry. Go ahead.
Mr. Cummings. The gentleman's time has expired.
Mr. Lynch.
Mr. Lynch. Thank you, Mr. Chairman.
I want to thank the witnesses for their willingness to come
and help us.
I have to ask, in my State we have seen the number of
foreclosures double this past month, month of May 2010,
compared to the month of May 2009. It has actually gone up 120
percent.
And, unlike when this housing crisis first struck and we
saw a lot of subprime mortgages out there and poor product and
maybe people who were in homes that they couldn't afford, now
we see the greatest correlation is unemployment with people not
being able to stay in their homes.
And I'm wondering if this tool that we initially came up
with, the HAMP program, is the right tool to deal with that
type of problem. Because if someone is out of work and there is
not the stream of income to support a mortgage, it doesn't
matter how you design it or how you modify it, if there is no
income to support that mortgage, it's going to end up in
foreclosure.
And so, I'm fearful--I see how this is all working out. I
see all the attempts you're making. I also see about 440,000
people who were kicked out of the HAMP program, the trial
program, because you could not verify income. So what I'm
afraid of was happening here, under TARP, which created the
HAMP program, which I voted against because I did not approve
of the bailout for the Wall Street banks, under this program,
you're being paid an awful lot of money to process these
attempted modifications, these trials.
But after you do all this work, which you're being paid for
by taxpayer money, I see 434,000 people kicked out of the
program. So their foreclosures were delayed for a little bit.
And it allowed you to be paid for that attempt. But, at the end
of the day, the taxpayer money is spent by your firms because
50 percent of the second-mortgage market is sitting at that
table right there, 50 percent of the national second liens.
So I just think this is, sort of, insult to injury. We are
spending all this money on the program. It is accruing to your
benefit in a significant way. The taxpayer is being hurt, and
the homeowners are not being helped in a significant way. And I
understand the dynamic that is out there now, it is just
different, because we have all these people who are unemployed.
And, in some cases, you can't modify that because there is
nothing to support it, no income stream.
But let me ask you straight up, do you think this program
should be continued beyond October? We only have a few months
left here. There have been very few people helped by this
program. But, as the folks that are administering this and
seeing how many people are being helped and how much money is
being spent here, do you think this program should be extended
come October, given the fact that we still have streams and
streams of foreclosures coming down the pike?
Mr. Das.
Mr. Das. Yes, sir, I believe that the short answer is that
I believe that this program should be continued. As I have said
before, this program provided a great baseline and a uniform
baseline. If we didn't have all of the GSEs and all of the
banks participating in this program in a uniform way, there
could be a lot of consumer confusion, as we saw in the
beginning of last year.
I would, however, submit that this program needs to be
enhanced. As you rightly pointed out, Congressman, unemployment
is a big issue. And not being able to have a sustainable income
stream to make the payment will cost----
Mr. Lynch. Mr. Das, I only have a little bit of time, and I
just wanted to find out if you wanted the program to be
continued.
Mr. Das. Yes, sir.
Mr. Lynch. Ms. Desoer.
Ms. Desoer. If I could, just one clarification: We are only
paid as a servicer at the time of the permanent modification,
not during the trial period.
And I do believe the program should be extended to allow
the new components of the program, the second lien program, the
Home Affordable Foreclosure Alternative short sale program, as
well as the unemployment and principal forgiveness components
of it, should be allowed to play out to determine if that can
help more borrowers stay in their homes.
Mr. Lynch. Thank you.
Mr. Friedman.
Mr. Friedman. Yeah, I think it should be continued now,
especially in light that the program--now you're verifying
items up front. So I think that will actually help see much
more positive results out of the program.
Mr. Lynch. Mr. Heid.
Mr. Heid. And I would add, for the 80 percent of the mods
that are happening outside the program, there is no government
payment of any kind.
As far as your question on the program itself, I would
continue it. I would finish the enhancements already made. I
would not expand it.
Mr. Lynch. OK.
Mr. Lowman.
Mr. Lowman. Yes, it should continue.
Mr. Lynch. Mr. Pinto.
Mr. Pinto. I would not. And if you do continue it, I would
ask Treasury to provide very clear information, which they
promised many, many months ago, about re-default rates. They
have published virtually no information about re-defaults.
There is a benchmark for that, and I mentioned it in my
testimony, the Mortgage Metrics Report. You need to know how
this program is doing compared to the way OCC has been
tracking, for 18 months, modifications.
Mr. Lynch. Thank you, sir.
Mr. Chairman, I yield back. Thank you.
Chairman Towns [presiding]. I thank the gentleman.
I now yield 5 minutes to the gentleman from California, the
ranking member, Congressman Issa.
Mr. Issa. Thank you, Mr. Chairman.
And before I begin, I think we have both heard enough to
know that we need to have Treasury back here well before the
October end, to talk about lessons learned and, if there is to
be any modification extension, to get to us sooner rather than
later. Wouldn't you agree?
Chairman Towns. Well, you know, we have had Treasury in
here. I mean, so it's not something that we have not done. You
know, I think there are a lot of questions that should be
raised even with people that are involved in terms of with the
servicers. Because, you know, let's give you the classic
example, and then I am going to let you regain your time. I
will take this off of my time in some kind of way.
You have people that were put into mortgages, I mean, by
folks that are no longer, probably, working for the bank now.
They are gone somewhere else. And then now they are coming in.
You know, what happens to them?
There are a lot of things that, you know--I think we need
to spend time now talking with the servicers and people who
have experienced these things. People probably got fired
because they put people into mortgages that they knew that they
shouldn't have gone into. I think these are some of the
questions that we need to get answered before we even deal with
anybody else.
On that note, I want you to know I did not take it off of
your time.
Mr. Issa. I thank the gentleman. Thank you, Mr. Chairman.
Thank you for giving us this opportunity today.
Ms. Desoer, I had previously asked you about the fact that
a new level of income to debt had been established. Prior to
that time, well, certainly with stated income, often called
``liar loans'' and so on, somebody could have 100 percent
actual income to debt, but certainly many people, in your
experience, had much higher ratios, 45, 50 percent, relying on
two incomes at their highest level. Isn't that true?
Ms. Desoer. That's correct. There were higher incomes in
the origination side of the----
Mr. Issa. So when we look at failures, and backward-
looking, an artificially high ability to make a loan, often to
flip it to government programs, Freddie and Fannie and so on,
but allowing a much higher ratio was part of the situation.
Because if there was any hiccup in the income or if it didn't
appreciate and they weren't able to pull money out, ultimately
there was a problem we were heading toward, now that you have
the opportunity to look back at what happened starting in, in
the case of Mr. Kucinich's district, in 2006, but in the case
of other districts, a little later.
Isn't that right?
Ms. Desoer. Yes. The programs are intended when there is a
hardship, which means that income has been disrupted, to then
revamp the mortgage payments to be more affordable tied to that
income.
Mr. Issa. Right. So at 31 percent, is this the right
number, going forward? When I was a kid, it was lower. Twenty-
five percent would have been a stretch, in many cases.
What would you say the right number is in order to have
enough cushion for normal ups and downs of income and so on and
still be able to stay in your home and meet your mortgage?
Ms. Desoer. I believe the 31 percent ratio is appropriate
but not for everyone. And, in particular, when you look at a
low-income household, 31 percent probably is still high. So we
have been recommending to Treasury that they consider lowering
that for certain categories of borrowers. And, on a proprietary
basis, we are looking at the same thing.
Mr. Issa. OK. Well, I think that's certainly good judgment
and something that I don't think is partisan here.
Let me ask one question to all of you. If we had known 10
years ago what we know now and if the borrowers had known 10
years ago what they know now, wouldn't you assume that many of
them would have bought less house than they are currently in,
that you're trying to keep them in?
What I'm really saying is, you're trying to keep people in
homes that are right on the edge of their affording, even after
you do modifications.
Wouldn't it be true that, if they had chosen or were able
to think again 10 years back and buy a home in a different
price range, that they might be very good homeowners, while in
many cases you have a hard time keeping them in the home they
have?
I will just go down the line, and as close to a ``yes'' or
``no'' as you can.
Mr. Das.
Mr. Das. Based on what we know now, absolutely,
Congressman. And it's one of the reasons why we stayed away
from option ARMs to start with.
Mr. Issa. Yes, ma'am?
Ms. Desoer. Yes. It's the reason Bank of America exited the
subprime business in the year 2000.
Mr. Issa. Mr. Friedman.
Mr. Friedman. I would like to comment. One other thing is I
think, back to the debt-to-income ratio, it's our strong
opinion that you really need to look at the whole totality of
the borrower's situation. The debt-to-income ratio under HAMP
only deals with the housing piece; it doesn't deal with the
debtor's overall situation.
Other than that, I would say also yes.
Mr. Issa. Mr. Heid.
Mr. Heid. You know, I think hindsight is a wonderful thing.
I think the key is, we are here now. And the key right now is
achieving affordability for homeowners that want to and have
the willingness to stay in their home.
Mr. Lowman. Yes.
Mr. Issa. Mr. Pinto, I know you would say that we suckered
people into too expensive a home.
Mr. Pinto. Yes. And I would also add that the back ratio
that was just referred to, the total debt ratio, is running 64
percent. And it has actually been going up. And that means
that's before food, clothing, anything.
Mr. Issa. Right. So, my followup on this is, knowing what
we know now from 10 years ago, whether it's HAMP or some of the
loan modifications, in many, many, many cases, isn't our real
goal to keep people in a house often keeping them in a house
that is bigger and more expensive, even after reductions, than
it would have been right-sized for them to begin with?
And, as such, if the Federal Government is going to be
trying to find affordable housing for people on the edge
income-wise, and if we are lucky enough to have the Treasury
back up here, and if they are looking at extending this
program, isn't there a component missing from HAMP, and that is
that it keeps people in the house they're in, rather than
evaluating whether, in fact, there is a completely affordable
non-renter situation that is eclipsed by the fact that they are
in this house right now?
And, you know, I know that is beyond your purview. You're
not realtors, and you're not able to say, ``Look, get out of
this house and get in this house,'' in most cases. But isn't
that something that, as we are bringing Treasury up, if there
is going to be an extension--and some of you did look at some
continuation of this program between October--isn't that a
component that is fundamentally missing, which is affordable
housing starts not with the house you picked but with the house
that was affordable?
Mr. Das.
Mr. Das. Congressman, I believe that you raise a very, very
important and a very interesting point, and I would concur with
you.
Mr. Issa. Ms. Desoer.
Ms. Desoer. Yes.
Mr. Friedman. Yes.
Mr. Heid. You know, I think the key to HAMP and the key to
any mod program is to make sure it's affordable now, that the
consumer can afford the home they are in with the payment they
have right now.
Mr. Issa. Mr. Lowman.
Mr. Lowman. Yes.
Mr. Pinto. Yes.
Mr. Issa. OK, I'll settle for a yes. I can take it for an
answer.
Thank you, Mr. Chairman. I yield back.
Chairman Towns. Thank you very much.
I now yield to Mr. Connolly of Virginia, 5 minutes.
Mr. Connolly. Thank you, Mr. Chairman.
Mr. Lowman, you said that, despite some reports to the
contrary, HAMP modification performance has been strong,
helping hundreds of thousands of homeowners.
Could you explain how HAMP augments your other mortgage
modification programs?
Mr. Lowman. Yeah, well, we offer--HAMP is top of the
waterfall, so that is the first program that we offer. And, you
know, it is the primary, you know, first point of defense in
providing the modification.
If a person for whatever reason doesn't qualify for HAMP,
either it's a jumbo loan or it's a loan that was done past the
date of the effective date of HAMP or for some reason it has
fallen out of HAMP, then we use our proprietary program.
Mr. Connolly. So one augments the other or complements the
other?
Mr. Lowman. Yes.
Mr. Connolly. Mr. Heid, you stated that HAMP has
facilitated the industry's ability to deliver more streamlined
solutions than ever before.
Could you elaborate on how HAMP has strengthened mortgage
assistance beyond the programs offered by the private sector?
Mr. Heid. I think what I meant by that and what I think is
important is a timestamp. When you think about how and when
HAMP was first created, it was the beginning of 2009. At that
time, most of the loan modification programs that existed
required an individual handling, an individual approval, from
an investor. With the creation of HAMP, a more systematic
program was created.
I think HAMP did serve as a catalyst to get other programs
going. I think it did serve as a bit of a mobilizing event to
push servicers to take broader actions at a more rapid pace. I
think it pushed other investors, including Fannie and Freddie,
to move in a direction of programmatic home and loan
modifications.
That's what I meant by the fact that there was a broader
effect from it.
Mr. Connolly. So it actually leveraged other programs,
private-sector programs. But for HAMP, maybe they wouldn't
have--they would have been slower, smaller, maybe nonexistent?
Mr. Heid. At the time. I mean, again, this was 2009. I
think it certainly sped things along. We are at a different
point in time right now.
Mr. Connolly. Any estimate of what the number might be, in
terms of what falls in the category of additional refinances or
modifications that were leveraged because of HAMP?
Mr. Heid. You know, I don't have a number for you. I think
what I would say is that there were definitely loan
modifications attempts being made throughout. It is not as
though customers weren't getting assistance.
Mr. Connolly. Right.
Mr. Heid. I think what happened is, the idea of HAMP was a
national systematic program. And I think national standards,
national programs are always useful.
Mr. Connolly. Thank you.
Ms. Desoer, Mr. Pinto seemed to imply that HAMP is just
displacing private-sector mortgage modification programs, which
seems to contradict your testimony and that of others on the
panel that said HAMP complements the proprietary loan
modification programs Bank of America and others have
developed.
Could you elaborate?
Ms. Desoer. Yes. And it gets back to the point of which
loans and which customers are eligible for HAMP. And, again, as
I said, out of our 1.4 million customers who are delinquent 60
days or more, there are about 478,000 that are eligible for
HAMP. We lead with HAMP in the waterfall for those of options.
And if they fail to meet the HAMP requirements, then we can
offer other alternatives.
For the rest of the customers in the portfolio, we are
doing modifications, but, again, the advantages that HAMP
provided that floor or that standard in terms of the debt-to-
income ratio and capability that we can leverage in those
programs for customers who are not explicitly eligible for HAMP
by its definition.
Mr. Connolly. If I understand your testimony and that of
Mr. Heid and Mr. Lowman, far from displacing the private
sector, it actually provides a certain framework for you to
buildupon and expand.
Ms. Desoer. That's correct.
Mr. Connolly. Thank you.
Mr. Chairman, I yield back.
Chairman Towns. I thank the gentleman for yielding.
I now yield 5 minutes to the Congresswoman from California,
Ms. Speier.
Ms. Speier. Thank you, Mr. Chairman.
While I was not in the room, I was listening to the
testimony. And I'm somewhat struck by the questioning that was
offered by Mr. Lynch when he asked if you wanted to see the
program continue and virtually every one of you said yes,
although my colleagues on the other side of the aisle very much
want to see the program disappear.
So it would be helpful to us if you can, in a narrative,
provide to the committee precisely why you think the program
should continue.
Now, Mr. Lowman, I think Congressman Kucinich said that he
had great difficulties with your particular company. And I
would like to just echo those. I have a number of cases here
that are truly disturbing that are loans by Chase.
This couple, retired school teacher, retired husband, Chase
has lost four sets of applications. And this is a story we hear
over and over again, where documentation is sent, documentation
is lost. When a consumer sends it in four times, has
documentation they send in four times, and you can't find it,
that is your problem.
And it reminds me a little bit of the issue with the
Minerals Management Services, where, basically, if they didn't
permit the Horizon Deepwater rig within 30 days, it was
automatically considered approved. Now, in that particular
situation, clearly, that shouldn't have been the case. But we
might argue that, here, at some point, the lender has to take
responsibility for not having the documentation, when it has
been sent over and over again.
Now, I have two people dedicated to doing only foreclosures
and modifications in my office. That is a lot of staff. And I
would bet that every Member on this panel would say the same
thing.
I would ask you to create a legislative liaison individual
within each of your companies that we can call. And I would
like for you to contemplate that. If you are going to do it, I
would like for you to identify who that is and present it to
the committee. If you're not going to do it, I want you to
explain to the committee why you won't do it.
If we are really going to get to the bottom of this and
keep people in their homes, we've got to have more
accountability everywhere.
And I guess, Mr. Chairman, I really don't have a question.
I just had a series of statements I wanted to make. Thank you.
Chairman Towns. And it should not be an 800 number, right?
Ms. Speier. No. No, it should not be an 800 number.
Chairman Towns. Thank you.
I now yield to the gentleman from Ohio--I'm sorry, just a
moment. My staff is saying it's Mr. Davis. I apologize.
Mr. Davis. Thank you very much, Mr. Chairman. And I will
try to be brief so my colleague gets a chance to get his
question in.
Studies have demonstrated and suggested that minority
communities, minority homeowners have been disproportionately
affected by the crisis. And I think many people agree with
that. Second, they suggest that some of the reasons have been
targeting of subprime loans in these communities and
neighborhoods and, of course, higher rates of unemployment.
Are your companies doing anything, as you try and do loan
modifications, to take those factors into account so that these
individuals can experience modifications?
Mr. Das. Yes, sir. At Citi, we have a program and
individuals that are dedicated to working with communities on
the ground. And we have the Office of Homeowner Protection. We
actually send people to the sites, to work with communities and
help people with the documentation process.
And, as I said in my testimony, we also work very closely
with HOPE NOW to make sure that we are on the ground working
with the community. We are very, very closely aligned with the
communities. I personally go down and----
Mr. Davis. Anyone else?
Ms. Desoer. This is Barbara Desoer, Bank of America.
We take a similar approach, where we have dedicated teams.
As I mentioned in my testimony, we did 360 community events.
Those events tend to take the place in the communities where
the need is the greatest, highest disruptions to income and
that sort of thing.
So we intentionally supplement our outreach reach via
letters, via telephone calls, versus one on one, people we send
out to homeowners, with community events that we participate in
and nonprofits that we help fund to host those events.
Mr. Davis. Mr. Chairman, could I just ask that each one of
the witnesses would respond to that question in writing?
And I will yield back my time so that there might be enough
time for----
Chairman Towns. I thank the gentleman.
And, also, let me just add that, also, I would like for you
to respond to Ms. Speier's question, too, in writing. I would
like you to respond to both. And we will keep the record open,
you know, for an additional 7 days to be able to ascertain that
information.
The gentleman from Ohio?
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I'm sorry that my colleagues from the other side have left,
because I wanted to refresh the memory especially of Mr. Jordan
from Ohio because we served in the State legislature in Ohio
together, and we did know about the problems 8 years ago
because we did a very extensive study on subprime lending in
the State of Ohio. And the Democrats pushed hard for
legislation that would have cracked down on subprime lending.
It was predatory lending legislation. And it was my Republican
colleagues that held that up. And they held it up for years.
And the same thing was happening in this very Congress.
Stephanie Tubbs Jones, who has since passed away, in 2001
introduced predatory lending legislation. It was done year
after year after year after year.
And I think the voters have to understand that the reason
we are here today talking about loan modifications is because,
not just of the economy today and the foreclosures, as Mr.
Lynch described, due to unemployment, but because of all the
poor underwriting and the securitization of the loans in the
subprime market that could have been prevented had we addressed
predatory lending legislation in this Congress, that could have
been prevented had we passed predatory lending legislation in
the States. But the Republicans repeatedly stood in the way of
that.
And now today, as the conference is meeting in Financial
Services that might address the underlying problems of the lack
of regulation in mortgage-backed securities and credit default
swaps, my Republican colleagues are again standing in the way
and trying to prevent any systemic changes to the system that
got us here in the first place.
So I think it's sad that we are here today talking about
all of these loan modifications because I don't think many of
these loans should have happened in the first place, because so
many of them were in the subprime market. And while I
appreciate that some of the financial institutions quit writing
in the subprime market years ago, Ms. Desoer, I will remind you
that Countrywide was very, very active in the subprime market
and led to thousands of foreclosures in the State of Ohio.
My question to you is this. I have gotten a lot of
complaints back home, as we look at people who are trying to
seek modifications, that the modifications, although the
discussions have started--and these haven't been finalized,
these modifications--the banks continue to proceed with
foreclosure proceedings.
This is sending mixed messages. And while I realize
Treasury has sent out some directives on this recently, I'm
very concerned that we are sending mixed messages to homeowners
who are trying to seek modifications but, at the same time,
hearing from the bank that they are foreclosing on their
property.
I would like to know what each of your financial
institutions does in that case and whether or not we should
stop the practice of proceeding on foreclosures if we are in
negotiations on loan modifications, so that it doesn't lead to
the homeowners backing out because they fear their house is
going into foreclosure anyway.
Mr. Das, we'll start with you.
Mr. Das. Congressman, let me be very clear that foreclosure
is absolutely the last and least preferred alternative for
Citi. When we offer somebody a HAMP modification, if they fall
out of HAMP, we immediately offer them a whole range of Citi
supplemental modifications. In fact, we were able to double the
number of modifications we offer as a result of our proprietary
programs. If they fail that, we offer them short sales and deed
in lieu programs aggressively so they can----
Mr. Driehaus. If I can interrupt you, because we do have a
vote, what I am trying to find out is when you begin the
discussion with a homeowner on a loan modification, do you stop
the foreclosure process, or do you allow it to continue until
that modification is finalized?
Mr. Das. We stop the process. In fact, in our trial
modification process, we reached out to people who are in
foreclosure and offered them trial modification.
Mr. Driehaus. So as soon as trial modification is offered,
you stop the foreclosure process?
Mr. Das. Yes.
Mr. Driehaus. Ms. Desoer.
Ms. Desoer. We continue the process in parallel, but we are
in compliance with the Treasury directives about how that
should be handled, and we have significantly enhanced the
communications to try to mitigate the concern of the borrower
with the promise that we will not take that home to foreclosure
sale while they are in the process of being considered for a
modification.
Mr. Driehaus. And I have a concern, because it sounds as if
you are reaching out to the consumer, trying to work on a
modification, but at the same time that hand is reaching out,
you are about to slap it with a foreclosure, so mixed messages
are, in fact, being sent.
Wouldn't it be better for us to back off on the
foreclosure, since we have all said that the foreclosure is the
last thing in the world that you want anyway, allow the
modification time to work, and if it doesn't work, then go
ahead and proceed with the foreclosure process? But the fact we
are on this dual track is very much sending mixed messages.
Ms. Desoer. Again, what we are trying to balance is the
interests of all the constituents, including that of the
investor in the party, and if that does not go through, in some
places to restart the foreclosure process is a very lengthy
period of time. So we are trying to preserve that timeline.
But, again, we have significantly enhanced communication, and
we are in compliance with the Treasury's guidance.
Mr. Driehaus. Mr. Friedman.
Mr. Friedman. Our process is much the same as Bank of
America's.
Mr. Heid. I believe for the customer working with us, I
believe we stop the foreclosure process. The other procedure we
have in place is before a customer's loan goes to completion of
foreclosure, we make sure to take a second look to make sure
every opportunity has been exhausted.
Mr. Lowman. We have a similar process. We do two quality
checks, one before we commence the foreclosure, and then one
right before sale, to make sure that we don't foreclose on
someone that is in the process.
Mr. Driehaus. Again, Madam Chair, I would remind the
committee that there seems to be a broad differentiation
between the financial institutions and the servicers in this
case, and it really is a problem for borrowers who are getting
mixed messages from the services, who are genuinely working and
trying to save their homes, but fear that the bank is going to
move forward anyway, and because they are hell-bent on having a
foreclosure.
So while we are all saying foreclosure is the last thing in
the world we want to do, I think we are sending a very mixed
message when we are proceeding with foreclosure actions while
at the same time attempting to work on a modification.
So I would leave it at that and yield back the balance of
my time.
Ms. Norton. The gentleman's time has expired.
I am going to ask a question in the absence of the
chairman. This program, HAMP, has been such a disappointment.
Perhaps we had our hopes too high. But to the credit of the
administration, it keeps trying. And here is a question about
what would perhaps be the most difficult aspect of the program,
where Treasury announced the Home Affordable Unemployment
Program that provides 3 to 6 months forbearance to unemployed
homeowners while they seek employment. We understand that some
companies have provided such forbearance to unemployed
borrowers before. I am sure that in the normal course of
downturns, for example, that was not unusual.
Let me ask all of you, have any of you, and tell me the
extent to which any of you have participated in the forbearance
program, beginning with you, Mr. Das?
Mr. Das. We launched the program--we launched an
unemployment assist program in March 2009, when unemployment
was rising and there wasn't a denominator to calculate debt-to-
income ratios. But we kept it very simple.
We support the Treasury's program, but we believe that the
paperwork may have been a little more nuanced than one would
have wanted. All we asked for in our program was an
unemployment document of proof of unemployment, and if it was
an owner-occupier, we just made it a simple payment of $500 a
month for 3 months. We would have liked to extend it to 6
months.
What it did was it paused the whole foreclosure process and
the whole people missing payments process, and it enabled
people to get into HAMP, which was a very, very powerful
outcome for that program.
Ms. Norton. Was this on your own?
Mr. Das. This was on our own.
Ms. Norton. Are you continuing it with this 3- to 6-months
forbearance?
Mr. Das. Absolutely. We are extending it to the new
Treasury program. But we didn't wait for that. We started it on
our own. I am delighted to see that the Treasury program is
actually based on some of the attributes of what we did.
Ms. Norton. Ms. Desoer.
Ms. Desoer. Yes, we have been doing forbearances for
unemployed, and we will actively participate in the
government's program, and we are looking at our own proprietary
program that could potentially extend beyond the 6 months under
certain circumstances, just because of the length of
unemployment for some of our customers.
Ms. Norton. Mr. Friedman.
Mr. Friedman. We have always had a forbearance for that
particular reason prior to HAMP and post-HAMP as well for 3
months. I know that you are considering a longer situation.
That becomes very expensive for us as a servicer going forward,
because whether the borrower in our situation makes payments or
not, we, the servicer, have to make those payments on behalf of
the borrower to the investor. So anything longer than the 3-
month period becomes very expensive for us.
Ms. Norton. Mr. Heid.
Mr. Heid. We have done about 100,000 such customer cases
before the HAMP modification was changed. The Treasury program
is very similar to the one we were offering before. So we are
in the process of converting over, and we will continue to help
customers that don't qualify for HAMP as well.
Ms. Norton. Mr. Lowman.
Mr. Lowman. We have always offered forbearance to
unemployed borrowers and will participate in the Treasury
program.
Ms. Norton. Mr. Pinto.
Mr. Pinto. I have nothing to add.
Ms. Norton. Could I ask that all of you provide to the
chairman the number of homeowners starting with the beginning
of this year to whom you have given forbearance?
I understand that this, of course, is something that might
have been routinely done before; you had a customer, it was the
appropriate thing to do under the circumstances. Of course,
these circumstances are very different because there are high
levels of unemployment. So I would be interested in your candid
view of how successful forbearance has been in avoiding
foreclosure. Does it just spread the time out, or what is your
view based on your own experience of whether this delay in
foreclosure for an unemployed homeowner--what is your view of
its success or its effect?
Mr. Das.
Mr. Das. Madam Congressman, I believe that the idea of
delay is not as bad as it is made out to be. Sometimes,
oftentimes, borrowers need a pause so that they can focus on
getting the employment as opposed to also keeping their home at
the same time. As I said to you before, the fact that
Unemployment Assist has allowed people to get into an
alternative program like HAMP was a very powerful outcome, and
I believe that needs to be noted.
Ms. Desoer. I believe it is very dependent on the situation
of the customer and the length of unemployment.
Ms. Norton. We recognize that. We recognize that there is a
vastly different universe out there. But I am asking you a
general question.
Ms. Desoer. Certainly I would believe that temporary relief
from the obligations that a customer has would enable them to
more successfully bridge the economic hardship that they are
experiencing, yes.
Mr. Friedman. I would concur with her assessment as well.
Mr. Heid. I agree. I think the design of the program where
there is some amount of cash-flow every month is actually
better for the customer so there is not such a great shock 3 or
4 or 5 months down the line when income is restored.
Mr. Lowman. I concur also.
Mr. Pinto. If you are looking for quantitative information,
you may want to again go to the OCC/OTS Mortgage Metrics and
see if they have data that actually tracks the question you
have asked. I have not seen any. I don't recall any.
Ms. Norton. This is rather much of a perfect storm we have,
where unemployment meets mortgage crisis. Normally unemployment
doesn't meet that kind of crisis, exacerbating the situation of
people who have all along kept up their mortgage payments.
I recognize you all want to do the right thing, and to some
extent you have been doing it. Would you care to offer
suggestions as to this relatively new program, as to its
structure and what might be done?
For example, one of you, I am not sure if it was you, Mr.
Friedman, indicated that--or maybe it was you, Mr. Heid--
indicated beyond 3 months. I am not sure any of you do it
beyond 3 months, but it created issues beyond 3 months.
Mr. Friedman. It was I that said since we are not part of a
bank or have a deposit base, as the other folks around the
table, other than maybe Mr. Pinto, unless he is wealthier than
we all think, we--because we do a lot of securitizations, we
don't own the loan outright. We have to make payments to the
investors, month in, month out, whether the borrower makes
payments to us.
Ms. Norton. That is not the case for anybody else sitting
at the table?
Mr. Heid. No. The same requirements apply to everybody. But
I think the idea of the 3 months allows multiple 3-month check-
ins, where the purpose for that is to make sure you can stay
current with what is going on with the customer's life, what
are the prospects for them to be able to get back to a level of
employment where the home is affordable. That is kind of where
the extensions of 3 months at a time comes into play.
Ms. Norton. Ms. Desoer.
Ms. Desoer. I would concur with that.
Ms. Norton. The chair has asked me to recess the hearing
for about a half-hour because there was at least one Member who
did not get an opportunity to ask questions. So don't go
anywhere. This hearing is recessed.
[Recess.]
Mr. Clay [presiding]. The committee will come to order. We
will resume the 5-minute questioning.
Let me begin with Mr. Heid.
Mr. Heid, according to the research done by the National
Community Reinvestment Fund, minority borrowers are less likely
than other borrowers to receive trial and permanent
modifications. Do you believe that this is an accurate
assessment?
Mr. Heid. It is hard to answer that question. On the
surface, I would say only if the home is not affordable would
that be the case. There is nothing in the modification process
that would cause a difference between ethnic backgrounds or
anything of the sort.
Mr. Clay. Well, Mr. Heid, I asked the question because we
know that prior to the modification phase, that African
American borrowers with comparable income and other
considerations were steered into subprime and predatory loans.
They were disproportionately impacted by those policies.
Instead of them getting a conventional mortgage, they were
steered, and there is plenty of data to show that. So since
they were disproportionately affected by being steered into
these high-cost loans, I am just curious as to what is
happening to these minority borrowers now who are in trouble,
who are trying to get their loans modified? Do you think maybe
they are disproportionately being affected still?
Mr. Heid. Well, Congressman, as far as the statement on
steering, I disagree. As far as the loan modification process
and how that works----
Mr. Clay. Oh, you disagree.
Mr. Heid. We have the same process----
Mr. Clay. What do you disagree about as far as steering?
What do you find disagreeable about what I said?
Mr. Heid. You are quoting a particular study typically, and
I believe that study in particular does a comparison with
partial information on public data----
Mr. Clay. But the numbers speak volumes. The numbers speak
volumes about how middle-income, upper-income African American
families were steered into subprime and predatory loans. Now,
you can sit here and deny that if you want, but it has
happened.
Let me say something else about Wells Fargo. You know,
quite a few of my constituents have been impacted negatively by
this whole mortgage meltdown. We have gone to Wells Fargo, my
staff back in my district, asking for you to modify some of
these loans, and we have heard every excuse, like, oh, we have
taken TARP money, so it would be inappropriate to try to help
these people.
Now, what do you have to say about that? Have you used that
excuse, that because you are a recipient of TARP, that you
cannot help these average Americans trying to stay in their
homes?
Mr. Heid. No. Absolutely not. That is an absurd statement.
Anyone in our shop that would have made a statement like that,
that is absurd. What we are doing is this. Our data kind of
speaks for the efforts we are putting forth.
When you look at every customer, irrespective of ethnic
background, every customer that has missed two or more payments
in their mortgage status, two-thirds of the time we are finding
a solution other than foreclosure.
The loan modification process we have put forth, the people
that are doing the work, most of them over the phone, have no
ethnic information on the screens they are looking at, with the
one exception of the HAMP program requires volunteer submission
of ethnic information. But even in HAMP, every single customer
going through a modification process has a very prescribed
series of steps that one goes through to gather income
information and get them into a loan modification they are able
to afford.
That is the way the HAMP program works. The non-HAMP
programs are set up in a very similar way so that every
customer goes through a similar process for loan modifications.
Mr. Clay. I really find it incredulous that you don't think
that African American borrowers were steered into these high-
price loans. I mean, I find it incredible.
Let me ask the rest of the panel, do they agree with Mr.
Heid, or do you think that these people are disproportionately
impacted by racist policies?
Let me start with you, Mr. Das. Have you seen any evidence
that the people are disproportionately impacted based on their
race?
Mr. Das. Congressman Clay, I believe that you raise a very
important point, and I believe that in economic downturns, that
the hardship can be disproportionate in minority communities.
And here is what I would say. We don't do anything actually
that would distinguish between race, origin, sex or any of
those factors.
But here is what I would say: I think that HAMP needs to be
enhanced for low- to moderate-income communities in a very
different way to the way it has been established today. I
believe some of my colleagues have taken a similar position.
Mr. Clay. Thank you for that response.
Ms. Desoer.
Ms. Desoer. Thank you, Congressman Clay.
Bank of America did not--we exited the subprime business in
the year 2000. We acquired Countrywide in 2008. Shortly after
the acquisition we entered into a settlement that we are
executing with 44 States, which is our proprietary national
home retention program, which was intentionally targeted at pay
option ARMs, subprime hybrid ARMS, products that might have
created the most stress in these economic times for borrowers.
And we follow a very deliberate process, much of which is
automated, treating equally the attempts to outreach to all of
our customers as well as our response to customers who are
calling us because they are under financial stress.
Then intentionally we participated in 360 community events
last year. Again, we have stepped up that number even more this
year. We have invested in the Alliance for Stabilizing
Communities, where disproportionately we go to and participate
in events where the communities are the hardest hit so we can
provide face-to-face counseling and acceptance of applications
and modifications as well.
Mr. Clay. And so you do--Bank of America has admitted that
they are--that there has been steering, that you see
disproportionate effects to that.
You know, I believe in the adage that figures don't lie,
but liars sure can figure, and this is a good example of that;
that this segment of the population was disproportionately
impacted because of the actions of the banking community,
because you do have a human factor involved here. You do have
loan officers that look at customers differently based on their
skin color. That is all I am saying.
But for people to come here and deny that I think is wrong,
and the American people can see through that.
Mr. Friedman.
Mr. Friedman. Fortunately, we didn't originate any loans,
so personally I am a little out of touch on that particular
subject. But I do believe we, like Bank of America and others,
do go to a lot of outreach programs.
I think a good help for the community would possibly be to
bring down the debt-to-income test to even lower than 31
percent under HAMP, which maybe, you know, if there was some
type of injustice done, maybe it could help that many more
people. That is just as a suggestion.
Mr. Clay. Have any of your institutions created programs
that target particularly at-risk groups like racial minorities
and the unemployed, who have been adversely impacted?
Mr. Friedman. I don't know why you couldn't do such a
program.
Mr. Clay. Voluntarily.
Mr. Friedman. We don't originate, so I can't really comment
on that.
Mr. Clay. Mr. Lowman, any comments?
Mr. Lowman. I would just add that at Chase we have a
culture of fair lending and have always had that culture of
fair lending. We have done our own analysis based on the report
that you referred to, the NCRC study, and our findings are not
congruent with their findings.
We have done over 700 outreach events throughout the
country. We have 51 homeownership centers throughout the
country in the most troubled of neighborhoods where we continue
to do outreach and I think really are able to serve the
underserved.
Mr. Clay. OK. So, look, the facts speak for themselves. You
go to a predominantly African American neighborhood where every
third house is foreclosed on, I mean, doesn't that stand out
and say something to you, that perhaps those communities had
been targeted?
Mr. Lowman. I can't speak to the facts. I can't speak to
it.
Mr. Clay. Mr. Pinto, anything to add?
Mr. Pinto. Not being a lender, I really have no information
to add.
Mr. Clay. Just as an observer.
Mr. Pinto. As an observer, and I think this blame is placed
on both sides of the aisle here, so let me start with that.
Lenders and Fannie and Freddie back in 1991 had very sound
underwriting principles. Those underwriting principles were
complained about by community groups. They went to Congress in
1991 and petitioned Congress to change that. What they asked--
what they said was that lenders respond to the most
conservative standards unless Fannie and Freddie become
aggressive and convincing in their efforts to expand
historically narrow underwriting, change their underwriting.
That was before the U.S. Senate Banking, Housing and Urban
Affairs Committee in 1991.
In 1992, the Federal Housing Enterprises Safety and
Soundness Act made that request into the law of the land, and
from that point on, the underwriting standards of this country
changed step by step by step. Eventually we went from having
down payments on loans to having no down payments on loans. It
was the result of a policy that Congress put in place,
bipartisan policy that Congress put in place. That is where it
started, and that is my view.
Mr. Clay. But that wasn't totally the reasoning for this
housing collapse. I mean, just Fannie and Freddie are to blame,
not the people at every step of the way that made money off of
these loans and these high-cost loans? We don't just stop with
Fannie and Freddie, do we?
Mr. Pinto. Remember what they were asking for. We want to
break the lenders' view of having conservative underwriting,
and the only way to do that was to get Fannie and Freddie to
start having flexible underwriting, which they did starting in
1993. And it just progressed, and it was a progression that
occurred over 15 years.
Mr. Clay. Like you say, there is enough blame to go around.
I guess we probably should look at what the appraisers did,
too, shouldn't we?
Mr. Pinto. Don't get me started on appraisers.
Mr. Clay. I thank you all for your responses. At this
point, that concludes this hearing.
Without objection, the record shall be left open for 7 days
so that Members may submit information for the record.
Finally, without objection, I will enter this binder of
hearing documents and statements submitted by interested
parties for the committee record.
The committee stands adjourned.
[Whereupon, at 12:58 p.m., the committee was adjourned.]
[The prepared statements of Hon. Darrell E. Issa and Hon.
Gerald E. Connolly and additional information submitted for the
hearing record follow:]
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