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



 
  FORECLOSURE PREVENTION: IS THE HOME AFFORDABLE MODIFICATION PROGRAM 
                       PRESERVING HOMEOWNERSHIP?

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

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 25, 2010

                               __________

                           Serial No. 111-98

                               __________

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: IS THE HOME AFFORDABLE MODIFICATION PROGRAM 
                       PRESERVING HOMEOWNERSHIP?






  FORECLOSURE PREVENTION: IS THE HOME AFFORDABLE MODIFICATION PROGRAM 
                       PRESERVING HOMEOWNERSHIP?

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

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 25, 2010

                               __________

                           Serial No. 111-98

                               __________

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



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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             MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts       JOHN J. DUNCAN, Jr., Tennessee
WM. LACY CLAY, Missouri              MICHAEL R. TURNER, Ohio
DIANE E. WATSON, California          LYNN A. WESTMORELAND, Georgia
STEPHEN F. LYNCH, Massachusetts      PATRICK T. McHENRY, North Carolina
JIM COOPER, Tennessee                BRIAN P. BILBRAY, California
GERALD E. CONNOLLY, Virginia         JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois               JEFF FLAKE, Arizona
MARCY KAPTUR, Ohio                   JEFF FORTENBERRY, Nebraska
ELEANOR HOLMES NORTON, District of   JASON CHAFFETZ, Utah
    Columbia                         AARON SCHOCK, Illinois
PATRICK J. KENNEDY, Rhode Island     BLAINE LUETKEMEYER, Missouri
DANNY K. DAVIS, Illinois             ANH ``JOSEPH'' CAO, Louisiana
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 March 25, 2010...................................     1
Statement of:
    Allison, Herbert M., Jr., Assistant Secretary for Financial 
      Stability, Department of Treasury..........................   179
    Barofsky, Neil M., Special Inspector General, Troubled Asset 
      Relief Program; Gene L. Dodaro, Acting Comptroller General, 
      Government Accountability Office; John Taylor, president 
      and CEO, National Community Reinvestment Coalition; and 
      Mark A. Calabria, Director of Financial Regulation Studies, 
      CATO Institute.............................................    14
        Barofsky, Neil M.........................................    14
        Calabria, Mark A.........................................   100
        Dodaro, Gene L...........................................    74
        Taylor, John.............................................   108
Letters, statements, etc., submitted for the record by:
    Allison, Herbert M., Jr., Assistant Secretary for Financial 
      Stability, Department of Treasury, prepared statement of...   181
    Barofsky, Neil M., Special Inspector General, Troubled Asset 
      Relief Program, SIGTARP report entitled, ``Factors 
      Affecting Implementation of the Home Affordable 
      Modification Program,''....................................    17
    Calabria, Mark A., Director of Financial Regulation Studies, 
      CATO Institute, prepared statement of......................   102
    Dodaro, Gene L., Acting Comptroller General, Government 
      Accountability Office, prepared statement of...............    76
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California, prepared statement of.................     9
    Taylor, John, president and CEO, National Community 
      Reinvestment Coalition, prepared statement of..............   110
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................     4
    Watson, Hon. Diane E., a Representative in Congress from the 
      State of California, prepared statement of.................   214


  FORECLOSURE PREVENTION: IS THE HOME AFFORDABLE MODIFICATION PROGRAM 
                       PRESERVING HOMEOWNERSHIP?

                              ----------                              


                        THURSDAY, MARCH 25, 2010

                          House of Representatives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:08 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, Quigley, Kaptur, Norton, Davis, Van Hollen, 
Speier, Chu, Issa, Turner, McHenry, Bilbray, Jordan, Chaffetz, 
and Leutkemeyer.
    Staff present: John Arlington, chief counsel/
investigations; Beverly Britton Fraser and David Rotman, 
counsels; Brian Quinn, investigative counsel; Aaron Ellias and 
Peter Fise, staff assistants; Linda Good, deputy chief clerk; 
Katherine Graham, investigator; Adam Hodge, deputy press 
secretary; Carla Hultberg, chief clerk; Marc Johnson, assistant 
clerk; Jason Powell, counsel and special policy advisor; Jenny 
Rosenberg, director of communications, Christopher Sanders, 
professional staff member; Leneal Scott, IT specialist; Ron 
Stroman, staff director; Gerri Willis, special assistant; 
Lawrence Brady, minority staff director; John Cuaderes, 
minority deputy staff director; Rob Borden, minority general 
counsel; Frederick Hill, minority director of communications; 
Adam Fromm, minority chief clerk and Member liaison; Kurt 
Bardella, minority press secretary; Stephanie Genco, minority 
press secretary and communication liaison; Seamus Kraft and 
Benjamin Cole, minority deputy press secretaries; Christopher 
Hixon, minority senior counsel; Hudson Hollister, minority 
counsel; and Brien Beattie, minority professional staff member.
    Chairman Towns. The committee will come to order.
    Good morning. Thank you for being here.
    There are some small signs that the Nation as a whole is 
beginning to emerge from the worst economic crisis since the 
Great Depression, but it is way too early to declare victory. 
Unemployment is still sky high and the home foreclosure crisis 
is growing unabated. For the homeowner who is underwater, the 
economic crisis certainly is not over. When you are behind in 
your mortgage payments, when the bank starts calling you each 
and every day, when you lie awake at night wondering how are 
you going to explain to your children that you must move, you 
can start to feel like you really are drowning.
    Too many people know this feeling. Last year 2.8 million 
households received a notice of foreclosure. Almost 4 million 
homeowners are late on their mortgage payments by 90 days or 
more as this discussion is moving forward. And the problem is 
predicted to get worse. As many as 2.4 million people could 
lose their homes by foreclosure by the end of this year.
    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. The Home Affordable Modification Program 
[HAMP], is a central piece of Treasury's effort to carry out 
that objective, but a year after the creation of HAMP, only 
170,000 households have received permanent mortgage 
modifications. This appears to be extremely low.
    We continue to hear numerous reports of borrowers who want 
to participate in HAMP but just don't know where to begin. If 
they do begin, they often encounter unresponsive lenders, 
repeated incidents of lost paperwork, phone calls not being 
returned, and a variety of other administrative frustrations.
    To make matters worse, there is evidence that some 
vulnerable homeowners, desperate to obtain help, are falling 
victims to foreclosure rescue scams. Instead of obtaining 
housing assistance for free through a legitimate housing 
counselor, these homeowners are being fleeced by scam artists 
posing as professionals.
    In addition, a new survey by the National Community 
Reinvestment Coalition provides evidence that minorities, 
particular African Americans, may be less likely to receive a 
mortgage modification under HAMP and are more likely to be 
foreclosed on. This is just not acceptable.
    Moreover, this problem is compounded by the fact that HAMP 
still does not have a clear process by which a homeowner can 
appeal a denial of his or her application.
    These problems are reflected in the program's results as 
reported by Treasury and SIGTARP. The Mortgage Bankers 
Association says that HAMP and other Government programs have 
made significant strides in stabilizing the housing financing 
systems and have assisted many people who otherwise would have 
lost their homes, but clearly we need to do a whole lot better.
    There can be legitimate debate over the numerical goals of 
the HAMP program, but the central issue we need to understand 
is why fewer than 200,000 homeowners have obtained so-called 
permanent modifications under the HAMP program and what we can 
do to increase the number.
    We cannot afford a lot of time to study the problem. We 
need to have a sense of urgency. For those homeowners who are 
already behind in their mortgage payments, the wolf is at the 
door already. Losing your house is a traumatic event for 
families and it is a destabilizing event for our society. I 
think we have an obligation to extend a helping hand to 
responsible homeowners to help them get over the rough spots.
    Today I would like to hear ideas as to how we can best make 
the mortgage modification program work. On this point I note 
that yesterday Bank of America announced that it was 
instituting a principle forgiveness solution for homeowners who 
are severely underwater. Bank of America should be 
congratulated for leading the way with this innovative 
proposal. We will be looking for ways to expand this approach 
and to include other banks.
    Again I want to thank our witnesses for appearing today, 
and I look forward to hearing your testimony.
    [The prepared statement of Hon. Edolphus Towns follows:]

    [GRAPHIC] [TIFF OMITTED] T3144.001
    
    [GRAPHIC] [TIFF OMITTED] T3144.002
    
    [GRAPHIC] [TIFF OMITTED] T3144.003
    
    Chairman Towns. I will now yield to the ranking member from 
California, Congressman Darrell Issa, for his opening 
statement.
    Mr. Issa. Thank you, Mr. Chairman.
    This hearing is critical and timely. As you said, Mr. 
Chairman, and I join you, Bank of America making a decision to 
reduce the principle down to the current value of the home is 
both in the homeowner's self-interest and their self-interest. 
As it was stated in the example this morning, a $250,000 home, 
reduced to its current value of perhaps $200,000, and the 
mortgage reduced to that allows the homeowner over 5 years to 
permanently shed that no-longer value, but ultimately to remain 
in a home that would otherwise be sold to someone else for 
$200,000 or less.
    This is a win/win if the homeowner can, in fact, make the 
ongoing payments at a reasonable rate that is available on the 
market. It also allows people who were gimmicked or taken 
advantage of during the earlier time that find themselves in 
resetting loans, teaser loans, all the other examples we have 
heard, if they fit in this 49,000-person initial pilot program, 
as Bank of America is calling it, they will be converted to a 
conventional loan, one that has a long-term ability for the 
homeowner to plan and to pay.
    Additionally, I might note that this plan from Bank of 
America, although not without pressure from other places, came 
without the assistance of the program we are speaking of today. 
It came perhaps out of frustration for the failures covered by 
the SIGTARP in its independent audits of HAMP.
    Today, as we look at HAMP, we look at a promise of the 
President, a commitment by the President, a commitment broadly 
by the Congress in both parties that is not being kept.
    Mr. Chairman, I would ask unanimous consent that the poster 
which was actually put up by the Special IG be up for the 
entire hearing, because it is, first of all, factual, and, 
second of all, I am sure that all Members will be referring to 
it.
    Chairman Towns. Without objection.
    Mr. Issa. The projection of providing relief, not 
application, not promise, not hope, but relief for 3 to 4 
million homeowners has neared a 96 percent failure. In 1 year's 
time, as the chairman said, approximately 170,000 homeowners 
have qualified for permanent loan modifications. Many of those 
have already re-defaulted.
    But that is not the story that is most concerning to most 
of us at the dias, and particularly to this Member. What is 
concerning is the 1.3 million people who have applied and held 
out hope that they were going to get a modification. Today 1.1 
remain. Doing my arithmetic, 170,000 were put into permanent 
modification, 30,000 were basically told that they probably 
were never good candidates, and after months of waiting find 
themselves without a loan and without hope.
    But beyond that, people have waited 3, 5, 6, now as long as 
9 months with an open end to get an answer. That has simply 
caused the volume to swell of people who are making payments in 
hopes that it will lead to a solution when, in fact, it appears 
as though a great many of them should be looking for more 
affordable alternate housing, should be planning for that, and 
should be given the opportunity to make those plans with 
certainty.
    Mr. Chairman, both you and I have had home loans over the 
years, and we would be outraged if our application with our 
income and other information were not accepted within days of 
our contacting a loan officer. More importantly, we would be 
outraged if we were not answered within days or weeks as to 
whether or not at least preliminarily we qualify. Most of us 
have had pre-qualifications from banks and other lending 
institutions. Banks and lending institutions, without 
Government assistance or interference, normally can do this in 
a short period of time.
    Clearly, this program has done just the opposite. It has 
created huge periods of uncertainty, perhaps well intended. We 
need to make a change.
    If I could roll this video very quickly of the President so 
we are all reminded of the promise and what the charge is for 
all of us under the HAMP program.
    [Videotape presentation.]
    Mr. Issa. Ladies and gentlemen, it is the opinion of this 
ranking member that this is a mandate of our President. It is a 
program that, whether you voted for the TARP or not, must be 
made to work, and must be made to work dramatically better than 
it currently is.
    With that, Mr. Chairman, I would like to thank you for the 
opportunity of an opening statement and yield back.
    [The prepared statement of Hon. Darrell E. Issa follows:]

    [GRAPHIC] [TIFF OMITTED] T3144.004
    
    [GRAPHIC] [TIFF OMITTED] T3144.005
    
    Chairman Towns. I would like to thank the gentleman, 
ranking member, for his statement.
    I would like to yield 3 minutes to the gentleman from 
Baltimore, Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Mr. Chairman, I am very glad that you called this hearing 
and I am looking forward to hearing from today's witnesses, and 
not only because it is an issue, the issue of foreclosure is an 
issue that affects every one of our districts, but also because 
we have an impressive group of witnesses before us, each of 
whom could occupy a hearing unto themselves.
    I particularly want to thank John Taylor, President and CEO 
of the National Community Reinvestment Coalition. NCRC is not 
only bringing dedicated and passionate people together to 
ensure that public policy functions for the public, but also 
boasts an extremely talented group of policy professionals who 
provide this Congress with invaluable assistance.
    I was privileged to briefly address NCRC's annual 
conference earlier this month, and, as always, I came away 
inspired by their dedication to a cause greater than 
themselves.
    President Obama arrived at the White House last January 
facing an economic climate unlike that inherited by almost any 
other President before him. As a response, his administration 
has aggressively worked to not only stabilize the financial 
markets, but also to ensure that recovery is not limited to 
Wall Street and reaches all of our communities.
    The Home Affordable Modification Program was designed to 
make mortgage payments reasonable for homeowners who were 
caught in the economic downturn; however, a confluence of 
factors has rendered the program far less effective than we or 
President Obama would have imagined or hoped.
    Unemployment, a punctured home price bubble, and restricted 
access to credit only exacerbated certain flaws in the HAMP 
process. Today's hearing will reveal hard truths about the 
design and the execution of HAMP. For that reason, this hearing 
is critical, Mr. Chairman, and is a critical component in our 
role of ensuring that Government operations function with the 
highest level of effectiveness and efficiency. We must set 
aside our preconceived notions about these policies, good or 
bad, and conduct an honest evaluation of whether this program 
is accomplishing as much as is absolutely required to get our 
constituents through this difficult storm.
    I have often said, Mr. Chairman, that we are the greatest 
country in the world. This is the greatest country in the 
world, and we will get through this storm. The question is not 
whether we will get through the storm; the question is: who 
will be living in your house after the storm is over? Who will 
have your job after the storm is over? Will you still have your 
health care and your health and will your children be able to 
have gone to college after the storm is over? That is the 
question.
    So I thank you again, Mr. Chairman, and I look forward to 
hearing from our witnesses.
    With that, I yield back.
    Chairman Towns. I thank the gentleman for his statement.
    I now yield 3 minutes to the gentleman from Ohio, Mr. 
Jordan, who is the ranking member of the subcommittee.
    Mr. Jordan. Thank you, Mr. Chairman, for holding today's 
hearing. As you know, the Domestic Policy Subcommittee has held 
three hearings on the foreclosure problem, and I appreciate the 
full committee's attention to this important issue.
    Despite the commitment of $75 billion of taxpayer money, 
the American people continue to suffer from the rising tide of 
foreclosures, which hit an all-time high last month. The 
ranking member and I have continued to point out the failure of 
Treasury Department's technocratic tinkering to alleviate this 
problem and the administration's efforts to disguise the 
failure of their programs from the public. Despite this 
unprecedented commitment of taxpayer resources, a recurring 
theme in this administration, the problem of foreclosure has 
not been solved, and in many ways it is worse than ever.
    The ranking member and I have pointed out Treasury's 
efforts to move the goal posts in an attempt to avoid 
accountability for its failure by redefining success. First, 
Treasury told us that their goal was 3 to 4 million mortgage 
modifications--in fact, we just heard the President say that 
himself--that would ``help keep Americans in their homes'' in a 
way that is ``sustainable over the long term.''
    Then, last month, a Treasury official told the committee 
that the administration's goal was actually mere offers of 
temporary mortgage modifications. An offer of temporary 
modification doesn't provide anybody sustainable help and is 
actually hurting many homeowners by giving them false hope and 
encouraging them to devote hard-earned resources to mortgages 
that will ultimately end up defaulting anyway.
    As I have argued before, Mr. Chairman, delaying foreclosure 
does not help the many Americans who are fighting to keep their 
jobs or find new ones. Delayed foreclosures only serve to 
prolong their economic hardship, drain them of much-needed 
resources, and defraud them of opportunities to find more-
affordable housing options.
    The Obama administration is once again failing to live up 
to its promises of transparency and accountability. In light of 
this issue, I was especially interested to read the recent 
audit of HAMP released by the independent Special Inspector 
General for TARP, which confirmed many of our previous findings 
about the Treasury Department's actions.
    If the Bush administration and the Democratic Congress did 
anything right in the bailouts of 2008, it was establishing the 
Office of the SIGTARP and putting Mr. Barofsky in place as an 
independent watchdog over these programs. I applaud his efforts 
and his staff's efforts for once again courageously exposing 
the waste of taxpayer resources and the lack of transparency in 
the Treasury Department.
    As the SIGTARP explains in his audit, the foreclosure 
problem facing the country today is reflective of the larger 
economic and employment problems facing the American people. 
Without a job, it is almost impossible for any American to 
afford any mortgage payment. The American people deserve jobs 
and an economic recovery, which this administration continues 
to deny them through anti-growth, big Government, 
interventionist economic policies.
    The only viable long-term solution to keep more Americans 
in their homes and in their jobs, for that matter, is a broad-
based economic recovery built on the foundation of free 
markets, fiscal responsibility, and limited Government that has 
made our Nation strong and prosperous for more than 200 years.
    Thank you again, Mr. Chairman, for calling this hearing. I 
look forward to hearing from today's witnesses.
    Chairman Towns. I yield to the gentleman.
    Mr. Issa. Thank you, Mr. Chairman. As we previously 
discussed, I have a letter here respectfully requesting that 
this committee do as it has done in the past and thoroughly 
investigate a form of voter intimidation, the attacks and 
threats against Members of Congress that have been occurring 
since the vote on the health care debate.
    Chairman Towns. First of all, let me thank the gentleman 
for his interest in that. Of course, I must say I have an 
interest in it too, because I think that threats coming from 
any place is something that we need to make certain that we do 
everything we can to prevent, and this committee actually is 
the committee that really would have the jurisdiction over 
that.
    So I am not sure in terms of how we would frame it, but I 
am interested in it and I will ask staff to look into it and 
see, in terms of what we would do, because it is such a broad 
area. But here, again, I want you to know that I am interested 
in it and we will talk further as to how we might be able to 
pursue it.
    Thank you for your interest.
    Mr. Issa. Thank you, again, for your bipartisan support, 
Mr. Chairman.
    Chairman Towns. We will now turn to our first panel of 
witnesses.
    It is a longstanding policy that all witnesses are sworn 
in, so please stand and raise your right hands.
    [Witnesses sworn.]
    Chairman Towns. Let the record reflect that all witnesses 
answered in the affirmative.
    You may be seated.
    Let me just say before we get started and before I 
introduce our witnesses, this is a very serious situation. 
People are losing their life's earnings in their homes. They 
have paid on it. They have put their money in. Now all of the 
sudden they are being asked to leave because of the fact that 
they are having difficult making payments.
    We have here an example of the problems that people are 
encountering. Where are those boxes of keys? Where are they? I 
just want to show them to let you know how serious this matter 
is and how many lives are being affected by it. I have this 
whole big thing of keys here that I just want to show you, but 
we will move back and do that a little later. It is coming in 
now. These are keys of people in many instances that lived in 
their house. Now the house is being foreclosed, and these keys 
have been collected. This is a disgrace. We are a better 
country than this. We can do better than this.
    So we are having this hearing today to see what we can do 
to turn this around. This is just too much to take. The 
families are being destroyed, children are being moved from 
place to place because of the fact the mortgage is not being 
paid, and a lot of them, if they could get modifications, they 
would be able to work it out. They just need a little support, 
need a little help, or we would be where the gentleman from 
Maryland indicated they will be out of the house and somebody 
else will be in it, but the houses will be filled. That is the 
sad part. People who have given so much of their lives and then 
now are being thrown out.
    Thank you very much. I just wanted to show that.
    The Honorable Neil Barofsky is here today as the Special 
Inspector General for the Troubled Asset Relief Program. As the 
principal overseer of the TARP, Mr. Barofsky is responsible for 
conducting audits and investigations related to the hundreds of 
billions of dollars flowing through Treasury to rescue our 
troubled economy. Included in those dollars is the funding of 
HAMP. Today, Mr. Barofsky will present findings and 
recommendations based on his audit of HAMP.
    We welcome you, Mr. Barofsky.
    The Honorable Gene Dodaro is the Acting Comptroller General 
of the United States and the head of the Government 
Accountability Office. GAO has conducted an ongoing review of 
HAMP. Today Mr. Dodaro will present an update on the activities 
of HAMP to date, as well as the preliminary findings of GAO's 
current evaluation of loan servicers' implementation of that 
program.
    Welcome, Mr. Dodaro.
    We have also with us Mr. John Taylor. Mr. Taylor is the 
president and CEO of the National Community Reinvestment 
Coalition. Today, Mr. Taylor will present the findings of 
NCRC's investigation of foreclosure rescue scams, as well as 
the result of a survey of distressed borrowers seeking 
assistance from HAMP.
    Welcome, Mr. Taylor, for being here.
    And, of course, we also have with us Mr. Calabria, who is 
the director of final regulation studies at the Cato Institute.
    We are delighted to have all of you here. Why don't we 
start with you, Mr. Barofsky, and then we will just come right 
down the line.

  STATEMENTS OF NEIL M. BAROFSKY, SPECIAL INSPECTOR GENERAL, 
     TROUBLED ASSET RELIEF PROGRAM; GENE L. DODARO, ACTING 
  COMPTROLLER GENERAL, GOVERNMENT ACCOUNTABILITY OFFICE; JOHN 
  TAYLOR, PRESIDENT AND CEO, NATIONAL COMMUNITY REINVESTMENT 
    COALITION; AND MARK A. CALABRIA, DIRECTOR OF FINANCIAL 
               REGULATION STUDIES, CATO INSTITUTE

                   STATEMENT OF NEIL BAROFSKY

    Mr. Barofsky. Thank you, Chairman Towns, Ranking Member 
Issa, members of the committee. It is a privilege to appear 
once again before you to testify and to present our most recent 
audit on the HAMP program.
    I would like to thank this committee for its support of our 
office and the leadership and tenacity that you have shown in 
bringing transparency and accountability to the HAMP program.
    The program was announced more than a year ago, and, as 
Treasury has acknowledged, the results have been disappointing, 
with fewer than 200,000 mortgages being permanently modified. 
In order to assess the success of a program, however, one must 
start, with any Government program, with what it set out to do. 
What were its goals? Who was it meant to help?
    Unfortunately, with respect to the HAMP program, even this 
preliminary step has been a challenge. When the program was 
first announced, Treasury described it as a program designed to 
help 3 to 4 million homeowners by modifying their mortgages to 
a sustainable level so they could stay in their homes. If this 
was the goal, absent some unexpected or unanticipated change in 
circumstances, it will not be met. As a Treasury official 
acknowledged to us, it is estimated that half of that amount 
will occur, 1\1/2\ to 2 million permanent modifications.
    Now, Treasury has consistently told us throughout this 
audit, and it is borne out by statements that Treasury made 
back last year in March, that its goal wasn't for permanent 
modifications 3 to 4 million, it was to make 3 to 4 million 
offers for temporary or trial modifications, and it may well be 
that the program is on pace to meet that goal. However, as we 
detail in our audit report, we believe that this goal is 
essentially meaningless.
    This program's success will be defined and must be defined 
as it was justified to the American people: how many people 
will receive permanent modifications and get to stay in their 
homes as a result of this program? And it is unclear at this 
point what that number may be.
    One thing that is certain: it will be extremely difficult 
or impossible, until Treasury puts out its number of what its 
estimate is and what its goal is for permanent modifications 
for it to be able to honestly and accurately assess the success 
of the program and, far more importantly for today's purposes, 
to make the necessary changes so they can meet those goals.
    We believe that it is unacceptable that 1 year into this 
program Treasury has still failed to identify what its goal is 
for the number of permanent modifications to actually help 
people stay in their homes.
    There have been some successes. Treasury has signed up more 
than 110 servicers, getting 90 percent coverage, and has built 
an infrastructure for this program. But, as we detail in this 
audit, the disappointing number is a result of some mistakes, 
been plagued by certain errors. Servicers have complained to us 
about the constant changes in program guidance from Treasury, 
documentation requirements, even to the net present value test, 
which is the computer model that Treasury prepared that was 
intended so that the servicers could know whether or not a 
mortgage is appropriate for it to be modified or not. These 
types of changes have contributed the problems with the 
program.
    Similarly, we have noted problems with the result of 
Treasury pushing and at times pressuring servicers to do verbal 
trial modifications; that is, putting mortgages temporarily 
into the program based only on the word, the verbal statements 
of a borrower, without getting verified documentation of 
income. This problem has led to--we have found it to be 
essentially counter-productive. It has led to a huge backlog of 
trial modifications. Importantly, it has diverted scarce 
resources that could otherwise be devoted to permanently 
converting modifications, and perhaps worst of all it may have 
actually harmed the people this program was intended to help, 
borrowers who were put into hopeless modifications with no 
chance to succeed.
    We have also learned about dangers about re-default, and 
that is when borrowers who get permanent modifications but are 
unable to continue because either the payments that they have 
are still unaffordable or because they are too hopelessly 
underwater to be able to continue or decide not to continue to 
make payments.
    We recommended to Treasury to reassess the vulnerability to 
re-default, lest billions of taxpayer dollars be lost 
supporting mortgage modifications that will be doomed to 
failure. Regrettably, Treasury has not adopted this 
recommendation.
    On a final note, Mr. Chairman, to address your point about 
mortgage modification fraud, it is a significant and widespread 
problem. SIGTARP alone, we have two dozen criminal 
investigations ongoing into these frauds.
    I am pleased to announce that we have had a recent success. 
Last summer we worked with the FTC to shut down one of these 
frauds, and this week I am very pleased to announce that two of 
the principals of that fraud, Glen Risofsky and Michael Trapp, 
SIGTARP agents working with our partners at IRS secured 
criminal charges that were filed against them in California 
that will hold them accountable for the more than $1 million 
fraud that they executed.
    Chairman Towns, Ranking Member Issa, members of the 
committee, thank you for hearing my testimony today. I do look 
forward to answering any questions that you may have. Thank 
you.
    [The SIGTARP report entitled, ``Factors Affecting 
Implementation of the Home Affordable Modification Program,'' 
follows:]

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    Chairman Towns. Thank you very much, Mr. Barofsky.
    Mr. Dodaro.

                    STATEMENT OF GENE DODARO

    Mr. Dodaro. Good morning, Mr. Chairman, Ranking Member 
Issa, members of the committee. I am very pleased to be here 
today to discuss GAO's work regarding the Home Affordable 
Modification Program.
    As has been pointed out this morning, we issued a report 
last July looking at the program. Right now, there is been a 
lot more trial modifications put in place than permanent 
modifications, as has been pointed out, so far. The 1.1 million 
trial modifications were put in place. Of those, 800,000 are 
still active and less than 200,000 have achieved permanent 
modification.
    But it is also important to look at the trends. If I might 
direct your attention to our chart over here, the top line is 
the trial modifications that have been started. As you can see, 
they peaked around last September or October timeframe and 
since Thanksgiving have been declining. The line, the dotted 
line at the bottom, are the beginnings of the permanent 
modifications that were started and then converted into the 
170,000 that were in place at the end of February.
    Now, the challenge going forward is to take the pipeline of 
the trial modifications and have decisions made on them, 
whether they are to be converted to permanent modifications or 
not, but also importantly the pipeline for trial modifications 
has to be replenished for these first lienholder mortgages in 
order to make sure that the goals of the program ultimately are 
achieved.
    In addition to the first lien program, Treasury needs to 
establish and move forward on the second lienholder program. 
There is a foreclosure alternative program that is waiting in 
the wings to be started, as well, and there is the hardest hit 
housing fund, which is directed in five States in particular. 
So you have other programs that have not yet been implemented 
that are necessary to be able to do this, as well as dealing 
with this first lienholder modification program.
    Now, like a lot of other aspects of the troubled asset 
relief program, the GAO, along with the IG from SIGTARP, have 
been making a number of recommendations to increase the 
transparency and accountability of the program. Treasury has 
taken some steps to address our recommendations last July, but 
has yet to fully implement many of them.
    First, we had recommended that they establish performance 
metrics and benchmarks, which would include the numbers 
targeted for permanent modifications, as well.
    They also had not yet resolved compliance issues associated 
with remedial actions or penalties for servicers that were not 
complying with the program.
    We also suggested they regularly update the number of 
people who could be helped through this program because of 
evolving economic and other circumstances.
    We have continued our work, and we have noted preliminarily 
some indications of inconsistencies about how these borrowers 
are being treated, when borrowers are communicated with, how 
early in the process of the lateness on their payment. Some are 
being contacted after 30 days being delinquent; others not 
until 60 days, so there is inconsistencies in terms of the 
criteria that are put forth.
    There is also problems with how complaints are being dealt 
with. There is no set process for that yet in place.
    Also, we had recommended that Treasury followup to 
determine whether or not the counseling requirements that were 
required for certain borrowers were complied with, and they 
have not yet done that. I think we are missing a huge 
opportunity here for more consumer education and financial 
literacy and consumer protections, but we won't know whether 
that is complied with or not going forward unless Treasury 
implements our recommendation.
    We are also looking at what kind of appeal process would 
make sense for this program to provide due process protections 
for borrowers.
    I just want to assure this committee that we take this 
issue very seriously. The TARP program has helped a number of 
institutions and needs to have similar help offered to 
households to afford them the protections going forward.
    We will continue our work looking at whether or not this 
program is achieving its objectives, whether or not it is being 
managed effectively and carried out properly and prudently in 
the best interest of the American citizens.
    I thank you for your time this morning. I would be happy to 
answer questions at the appropriate time.
    [The prepared statement of Mr. Dodaro follows:]

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    Chairman Towns. Thank you very much for your testimony.
    Dr. Calabria.

                 STATEMENT OF MARK A. CALABRIA

    Mr. Calabria. Chairman Towns, Ranking Member Issa, 
distinguished members of the committee, I do want to thank you 
for the invitation to appear at today's important hearing.
    Before I begin my testimony, I want to emphasize a point 
the chairman made about foreclosure scams. These are 
widespread, and I think we should all commend the work that 
SIGTARP is doing. I would, as well, encourage the committee to 
bring the Federal Trade Commission up to update you on their 
efforts. They really are the ones leading the effort against 
foreclosure scams.
    My testimony is going to touch on essentially two points. 
The first point in question rather is: why have the current 
administration and the previous administration efforts, along 
with those of the mortgage industry, to reduce foreclosures had 
so little impact in the foreclosure numbers? I very much want 
to emphasize at this point it is not a partisan issue. If you 
look at HOPE now and you look at HAMP, they were very different 
programs, but the assumptions underlying their structure are 
the same.
    The second question is: given what we know why those 
efforts haven't worked, what are our options going forward to 
improve those? So I will give a very short answer to why I 
think the previous efforts have not worked, and that is because 
the implicit assumption behind these programs that most of if 
not all of the foreclosures are the result of predatory lending 
or exploding ARMs is simply false. The simple truth is that the 
vast majority of mortgage defaults are being driven by the same 
factors that have always driven mortgage defaults: generally, a 
negative equity position on the part of the homeowner coupled 
with a life event, generally most often a job loss or reduction 
of earnings in some other point.
    So I would emphasize, until both of these components--
negative equity, negative income shock--are addressed, I think 
foreclosures will remain at very high levels.
    I would note if payment shock alone were the dominant 
driver of defaults, then we would observe most defaults 
occurring around the time of reset on the interest rate, but we 
do not see that. What we see is the vast majority of defaults 
occurring long before reset. Obviously, the high level of 
foreclosures, I think, has left us all frustrated. I think we 
need to start with asking ourselves if these answers need to be 
grounded in solid, unbiased analysis, and I would want to 
reiterate and emphasize some of the points that Neil made, 
which is, to gauge the success of this program, we need to have 
a reasonable baseline. I don't believe we have any really 
baseline to establish whether the Treasury is doing a good or 
bad job, really.
    I think, if you look at the promises that Treasury has 
made, it is really kind of hard to conclude that they are 
either just making the numbers up or they don't have a sense of 
what their own metrics are.
    So the important part of this is: Treasury needs to put out 
metrics upon which we can measure their performance and know 
whether they are doing a good or bad job.
    I think it is also essential that Treasury put out a 
credible, clear analysis of the cost and benefits of this 
program. If the full $75 billion is spent and if we end up--
which I expect that maybe, if we are on the track to have maybe 
permanent modifications of about 200,000, if we are lucky, then 
that assistance will mean that we will have spent almost 
400,000 per permanent modification, which, as I will note, is 
more than twice the median U.S. home value. So we do need to 
make sure that this money is going and is being spent 
effectively.
    Before discussing specific proposals, I think we need to 
start from the very clear reality that almost half, about 50 
percent, of foreclosures today are driven by job loss. 
Absolutely no way we can address the foreclosure situation 
without addressing the job situation. So I would say the most 
significant thing we could do is try to find a way to foster an 
environment that is conducive to private sector job creation 
and the foreclosure problem will follow that.
    In addition, I think we need to focus not simply on 
homeowners in foreclosure, but those who are potentially at 
risk of foreclosure. For instance, I will note that about 4 
million of the jobs that have been lost in this recession have 
been what are called mass layoffs. Mass layoffs present a 
double shock to our household. Not only do you have the loss of 
your home, but you also take a loss to the housing market 
because of a very big shock to the labor market, but as 
damaging as mass layoffs can be, they have one advantage, which 
is the Department of Labor collects statistics on them and 
reports them because there are laws that require that employees 
receive notice.
    So there is a point of intervention where we can try to 
help families before they actually hit foreclosure, because we 
know that these mass layoffs are coming.
    But, despite that connection, there is almost no 
coordination between HUD and Department of Labor, so I would 
encourage HUD and I would encourage the DOL to partner so that 
the appropriated dollars we have spent so far in counseling 
funds can be focused on those workers at the time they receive 
a notice of a layoff, because we know that there is a high 
probability that 6 to 9 months later after their layoff is when 
they are going to be getting into financial trouble.
    I would also emphasize we do need to approach this as a 
form of triage, which in my mind we need to put our resources 
at those families who need it the most.
    Several of the programs, such as those that are aimed not 
at families in foreclosure but simply those who cannot 
refinance because they are underwater, I think should be ended. 
These divert resources away from families who are most in need 
and focused on families who don't need it.
    In concluding, I want to emphasize very, very strongly we 
need to do something about the underlying causes, and the 
underlying causes are not ARMs, they are the employment market, 
they are negative equity, and that needs to be the focus of 
this.
    Thank you. I look forward to your questions.
    [The prepared statement of Mr. Calabria follows:]

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    Chairman Towns. Thank you, Dr. Calabria.
    Mr. Taylor.

                    STATEMENT OF JOHN TAYLOR

    Mr. Taylor. Good morning, Chairman Towns, Ranking Member 
Issa, and distinguished members of the committee. My name is 
John Taylor. I am president of the National Community 
Reinvestment Coalition. I come to you from the front lines of 
America's foreclosure crisis to tell you that the battle is 
being lost. Our economy will continue to be dragged down by 
these mounting foreclosures if immediate change is not 
instituted.
    The Federal Government's response to the foreclosure 
crisis, called, ``Making Home Affordable,'' comes in two forms: 
HAMP, the Home Affordable Modification Program; and HARP, the 
Home Affordable Refinance Program.
    The Federal Government's response, HAMP and HARP, while an 
improvement over the previous administration, is simply failing 
to make a difference.
    The goal of HAMP and HARP was to help nearly 5 million 
families facing foreclosure. How many have they helped to date?
    HAMP has modified a total of 170,000 permanent loans. HARP 
has refinanced a total of 190,000 permanent loans. So a total 
of all the 5 million plus folks facing foreclosure, the 
Government in the total length of this program has done 360,000 
permanent modifications and refinances.
    Now, consider that just last month we had over 300,000 
foreclosure filings, alone. In 2009, for the year we had 2.8 
million foreclosure filings, alone, for that year. So when you 
consider a number like 360,000 being modified or refinanced, 
you can understand why we are saying it is a failure.
    Two important points here, too. According to the Inspector 
General, Special Inspector General Barofsky, the Treasury 
Department, under its current plans, will spend only $22 
billion of the $75 billion committed to the HAMP program. Why 
they are sitting on those funds is beyond belief.
    As for HARP, 99 percent of the refinancing of this program 
does it to borrowers with the LTVs of less than 105 percent, 
meaning they are really not helping people who are below water; 
they are helping people who are floating on the water.
    Now, the keys to the crisis that Chairman Towns pointed to, 
I just want to point out to the members of the committee these 
keys represent a home, an individual home. Every single key in 
this box represents a family that is losing their home. These 
keys are just what will happen while we have this hearing. 
These keys represent 1,635 families across America who will 
lose their homes just while we sit here talking about what 
needs to be done.
    Let me show you what Fannie and Freddie--sorry, what the 
Federal Government is going to do through the HAMP program 
during this same period of time. These are the amount of homes 
they are going to help out of this lot. That is the entire 
HAMP. During this hearing all these houses are going to be 
lost; this is what the HAMP program is going to help.
    Well, let's give the Government some more credit. What are 
they going to do with the HARP? Those are the refinancing--your 
friends at Fannie and Freddie, here is what they are going to 
do in that same period of time for that same group of people.
    Now, if you think that this is success, then continue the 
way things are. But I can tell you this: regardless of how you 
view this, we spent trillions for Wall Street. This is a 
trickle for Main Street. And whether you look at this crisis 
and say, well, and I know some Members of Congress are fond of 
saying some of the homeowners bit off more than they could 
chew, and others will say, well, there are a lot of greedy 
people, lenders, brokers looking for a fee, a quick fee.
    Let's be clear about two things: first, subprime lending 
became the norm for the mortgage industry and that is the kind 
of loan that was made to anybody, the subprime lending became 
the norm for the mortgage industry. Banks would not have made 
these loans 7 or 8 years ago. They simply would not be the 
norm. Subprime was not the norm. It was an exception to what 
this industry did. This became the norm.
    Then this Congress in 1994 told the Federal Reserve to fix 
this, said, ``You issue unfair and deceptive rules and 
practices that prohibit the kind of activities that are going 
to land people in this, including people who were biting off 
more than they can chew.'' In the old days, the bank would have 
said you can't afford this, but because you can get a fee, you 
can get money, quick money because it is being guaranteed by 
Wall Street or by your securitizer, this is what happened. This 
industry ran amuck and the Federal Reserve did not respond to 
this crisis until July 2008 when it finally, long after the 
horse had escaped the barn, the hay had rotted, the barn roof 
fell in, long after that, they finally issued rules on unfair 
and deceptive practices that would have prevented this kind of 
system.
    Second, for those who think well, ``buyer beware, I got 
mine, good luck to those folks,'' let me just say this: 
everybody has a dog in this hunt when it comes to these 
foreclosures. Every foreclosure reduces the value of their 
neighbor's property. Millions of foreclosures cause job loss, 
reduction in tax revenue, and dragging down of the American 
economy. Foreclosures reduce all homeowners' equity, and for 
many, a significant portion of their retirement savings. Over 
$7 trillion of wealth has been lost by American households.
    So I am out of time, Mr. Chair, so I can start now, I can 
talk a little about the studies. I wanted to make a couple of 
recommendations. It is obviously the committee's call.
    [The prepared statement of Mr. Taylor follows:]

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    Chairman Towns. You will have an opportunity to do so in 
the question and answer period, I am certain. OK?
    Mr. Taylor. Yes.
    Chairman Towns. Thank you very much for your testimony.
    Let me begin, I guess, Mr. Barofsky and Mr. Dodaro. What do 
you really see here as the problem? The fact that we have only 
been able to do less than 200,000 modifications, what is the 
problem? And the $75 billion I think has been allocated, 50 and 
then 25, yes, I think it was 75, so what is the problem?
    When I look at the keys and know, in fact, that they 
represent people, they represent folks who poured their hearts 
into their homes, saved, and all of the sudden now they are 
asked to leave because they missed payments on their home. Good 
people. People that want to do right. What do you think needs 
to be done that is not being done?
    Mr. Barofsky. Mr. Chairman, what we found in our audit is 
that I think a part of it is that doing a program like this is 
very retail oriented. It is on an individual basis. And when 
Treasury set this up, they out-sourced that to the mortgage 
servicers.
    One of the problems that we have heard--and I know that in 
reviewing Mr. Dodaro's testimony, that they have seen it as 
well--is this lack of planning up front, almost a ready-fire-
aim type of approach where these constant changes in guidance 
and documentation and requirements--and yesterday another 
guidance change came down. It is an admirable change. It is 
good for the program. But it is going to require these 
servicers to once again reset their systems, reset their 
procedures. Perhaps if there had been more planning up front, 
these servicers wouldn't have been constantly having to react 
to these changes in circumstances and the emphasis on verbal 
modifications.
    So what happened is the infrastructure was not quite in 
place, and then it got overwhelmed by constant changes and lack 
of adequate planning up front that has created these tremendous 
backlogs and inefficiencies.
    We have all heard reports about servicers who lose 
borrowers' paperwork. They send the paperwork in and then the 
paperwork is gone, and we read about how you can see seven or 
eight times borrowers send in the paperwork.
    One of the servicers explained to us that they did, in 
fact, lose paperwork because they were so overwhelmed because 
of the verbal modifications, because of the constant changes to 
their systems that they hired a vendor and the vendor lost all 
the documents. That is not in any way to remove responsibility 
from the servicers; that just wasn't the focus of our report.
    But I think one of the contributions to why this has been 
so slow to get off the ground and why it has been so 
inefficient is this sort of lack of planning.
    Mr. Dodaro. I would add a couple points. First, I would 
underscore the fact that there have been a number of program 
changes, so the program hasn't been stable. For example, last 
summer Treasury initially mentioned that it would be OK to 
improve trial modifications based upon stated income as opposed 
to having documentation and verification of the income of the 
borrowers. Then subsequently they changed that guidance and 
now, before trial modifications, you need to have substantiated 
documentation.
    The other point in the recommendation we made last July was 
that you needed program metrics. There is no standard guidance 
about when the servicers have to contact the borrowers, whether 
it is 30 days after they are delinquent or 60 days. You need 
some standards. How quickly should they respond to telephone 
calls? How quickly should they process the information? All 
these issues in terms of how the process should proceed. How do 
they handle complaints? None of these things are yet 
standardized where you could hold the servicers accountable.
    As I mentioned, we made a recommendation last July that 
they have some ability to invoke penalties for servicers that 
don't comply with the requirements, but they need to be 
established first.
    Second, they are having difficulty in a number of cases, 
from the servicers we talked with, of getting income 
verification from the borrowers. That is taking some additional 
time. Now, they have forestalled making decision on some of the 
trial modifications.
    The other issue is that these other programs, which are 
intended to deal with some of the negative equity issues, like 
the hardest hit fund, hasn't been started yet. The second 
lienholder program hasn't been started yet.
    So there were some problems with stability in the first 
program out of the chute for the first lienholder one, and 
these other programs haven't been brought online yet, even 
though it has been a year into the program. So with those 
activities we think you will see a better outcome, but they 
need to be managed properly.
    Chairman Towns. Quickly, so, you don't think it is a lack 
of money?
    Mr. Dodaro. I think there is plenty of money. I mean, of 
the $36.7 billion that they have committed to the HAMP program, 
$58 million has been spent as of the end of February. There is 
plenty of money. It is not a question of lack of funding; it is 
a question of making sure you have the commitment of the 
servicers, Treasury has enough people to accurately manage the 
program, and that there is process and means to hold people 
accountable for moving forward, and they are not there yet.
    Chairman Towns. My time has expired. I yield 5 minutes to 
the gentleman from California, Ranking Member Congressman Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    To begin, I am going to share just one example of the many 
I have received. This one comes from a Mr. Paul Habib, who was 
involved in a trial loan modification. He has submitted and 
received approval, first verbally and then canceled, based on a 
rule change, then in writing and canceled based on some rule 
and change. He is now being asked, after they have lost his 
applications twice, to fill out yet a third one.
    Now, he happens to be a WAMU Chase applicant, but certainly 
we are going to hear more today about the problems of 
Countrywide, since it is a defunct company that B of A is 
trying to act on behalf of after their acquisition.
    Let me try to be a businessman for a moment, 10 years 
removed, but still, let's get to the core of what Mr. Barofsky 
and Mr. Dodaro, what you have seen that doesn't work. I have 
read your reports. They are very good, but they tell us that 
this system that we are presently using is not going to work 
any better, in spite of that curve, under the current 
situation. There is 1.3 million people that were given hope, 
170,000 were given loans. The delta between the hope and the 
loan is so great as to be a misery inflicted by the Government 
in their own program. I think we can all agree that is not 
acceptable.
    Let me just run though, and others that have familiarity 
with this can weigh in. As I said in my opening statement, if I 
went out to buy a home today I would go for pre-approval. It 
would take a matter of days or weeks. I would then have an 
amount of money, based on documentation, that I would qualify 
for. I would look at a home that I wanted to buy. Let's just 
assume that it is my own home and it is in foreclosure. And I 
would have it appraised independently and they would come up 
with an appraisal within days. None of that has changed from 
the boom era to today.
    Why in the world are we not discussing a change that says, 
look, anyone can pre-approve you for a loan. Anyone qualified 
can do the assessment of the value. And at that point the pre-
approval process is over and the application is submitted with 
knowledge of what you can afford and knowledge of what the home 
is worth. And this system worked for years relatively well with 
a matter of days between the applicant's desire and those two 
being met.
    Can you comment on why we are not talking about a change to 
that system today? Mr. Dodaro, I will start with you because 
you talked about refilling the backlog. I would propose that 
the worst thing in the world is to have more people into a 
system that takes 6, 9 months or more to get through while they 
have this period of uncertainty.
    Mr. Dodaro. Well, first of all, the mortgage alternative 
program that Treasury has announced but not yet implemented is 
meant to deal with more up-front decisions about whether or not 
there is even a prospect that a trial modification makes sense, 
and if not move to a short sell type arrangement or other 
vehicle to help create a smooth exit strategy.
    Mr. Issa. We are only talking about this program, because 
if we continue doing what we have been doing that failed, then 
only insanity explains why we would continue doing what we know 
won't work.
    Mr. Dodaro. Well, I think in terms of making sure that the 
program has a fair opportunity, it needed to be set up to have 
some stability, to be managed properly. I still think that if 
Treasury proceeds there will have to be better decisions made. 
The one key decision that I----
    Mr. Issa. I am going to cut you off, because that is 
exactly business as usual around here. I have gotten better 
from you many times, but in this case, Mr. Barofsky, I want to 
move to you because your report told us we have had enough time 
to see a trend and people have suffered for a year under a 
program that is not working and that is unlikely to work 
dramatically better. Would you give us your comments on those 
changes or others that you want us to feature?
    Mr. Barofsky. We are talking here about some of the 
structural problems with the servicers. I think that it is 
getting better. I mean, that is the good news. This whole idea 
of verbal modifications, which I think is such a source of so 
many of the problems that you described----
    Mr. Issa. Right. We have put in too much in the front end 
without hope of coming out the back end.
    Mr. Barofsky. In order to get these numbers up to flood the 
system and the over capacity, thankfully that is going to be 
done. Treasury has changed on that one, and that I think will 
be very helpful to increase the conversion rate. I think under 
these structural issues, I think Treasury has to decide and 
sort of do a final issue of guidance to foresee the various 
problems.
    Mr. Issa. We are going to ask them that question in just a 
few minutes.
    Mr. Barofsky. So I think that there is good news that these 
structural things can be adjusted. I think the metrics, which 
are so important, as Mr. Dodaro recommended in July and we have 
re-emphasized today, so you can have accountability and make 
changes to those benchmarks and those goals are important.
    But the third potential problem is re-default, and that 
Treasury has not shown a willingness to reconsider or re-
examine, because ultimately this program will not be successful 
until----
    Mr. Issa. Thank you. We are going to get to that. The other 
two just wanted to chime in quickly, I believe, if the chairman 
will indulge.
    Mr. Taylor. Thank you, Mr. Issa. I think your question is 
right on point, and I think though the answer is very much in 
your opening remarks when you mentioned that Bank of America is 
about to do 45,000 principal write-downs. Now, they were 
encouraged by State AGs--I will use the word encourage 
loosely--but the point is that is what is really going to make 
the difference at the end of the day, the principal write-
downs.
    In defense of Treasury, I will say that on paper the plan 
looks good, but the problem is it is voluntary, and unless and 
until we have something like what we proposed to Secretary 
Geithner and Secretary Paulson, to Secretary Paulson in 
February 2008, you must have mandatory compliance in this 
program. You are not going to get the principal write-downs----
    Mr. Issa. OK. And Dr. Calabria, you had something?
    Mr. Taylor. That will make the huge difference.
    Mr. Calabria. We are out of time, sir.
    Mr. Issa. Well, thank you very much. Thank you, Mr. 
Chairman.
    Chairman Towns. Thank you.
    I now yield 5 minutes to the gentleman from Maryland, 
Congressman Cummings.
    Mr. Cummings. Thank you very much.
    Gentlemen, I am very familiar with all of what you were 
saying, because in my district we have two people in my office 
that all they do is foreclosure prevention. That is all they 
do. It is a big problem.
    Mr. Barofsky, what, if anything, prevents a lender from 
deciding midway through the HAMP process that the $1,000 or 
whatever it might be incentive payment is not worth the 
company's resources and just say to heck with it? The reason, I 
am trying to figure out how to we get to this effectiveness and 
efficiency, because it seems like we have a program here which 
we want to work, we think should work, but when we scratch the 
surface it is not working.
    So we have the money, but we are not spending the money. 
Mr. Calabria said it is costing us $400,000 a piece. That is 
not accurate, because that means that we spent all the money, 
but we aren't spending. We are spending just a pittance of the 
money.
    So do we need some kind of different carrot? Do we need 
some type of stick?
    Mr. Barofsky. I think, to answer your question about the 
mid-stream change of heart, it gets to a central point. Under 
the rules, a servicer, once they sign the contract and they run 
the net present value test and it is positive, they do have an 
obligation to go forward and modify the mortgage, but your 
question almost goes to one of compliance. How do we make sure 
that they follow those rules?
    Right now, Freddie Mac has been signed up to be the 
compliance agent. Our office is about to do an audit, about to 
announce an audit into compliance. I know that GAO is doing 
some work on compliance, as well. That will be one of the 
methods, which is a vigorous--and I think it is very important 
to have a compliance regimen in place.
    One of the problems that GAO has pointed out--I don't want 
to speak for them--is that it has taken a while just to get 
that compliance shop up and running, and we are going to see 
how effective it has been.
    Mr. Cummings. Yes. Mr. Dodaro, other than your office and 
Mr. Barofsky's office, is there any other oversight of HAMP? 
And as we know, Freddie Mac is the compliance agent for HAMP. 
Has Freddie Mac its responsibilities in that role? And what 
about within Treasury? Have sufficient resources been allocated 
to effectively administer and monitor the program?
    Mr. Dodaro. One of the recommendations we made back in July 
last year was that Treasury look at and make a determination 
whether it has the adequate enough resources on board to 
implement the program. We still think they need to be able to 
do that. In fact, they went from reducing the number of people 
that they have had on place from 36 to 29. They only have 27 of 
the 29 positions filled. So we still think they need to look at 
whether or not they have enough people in order to be able to 
do it.
    We do think there needs to be an overall compliance program 
put in place that is really not there. As Mr. Barofsky pointed 
out, we are going to continue to follow that up. But really the 
oversight is really coming from our office and Mr. Barofsky's 
office and needs to come from Treasury over the servicers. That 
is why we have encouraged them to put a better system in place 
to ensure compliance.
    Mr. Cummings. Mr. Taylor, the NCRC has released the results 
of a survey of homeowners seeking assistance to avoid 
foreclosure. What were you looking for in the survey? And can 
you share some of your findings? I understand that African 
American folks were less likely to benefit. They were less 
likely to benefit from the programs. Can you shed any light on 
that for us?
    Mr. Taylor. We were trying to look at the front line of 
what was really transpiring for people, so we went to 29 
counseling agencies around the country, not the entire country, 
but the folks we could work with. So what we discovered, even 
to the minimum amount that the program is working, that if you 
are an African American you are 50 percent less likely to get a 
modification under this program, which really is abhorrent.
    Further, we also discovered that if you are 50 or older, 
and many people looking at heading toward retirement, many 
people who are, indeed, classified as seniors, 50 percent of 
them are going to also have great difficulty in getting a 
modification, a permanent modification.
    So not only is the program really just not making the dent 
in the problem; it is not really being administered in a way 
that is fair across the board.
    Mr. Cummings. I see my time is up. Thank you, Mr. Chairman.
    Chairman Towns. Thank the gentleman from Maryland.
    I yield 5 minutes to the gentleman from Ohio, Mr. Jordan.
    Mr. Jordan. Thank you, Mr. Chairman.
    We have said many times, I said in my opening statement, 
this thing is a mess. Mr. Barofsky indicated in his opening 
comments that it is tough to even figure out what the exact 
goal is. I learned a long time ago you can't get anywhere if 
you don't know where you are going. You have to have a defined 
goal you are trying to achieve.
    With that changing metrics, we have had the promise or the 
hope of potentially 4 million people getting their mortgage 
modified, and yet 170,000 there, and then, of course, the re-
default problem that has already been talked about. For those 
who actually get permanent, 40 percent of them are likely to 
re-default, so a total mess.
    But I actually want to go to Mr. Calabria. You said, I 
think, it is tough to pay a mortgage if you don't have a job. I 
mean, that is what this, in large part, boils down to. So we 
can continue to have this big Government-oriented approach, big 
spending, big regulation to our economic concerns out there, 
or, frankly, in my humble opinion, we can get back to creating 
a framework and environment that actually is conducive to 
economic growth, actually fosters job creation in the private 
sector, and I would argue doesn't create policies that don't 
create uncertainty out there for the small business owner and 
the people who actually create jobs.
    So my question is a general one to you: what is Congress 
doing right in fostering a framework and a context for economic 
growth and job creation to take place in the private sector? 
What, in fact, is Congress, I mean, I think that we have a lot 
of things we are doing wrong, but a general question on what we 
can do to get to the heart of this, because, again, until you 
have a job it is tough to make a mortgage payment.
    Mr. Calabria. And I would agree, and I would emphasize and 
say as well, to touch on the last question, we have certainly 
seen during this recession that African Americans have been hit 
harder----
    Mr. Jordan. They sure have.
    Mr. Calabria [continuing]. In terms of the labor market 
than anybody else. And certainly this is part of the reason 
that explains why the denial rates are different because, quite 
frankly, the HAMP program does not really help you if you have 
lost your job, and it does not deal with that as an issue, so I 
think this needs to be re-thought in that regard.
    I would say, as a broad measure, private sector needs to 
have some certainty to be able to plan, so, despite whatever 
one might think about any set of rules or legislation, you need 
to have a set of rules so that the private sector can plan 
around them. I think many businessmen would probably tell you 
that even a bad set of rules that they know that they can plan 
with is better than rules that change off and on.
    My own perspective, so what everyone thinks about the 
recently passed health care, at least it is done. That is 
something that the private sector can move forward with and 
plan around.
    I do think we need to get our situation in terms of our 
fiscal situation in order. Any small businessman today has to 
factor higher taxes into his future plans.
    Mr. Jordan. Yes.
    Mr. Calabria. That is something that I think we need a 
credible path going forward on.
    I think we also need to find ways to get banks to lend 
again in a serious way. This is, I think, one of the perverse 
implications of where monetary policy and fiscal policy have 
worked against us. Normally, very low record interest rates 
help create businesses, but in this environment banks are 
essentially able to borrow at nothing, put it in Treasury bills 
for 3 or 3\1/2\ percent----
    Mr. Jordan. That is a good point.
    Mr. Calabria. That is a very large interest rate margin for 
a bank, risk free. If they are doing that, they have no 
incentive to go out and lend to the private sector because they 
can really just make great risk-free returns right now.
    Part of that is they are trying to make these returns to 
cover up the losses they have on their balance sheets.
    Mr. Jordan. Right.
    Mr. Calabria. I think we need to be more aggressive in 
terms of the bank regulators in making banks actually recognize 
losses on their balance sheets. We have at least probably half 
a trillion in probably second lien loans that aren't 
recognized.
    Mr. Jordan. Let me ask you a question. Do you think we 
would be better off simply not having the program? Do you think 
the false hope this program gives to some homeowners, the 
problems we have seen, the lack of transparency, the lack of a 
clearly defined goal--everything we have seen over the last 
year, do you think we would be better off simply letting the 
market--and letting, as the ranking member pointed out in his 
opening statement, letting banks work with the homeowner, the 
servicer work with the homeowner, or the bank and the lending 
institutions work with the homeowner, and work it out amongst 
themselves versus the heavy-handed Government coming in?
    Mr. Calabria. I would say, as an overall short answer, that 
is, given how few people have actually been helped relative to 
the universe of it, I think it has probably done more harm than 
good, in that you have encouraged people to--for instance, a 
lot of what I hear is sometimes people are encouraged to, in 
order to get to the front of the line, stop paying your 
mortgage. That is going to ding your credit. So I think some of 
this you are really encouraging probably more harm than good.
    I will lay out my bias and my perspective is that I think 
taking----
    Mr. Jordan. Mr. Taylor is trying to jump in.
    Chairman Towns. I will yield the gentleman an additional 
minute.
    Mr. Jordan. God bless you, Mr. Chairman.
    Mr. Taylor. You are throwing the baby out with the bath 
water here. I mean, look, to say that it has done more harm 
than good is just ludicrous. It simply----
    Mr. Calabria. I disagree with that.
    Mr. Taylor. It simply hasn't been effective. And also, to 
start from the premise that, well, the problem is unemployment 
and lack of equity, as he puts it, that is why we are having 
these foreclosures is kind of like saying the house is gone. 
Why is the house gone? Well, it burned down, and then stopping 
with that level of thinking. Why did it burn down? We have 
unemployment and lack of equity because of a massive 
foreclosure, malfeasant lending practices that put people in 
unsustainable mortgages, and to reverse that we have to address 
that. First, clean it up, but also understand that 8 million 
American families are not wrong, Congressman.
    Mr. Jordan. Yes.
    Mr. Taylor. Eight million American families didn't set out 
to put themselves in a malfeasant loan or an unsustainable 
loan.
    Mr. Jordan. I am not saying they did. I am just saying----
    Mr. Taylor. It certainly sounds like you are saying that.
    Mr. Jordan. I am not saying that at all. I am just saying 
that a program that lacks the accountability that this one does 
and extends false hope to the very people we are trying to help 
is a program that has serious flaws and failures. And while we 
want to----
    Mr. Taylor. So make the program work.
    Mr. Jordan. I want to do one last question if I can in my 
last minute, my extra minute--thank you, Mr. Chairman--to the 
Inspector General. Why do you think Treasury is reluctant to--
one of the suggestions you had in your report, and I asked 
this, I think, to Mr. Allison in the last hearing we had, 
reluctant to look at the underlying loan to determine if some 
of the fraudulent things were there in the original loan. Why 
is Treasury reluctant to implement that suggestion you had in 
your last report?
    Mr. Barofsky. As they have explained it to me, it is sort 
of akin to a resource issue from their perspective. They 
believe that tracking the original loan--again, this is the 
explanation that they provided--that getting the original loan 
file and the original loan application would be very resource 
intensive. As you know, these mortgages were sold and resold 
and resold and resold and resold, and therefore they claim that 
it would be very difficult to obtain the original mortgage 
file.
    Chairman Towns. Thank you. The gentleman's time has 
expired.
    Mr. Jordan. Thank you.
    Chairman Towns. I now yield to Ms. Norton of D.C.
    Ms. Norton. Thank you, Mr. Chairman.
    I was daunted and amazed by Mr. Calabria's notion in the 
middle of a crisis, better to have no program than to take a 
program where we are essentially dealing with a not only 
unanticipated, but unprecedented crisis, and everybody knows we 
are learning as we go along because we have never done it 
before. So the notion of saying, well, so leave everybody out 
there, as my friend on the other side----
    Mr. Jordan. If I could respond?
    Ms. Norton [continuing]. To negotiate for themselves has 
blown my mind.
    I have a question here about the second lien program, 
because these are the people----
    Mr. Jordan. Will the gentlelady yield?
    Ms. Norton. The gentlelady will not yield. She has only a 
few minutes. You had your time.
    I am particularly concerned about those at very particular 
risk in a program that may meet Mr. Calabria's notion of better 
not have it than have it, because it hasn't done anything, 
although I do not buy his notion that you should just leave 
people out there on their own when even Government can't figure 
out what to do.
    This notion about 50 percent of the--we know that 50 
percent of the homes in foreclosure had a second lien on them, 
so now you really have trouble here.
    A year ago Treasury announced, OK, we understand, and their 
learning curve, and they instituted a new component of HAMP to 
help homeowners with multiple liens on their property. Now, 
these figures need to be explained. Only three servicers have 
signed up.
    What kept that from happening? No second liens have been 
modified. That is a year into the program. That is beyond 
failure, beyond needing fixing. It may need to be totally 
rethought, although I do not buy into the notion of, all right, 
throw up your hands and don't do anything.
    I want to ask Mr. Barofsky, Mr. Dodaro, and Mr. Taylor, in 
particular, first to get at the root cause. Why didn't this 
program get off the ground in the first place as a component of 
HAMP? And without such a program, is there any way to help 
these people who have second liens and may be in the greatest 
need of all?
    Mr. Barofsky, why don't we start with you and go to the 
three gentlemen I asked.
    Mr. Barofsky. Sure. I think that it is good news that in 
the last week they have signed up two additional----
    Ms. Norton. What happened in the last week? Somebody got 
religion there?
    Mr. Barofsky. Well, we did provide a draft audit of our 
report about 2 weeks ago, although I think it is something that 
has been in the works. But we share your frustration. As we 
detail in our report, in the original draft it was just one, 
and it is good to see that they have signed up three of the 
biggest players in the market, but it has been a year since the 
details of this--the idea of modifying second loans. And it is 
such an important part of this program.
    Ms. Norton. So is it lack of people signing up that kept it 
from getting off the ground? Was more needed to make that 
happen?
    Mr. Barofsky. Perhaps. I mean, we have not yet audited the 
second lien program. It is something we wanted to see, let it 
get off the ground before we did so, but those are very good 
questions that need to be answered.
    Ms. Norton. Mr. Dodaro.
    Mr. Dodaro. First of all, Treasury had not established yet 
a date for when they were going to start the program, and a lot 
of the program details aren't very clear yet, so it goes to the 
question of first----
    Ms. Norton. After a year they aren't very clear?
    Mr. Dodaro. Well, that is the status of it, and that is why 
we think the program hasn't got off and running. And it goes 
also to Congressman Issa's question. I mean, really the second 
lien program I think needs to be established in addition to 
what they are doing, as well as dealing with negative equity, 
which is the hardest hit housing fund that they are just now 
starting to get off the ground in five States.
    So you need multiple approaches to deal with this problem, 
because all the homeowners aren't in the same situation.
    Ms. Norton. Yeah. Some of them are employed, for example, 
and have a second lien. Some are going down the drain quickly--
--
    Mr. Dodaro. Right.
    Ms. Norton [continuing]. But could be caught with the 
proper kind of net.
    Mr. Dodaro. Right. And Treasury needs all these different 
programs to deal with the varied situations of the borrowers, 
so they need to get up and running. This is why we suggested 
they look at how many people they had on staff in order to 
carry out all these programs.
    But the basic answer to your question is: until the details 
are established, the servicers are going to be somewhat 
reluctant, and understandably, to sign up for the program.
    Ms. Norton. Mr. Taylor.
    Mr. Taylor. Look, under the HAMP program, all the major 
lenders have signed up to participate in this program, and 
within the program there is the permission to do principal 
write-down as well as interest write-down. The problem is we 
now know it is really not working, and the fundamental reason 
it is not working is because it is voluntary.
    I mean, you have all these lenders sitting there waiting 
for you, the U.S. Government, and the taxpayer to bail them 
out, and they are waiting for the taxpayer to pay for 
everything here, and what they ought to be doing is at least 
meeting us halfway. For that to happen, it has to be mandatory. 
Treasury has to say, OK, we are no longer going to have 
voluntary participation in this program. Everybody is going to 
do this. And if we have to use the authority on the top, which 
allows Treasury to purchase the loans, or the authority under 
eminent domain, go in and get those loans. That is No. 1.
    No. 2, right now, as we sit here, most of the problematic 
loans are actually already controlled by the Government. Can 
you say Fannie Mae and Freddie Mac? Those are no longer 
Government-sponsored enterprises; those are Government 
enterprises. And that is where the majority of these loans now 
sit.
    Tomorrow they can turn around and refinance millions of 
these loans, and if they don't they stand to lose somewhere 
between $400 billion to $600 billion over the course of the 
next several years if they don't refinance now.
    But you have the capability. This Congress, this 
Government, has the capability to mandate Fannie and Freddie to 
turn around and fix those loans and mandate these Wall Street 
and big banks who have taken money from the American taxpayer 
and from this Congress and tell them that they are going to 
participate in this program.
    It is not that the program design is bad; it is the 
participation is bad.
    Chairman Towns. The gentlewoman's time has expired.
    I now yield 5 minutes to the gentleman from Utah, Mr. 
Chaffetz.
    Mr. Chaffetz. Thank you, Mr. Chairman, and thank you all 
for being here. I do appreciate it.
    Mr. Dodaro, I would like to go back to your July 20th 
recommendations that were made specific to the personnel. One 
of the concerns in Treasury is lack of leadership. I just want 
to make sure I understand this right.
    The President goes out and announces this program in 
February or March, and they did not hire a chief homeownership 
preservation officer until November; is that right?
    Mr. Dodaro. Yes, that is correct. Our recommendation, as 
you point out, was to get the head of that office established.
    Mr. Chaffetz. I think one of the things that we want to 
have a response from Treasury on, you have such an important 
program, you have people bleeding over there. The President 
stands up before the American people and says this is going to 
happen. You can't even hire somebody until November?
    Now, my understanding was they made a recommendation they 
needed 36 full-time equivalents into the program, and then they 
modified that and said, no, we only need 29. We need less 
resources, not more resources, but still haven't filled all 29 
positions. Is that right?
    Mr. Dodaro. That is correct.
    Mr. Chaffetz. I just don't understand that. We hear all 
these complaints about this program. The taxpayers have set 
aside tens of billions of dollars, and we can't even find 29 
people to administer the program. It takes the administration 
10 months to hire a leader over there. That is inexcusable, and 
I hope on both sides of the aisle that we hold the 
administration accountable for that.
    Let me go to the second part of my questioning here. I am 
hearing a lot of numbers and I am not understanding the math, 
and clearly the metrics have not been set up at the beginning. 
We are dealing with a very confused situation, because the 
leadership was not in place and didn't set these metrics in 
place.
    Help me understand here. We have only spent $58 million of 
the $75 billion; is that right?
    Mr. Dodaro. That is correct, because payments aren't made 
until the trial modifications become permanent, and there is a 
1-year anniversary of the trial modifications. Then everybody 
starts getting paid.
    Mr. Chaffetz. So then they get paid at that point?
    Mr. Dodaro. Right.
    Mr. Chaffetz. OK, because if you kind of do the math 
backward, there is less than 400--OK. That makes much more 
sense. I appreciate that.
    If staff could put up slide five, if we have that, this is 
a letter from Timothy Geithner to Chairman Towns showing the 
overdue trial modifications. There are 536,084 trial 
modifications that have been active 4 months or more, and 
287,881 trial modifications that have been active 6 months or 
more.
    Mr. Barofsky, what is causing this backlog?
    Mr. Barofsky. Verbal modifications. This is the result of 
not getting fully documented income verification, full 
documents at the outset of the mortgage modification process. 
That decision is what drove up the number in GAO's chart there 
of the spike of getting a high number of trial modifications, 
but without getting that documentation up front you see them 
languishing 5, 6 months because it takes that long for the 
documentation.
    And sometimes the documentation never will come, never 
could come because the documents won't match up with the verbal 
numbers. I think that is one of the primary reasons why you see 
those types of backlog.
    Mr. Chaffetz. OK. My time is short and we have votes. We 
obviously need more information to ferret this out more.
    Mr. Dodaro, this chart here, I am looking at the source. It 
says cumulative figures taken from the January 10th HAMP 
servicer performance report. Monthly figures are GAO calculated 
using cumulative figures. If it is cumulative, why would trial 
modifications start to go down? If you could help clarify that 
for me? I see the permanent modifications continuing to go up, 
but if they are truly cumulative numbers I don't understand why 
any number would ever come down.
    Mr. Dodaro. Those are monthly.
    Mr. Chaffetz. Monthly figures? OK.
    Mr. Dodaro. Yes.
    Mr. Chaffetz. It says cumulative, and I just--you can 
clarify that for me at some point.
    Mr. Dodaro. I think it is calculated back from the 
cumulative figures but it is on a monthly basis so that we 
could see the path.
    Mr. Chaffetz. OK.
    Mr. Dodaro. And I think the point being even though trial 
modifications are going down slightly because now they have 
moved back to documenting income up front, you may see a higher 
percentage of conversions to permanent modifications, but we 
will have to wait and see.
    Mr. Chaffetz. And then, finally, there was an assertion 
here that African Americans are 50 percent less likely. Why is 
that? What is happening here? Why would that happen? I can't 
remember who brought that point up in the prior----
    Mr. Taylor. I did. Do you want me to answer?
    Mr. Chaffetz. Yes.
    Mr. Taylor. Look, they started out with disproportionately 
bad loans that were--the subprime high-cost lenders really 
targeted African American and Latino neighborhoods, and so they 
are starting with just a more difficult problem in terms of 
having to modify those loans to begin with.
    Let me just say on your----
    Mr. Chaffetz. I would think that the----
    Chairman Towns. The gentleman's time is expired.
    Mr. Chaffetz. Understood. Thanks, Mr. Chairman.
    Chairman Towns. All right.
    I now yield to the gentlewoman from California, 
Congresswoman Watson.
    Ms. Watson. The question just came up about African 
Americans and what is happening there. I would like to just let 
you know in my district--I am Los Angeles, 33rd, Los Angeles 
and Culver City--I have 2,400 cases of foreclosures in my 
district because of the subprime marketers. They would say, 
well, how much do you make, and then they said, well, $3,500, 
well, let's mark it up to $5,000, and then the payments in a 
few months go up and they can't afford it. Then they lose their 
job on top of it. They have plagued my district, particularly, 
the seniors and particularly those at the lowest end of the 
socio-economic pool, and it is just one of those situations 
that is almost bordering on the illegal.
    So we have a big problem, and particularly in minority 
communities, because they are the ones that can't find jobs and 
they lose their jobs first.
    Now, with that being said, Mr. Dodaro, according to the 
GAO's July 2009 report, as of the third quarter of 2009 more 
than half of all modified loans re-defaulted within 6 months, 
and I am finding within my district--and this can be 
documented--we were trying to capitalize the banks too big to 
fail. They didn't give out. They didn't do the assistance to 
the homeowners that they should.
    However, in the HAMP program, only borrowers with high 
levels of household debt must agree to obtain debt counseling, 
and the Treasury Department is not adequately monitoring the 
requirement, despite the fact that financial literacy is 
critical to ensuring that the mistakes which led to the current 
economic crisis are not repeated. And it is not all on the part 
of the homeowner.
    So what are the most common causes of re-default for HAMP 
borrowers, and what steps is Treasury taking to prevent it? And 
should there be counseling for the borrower before they sign on 
the dotted line? Mr. Dodaro.
    Mr. Dodaro. Yes. First, of the 170,000 permanent 
modifications that have been made under the first lienholder 
program in HAMP, 1,473 have re-defaulted so far. Now, on the 
counseling issue, Treasury requires the borrowers over 55 
percent or payment of their monthly income, gross income, have 
to counseling, but they are not following up and making sure 
that counseling actually gets conducted.
    I am very disappointed in their response to that area. They 
believe it is not cost effective for them and the servicers to 
do that. There are ways to do it more cost effectively through 
followup activities.
    I think this is a huge missed opportunity to deal with 
financial literacy, to deal with consumer education, and I hope 
that Treasury reconsiders and implements our recommendation.
    Ms. Watson. Let me then address my next comments to Mr. 
Barofsky and back to you, Mr. Dodaro.
    According to Treasury estimates, up to half of all 
borrowers at the risk of foreclosure have second liens on their 
property. Since having a second lien can result in much higher 
foreclosure rates, Treasury announced the second lien program 
on April 28, 2009; however, only two servicers have enrolled in 
the program and no second liens have been modified.
    Why has the 2MP program not been effective thus far, and 
what more should the Treasury Department be doing to ensure the 
program successfully prevents foreclosures?
    Mr. Dodaro. On the second lien program, we think Treasury 
needs to make all the specific requirements known so that the 
servicers know what they are signing up for, and so we think 
that will help move that program forward once that is done.
    Ms. Watson. You know what is very baffling to me, and I am 
sure many of my colleagues--I will close with this--is how all 
of this started. I was sitting here when Paulson and Bernanke 
came and said, help, help, the house is on fire. What do you 
do? You call 9-1-1 and you get somebody out there. We are 9-1-1 
and we got somebody out there to capitalize them so they could 
put out the fire and people could save their homes. It has not 
happened.
    I think that Treasury is trying, but we still don't know, 
and the risks that were taken is being paid for by the 
taxpayers, and the seniors and the uninformed people are the 
victims.
    Thank you, Mr. Chairman. I yield back.
    Chairman Towns. I thank the gentlewoman from California.
    I now yield to the gentleman from Missouri, Mr. 
Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    As I sit here today we are talking about a program here 
that is well intentioned but is poorly thought out, thought 
through, poorly administered, and some of the comments here, 
Mr. Barofsky: program needed more planning up front. Mr. 
Dodaro: program needs more stability. Mr. Calabria: program has 
done more harm than good. Mr. Barofsky again: the voluminous 
paperwork causes delays.
    I think it is indicative of why we are sitting here. We 
wonder, we asked the Government to come in and help, and yet 
the Government isn't the one who can solve this problem.
    The lady from California talks about the house is on fire 
you call 9-1-1. That is fine. You talk to the local fire 
department. You don't ask the Government from Washington, DC, 
who has to drive plumb across the country to put out a fire. I 
think we have the wrong people in charge here.
    This is frustrating to me.
    As we sit here, Mr. Barofsky, in looking at something here, 
it says that the Treasury has not monitored the requirement 
that borrowers with high levels of household debt obtain debt 
counseling. I mean, if we are looking at folks who are going to 
try to re-write their mortgages, why are we not doing that? Why 
is the Treasury not--is there some sort of enforcement 
provision here that will force them to start doing it now, or 
is this going to just be blown off and be forgotten about like 
some of these other things that we are talking about?
    Mr. Barofsky. I am going to defer to my colleague, because 
that finding is part of his report.
    Mr. Luetkemeyer. All right.
    Mr. Dodaro. What Treasury has told us, they have consulted 
with the servicers and they think it would be too costly to 
track that provision. I don't buy that as an acceptable answer. 
I think it should be followed up on. There should be cost-
effective ways to find out whether counseling is done or not. I 
think it is integral and important, particularly if we are 
looking at trying to reduce the occurrences of re-defaults 
going forward, and to make sure that the borrowers are 
empowered with the best information that is available to them 
to make informed decisions and choices.
    So I would hope, as I have said, that Treasury reconsiders, 
implements our recommendations, and if not, I would encourage 
the Congress to make it mandatory.
    Mr. Luetkemeyer. Who pays for the debt counseling? Is that 
something that is included in the charges that the individual 
pays here, or do we pay for that, does the program pay for 
that? Who pays for the counseling?
    Mr. Dodaro. I will have to get back to you with that 
answer.
    Mr. Luetkemeyer. Mr. Taylor, you look like you know the 
answer.
    Mr. Taylor. Yes. Well, HUD pays for HUD-certified 
counselors. Some of the banks pay for the counseling. I don't 
know if the program--NeighborWorks, of course, is funded by 
this Congress. They fund a lot of the organizations.
    Mr. Luetkemeyer. So there are other outside sources that 
pay for it.
    Mr. Taylor. They want to help. In fact, under the FTC 
requirement, whenever a person goes in for a modification they 
are supposed to be informed of the availability of counseling. 
The problem is, in the survey we just did, the mystery shopping 
of 100 servicers, we found out that 80 percent of the time they 
are not told about it.
    Mr. Dodaro. Congressman, my staff informs me that HUD pays 
for the counseling in this program.
    Mr. Luetkemeyer. All right.
    Mr. Calabria.
    Mr. Calabria. My recollection is we probably appropriated 
$400 million to $500 million over this course of action for 
counseling, so it is a significant amount of money out there. 
Despite the characterization of my testimony saying do nothing, 
my testimony, quite frankly, suggests that one of the things we 
do need to do is connect counseling to the labor market.
    For instance, I talk about in my testimony that mass 
layoffs have very large effects, disproportionate effects on 
the housing market because somebody loses their job and there 
is a big impact on the housing market. One of the things that 
can be done, for instance, is connecting counselors to the 
employers so that the last day of work, where you have 50 
people on the factory floor, you can give them financial 
assistance, financial counseling, literacy right then and 
there, because you know if you lose your job in a mass layoff 
you are likely 6 months, 9 months down the road to get into 
financial trouble.
    One of the things we are continuing to emphasize, we cannot 
just sort of wait until horse is out of the barn door. You need 
to get people on the front end before they get into financial 
trouble and avoid this to start with.
    Mr. Luetkemeyer. You made a comment about $400,000 per 
modification. Can you explain that figure.
    Mr. Calabria. Let me say, as the Congressman pointed out, 
that was in the assumption of the if--that we spent this $75 
billion. I certainly hope that we spend it a whole lot more 
effectively. That was simply--this is how much we have 
appropriated, essentially, divided by how many people we were 
likely to help.
    Mr. Luetkemeyer. That you anticipate helping?
    Mr. Calabria. That I anticipate helping.
    Mr. Luetkemeyer. It would be cheaper to write them a check, 
wouldn't it?
    Mr. Calabria. Cheaper to buy them a house.
    Mr. Luetkemeyer. Imagine that.
    Mr. Taylor, you mentioned something a minute ago. You 
wanted the banks to meet you halfway. Can you explain that 
comment, please?
    Mr. Taylor. Sure. So there aren't a lot of clean hands in 
this whole debacle, and certainly the role that Wall Street 
played cannot be over-stated. So the solution to this must be a 
principal write-down program. The answer to resolving this 
crisis is we have to get the monthly payments down. Interest 
alone is not working. You heard Representative Issa talk about 
Bank of America's initiative. I know that CitiBank and some of 
the other banks, at least in some of their portfolio lending, 
Wells, on the loans that they have in portfolio, we are 
beginning to see some principal write-downs. That is what is 
going to put people in a position, those who are still working, 
to be able to continue to pay on their mortgage.
    So I think without that kind of initiative, I don't see 
that we are going to make a lot of progress.
    Chairman Towns. The gentleman's time has expired.
    Mr. Luetkemeyer. Who foots the bill for that?
    Mr. Taylor. Well, who foots the bill is the folks that kind 
of created this crisis in the first place, Wall Street and the 
big banks reduce the principal. And then what the Government 
can do is step in and act as a guarantor for the balance. But 
get it down to some reasonable amount where you are going to 
keep the families in the house, and eventually the equity 
appreciation over time will bring value back to the homeowner. 
So it is the industry stepping up and matching, at least, the 
Government's initiative here.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Chairman Towns. The gentleman's time has expired.
    I now yield to the gentlewoman from California, 
Congresswoman Chu.
    Ms. Chu. Well, I have a constituent, Daisy Cardale, whose 
parents are on the brink of losing their home to an auction in 
less than a week. They applied in the HAMP trial period plan 
for 3 months and they entered into that with JPMorgan Chase. 
They submitted their payments timely each month, but during 
that time period they hardly received any feedback on what was 
going on, an you status updates or anything. And then finally 5 
months later they received a letter from Chase indicating that 
they were denied and that their house was going to be auctioned 
off in 30 days, even though they had faithfully made their 
payments.
    The system has to be better than this. Here they were put 
on the string for 5 months, and now it is going to be auctioned 
off almost immediately.
    I am concerned about the lack of notice, but also about the 
lack of an appeal process. While with the introduction of 
borrower notices on January 1, 2010, homeowners are finally 
able to see at least a reason for modification denial, but I 
would like to ask Mr. Taylor, does the introduction of borrower 
notices do enough to ensure that HAMP-eligible homeowners can 
appeal an unfair denial?
    Mr. Taylor. I think it would be helpful. I wouldn't say 
that it does enough. And I think what you are really getting 
at, and, interestingly enough, from both sides of the aisle we 
have heard examples of people who are trying to avoid a 
foreclosure who are still working, going to the HAMP program, 
and then being in the process and still not having any success.
    So, like the example you just gave, I hate to say it is not 
very uncommon, but let's really look at where the problem lies. 
The Treasury would love to see those loans become permanent 
modifications, but the servicer and the lender has to agree to 
that.
    So if somebody fills out all the applications and submits 
all the information, applies for the modification, and 3 months 
go by, 5 months go by, and it looks like everything is fine, 
and then all the sudden they get a foreclosure notice--and, 
again, not uncommon--if we can't get the servicer and the bank, 
itself, to agree to make that modification, Treasury loses as 
well as the rest of us.
    So, again, it is a voluntary participation program. There 
has to be a mandatory participation so that the lender isn't 
sitting there going, ``well, I will just string this along long 
enough to see whether maybe equity grows in the property, maybe 
foreclosure is a better option, and for most banks it isn't, 
and maybe I will just postpone the foreclosure process on this 
and see if I have a better deal at the end.''
    There needs to be, like, I have to do this because it is 
now mandatory. We will get more folks. Obviously, this doesn't 
get to the unemployment, but there are solutions for 
unemployment, including what Barney Frank has offered as--and I 
really urge members of this committee to take a look at the 
bill that he has put forward to help people who are on 
unemployment that will help them temporarily remain in their 
house, either to find work or to be able to refinance or--
sorry, to sell their home.
    So I don't think the notification is enough. I think it 
will be helpful. I think we have to have mandatory 
participation in this program so that we don't have these 3, 5, 
6 months of stringing people along only to find out that they 
are still going to foreclose anyway.
    Ms. Chu. Yes?
    Mr. Dodaro. Right now there is no formal appeal process. We 
believe one is needed. There needs to be due process available 
to people to be able to do it and to have some standards and 
remedies for people that aren't complying with the requirement. 
So we are looking at that right now.
    Ms. Chu. I appreciate that.
    What recourse do homeowners have if they believe they were 
unfairly denied a trial or a permanent modification before 
January 1, 2010?
    Mr. Taylor. Very little.
    Ms. Chu. That is it then?
    Mr. Taylor. Yes.
    Ms. Chu. And, Mr. Taylor, can you expand on the unemployed 
situation? I know in one of your recommendations you talked 
about the loan program for the unemployed.
    Mr. Taylor. Right. So Mr. Calabria is right that one of the 
major----
    Mr. Calabria. Can you repeat that?
    Mr. Taylor. I am not going to say that more than once. You 
will have to watch it on the video. But the fact of the matter 
is that--I lost my train of thought. I am sorry about that.
    Ms. Chu. Loan program for the unemployed.
    Mr. Taylor. Yes. The fact of the matter is that it is the 
single-most No. 1 reason now we are seeing most of the 
foreclosures. There are alternatives. CitiBank, for example, 
has proposed a 6-month moratorium, what they call unemployment 
assist, which would actually allow the people who are on 
unemployment to pay 31 percent of their unemployment check 
toward their monthly cost for 6 months.
    This is a pretty generous, I think, helpful thing that 
ought to be standard in the industry so that people have time 
to find work or have time to find a way out of that home, to be 
able to sell it.
    Barney Frank and his committee has proposed--I don't have 
the bill number in front of me, but essentially a program that 
is going to assist people financially to be able to stay in 
their homes for a period of time again where they can either 
find gainful employment or be able to sell their home. But both 
of those I think are reasonable, rational solutions to try to 
deal with a growing contribution that the unemployment problem 
has to the foreclosure crisis.
    Mr. Clay [presiding]. The gentlewoman's time has expired.
    The gentleman from California is recognized.
    Mr. Bilbray. Thank you, Mr. Chairman.
    Mr. Calabria, I want to thank you. In a town that we keep 
hearing people need to be more bipartisan, you were very 
bipartisan by blaming both the present and the past 
administration on this item. I just say in the spirit of 
bipartisanship, I think a lot of this we have to recognize 
wasn't just, Mr. Taylor, Wall Street, but we are really at 
fault, too, I think.
    The fact that you had bipartisan effort here, you had one 
side feeling that we are going to push this almost as a social 
program, that everybody owning their own house was going to be 
a great social experiment, and those of us on the other side 
seeing that homeownership is reflected in political activity, a 
different involvement in community, whatever. I think Democrats 
and Republicans politically have a fault here.
    I guess our fault was the feeling that a good thing pushed 
too far is not a problem. I think that history has proven, just 
as the consumer pushed too far, I think the political process 
and the economic people that say, look, you can make money 
doing this, by selling this product to this group, we just keep 
expanding the market just by lowering the standard and the 
thresholds.
    I think we are all at fault and got pulled into this, and, 
I think as Greenspan said, who would have thought.
    My big question here is no one is talking about a flip side 
on this. I am hearing in San Diego that there are people out 
there ready to buy and take these sales, take these loans over, 
take over the home, but because we are caught in this system 
that takes so long there are massive amounts of market out 
there that is not available for the free market to take over 
these debts.
    Anybody got any answers there or any comments on that, 
because I think that we are not talking about, there is the 
keep the person in the home, figure out how to make them pay. 
You pointed out, the greatest threat is jobs. What do you do 
with somebody who is not going to have the job for the next 
year? Do you continue to carry this and is this the way to go, 
or do we also get the other option that the person with the job 
who doesn't have a home would like to buy, take over the 
payments, isn't being allowed to access the market because it 
is basically being frozen by this process.
    You had a comment about that?
    Mr. Calabria. I think what we really need is we essentially 
need two processes. We need a process for people for who it is 
sustainable, they hit a bump in the road, we can fix that. But 
we really need a process--and John mentioned you have people 
who go through modification, 6 months later it doesn't last. We 
don't do them any favors keeping them in that situation.
    So I would say on one end we actually are better off trying 
to get that through the process, and certainly lots of places 
in California, for instance, it is cheaper to rent the 
comparable home.
    Mr. Bilbray. Absolutely.
    Mr. Calabria. And I would say it is not just me. Dean 
Baker, who is a well-known progressive economist, has made this 
argument that you are better off helping many of these families 
become renters because they pay twice as much on their home.
    So with that said, I do think you need a different process 
for people who there is no way that they are going to be able 
to sustain that home and we should stop pretending, and then 
for people who can, you need to take them on a different track.
    I guess I would say, as a general overall, I don't think we 
are doing the housing market a favor trying to blow the bubble 
back up. The best thing we could ultimately do is to let prices 
correct and people will come into that market, because one of 
the big problems with this is one of the incentives for the 
bank, for instance, in its present value test, and for the 
homeowner is not simply house prices today but house prices 
tomorrow. And even if you did a write-down to where there are 
the mortgages at the value of the house, well, if the house 
value declines another 10 percent over the next year, then they 
are underwater again. So we need to make sure these things 
actually work the first time rather than continuing to try to 
chase this.
    Mr. Bilbray. Mr. Taylor.
    Mr. Taylor. Yes. Thank you. I don't know where to begin on 
this one, but let me first say we have 11 months of inventory, 
vacant housing, 11 months of--usually normally in the economy 
it is 2, 3 months of vacant housing. We are piled full of 
vacant housing that is available for renting, and I agree that 
is a viable and sensible option for many people.
    But remember when we just say that just let the market 
correct and put more inventory out there, first off it kills 
the building industry. That is one thing. That is one of the 
reasons we have such a high job loss.
    But the second thing is, remember that every one of these 
keys represents a family, a household who thought they were 
getting into a feasible loan. Less than 10 percent of the 
people who got these bad loans, less than 10 percent went to 
people getting new homes. Most of the stuff was refinancing or 
taking money out----
    Mr. Bilbray. Let me interrupt. You are right. You are 
absolutely right. A lot of this was the market was sold as a 
way of making money, too.
    Mr. Taylor. Yes.
    Mr. Bilbray. It was a way of ``this is a great 
investment.'' Now, you and I know that doesn't exist within the 
foreseeable future.
    Mr. Taylor. Pay off the credit cards. I mean, all these 
other things.
    Mr. Bilbray. And the big one is, are we politically brave 
enough to say, look, there is a lot of people that got into 
this looking to make a profit. That profit is not going to be 
out there. And the fact is it is much more cost effective for 
them to rent than to continue to grab for something that will 
never have the profit that they originally made, and basically 
cut the losses, move forward, and actually be ahead of they 
don't continue.
    Are we politically brave enough to admit that?
    Mr. Taylor. I think the political bravery is also to 
recognize that there are millions of American families who are 
hard working, blue collar families who simply suffered from, 
for whatever reason you want to believe, whether you think they 
bit off too much or whether the market gave them a loan that 
they shouldn't have gotten, it doesn't matter.
    Mr. Bilbray. I think it is both. I think we can agree that 
it is probably both.
    Mr. Taylor. OK. Does it matter that we try to keep as many 
of these homeowners in their homes as possible? Does it matter 
to us as people, as Members of Congress? Does it matter to the 
economy? The answer is absolutely yes. If we continue to watch 
these foreclosures mount and become more rental properties 
available, we will continue to watch a devaluation of property 
values for all Americans' housing and an undermining----
    Mr. Bilbray. Mr. Chairman, I think they missed the point 
though. I am being told quite openly that there are individuals 
who would like to get into this market, but because of the way 
we are dragging this off--and this gets back to this not giving 
answers, not being able to close, either yes or no in the line, 
that the other option of being bought out of the hole is not 
being made available, and it is the government programs' delay 
that you were talking about, Mr. Taylor, that is leading to 
this other option we go into, because I think you agree, if it 
was your children, if it was your friend, you'd say it is 
better for you in the long run to get out of some of these 
deals. It is not just an abstract.
    Thank you.
    Mr. Clay. The gentleman's time has expired.
    The gentlewoman from Ohio, Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman.
    Mr. Clay. You are welcome.
    Ms. Kaptur. Thank you, Mr. Barofsky and to all of our 
excellent witnesses today. I have a little statement I want to 
make, but my question to all of you will be: what would be your 
top recommendation to President Obama and Secretaries Geithner 
and Donovan to address stabilization and recovery in our 
housing market and banking system?
    You have made a lot of recommendations. I am asking you to 
sort through them for me.
    But let me just make a comment that those Wall Street 
speculators who rigged our housing market to earn huge profits 
for a very long time through securitization have Congress just 
where they want us. They have us playing with twigs when the 
forest is burning, and the perpetrators are still making huge 
profits, taking obscene bonuses, and laughing all the way to 
their brokers, and I have no doubt laughing at all of us.
    Some of our colleagues are trying to make this a partisan 
issue. I don't look at it that way. I am very critical of the 
massive Wall Street investment houses in cahoots with the 
Federal Reserve that led us into this abyss. And our Federal 
Government was full of top-level appointees over several 
administrations who came from those very same institutions 
making all of the money.
    This crisis is due to a revolving door of influence 
peddling of extraordinary proportion. It goes back two decades, 
regardless of who was President and regardless of who sat in 
this Congress. Wall Street simply used its power with a 
vengeance, and they still are.
    Mr. Taylor, I want to thank you for your testimony. You 
speak for the American people who have been harmed. You speak 
for the people in my district. Your voice is very clear and it 
is very important.
    One of the questions I have of you, and then we will open 
it up to the other witnesses here, you produced the keys this 
morning. Let me ask you this: to your knowledge, could each 
family who had one of those keys, would the institution that 
financed their loan during a foreclosure proceeding be able to 
produce the original note in that proceeding, or only a copy or 
some sort of facsimile of it? And what is your opinion about 
the legality of that in foreclosure proceedings?
    Mr. Taylor. Well, of course, the courts have ruled that 
they do need to produce those documents, several State courts. 
In several States they have ruled that they need to produce the 
certificate of ownership, and some of these--many of these 
financial institutions have had difficulty doing that because 
here is a loan that New Century made, here is a loan that 
Option One made, here is a loan that AmeriQuest made, here is a 
loan that Countrywide made, and it goes on and on and on, all 
these businesses which no longer exist.
    As they sold off these things through this Ponzi scheme 
involving Wall Street to just move all this paper out from 
local communities and brokers and lenders, the certificate of 
ownership did not trail them. They just kept moving the paper 
and moving the profits and everybody taking fees along the way.
    So generally if you or I were suing somebody for anything 
and we were claiming that I had the right and the ownership 
over this, we would have to produce something for the court 
that, in fact, signifies that, and the fact that they can't 
ought to stop the proceeding unless and until they are able to 
do that.
    Ms. Kaptur. Yes. And why aren't our judges doing that 
across the country? Do they not know the law?
    Mr. Taylor. Why aren't the judges doing it? Well, some 
judges are, I am happy to say, in different circuits. But for 
those States, for Governors and elected officials who are 
looking to try to prevent the level of foreclosures that 
continue to rise in their congressional districts, they might 
want to send a letter to the judges to inform them about this 
legality.
    Ms. Kaptur. Sir, if I could say, I hope you go address the 
National Sheriff's Association. I think that there is a job 
that your organization could do to get this word out, because I 
think we have to fight back----
    Mr. Taylor. Yes.
    Ms. Kaptur [continuing]. With every weapon we have. And 
there isn't much time for the other panelists to answer at this 
point, but I very much would appreciate the top recommendation 
that you would say to the President right now to address the 
concerns that you have brought before us today.
    Mr. Barofsky. Well, our unadopted recommendation in this 
report is re-examining the vulnerability of this program to re-
default. I do think that is essential, and Treasury has 
indicated they will not. Without doing so, the program is going 
to be vulnerable to one where mortgages are, even those that 
make permanent modifications, may drop out with a total waste 
of taxpayer money, and even potentially harming some of those 
homeowners, so I think reassessing and evaluating and coming up 
with ideas to address the vulnerabilities to re-default very 
quickly would be the unanswered recommendation in our report.
    Ms. Kaptur. Mr. Barofsky, I would also appreciate from you 
an evaluation of Franklin Roosevelt's Homeowners Loan Corp. 
Several Members have sent a letter over to Secretary Geithner 
asking him to take a look at that. I hear what you are saying 
to me about the existing program. The existing program is a 
failure. We have to look at other structures that we need to 
recommend to the administration, and I would be--your 
experience, your knowledge would be very valuable to us if you 
are able to do that within your authority.
    Mr. Dodaro. I would say, because economic circumstances are 
different in different parts of the country, borrowers are in 
different circumstances, top recommendation would be for 
Treasury is to institute the other facets of their program, the 
second lien modification, the mortgage alternative program, the 
hardest hit program which begins to deal with some negative 
equity and deal with people who have lost their jobs. So you 
need a range of alternatives. Right now the only one is the 
second lien, or excuse me first lien program. You need more 
options.
    Mr. Clay. The gentlewoman's time has expired.
    The gentleman from North Carolina is recognized for 5 
minutes.
    Mr. McHenry. Thank you, Mr. Clay. Thank you, Chairman Clay.
    Mr. Barofsky, your audit is very forthright. This is a 
failure. This program is a failure and it is a waste of 
taxpayer dollars. But there are interesting insights.
    What did you discover about this modification program in 
terms of homeowners who get temporary modifications but then 
fail to get the permanent workout?
    Mr. Barofsky. We believe a lot of this is--one of the 
problems about re-default and the reasons for re-default is 
that Treasury hasn't yet been collecting data. They are going 
to be collecting data in 2010. But we believe that one of the 
primary reasons for this was the absence of documented, fully 
documented verification of income at the outset of the program.
    Treasury is encouraging, in order to meet certain mile 
posts for trial modifications, was encouraging these verbal 
modifications, and I think that has fueled a lot of what you 
are discussing, the reason why they are not being converted and 
dropping out.
    Mr. McHenry. So verbal modification. So based----
    Mr. Barofsky. Don't work.
    Mr. McHenry [continuing]. Stated income?
    Mr. Barofsky. Yes.
    Mr. McHenry. Which is, I believe, from the rhetoric of this 
administration, which is exactly what got us into this with the 
subprime marketplaces, how much do you make. Well, whatever you 
say you make. And so in essence the Government policy has been 
able to--has been to take private sector subprime loans and 
make them public sector subprime loans.
    Mr. Barofsky. There is a similarity to the liar loans that 
I investigated as a Mortgage Board prosecutor.
    Mr. McHenry. So very similar?
    Mr. Barofsky. Similar in entering into the trial portion of 
the program just on stated income. It didn't work then, it is 
not working now, and, look, to Treasury's credit they have 
identified that it is not working and as of April 15th they 
will no longer be accepting verbal modifications, but it was 
one of the driving causes of this huge backlog and low numbers 
of conversions.
    Mr. McHenry. OK. So your audit also says that those that 
get a permanent workout have a very high risk of default.
    Mr. Barofsky. We don't know what the risk is, but we do 
think that it is vulnerable for re-default. There are several 
aspects of the program that make it vulnerable to re-default, 
and that is a real danger of this program for its long-term 
success.
    Mr. McHenry. Such as?
    Mr. Barofsky. Well, for example, negative equity is one of 
the highest predictors of re-default, and the average HAMP 
modification, the loan is underwater. Left unaddressed, along 
with the other factors, the statistics show that negative 
equity can lead to high areas of re-default.
    Also, the amount of whether these payments will ultimately 
still be affordable, the percentages and amounts don't account 
for other debt, crushing credit card debt and other debt that 
may make even a modified payment unaffordable. Also, the 
structure of the program is that we call them permanent 
modifications, but they are not permanent. They last for 5 
years and then the interest rate starts to reset, a lot like 
some of the subprime loans that you were referring to earlier, 
and we just give one example where within a couple of years at 
the end of the program the payment can go up as much as 23 
percent, which again would put pressure on potential re-default 
if the income doesn't go up in a commensurate amount.
    Mr. McHenry. And what did your audit find about the 
Treasury's pressure on servicers to modify these loans?
    Mr. Barofsky. Well, we had one servicer who responded that, 
based on the public pressure that Treasury was exerting 
outstanding increase trial modifications, that they changed the 
way that they did business. They went from doing fully 
documented modifications to verbal.
    Mr. Dodaro in his testimony today, in GAO--and again I 
don't want to speak for GAO. He could speak on this. But they 
have indicated very similar types of patterns.
    I will defer to my colleague to explain that.
    Mr. McHenry. Certainly.
    Mr. Dodaro. Yes. Basically, the ratio of high debt to 
income is a predictor of re-defaults, and part of the 
requirements in the Treasury was to get those particular 
borrowers with high ratios like that into counseling to help 
them understand the situation, and this is one recommendation 
that we have made to Treasury that they haven't yet 
implemented. We think it is important and really will help 
address as best as possible this question of trying to minimize 
the re-defaults, as well as having this mortgage alternative 
program available.
    So up front, if the decision is made going forward that the 
trial modification doesn't make sense, there is a smooth exit 
strategy for short sales or other purchases to help the 
borrower get reallocated.
    Mr. McHenry. And that is not a part of current Treasury 
policy?
    Mr. Dodaro. That program has been in the works but not yet 
implemented. That program, the second lien program, and this 
other one, hardest hit areas fund, are not operational yet and 
need to be.
    Mr. McHenry. Thank you, Mr. Chairman. And thank you for 
your testimony.
    Mr. Clay. Thank you, Mr. McHenry.
    We will now recognize Ms. Speier of California for 5 
minutes.
    Ms. Speier. Thank you, Mr. Chairman, and thank you to all 
of the witnesses for appearing here today.
    Listening to this testimony is very discouraging. I think 
of this program as a program of death by a thousand cuts. It 
has failed. It has failed miserably. And, unfortunately, we are 
incapable of saying, ``All right, this was an experiment. It 
didn't work. Let's try something else.'' And we just start 
layering more and more regulations, more and more elements to 
it.
    Half of all the foreclosures are negative equity loans 
right now. Half of them have already re-defaulted. Half of them 
have second liens. And in this program we don't consider non-
mortgage debts as a factor in the modified payment. We are 
setting ourselves up for failure. The program doesn't work.
    Now, on top of everything else, it is voluntary. Let me 
give you an example from my district. This is a homeowner in 
Daily City. He had an Indie-Mac loan of $609,000 with a 6.75 
percent interest, a payment of $3,500 a month. He works at 
FedEx. He has had a steady job there, but they have reduced his 
hours. He lives and takes care of his 89-year-old mother, lives 
with her, and his mother is a survivor of three breast cancers. 
He qualifies for Making Home Affordable and has made all the 
trial plan payments on time, confirmed delivery, and contacts 
them bi-weekly to be sure that they have everything they need. 
And yet they are still not converting his loan to a permanent 
modification, and they have set a date for sale of that home 
for April 7th. Now that is a travesty, an absolute travesty.
    I am suggesting that we scrap this program, put all of 
these people who are in foreclosure in a rental status in their 
homes with the banks, create some kind of lease with option to 
buy, take that money that we have set aside for this program, 
subsidize the banks if necessary to keep them in their homes, 
wait this out for a year or two, and see if we can create a 
means by which they not only continue to live in their homes 
but they can re-create some kind of equity in their homes 
moving forward.
    That is just one idea of what there may be many. And my 
question to all of you is: if this gentleman in Daily City who 
is doing it right, who is in a trial modification program, who 
has made the payments on a hefty loan is having his home put up 
for sale in a matter of weeks, how can we say this program has 
any positive effect at all? Question to all of you.
    Mr. Barofsky. I think you hit the nail right on the head 
that whether this program can be saved or whether a new program 
needs to be instituted, there has to be a re-evaluation. There 
has to be some self-reflection. Treasury needs to take a look 
at why these problems are occurring, where the dangers are, and 
make informed decisions. That is a lot of what we have been 
talking about today, whether it is the refusal to re-evaluate 
for re-default, our recommendation, or something as simple as 
setting goal posts and meaningful goals and measuring 
performance against those goals, because if you don't do that 
you can't have that type of self-reflection, that self-
assessing of how to fix it.
    So I think that the concerns that you raise are similar to 
the concerns that we raise, and Treasury is going to need to 
take a good, hard look at this program, look at these concerns, 
and decide if they want to continue this program, if it is 
fixable, or whether to try something in the alternative.
    Mr. Dodaro. First, you need to explore other alternatives. 
We agree with that, and we think some of the other alternatives 
that Treasury has been planning are viable and should be tried, 
as well. But you have 800,000 people in these active trial 
modifications right now that need to be dealt with equitably. 
They entered into this in good faith, and they need to be dealt 
with. They don't have an appeal process if they are running 
into difficulty. We think they need an appeal process. There 
needs to be good communication. There needs to be servicers 
held for compliance. I mean, we sort of set this in motion. We 
can't abandon it without properly treating these people in this 
period. But you need other alternative programs, and certainly 
that needs to be addressed.
    Your idea, among others, needs to be explored.
    Ms. Speier. Your point about an appeal process is helpful. 
It would be helpful to this constituent of mine. But, again, 
the whole system is so arbitrary. It is voluntary, and it is 
arbitrary, and it is not working. So, I mean, I can see where 
we need to take care of those who are in some trial 
modification, but this gentleman is in a trial modification and 
his house is being sold from out from under him.
    Mr. Dodaro. All I can say is that is why we made 
recommendations to the Treasury last July to put these 
processes in place and to make sure there was a compliance 
program with the providers. I mean, I am not sure what the 
specifics are here, obviously, but there needs to be a process 
in place so people are dealt with in a due process fashion and 
they get good answers and they have somewhere to go for help.
    There is a hotline now they can call, but that hasn't 
proven to always work effectively.
    Mr. Clay. The gentlewoman's time has expired.
    The gentleman from Illinois, Mr. Davis, 5 minutes.
    Mr. Davis. Thank you very much, Mr. Chairman. I want to 
thank our witnesses.
    Coming from a large midwestern city with much of it being 
inner city, I can't tell you the number of foreclosures that 
exist in many of the communities that I represent. But as I 
have listened to the testimony, I was struck by the 
recommendations that the gentlelady from California made, and I 
think she would have been an excellent Secretary of the 
Treasury, or at the very least the Secretary of Housing and 
Urban Development. That is because I believe very strongly in 
the concept that if you start with a faulty premise you are 
going to arrive at a faulty conclusion.
    I think many of the concepts in this program were faulty 
from the beginning. And so it was inevitable that it becomes 
the failure that people are expressing or that we are not 
experiencing any more success with it than what we are 
experiencing.
    I also don't believe that you can defend the indefensible, 
that you simply are going around and around and around and 
around in circles.
    But let me ask you, Mr. Barofsky, who is the typical HAMP 
participant? I mean, who is the typical homeowner facing 
foreclosure who attempts to make use of the program?
    Mr. Barofsky. I am not able to answer that question, but I 
think that is a question that many have raised. The 
congressional oversight panel raised this issue in their 
October report. It goes to the very question of who is this 
program designed to help. Is it the homeowner who signed up for 
a predatory loan with a resetting option ARM that reset to 8 or 
9 percent and an increase of $3,000 a month, or is it the hard-
working family that perhaps had even a prime fixed rate 
mortgage but lost their job and are unable to make necessary 
payments?
    But I think it is an important question. We have the median 
information, how much the median loan and what the median 
interest rate and the median deduction, but I don't think that 
is really what your question is asking.
    Mr. Davis. Are there ceilings or floors? I know people who 
have mortgages of $350,000 who earn $65,000 or $70,000 a year. 
Of course, for the sake of me I couldn't imagine how they 
managed to acquire that. And the question: is there any 
salvation for them to salvage whatever it is they have put into 
this and get out of it? Mr. Taylor, would you respond?
    Mr. Taylor. Yes. Let me just say that the typical person 
going through the program is all ethnicities, mostly modest 
income, disproportionately older, older being 50 and older, and 
most with families with children.
    On your second question----
    Mr. Davis. The high mortgage individuals.
    Mr. Taylor. Yes. Sorry. The way the program is designed is 
to get the housing cost down to the 31 percent of the household 
income. That is the goal. So the two methods for that to happen 
is for the servicer or the lender to reduce either interest, 
principal, or both. The problem is that most of what has 
occurred has been interest deduction and we now understand we 
are not going to get very far without principal reduction.
    The other alternative for the family you presented is some 
sort of a patient, non-foreclosure scenario where they have 
time to be able to either sell their home or to find additional 
employment, which could ratchet up their income to be able to 
handle that size of mortgage.
    Those are the two methods that are available, or should be 
available.
    Mr. Davis. When the crisis hit, one of the recommendations 
that some of the community groups and people really attempting 
to deal made was that you try and keep people in a property 
because if you actually foreclose on it everybody loses in that 
transaction.
    Mr. Taylor. That is right.
    Mr. Davis. That is the property loses its value, whatever 
value it had, in a relatively short period of time. In many of 
the communities that I represent, if somebody moves out of one, 
in 2 weeks it is decimated. I mean, whatever was there is gone. 
So this question of working out agreements where people might 
be able to rent until they reach the point where they can 
actually pay a mortgage, or if there is a possibility of not 
only salvaging what they have put in, but the property, the 
asset, itself, how does that idea approach?
    Mr. Taylor. I think you are absolutely right. I think we 
are all impacted by continuing mounting foreclosures. We all 
lose. People who are paying on their mortgage who have a prime 
mortgage, have no problem paying their mortgage, they watch 
their household value, their house value continue to 
deteriorate every time there is a foreclosure within a block of 
their house. Then, when you have multiple foreclosures, there 
is a rapid decline in value.
    So we are all losing, as I said earlier. Roughly $7 
trillion in home equity has been lost by the American public. 
So I don't agree with the Congresswoman from California about 
let's just let them all fail and a year later we will sort of 
pick up the pieces. Let's find some rental situations. I think 
if we allow another 8 million homes to go into foreclosure it 
will have a devastating, devastating effect on our economy and 
the job losses will continue to rise.
    Mr. Clay. The gentleman's time----
    Mr. Davis. Let me thank you, Mr. Chairman. I agree with you 
because I believe that wherever there is a will, there is a 
way, and that if we would have the courage to make the kind of 
decisions that need to be made, we could, in fact, salvage many 
of these properties, turn them around, and salvage everything 
that people have put into them. So I thank you for this 
hearing, Mr. Chairman, and I yield back the balance of my time.
    Mr. Clay. I thank the gentleman.
    Every day I hear from constituents who are among the over 4 
million Americans who are going through foreclosure, and are 
facing pending foreclosure and suffering with underwater home 
values. Just this month foreclosure rates hit an all-time 
record high in St. Louis and my home town.
    Mr. Taylor, just this week the National Urban League 
reported that Blacks and other people of color are suffering 
from the housing crisis at far higher rates than Whites, and 
yet, according to your research, you report racial disparities 
in that minority borrowers are less likely than Whites to 
receive trial and permanent modifications.
    Can you explain your methods and these findings further?
    Mr. Taylor. Yes. Essentially, we have a dual system of 
mortgage finance in this country, one for Whites and one for 
Blacks, and it is really unfair. If most people really 
understood just how unfair it is, most Americans would really 
think we should not tolerate it.
    I mean, make no mistake about it, Black and brown 
communities were targeted by subprime high-cost lenders after 
the banks had left and abandoned those neighborhoods and closed 
their branches, so that--and let's face it, when we are talking 
about minority, whether it is Black or brown, we are still 
talking about people who are working and people, perhaps their 
income isn't as high, but they are people who are working. They 
have families. They have all the same hopes and dreams of any 
other family in America. But the available basic banking 
services for that population are payday lenders, check cashers, 
and pawn shops. That is a disgrace.
    The available mortgage lenders are these fly by-night 
options or fly by-night, independent companies that set up 
their little shops and advertise low rates and whatever and 
tease people in with these rates, only to give them loans that 
are totally inappropriate, that they know are unsustainable. 
That is what really happened.
    Now people are trying to get out of those situations. Even 
now, under the mortgage modification programs that are 
available, are still even now being disproportionately treated 
along racial lines.
    Mr. Clay. And can you surmise that from this data, from the 
steering that occurred, steering people of color into subprime 
and predatory loans contributed to the housing crisis that we 
are experiencing now?
    Mr. Taylor. Yes. I mean, a typical neighborhood 7 years ago 
in America would see 1 or 2 percent subprime loans. But you 
would go into African American and Hispanic communities and you 
would see--I am not exaggerating--30, 40, 50, 60 percent of the 
mortgages made on those neighborhoods were high-cost, subprime, 
unsustainable loans.
    Mr. Clay. And I see it in middle class neighborhoods in my 
district in north St. Louis County.
    Mr. Taylor. Yes.
    Mr. Clay. I see that, and these people are pretty much 
middle income earners.
    Mr. Taylor. Yes.
    Mr. Clay. Do you have any suggestions as to how we close 
the racial gap?
    Mr. Taylor. Well, first off, there is nothing like sunshine 
to show what is occurring and being very crystal clear about 
the difference in treatment and who is getting what and who is 
not getting what, who is being offered the types of loans, so 
there is no question that the ability to produce data has 
elevated the conversation and the ability to make assessments 
in this area, but a lot more needs to be done.
    Even in the HAMP and the HARP programs, it is very 
difficult to get data from these people, which drives me crazy 
because these are Government agencies and there is no 
proprietary stuff about this. Why aren't they sharing this data 
with this committee and with everybody else, the GAO and 
everybody else, so we can really analyze what is going on? That 
is one of the things that ought to happen.
    But the recommendation that I would make, first, we really 
need to revisit the issue of judicial modification to protect 
people from losing their homes. Second, take away the voluntary 
aspect of HAMP, make it mandatory, lenders have to participate, 
there has to be principal write-down and interest write-down. 
Instruct Fannie and Freddie tomorrow to refinance the millions 
of loans that they have on their books, that they have the 
capability and authority to do right now, to refinance those 
loans into workable, sustainable loans.
    Mr. Clay. Those subprime and predatory loans?
    Mr. Taylor. Yes.
    Mr. Clay. OK.
    Mr. Taylor. Of which the estimates that they have somewhere 
between $400 billion to $600 billion worth of those loans, or 
$400 to $500 million. Use all these vacant houses as a job 
creation program. All these foreclosures begin to train people 
to become carpenters, plumbers, electricians, sheet metal 
workers, roofers, and so on, to rehabilitate a lot of these 
homes which, as somebody pointed out earlier, become abandoned, 
become a stress on the local government and local community. 
Train people to rehabilitate and bring up to code and even 
weatherize these homes. That will create jobs, and at the same 
time create decent, affordable housing, and affordable rental 
housing.
    The Consumer Finance Protection Bureau, which has been 
offered--I mean, this House passed a bill and I applaud it for 
its version, but unfortunately the Senate has undermined your 
initiative by taking the Consumer Finance Protection Bureau and 
putting it in the Federal Reserve, and then putting oversight 
of the bank regulators, the very people who failed to enforce 
all the laws and regulations we had to prevent this kind of 
calamity are now going to be the oversight board and be able to 
veto and control what comes out of that board.
    I hope you guys really fight in this Conference Committee, 
when the Senate is done weakening this legislation, that you 
really fight to create a meaningful Consumer Finance Protection 
Board.
    Mr. Clay. Yes. It is going to be interesting to see it 
publicized on television and to see just who is shilling for 
whom.
    Thank you, Mr. Taylor.
    This panel is dismissed.
    Chairman Towns [presiding]. I would welcome our 
distinguished witnesses for the second panel.
    As with the first panel, it is committee policy that all 
witnesses are sworn in. If you would be kind enough to stand 
and raise your right hand?
    [Witness sworn.]
    Chairman Towns. Let the record reflect that he answered in 
the affirmative.
    Let me again thank you so much for being here.
    The Honorable Herbert Allison is the Assistant Secretary of 
Financial Stability at the U.S. Department of the Treasury. He 
is responsible for developing and overseeing Treasury's 
policies on financial stability, including the Troubled Asset 
Relief Program [TARP], under which HAMP was established.
    Assistant Secretary, again, welcome. Of course, your 
opening statement will be included in the entire record, if you 
have a written statement, but in the meantime you can proceed. 
We are not going to put the light on you. We are so anxious and 
eager to hear what you have to say, we are not even going to 
time you. That is unusual for this committee. Here in this 
committee we have a trap door, and after 5 minutes we push the 
button and the witness disappears. But with you, you take as 
much time as you like, OK? Thank you very much.
    You may begin.
    Mr. Bilbray. The Chair is only being that brave because you 
are not a Member of Congress. [Laughter.]

 STATEMENT OF HERBERT M. ALLISON, JR., ASSISTANT SECRETARY FOR 
          FINANCIAL STABILITY, DEPARTMENT OF TREASURY

    Mr. Allison. Thank you very much, Mr. Chairman and members 
of the committee. Thank you for the opportunity to testify 
today about the progress and impact of Treasury's efforts to 
prevent avoidable foreclosures.
    We have implemented a historic program designed to address 
an unprecedented problem. Ultimately, a ground-breaking program 
of this scale will have challenges; however, in the year since 
launching the Home Affordable Modification Program [HAMP], we 
are on track toward the original goal of providing trial 
modifications for up to 3 to 4 million homeowners by 2012.
    By the end of last month, over 1 million homeowners were 
benefiting from substantial reductions in their mortgage 
payments. More than 170,000 homeowners now have permanent 
modifications, and an additional 91,000 have been offered 
permanent modifications subject only to their signatures.
    Homeowners in permanent modifications are typically saving 
$500 a month. HAMP helps homeowners facing financial hardship. 
Nearly 60 percent of homeowners in permanent modifications have 
experienced a reduction in income such as lower wages or 
unemployment of a spouse. We understand the stress caused by 
possibly losing one's home, so we work to make the modification 
process quicker and more efficient. For example, we will soon 
have homeowners provide a simple, standard set of documents 
before entering into a trial period. This way, homeowners 
should spend less time exchanging documents with their 
servicers and waiting for a decision on a permanent 
modification.
    We have also announced new protections for homeowners 
facing foreclosure. From now on, servicers may not refer to 
foreclosure any homeowner who is potentially eligible for HAMP 
until the homeowner has been evaluated for the program.
    Servicers will be required to pre-screen every homeowner 
who has missed two or more payments to determine eligibility 
for HAMP. If the person is eligible, the servicer must inform 
the homeowner about the program. Homeowners in the foreclosure 
process must be provided with clear, written explanation of the 
often simultaneous processes of referral for foreclosure and 
evaluation for HAMP.
    The new guidelines will make clear that if a homeowner 
enters into a fully verified trial plan, all pending 
foreclosure actions must be stopped. Additionally, homeowners 
in bankruptcy can request to be considered for a HAMP 
modification and servicers must comply.
    We believe that these new guidelines will empower 
homeowners with more information and greater opportunity to 
receive help before they face foreclosure. Inevitably, some 
homeowners will not be offered a permanent modification; 
however, they may still receive assistance in avoiding a 
foreclosure sale.
    In April, Treasury will initiate a program that can enable 
homeowners not receiving a permanent modification to transition 
to more affordable housing. Foreclosure alternatives may 
include a short sale, a transfer of a deed in lieu of 
foreclosure, or a modification outside of HAMP. This program 
will provide helpful options for homeowners facing foreclosure.
    Though these enhancements will improve the experience of 
homeowners using HAMP, we know that more work needs to be done. 
We share your goal of helping to stabilize communities by 
preventing avoidable foreclosures. The administration has been 
keenly focused on finding ways of expanding eligibility for 
HAMP and related programs so that some additional homeowners 
struggling with unemployment and underwater mortgages can 
qualify for assistance. We and our colleagues in HUD look 
forward to briefing you on these ideas in the very near future.
    With that, thank you. I will be glad to take your 
questions.
    [The prepared statement of Mr. Allison follows:]

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    Chairman Towns. Thank you very much, Mr. Allison, for your 
testimony.
    Let me make certain that I have some things clear here. I 
thought the most interesting part of your testimony was your 
announcement that yesterday Treasury issued a new directive 
that, in effect, requires giving people a chance to have their 
loans modified before they are foreclosed on, as you just said.
    Mr. Allison. Right.
    Chairman Towns. If that is correct, that is a big change 
from today where borrowers have to track down the lenders, 
rather than the other way around. I listened this morning in 
terms of, I think it was Mr. Dodaro who indicated that there is 
a problem in terms of a bottleneck in terms of people not being 
called back, losing papers, and all of that. I mean, you see 
that being changed or being turned around, because this is a 
life or death situation with people.
    I guess the reason it is on my mind so much is that a lady 
who had two jobs, and of course she lost one of her jobs, and 
the company moved away, and now she has the one job, and she is 
just having difficulty paying her mortgage. She went in for 
modification, and the things that she was telling me in terms 
of how she is not even able to get anybody on the line to talk 
to her about her modification, will this change, or do you need 
more resources? I mean, what is the problem, because up to this 
point there have been some problems. I am hoping that this 
moving forward, that maybe it would be better for people, 
because I don't know whether you were here at the time, but we 
had a bunch of keys that we showed.
    Mr. Allison. Right.
    Chairman Towns. Those keys represent people who have lost 
their homes, and that barrel is going to get bigger and fuller, 
and this is going to continue if we do not have a program that 
really works.
    Mr. Allison. Yes, sir.
    Chairman Towns. Now, I must admit your statement is very, 
very encouraging. Do you think that we are really going to be 
able to implement this, or here we go again type of thing?
    Mr. Allison. Yes. Thank you for that question. I think 
certainly we have seen a lot of frustration with this program 
since its inception. People who are facing the prospect of 
losing their homes have been anxious. They have been calling 
servicers. In many cases they haven't gotten the answers that 
they needed in a timely fashion. There have been instances of 
losing documents, for example.
    I would like to give you though some background on what has 
been happening, some of the reasons for it, what we have done 
about it.
    If you go back to a year ago when this program was 
designed, there was no standard approach to modifying 
mortgages, and servicers didn't provide service. What servicers 
did was collect payments every month and then foreclose on 
people who couldn't pay.
    What this program has done is to require them, first of 
all, to do something totally new, which was to deliver 
modifications that produce real reductions in monthly payments. 
Until this program was designed, most modifications actually 
increased payments that people had to make every month. So what 
this program has been designed to do is to increase 
affordability for many people throughout the country who are 
under stress right now.
    So the first change was they had to go back, redesign their 
processes, redesign their systems, learn how to engage with 
homeowners in real conversations and conduct tailored 
modifications of those mortgages for thousands and thousands of 
people. This they had never had to do before.
    I think for a while they were in a state of denial, 
frankly, about the challenges that lay ahead.
    Last summer we called the servicers together. We pointed 
out the importance of outreach as rapidly as possible to these 
millions of people who could benefit from a modification over 
the next few years, and what we saw was a gradual and then 
accelerating increase in outreach. In fact, we set a goal for 
doing 500,000 trial modifications by November 1st. We were able 
to achieve that goal about a month early.
    But during the meantime, servicers had to increase 
capacity. That means they had to hire more people, train those 
people, and, frankly, along the way there were lapses in 
training and in capacity.
    Last fall, as the outreach was ramping up and we were doing 
more trial modifications, we began to see that conversions 
through final modifications would represent a challenge, so 
again we engaged the servicers, and late last fall we had our 
people and Fannie Mae's people in the shops of the leading 
servicers all day every day working with them, giving us 
reports twice a day on the progress, and converting trial 
modifications into permanent.
    One of the issues with these conversions has been that last 
summer, because of the huge numbers of people who were 
desperate for modifications, we allowed modifications to take 
place on the basis of stated income instead of verifiable 
documents up front. Otherwise, we couldn't reach enough people 
rapidly because it would take them a while to get their 
documents together.
    Then the servicers had to reconcile the stated income with 
the documents that eventually were provided, and what they 
found in some cases was that there were discrepancies between 
the stated income and the actual documents, so reconciling the 
statements with the actual documents has been a challenge. That 
is one of the reasons why this has been slow.
    Another is purely capacity of the servicers. We have been 
pushing them very hard to increase capacity, and they have been 
doing so.
    Now, to take stock of where we are today, we estimate, and 
we have estimated consistently since last year, there are about 
1.8 million homeowners who would be eligible for this program. 
We have reached with offers of modifications 1.4 million. We 
have 1 million people in active modifications today saving many 
hundreds of dollars a month, on average. I think if you talk to 
those people, those million homeowners, they would tell you 
this program has been a success for them.
    So we already have modifications for most of the people who 
we think are eligible today. Now the challenge is to convert as 
many of those modifications rapidly as possible to final 
modifications.
    We estimate that right today, if you take the homeowners 
who have been in the modification program for at least 3 months 
and have made their payments and therefore are eligible for a 
final modification, about a third of those have either received 
a final modification and it is in place or they have a final 
modification offer that was sent to them and only requires 
their signature to be affected. So about a third of the people 
eligible for a final modification today have one either in 
place or available if they just sign.
    We have more to do. We have about another half a million 
people who are waiting for their modification to be decided 
upon. Frankly, they have had to wait too long. We have kept 
this open to allow more time for them to gather their documents 
and for the servicers to review them. We expect that backlog 
will be decided by the end of May, and as a result of that many 
more people are going to be in final modifications and we will 
have essentially removed the backlog and the servicers then 
will be able to be much more current in dealing with new 
applicants.
    We still have a goal, it has not changed since the 
beginning, of providing opportunities for 3 to 4 million 
homeowners to have trial modifications of their mortgages, and 
we expect that many of those will be converted to final.
    Chairman Towns. Right. My time has long expired, so I now 
yield to the gentleman from California, Congressman Bilbray.
    Mr. Bilbray. Thank you, Mr. Chairman.
    Mr. Secretary, you are saying the goal is 3 to 4 million 
homeowners. As of February, there are 170,207 permanent 
mortgage modifications. That equals about 6 percent of 3 
million, right? When we talk about this, your number, 3 million 
or 4 million, are we talking permanent modifications? Is that a 
goal of 3 or 4 million, or is permanent modifications not the 
goal but just to maintain temporary?
    Mr. Allison. There is a lot of thought or a lot of 
questions about what the goal is, and the goal at the time it 
was announced was 3 to 4 million trial modification offers. 
That is in a report by the GAO that was filed last summer.
    Mr. Bilbray. Let me interrupt.
    Mr. Allison. Yes, sir.
    Mr. Bilbray. So just a temporary hold is your measurement, 
not how many we are able to get out of the system and get over 
to a permanent answer rather than--I am just worried about a 
standard that sounds very good until you read into the words, 
listen to the words that are being used that basically 
temporary modification is a goal unto itself, and thus being in 
the system is a success, not getting people through the system 
and back out the other end where they have a permanent 
stability.
    Mr. Allison. I fully understand your question and the 
reason behind it, so let me just explain.
    Mr. Bilbray. Go ahead.
    Mr. Allison. We are trying to reach as many people as 
possible to make this offer. Right? We want to convert as many 
of those as possible to final modifications. We estimate right 
now about 1.8 million people are eligible. We believe that over 
the 4-year period there will be 3 to 4 million people who are 
eligible.
    I think the fair way to look at this is to look at the--if 
you are looking only at final modifications, let's look at the 
percentage of the final modifications to the people who are 
eligible for a final modification at this point. That is about 
one-third. It is not yet adequate by any means. We are working 
very hard to make it so.
    We also have to recognize--and we did at the outset when 
this program was designed--that not everybody who gets a trial 
modification is going to be able to--and then receives a final 
modification is going to be able to continue.
    What we have learned in this process, and what was not 
expected, I think, when we started out, is the difficulty that 
many people would have either producing the documents or 
maintaining their payments. We have seen people who are unable 
to produce documents that reconcile. We have also seen people 
drop out of the program because they are not paying.
    Let me point out that the taxpayers pay nothing during a 
trial modification period. The taxpayers only start paying when 
the modification is final, and that is to protect taxpayers' 
interests, as well.
    People who cannot continue in this program will have the 
opportunity for another method of foreclosure avoidance. All of 
us want to see these people be able to avoid foreclosure, and 
so we are instituting the short sale program, the deed in lieu 
program to provide a dignified way for people who cannot----
    Mr. Bilbray. Excuse me. You say you are----
    Mr. Allison. Yes.
    Mr. Bilbray [continuing]. Initiating that?
    Mr. Allison. Right.
    Mr. Bilbray. When is that initiation?
    Mr. Allison. Next month.
    Mr. Bilbray. Next month?
    Mr. Allison. Yes, sir.
    Mr. Bilbray. How long have we been looking? Why has that 
initiation been so slow?
    Mr. Allison. Well, because we have had to work with the 
servicers in developing the program and in designing the 
program. As you know, this is a voluntary program. We have had 
to work with the servicers on that, as well as on the second 
lien program. And second liens, as was testified to before, are 
an extremely important factor in people's ability to stay in 
their homes.
    Mr. Bilbray. Well, let me say, as the chairman pointed out 
quite appropriately, there is a degree of urgency here, and 
that urgency was not just to those that had the loan problems 
or those who had given out the loan problems. There was a 
general urgency in the community across the board, and this 
seems to have dragged on to a point where that just being in 
the process was a great success. Now you tell me that we even 
got the situation where people just need to put their name on a 
document.
    Mr. Allison. Right.
    Mr. Bilbray. How many of those do we have hanging out there 
of just getting people to bother to sign a document?
    Mr. Allison. Right now we have about 91,000.
    Mr. Bilbray. 91,000?
    Mr. Allison. That is right. And we are also reaching out to 
them to urge them to sign that document and get it back to us.
    Now, there are some things that we cannot control. We can't 
control entirely people's ability to pay. We are trying to make 
the offer. We are trying to give them every opportunity to put 
their documents together and that is why we have extended the 
trial period as we have, to give more people a chance to 
qualify.
    This program is all about reaching out to and enabling as 
many people as possible, hopefully 3 to 4 million, to get into 
this program as rapidly as possible.
    Mr. Bilbray. I appreciate that, but there needs to be a 
frankness, too, of just telling people flat off, like you would 
a family member, that, look, your overhead, everything we see 
here just says that we will give you this much hope over here, 
but be frank and up front. I think that one of the ways we got 
into this is people in and out of the Government giving people 
false hope, telling them they can bite off more than they can 
chew, they can carry more than they can bear, and then sitting 
there wondering how we get into this.
    I hope that in this program we are not committing the same 
crime by not being frank and open with somebody that needs to 
have hard, cold facts given to them.
    Mr. Allison. Yes. Well, and as I mentioned before, we are 
going to resolve the backlog of undecided trial modifications, 
we expect, through the servicers by the end of May, so that 
time is coming up rapidly, and we are pushing very hard for 
those decisions to be made.
    I think we have to keep in mind that this crisis has been 
going on almost 3 years. It began the middle of 2007. For the 
first 18 months of that, virtually nothing was done to help 
these homeowners. We have ramped up this program. Even SIGTARP 
says in his report it was ramped up extremely rapidly. And we 
have also had to put in proper controls to protect taxpayers, 
conduct outreach to millions of people.
    By the way, we reached out to 3.6 million people, with 
increase, asking them if they would be interested in taking a 
modification. Again, that is twice the number we estimate are 
eligible today.
    So we are trying to educate as many people as possible 
about this opportunity and we are giving them a chance to get 
in. We have taken time, because of the urgency of this program 
and because it was new and we were learning along the way, to 
give people a chance to stay in while we would have time 
through the servicers to evaluate them. That period is rapidly 
drawing to a close, and we will be able to move on, we believe 
now, with adequate capacity. We think this program is up to a 
level it can sustain itself and provide more rapid decisions to 
people who need them.
    Mr. Bilbray. Well, thank you very much, Mr. Chairman. I 
think we all agree 6 percent is something that we should hope 
to improve that number to some degree.
    Chairman Towns. No question about it. And I yield to the 
gentleman from Maryland, Mr. Cummings.
    Mr. Cummings. Mr. Allison, I have listened to you very, 
very carefully, and I want you to understand this is not an 
attack on you or the Department, but I have a feeling--I have 
just listened to every syllable you have said, and I have a 
feeling that you have done a lot but not enough. Just like in 
the shock trauma business they say you have a golden hour, a 
golden hour to keep somebody alive, I think we have a golden 
hour here to make a difference, and I really do thank our 
chairman for bringing us here today.
    The reason why I say this, I know so much about this stuff 
because I deal with these people every day. I deal with them 
every day.
    Mr. Allison. Right.
    Mr. Cummings. And there are some problems that still, even 
in what you have come up with, there is still going to be some 
problems.
    Let me give you an example. There is a prohibition against 
referral to foreclosure until either a borrower has been 
evaluated and determined to be ineligible for HAMP or 
reasonable solicitation efforts have failed.
    Mr. Allison. Yes.
    Mr. Cummings. The problem here is the process of 
evaluating. In the real life story, the person comes, they have 
the papers. I tell you, I have seen this happen many times. The 
papers are submitted and they may qualify, but maybe they 
don't, but the problem is a lot of times those papers are lost.
    Mr. Allison. Yes.
    Mr. Cummings. Are you following me?
    Mr. Allison. Yes.
    Mr. Cummings. I have actually seen situations where my 
office has taken people's papers and we fax them from my office 
to the servicer and they still got lost.
    Mr. Allison. Right.
    Mr. Cummings. So here I have somebody who is losing their 
home, and so I am trying to figure out if they are losing it 
from a Congressman's office then that is--and the clock starts 
ticking at what point? And the reason why I am going to that is 
because what we found is that a lot of people--and I know one 
of the reasons why you have this new rule here is because a lot 
of people were being foreclosed upon in the process of just 
trying to get in the process.
    Mr. Allison. Yes.
    Mr. Cummings. That is a problem. And the reason why I 
talked about the golden hour is I don't want us to be just 
repeating over and over again, and then when the chairman 
brings you back here in 3 or 4 months or whatever and he asks 
the question, what kind of progress have we made, you will come 
up possibly with the same numbers. But the problem is the pain 
is still there. The people have been thrown out of their 
houses.
    Mr. Allison. Yes.
    Mr. Cummings. So I am just trying to figure out how do you 
deal with that?
    Mr. Allison. Congressman, you make a great point and we 
understand that issue.
    Now let me tell you what we have done to help people like 
that. First of all, any person like the individual you 
mentioned can call 888-995-HOPE. That is our hotline that has 
been set up, manned every day to take people's concerns and 
help them deal with this process. So if they call us we will 
contact the servicer, we will find out what is going on and 
help that person.
    Second, they can go to our Web site, 
makinghomeaffordable.gov, and they can download forms. They can 
contact counselors through that Web site, as well, who can help 
them.
    Mr. Cummings. Now, do you have enough personnel?
    Mr. Allison. Yes.
    Mr. Cummings. Because there was testimony earlier that you 
didn't have enough personnel.
    Mr. Allison. We have personnel in the call center to handle 
those calls. We also monitor the volume of calls, the reasons 
for the calls, the number of complaints, the number of people 
who need their case escalated within the servicer, and we help 
them escalate the case to a higher person in management in the 
servicer so they can have their case dealt with.
    Chairman Towns. Would the gentleman yield?
    Mr. Cummings. Of course, Mr. Chairman.
    Chairman Towns. What is the problem then, because there is 
a problem. I am sure you will acknowledge that.
    Mr. Allison. We acknowledge that. Absolutely we do.
    Chairman Towns. But if you have enough employees, then I 
don't understand why this is not working.
    Mr. Allison. This is a vast program. We are reaching out to 
millions of people. There are cases, and fortunately the 
complaints are declining these days. We monitor that very 
closely. We still get complaints. There still are problems. I 
fully agree with that.
    And so we also have other processes through Freddie Mac. 
They are auditing whether people who are eligible for this 
program and in the servicers are getting modifications, what is 
the service quality. We are going to be reporting more and more 
publicly on the service quality of each servicer, and our 
reports now run 10 pages every month. People can look at a 
variety of information about service quality, the servicer's 
performance, etc. We are adding to that.
    We are going to be providing more information in the coming 
months on the time it takes servicers to answer the calls, to 
measure the quality of service, the number of modifications 
that they are doing, and the auditors look over the quality of 
those modifications.
    If people are being denied a modification unfairly, the 
auditors will find it, but in the first place we want the 
individual to get in touch through the telephone number I gave 
or through our Web site or directly to their servicer and get 
help. We have set up mechanisms for them to get help. We don't 
want anybody to miss an opportunity to get one of these 
modifications.
    I think we have to understand, we have been changing the 
entire servicing industry. This is all new to servicers. I am 
not cutting them any slack, but they have had to get up to 
speed, as well. They have had teething problems along the way. 
We have worked with them constantly to improve their service.
    So I think we are going to still see some complaints. That 
is why I am making this appeal to people who may be watching 
this testimony to get in touch with us--888-995-HOPE--and get 
help right now and get their questions answered.
    There is also a lot of misinformation about this program, 
and it is important that people understand how it works. That 
is why we created this outreach program and the complaints 
system and the information on our Web site, so that people can 
find out the real facts about this program and how to get help.
    Mr. Cummings. Mr. Chairman, may I continue?
    Chairman Towns. I yield you an additional minute.
    Mr. Cummings. Thank you very much.
    You said there are 91,000 people that have letters in their 
hand and they haven't agreed to it?
    Mr. Allison. That is right.
    Mr. Cummings. Perhaps is that because the rate may be 
higher than what it was before? In other words, their monthly 
payment?
    Mr. Allison. Oh, no. The people who get into a trial 
modification, Congressman, get a reduction immediately.
    Mr. Cummings. OK.
    Mr. Allison. And from day one we believe that in the trial 
modifications, as well, approximately around $500 a month of 
savings. But we know for a fact in final modifications it is 
over $500 a month.
    Mr. Cummings. Last question. The Bank of America offer, I 
am asking you, you think that is a good thing, right, the Bank 
of America, where they are going to reduce principal; is that 
right?
    Mr. Allison. I do. Yes.
    Mr. Cummings. I am asking you and Secretary Geithner to try 
to get other banks to do the same thing. Are you all planning 
to do that?
    Mr. Allison. I couldn't agree with you more.
    Mr. Cummings. Because it is so important.
    Mr. Allison. In fact, we have been in dialogs not just with 
Bank of America going back some time about ideas just like 
this, but with others, and we are going to continue that.
    Now let me make a couple of points. First of all, we 
applaud Bank of America for rolling out that program that they 
announced yesterday. To put it in perspective, that program 
will help, as they announced, about 45,000 people, or about 5 
percent of the homeowners who are behind in their payments by 2 
months or more at Bank of America, alone.
    As happy as we are about that initiative, Bank of America 
has today offered modifications to about 24 percent of the 
people who are eligible who at least are 60 days plus 
delinquent at Bank of America. They rank 14th out of the top 24 
servicers. They have probably the largest book of loans in the 
country. We want them to do better. They are striving to do 
better, but they have a long way to go, as do others.
    We are not slacking off one bit with any of these banks. We 
are working closely with them. We appreciate their efforts, 
which have been huge, to transform their servicing business to 
meet this great challenge, but all of us know we have more to 
do, they have more to do.
    We appreciate the input from many of you on this panel and 
others in Congress. We have come up with, we think, some 
interesting ideas, as I alluded to in my testimony, to enable 
some additional people to participate in this program who may 
be unemployed or who need principal reduction.
    We look forward to speaking with you very, very soon about 
these ideas and to moving forward with them.
    Mr. Cummings. My time has expired. Thank you, Mr. Chairman. 
Thank you very much.
    Chairman Towns. I thank the gentleman from Maryland.
    The gentleman from Ohio, Congressman Kucinich.
    Mr. Kucinich. Thank you for being here, Mr. Allison. As you 
know, I come from Cleveland, OH, and coming from there I saw 
the danger perhaps earlier than some that the housing financial 
crisis would pose for the Nation, because the foreclosure 
crisis' first victims were in places like Cleveland, OH.
    Mr. Allison. Right.
    Mr. Kucinich. That was back in 2004 and 2005, where there 
were entire neighborhoods where many of the homes in the 
neighborhoods had been foreclosed. There were blocks where most 
of the houses on a block were foreclosed in my district, and 
even more so in the district of my sister next door, 
Congresswoman Fudge.
    My Domestic Policy Subcommittee took up the issue as soon 
as I received the gavel in 2007, and we focused on the 
foreclosures, and we have been at it ever since. I know and 
everyone at this dias knows that the administration inherited 
this mess. I know it because my Domestic Policy Subcommittee 
had investigated and exposed the Bush administration's Treasury 
Department's apparent unwillingness, to us, anyway, to do 
foreclosure mitigation back in October 2008.
    We have held 10 hearings on the problem of foreclosure and 
solutions; 10 hearings. With the new administration having 
taken office, we had your Chief of Home Preservation testify 
twice. We have had the Nation's experts testify, including I 
might add the Michigan Law Professor who would later be named 
Assistant Secretary for Financial Institutions. My staff culled 
various approaches to show you how you could encourage 
principal reduction, principal reduction on a large scale, and 
we sent up to Treasury the best concepts.
    My staff and I met repeatedly with top people at Treasury 
and at HUD about the need for principal reductions. We pushed, 
we prodded, and we pressed. Over 3 years after I held my first 
hearing about foreclosure, we really haven't seen any bold, new 
initiatives coming out of Treasury to address the underlying 
problem of underwater mortgages. What are we doing to help 
those people who owe more on their homes than the home is 
worth?
    In the meantime, we have heard from experts who have 
studied this crisis and their empirical research shows that 
loan modifications which include principal reduction have the 
lowest re-default risk, especially in States with the steepest 
price declines and the highest foreclosure rates. But now we 
have heard from Mr. Barofsky that HAMP as it currently stands 
may actually de-incentivize principal reduction.
    Every day the crisis continues the tragedy of foreclosures 
continues as thousands of homeowners are receiving foreclosure 
notices, and the delinquency rate is the highest ever recorded. 
Whole neighborhoods in Cleveland hollowed out by this 
foreclosure crisis.
    So time is running out to make any meaningful difference, 
Mr. Allison. Half of the foreclosures are borrowers with 
negative equity in their homes, and I am concerned about our 
Government being responsive. We need to show Americans that 
Government can work for them. We need to show Americans that 
Government can help save their homes.
    Does the administration get that, Mr. Allison? Does the 
administration understand that a meaningful solution to the 
astronomical level of foreclosures would be an aggressive and 
broad principal reduction initiative? Tell me, Mr. Allison, 
what else do we have to do to get Treasury to act, Mr. Allison?
    Mr. Allison. Yes, sir. You touch on an extremely important 
issue, and that is the principal reduction question. Let me 
give you a couple of responses to that.
    The first is that for people who are seriously underwater, 
usually a second lien accounts for about half of that amount. 
And we have been working since last summer to create a second 
lien program, and finally we have the top four banks who have 
joined that program, and those are JPMorgan, Bank of America, 
Wells Fargo, and just yesterday CitiGroup. So we are pleased 
that finally the four banks that account for about half of the 
second liens in America have joined this program.
    So now we are in a position to start to move forward to 
address the second lien program, especially for those who 
qualify for the HAMP program, so we have what is called the 2MP 
program, which is our second lien effort, and we think that can 
play a meaningful role in reducing principal for distressed 
homeowners.
    Now, within the HAMP program, itself, since the beginning 
the HAMP program has allowed principal forbearance, and about a 
quarter of the participants in HAMP are receiving principal 
forbearance. Very few though, on your point, have received 
actual principal reduction.
    For many months we have been looking, along with HUD and 
others in the administration, at the problem of underwater 
mortgages. This crisis has changed somewhat over the past year 
from what was primarily a subprime crisis at the beginning to 
what today is unemployment and underwater mortgages have come 
to the floor as two of the major issues.
    In this effort to examine the principal reduction problem, 
we have been mindful, first of all, of the potential cost of 
such a program; second, of the fairness of doing principal 
reduction for some people; and, third, of the moral hazard 
issue.
    Getting back to the cost, we estimate that the amount of 
the underwater portions of mortgages in the United States is 
$500 billion to $700 billion. Those underwater mortgages are 
heavily concentrated in five States. California and Florida 
account for about half of all of the underwater mortgages in 
the United States, and then three other States account for 
about 25 percent more, so about three-fourths of the underwater 
mortgages are in five States.
    We are working to address that through the help for the 
Hardest Hit Areas program, which was announced some weeks ago, 
and that is underway. It is possible we are looking at possibly 
expanding that program because it has been extremely well 
received. That program should help to address the underwater 
mortgage problem and the unemployment problem for those hard-
hit States.
    We also are going to learn from the innovative approaches 
that those States may take through their housing finance 
agencies, and that may help better inform other States as well 
as ourselves.
    Last, we have been looking at ways of perhaps modifying our 
own HAMP program so that we might be able to make this 
available to more people, some additional people whose 
mortgages are underwater or who are unemployed. We want to be 
talking with you about that in the next few days as we continue 
to try to improve our programs.
    If I may go on just for a second, I know that the question 
was raised about the number of changes we have made to HAMP 
since it began. There are a couple of reasons for this. First 
of all, we have been learning as we went along. We want to 
continue to improve this program so we can meet that objective 
of helping 3 to 4 million people avoid foreclosure over the 
next 3 years to go.
    Second, the servicers only had so much capacity to absorb 
change. We didn't want to slow them down by putting too much 
burden on them to make massive changes all at once. We think we 
have a much stronger program today, and we are going to 
continue to strengthen it in ways that I just mentioned.
    Chairman Towns. Thank you very much. The gentleman's time 
has expired.
    I now yield 5 minutes to the gentleman from California, the 
ranking member of the committee, Congressman Issa.
    Mr. Issa. Thank you, Mr. Chairman. I apologize for my 
absence, but I will brief you later. It was well worthwhile for 
the committee.
    Mr. Allison, earlier we heard basically about a program 
that is under-achieving and delaying. Did you ever envision 
that curve, a curve showing, if you will, justice has been so 
delayed and therefore denied, would exist when you began this 
program?
    Mr. Allison. I think it is fair to say, Mr. Issa, that when 
we started this program we did not fully envision the 
challenges that we would encounter, first of all in people 
being able to provide us with the documents that they need in 
order for us to give them a final modification. Another was the 
amount of change----
    Mr. Issa. I am going to stop you to followup on that.
    Mr. Allison. Yes, sir. Please go ahead.
    Mr. Issa. As I said in my opening statement and in the 
questions earlier, today I can go to any bank in America and I 
can make application for a pre-qualified loan and I can expect 
to have an answer in a matter of days or weeks at the most.
    Why in the world, when Government gets in the middle of it, 
narrows the amount of people that you allow to do these loan 
modifications, can then that self-inflicted wound that they 
don't have time to quickly provide the same service that is 
routinely processed, at the height was being processed in far 
more loans than you are ever dreaming of dealing with now?
    Mr. Allison. Well, they had a business for many years of 
generating new loans, and----
    Mr. Issa. These are new loans.
    Mr. Allison. Well, actually, what we are doing is--what 
they have had to learn how to do is to transform tailor-make 
modifications for individuals to suit certain standards of 
affordability, and also to make sure that these are people who 
are owning their own home that is being modified. We are not 
helping investors who may have bought houses and expected to 
flip them and make profits, so----
    Mr. Issa. I appreciate the due diligence, but----
    Mr. Allison [continuing]. But what has had to happen, if I 
may----
    Mr. Issa. Sure.
    Mr. Allison [continuing]. Is for the servicers to generate 
the capacity to serve individuals one by one on a mass scale to 
modify their mortgages, and they were not equipped. As I 
mentioned earlier, servicers didn't provide service. They 
collected money every month and they foreclosed on people who 
didn't pay. So we had to engage these people.
    Mr. Issa. Now that you are where you are, let's talk about 
how we get from failure to success.
    Mr. Allison. Yes.
    Mr. Issa. Why wouldn't you allow a set of the newest 
criteria to be placed out there for any reputable--let's start 
with FDIC approved banks, even if they use a servicer or 
somebody else, ultimately they put their name on it when they 
submit it? Why wouldn't you allow them to go through the 
process, not of getting someone into loan modification, but 
doing the entire paperwork to provide affidavit of ownership 
and residence, the critical information about real ability to 
pay both their--and I believe it should include their other 
debts----
    Mr. Allison. Yes.
    Mr. Issa [continuing]. And an independent appraisal of the 
home they want to keep, and have that package ultimately then, 
through whatever processor, come prepared? Why wouldn't we 
switch from a pre-process that gives hope and then dashes those 
hopes through delay? Why wouldn't we change this to a process 
that says, ``Look, almost anybody in the loan business can put 
together these packages. They are not that exotic.'' 
Ultimately, the loan modification details, I appreciate that 
they are individual, that you have to have a fairly skilled 
group that says, OK, now we are going to give you your package.
    Mr. Allison. Right.
    Mr. Issa. But most of that, absence of anything, has to do 
with simply people putting in, if you will, a next generation 
of liar loans, which you allowed for a long time just tell me 
you have so much income, and then you changed the rules, 
thankfully, to, ``No, you have to actually show you have the 
income because we don't want to waste time with people who will 
re-default,'' and so on.
    Why in the world wouldn't we get out of this pre-
qualification that leaves people in limbo and get to the idea 
that 30 days from the time a package is submitted from anybody, 
if it is complete, people should be in the process of 
negotiating a final qualify, and those who aren't qualified get 
turned away after they pay a de minimis fee for qualification 
through a long list of qualified institutions so that these 
sham operations are excluded?
    Mr. Allison. Well, actually, what we are doing by now 
requiring that the documents be provided before the trial 
modification is granted, I think that will go a long way toward 
speeding this process up. Now, that begs again the question, 
well, why didn't they do that in the first place? And the 
reason was we had a huge backlog of people who were waiting for 
relief, and we felt it was more important to bring them into 
this program rapidly. It hasn't cost the taxpayers a dime if 
people drop out because their stated income doesn't match 
eventually the documents they provide. Only the people who get 
into the final modifications--and that is where the taxpayers' 
payments come in--can get a----
    Mr. Issa. On our side of the aisle it looks more like 
politics to put people in to make sure something was working 
when, in fact, you are hurting, not helping, those people. On 
both sides of the aisle we are concerned that at the end of, 
call it a year, very soon, that we don't have a million people, 
if there are a million people, qualified and delivered.
    If the chairman will indulge me for just a moment, I am 
probably one of the strongest advocates of keeping the moral 
hazard there, but I will tell you, as you look at the other 
programs that you are looking at, if somebody has a building, a 
home that they purchased for $400,000, it is now worth 
$250,000, and the bank will sell it for no more than $250,000, 
if the existing person who has a no-recourse loan, as they do 
in California, Florida, and most States, can walk away and the 
bank has $250,000, that is not a cram-down. That is a 
competitive process.
    If the homeowner is qualified and able to be the high 
bidder, if you will, or an acceptable bidder, even if it a 
straw man type bidding, there is not a moral hazard. That is 
why Bank of America has made a decision to reach out to 49,000 
people that they believe qualify for that and abate some of the 
principal over time, because ultimately they don't want to take 
back a house and sell it, get no more money, and go through all 
the other costs. That is good business.
    I hope that on both sides of the aisle we are sending you a 
clear message that moral hazard is your subsidizing continued 
bad behavior or extending people the ability to stay in a home 
that they should make plans to get out of. If a bank would get 
no more money, then getting to that point so the bank is made 
whole, you folks at Treasury can be confident that banks are 
writing to their correct value, all of that is what both sides 
of the aisle thought TARP was going to do.
    Thank you, Mr. Chairman.
    Chairman Towns. Thank you.
    Mr. Allison. May I respond, Representative Issa?
    Mr. Issa. Of course. I didn't mean to cut you off.
    Mr. Allison. First of all, there is nothing that prevents a 
bank right now from writing down the value of that mortgage 
that is on its books and helping that person stay in their 
home, because in most cases, as we are finding, there is a 
higher present value to keeping that person in the home than 
foreclosing, which is painful for everybody, not just the 
homeowner but the bank. But they in some cases have been slow 
to do that.
    I applaud what Bank of America is doing. It is time for 
other banks to recognize reality and help people, writing down 
second liens as well as first liens. Right? So we are very 
mindful in our programs of not engendering moral hazard and 
causing people to default on purpose in order to get their 
principal reduced if they can afford to pay.
    So we are looking at ways of balancing concerns about 
taxpayer funds being used as part of a principal reduction 
effort, the moral hazard of strategic default, and fairness of 
one person who may have put down 30 percent for a mortgage and 
the next door person put down zero and took a second lien, and 
making sure that we are being fair to everyone as possible 
while still trying to promote financial stability and keep 
neighborhoods whole.
    Back to your question about the time that this has taken 
and your chart across here.
    Mr. Issa. Excuse me. That is GAO's chart.
    Mr. Allison. Fine. GAO's chart. It does show that it has 
taken a while to get the final modification program up and 
running. People were in the trial modifications. We extended 
that period for a while to give more people the chance to 
qualify, but now it is picking up very rapidly.
    We have about a third of the people who are eligible for a 
final modification today. They have completed the 3-months, 
already have one, or one is on their desk to be signed. We are 
rapidly catching up in that area. I think you are going to see 
final modifications rising quite rapidly over the next few 
months as the backlog is cleared and people know where they 
stand.
    I am very hopeful that many of the people awaiting a 
decision are going to get a final modification.
    Mr. Issa. I certainly hope so.
    Thank you, Mr. Chairman.
    Chairman Towns. The gentleman's time has expired.
    I really hope that by the next time we have a hearing, that 
the results would really be different. I am hoping that the 
program works, because a lot of people out there are really 
losing their homes and the pain and the suffering around it is 
something that we really have to do something about.
    I now yield to the gentlewoman from California, Ms. Chu.
    Ms. Chu. Secretary Allison, I raised this issue of my 
constituent earlier, but I want to hear what you have to say. 
This comes from this long letter that a constituent wrote to 
me, and I met with her and she was in tears. She and her 
parents are on the brink of losing their home to an auction in 
less than 1 week, and they have been in that home since 1993. 
They applied to the HAMP trial period plan for 3 months with 
JPMorgan Chase, and faithfully paid the amounts that were 
required. They submitted their payments, in fact, timely.
    As they went through this process, they hardly received any 
information or status updates on their modification 
applications, verbally or in writing. About 5 months later, her 
parents finally received a letter from Chase indicating that 
they had been denied and that their house was going to be 
auctioned off in 30 days, even though they had successfully 
made these five trial period payments.
    So I find this horrifying. The Cardale family had to jump 
through their hoops for 5 months and they played by the rules, 
only to end up being told that they were losing their home and 
that they had to get out within days of notification. I thought 
that they were really strung along here.
    The way I see it, first of all, there is the lack of 
responsiveness and timely updates from the loan servicers. We 
even hear other horrifying stories about lost paperwork.
    Second, there is no appeals process in place whatsoever.
    Third, there isn't a sufficient notification process before 
people are being notified that they are being kicked out of 
their homes.
    So what is the Treasury doing about these three issues? 
When can we expect that a fair and just appeals process will be 
put in place so that homeowners can at least find out what the 
question was and see whether it was justified? And shouldn't 
families be given more notice and time to prepare and find 
alternative housing in a case such as this family's case where 
their home is being put on auction immediately?
    Mr. Allison. Yes. Thank you very much for your question. 
First of all, we will be glad to look at that particular case 
for you and contact JPMorgan Chase about it.
    But more broadly, because other people may have the same 
situation, as I mentioned in my testimony, we issued a new 
supplemental directive which provides that people cannot be put 
in foreclosure while their decision on a modification is being 
made. We already have requirements that the homeowner is 
entitled to understand the reasons for a denial and they can 
phone in and appeal a denial.
    We have a phone number--again, it is 888-995-HOPE--that the 
homeowners can call to see--if they have an issue with their 
servicer, they can escalate that through our call center to 
more senior people in the servicer to deal with it.
    We also have an auditing function which will go and check 
on the performance of servicers in making sure that people who 
qualify for this program are getting a modification. Therefore, 
I think there are a number of ways that the person you 
mentioned could get help, but I want to accelerate that on her 
behalf, so if you can give me the information after the hearing 
I will be glad to find out what is happening with that program 
case.
    Ms. Chu. Are you saying that the appeals process is in 
place right now?
    Mr. Allison. We have an escalation process, and have for 
some time. I think we have to do more to get the word out, 
frankly, and that is all they have to do is telephone that 
phone number or they can get on makinghomeaffordable.gov. They 
can get in touch with counselors. They can get in touch with 
their servicer. They can also get documents. If they are having 
trouble with the servicer not handling the documents or they 
don't know what the documents are, they can get the documents 
on our Web site. So there are a lot of ways people can get 
help, and I think people are still struggling with getting the 
right information about this program.
    We have many outreach events. We have had over 20 events 
last year around the country, and especially in the hard-hit 
areas, to bring in individuals along with the servicers, have 
them get together and directly try to work out a modification 
of a loan. We are conducting more of those events around the 
country this year, as well.
    We are also going to have a public service campaign. That 
is already underway. We are going through thousands of media 
outlets to try to communicate even more how the program works 
and how to get help.
    Ms. Chu. You said that there should not be a foreclosure 
during the trial process.
    Mr. Allison. Yes.
    Ms. Chu. But in this case she had no input, and then 
finally was denied, and now is immediately being foreclosed 
upon.
    Mr. Allison. Yes. Well, she should also be offered, first 
of all, a chance to understand what happened, and that is where 
I think we have to get involved in that particular case. And 
there are going to be people who don't qualify for a final 
modification, for one reason or another, and in that case we 
also have programs to avoid foreclosure, such as a short sale 
or a deed in lieu, and we provide allowances for people if they 
need to relocate, so if they have to leave their home they can 
do so in dignity.
    But first of all we want to try to prevent as many 
foreclosures or people having to leave their home as possible. 
That is why I think it is important to get the word out early 
so people understand the process, and if, indeed, they are not 
going to qualify for a modification, they have had time to look 
at alternate solutions.
    Ms. Chu. My time is up, but I would just say that I just 
don't want them to be given false hope if they actually don't 
qualify.
    Mr. Allison. Yes. I completely agree, and we will certainly 
work on your suggestion, as well, and see how we can make this 
program better in that regard.
    Thank you.
    Chairman Towns. The gentlewoman's time has expired.
    Ms. Chu. Thank you.
    Chairman Towns. The gentleman from Illinois, Congressman 
Davis.
    Mr. Davis. Thank you very much, Mr. Chairman, and thank 
you, Mr. Secretary, for being here.
    Were you in when the first panel was engaged in discussion?
    Mr. Allison. Yes. I was, first of all, listening to it, and 
then I was here at the latter part of it. Yes.
    Mr. Davis. The whole question of disparities have crept 
into the program and into the conversation.
    Mr. Allison. Right.
    Mr. Davis. The National Community Reinvestment Coalition 
has done a study, and their survey showed that 57 percent of 
African Americans who were eligible for the HAMP program were 
denied, 41 percent of Whites who were eligible were denied. I 
am sure that Treasury is aware of that, and what are you doing 
or what do you perceive there to be that can try and help 
rectify this disparity?
    Mr. Allison. Yes. Thank you, sir. We are very concerned 
that no one be denied access to these modifications because of 
race or gender, and so therefore we have been requiring the 
servicers to follow the fair housing laws as they consider 
modifications, and the fair lending requirements, and also we 
have been collecting information around race and gender and 
ethnicity, and we are going to be having that data available 
for publication in June. As soon as we have enough 
statistically valid data, we are going to be publishing it like 
we publish many other aspects of this program.
    By the way, we do publish a report every month. We have 
been expanding the amount of data, and also people can access 
that information on our Web site, makinghomeaffordable.gov.
    I think that this is an area we are very concerned about. 
That is why we are gathering the data. And if we find any type 
of discrimination, we are going to take action. We also have 
our auditors, who will be looking at this. That is an aspect of 
the program, as well.
    Mr. Davis. On an individual base, is there any kind of 
resource that, I guess, individuals who feel that somehow or 
another they were treated unfairly, that they can make use of 
to try and rectify or to express their feelings and get some 
action?
    Mr. Allison. Yes. They can, for instance, again, they can 
call our hotline and make an inquiry that way, and we will take 
it up. They can get in touch with us through our Web site, 
again makinghomeaffordable.gov. They can then contact through 
that Web site local counselors who may be able to help them, as 
well. So there are many ways to get help. I think we have to 
get the word out. It is important that people understand that 
they don't have to go through this process alone.
    Chairman Towns. Would the gentleman yield just for 30 
seconds?
    Mr. Davis. Yes.
    Chairman Towns. You mentioned that you would take action. 
What kind of action?
    Mr. Allison. Well, when we find that, for instance, a 
servicer has been violating the rules of this program--and we 
can do that through audits that are conducted by Freddie Mac, 
and at the beginning we set up an audit process for this 
program because we have to make sure that these rules are being 
followed. So if they discover that there are violations of our 
policies and procedures, we confront the servicer with that and 
we work with them to make corrections. And if it is found that, 
for instance, people did not get a modification who deserved 
one under our rules, we go back and rectify that.
    Mr. Davis. Of course we know that many people are actually 
hard pressed in terms of being unemployed, don't have much 
equity in properties, and from a banking transaction or lending 
transaction, mortgage transaction, doesn't look like they could 
really make it, are there any other activities that might be 
able to help these individuals to remain in their homes?
    Mr. Allison. Yes. Well, for example, there is the 
Neighborhood Stabilization Program, which is, I think, a 
powerful force in many communities around the country, 
especially low-income communities. We have the Housing Finance 
Agencies who are providing more support for them, as well. And 
our program for the hardest hit areas I think will be very 
helpful in creating innovative ways, especially to provide 
assistance to people who are unemployed, who are maybe deeply 
underwater, or who are low income.
    Mr. Davis. Thank you very much. Thank you, Mr. Chairman. I 
yield back.
    Chairman Towns. I thank the gentleman for yielding.
    I now yield to the gentleman from Missouri, Congressman 
Clay.
    Mr. Clay. Thank you very much, Mr. Chairman.
    Mr. Allison, like my friend from Illinois, I, too, found it 
extremely disturbing to hear about the racial disparities that 
Mr. Taylor testified to on the previous panel. And along the 
same lines of Mr. Davis' questioning, what can the Department 
do to try to address the concerns raised by Mr. Taylor and the 
members of this committee on the whole racial insensitivity of 
the mortgage industry, of the plight of the people who are now 
underwater, in the process of foreclosure. What programs can 
the Treasury put in place as our Government to help repair the 
damage, to help repair this wanton onward aggression that was 
displayed toward a class of people? What can happen?
    Mr. Allison. Well, as you point out, there was widespread 
predatory lending practices during the mid-part of this decade, 
and they caused tremendous damage around the country.
    One reason why the Secretary of the Treasury has been 
pressing so hard, and the President, for financial reform is to 
be able to establish a stronger Consumer Protection Agency to 
help prevent abuses like this from occurring again.
    Now, the damage already exists, and we want to make sure 
that in our program there is not ongoing discrimination as 
people are considered for modifications, and that is why we are 
collecting that information. We look forward to publishing the 
first data around the distribution of modifications by race, 
ethnicity, so forth, and gender, and with that I think we will 
have a tool to confront servicers and mortgage modification 
practices if, indeed, they are showing discrimination.
    Mr. Clay. It is going to take some aggressive actions on 
the part of the Treasury to really crack down on these abuses 
and to discourage it and eliminate it from the marketplace.
    Now let me move on to HAMP. To my understanding, HAMP was 
modeled after the FDIC's Indie Mac Program, which only had a 
borrower response rate of 50 percent during its most successful 
run. Let me ask you, Why did you choose to model HAMP after a 
program that was only moderately successful?
    Mr. Allison. Actually, we think HAMP is quite an innovative 
program. It is the first large program of its type that has 
required substantial reductions in people's monthly mortgage 
payments. And as you look back at other modification programs 
in the past, many of which were abject failures, had either 
they modified very few loans or there was a very large re-
default rate. It is because in almost all those cases they 
didn't meaningfully reduce people's monthly payments.
    So there is really not much data to go on with this program 
other than what we see so far, and I think it is still too 
early to make final judgments, but during the trial 
modification process the rate of people dropping out of the 
program has been somewhat lower than we would have expected. 
The rate of people who are unable to make the payments is 
somewhat lower than we expected.
    Again, we are making further improvements in this program, 
with a view toward assuring that it is affordable and bringing 
in more people who can get help.
    Mr. Clay. Any idea of how many people have opted to remain 
in the home and rent from the new owner, or has that developed 
yet, or are we far enough down the path to see those trends?
    Mr. Allison. I really don't have that information, but I 
will be happy to try to get it for you.
    Mr. Clay. Would you?
    Mr. Allison. Thank you. Yes, sir.
    Mr. Clay. Thank you.
    Mr. Allison. I certainly will.
    Mr. Clay. I yield back.
    Chairman Towns. I thank the gentleman from Missouri for 
yielding.
    Let me say that I am happy that you were able to hear the 
testimony earlier today. The one thing that really still sort 
of stands out and sticks with me is the inconsistency of the 
servicers. This was a point that was made today. What can 
Treasury do about these kind of things from an enforcement 
standpoint?
    Mr. Allison. Well, again, we are----
    Chairman Towns. If you have a servicer that--and I am 
actually responding to this whole thing in terms of 
disparities--if you have a servicer that, for some reason, is 
not performing or for some reason feels that they don't have to 
process, what happens, because I am sure there must be a way 
that you could look at how many people they have actually 
processed?
    Mr. Allison. Oh, yes. In fact, we publish that data every 
month, and what we are showing is, in addition to simply how 
many 60-day-plus delinquent loans each servicer has, how many 
trial modifications have been made, how many final 
modifications. We are going to have much more information about 
the quality of their service.
    But, most importantly, I think, from the standpoint of the 
question you are asking, we have an audit capability. We can 
look at their actual performance, and we then engage them on 
ways that they can improve, and by also publishing the 
information we are shining the public light on them, and that 
is a powerful incentive for them to improve their performance.
    I would say that where we have engaged servicers, where we 
are finding discrepancies between their operations and what we 
think the proper standards ought to be, they have been making 
improvements. And we have to continue working closely with them 
until we reach a standard that we think is uniform and 
satisfactory. We still have a lot of work to do, I must say.
    But I think we also have to keep in mind this is a 
relatively new program. It was announced just over a year ago. 
It didn't really get running until last May, and in less than a 
year we have seen over a million homeowners get real relief, 
which is continuing today.
    Again, we have a lot more work to do to reach that 3 to 4 
million target over the next several years, but I think we 
have--the servicers have much more capacity today. I think they 
are functioning better. Fortunately, the rate of complaints has 
been reduced, but it is still too high from our standpoint.
    So we want this program to continue maturing as rapidly as 
possible to provide the kind of service that we ought to expect 
from them.
    Chairman Towns. Right. Let me say that I had to reorganize 
my office to be able to try to help people through this process 
because there are sections in my area where people are just 
losing their homes in tremendous numbers. Are you doing 
anything to sort of advertise the fact that these services are 
going on and these programs are in existence? I mean, what is 
Treasury doing to advertise, to get the word out that this is 
going on and what you can do? I mean, are you spending any time 
doing any advertising?
    Mr. Allison. Yes, we are, Mr. Chairman. In fact, you touch 
on a very important point. Outreach all along has been 
extremely important to acquaint people with the existence of 
this program and then how to navigate through it to get a 
modification. And we have been conducting, as I mentioned 
before, events around the country, especially in cities, major 
cities where there are a lot of people who need relief, in 
order to acquaint them with the program, how it works, and to 
put them in direct touch at these events with the servicers who 
can help them.
    Second, we are launching already a public service campaign 
which is going to be more active in the coming weeks, and will 
run through thousands of outlets around the country to make 
sure people are saturated with information, if we can, about 
this program.
    Chairman Towns. Right. Let me say this, and then I will 
yield to the gentleman from Maryland.
    I had an opportunity to look at the Urban League program in 
terms of--and their success. I am saying that maybe that might 
be another thing you want to consider is to let them expand 
their program, because for some reason or another they are able 
to sort of get people processed, get answers, and I don't know 
in terms of how or why their situation is so different, but 
their success is amazing when you compare it with what else is 
going on. So you might want to consider looking at what they 
are doing or expanding what they are doing----
    Mr. Allison. Yes.
    Chairman Towns [continuing]. Because I think that if we are 
talking about keeping people in their homes, I think we need to 
have a program that is successful.
    Mr. Allison. Yes. We applaud what the Urban League is 
doing, and many other, by the way, community groups and 
counseling groups around the country which we have linked up 
with. But let me go back and we will engage the Urban League 
and see whether we can learn more.
    Thank you.
    Chairman Towns. Thank you.
    I yield to the gentleman from Maryland.
    Mr. Cummings. Thank you very much, Mr. Chairman. I will be 
very brief, and I thank you. Just two things, going to what you 
just talked about, Mr. Chairman.
    I think the reason why the Urban League is so good is 
because it is intense and they actually get to the servicers, 
which is very significant, and I just have two concerns. One, 
because there are a lot of people, before we see you again, a 
lot of people may be losing their homes, and I want to make 
sure we are real clear.
    Once a person gets in the process, how do we make sure--I 
mean, let's say somebody from Mr. Towns' district comes in. 
They finally get hold of the servicer, they are working out the 
deal, they are working out stuff, they are submitting their 
papers, and then the servicer is taking too much time and the 
next thing you know they face foreclosure. And, as you know, 
when they face foreclosure it is like quicksand, because what 
happens is all those legal fees start coming in and the next 
thing you know they don't have a house. It is sort of like 
death. It is done. Over.
    So the question is: how do you enforce making sure that 
people are not foreclosed upon, let's say even if they are 
going through the process? How do you make sure that does not 
happen? Are you following my question?
    Mr. Allison. Yes, sir, I am.
    Mr. Cummings. Go ahead. And who does the enforcing?
    Mr. Allison. You very powerfully just explained the reason 
why we have issued this supplemental directive I described 
before, so that servicers are not allowed to foreclose on 
people while they are still under consideration for a 
modification, and then not for some time afterwards, if a 
decision----
    Mr. Cummings. So everybody is watching this. That means 
that when that person starts the process, gets in his 
paperwork, and starts the process, when does the stop sign up 
that you cannot foreclose upon this person, because I am 
worried that the servicers are not going to--the chairman 
alluded to some of this. Let's say the servicer is not 
cooperating. The next thing you know, our constituent is out of 
a house.
    Mr. Allison. Right. Once they have submitted verifiable 
information, as required by the program, to the servicer, under 
this directive they cannot be foreclosed on until after a 
decision about the modification has been made.
    Now, one thing that is important is a lot of people, when 
they receive a referral notice, they get very frightened, and 
they think I am going to get foreclosed on. Some people might 
even give up on a modification and start making plans to move 
out. We want to make sure that they are informed, and this is a 
massive outreach we have to make. It is not just enough to 
issue a directive to these servicers. We have to get the word 
out.
    I think Members of Congress and their staffs can help, as 
well as counseling groups. We have a public service campaign 
going. We have all these events. We have our Web site. We have 
our phone. And we want the word to get out that this is a 
natural process. That is what these servicers do. They will 
start a foreclosure process while they are considering people 
for modifications. We have to make sure people understand you 
are not going to be foreclosed upon until after a decision is 
made, as long as you have given us verifiable documentation.
    Mr. Cummings. And last but not least, Mr. Chairman, I would 
ask if we could get copies of these audits conducted by Freddie 
Mac or Treasury for compliance, because that area that sounds 
like--given some of the things that you mentioned, Mr. 
Chairman, that might help us to try to protect our 
constituents.
    Chairman Towns. Without objection, so ordered.
    Mr. Cummings. Thank you, Mr. Chairman.
    Chairman Towns. Let me say, first of all, Mr. Allison, I 
appreciate your coming and listening to the other witnesses, 
because I think it is just so important for you to hear from 
them, and that is the reason why I rearranged it. I really 
wanted them to go first and let you hear from them, because 
ordinarily I would have put you first.
    This is a very serious issue, and I really want to try to 
do whatever we can to be able to keep people in their homes, 
and I want to be able, when people are able to ask me, I want 
to be able to say I did everything I could to try to be helpful 
during this very difficult time, and recognizing the fact that 
it is difficult. I listen to people all the time.
    A lady was on the phone 2 days ago who had two jobs, and of 
course the company moved, and of course now she is having 
difficulty paying her mortgage and she is trying to get a 
modification. I mean, it just goes on and on and on in terms of 
situations that people now find themselves in.
    But I am reminded today how effective it can be to have a 
hearing. Within the last 24 hours the Department issued a new 
directive that, as I understand it, would prohibit foreclosure 
on all HAMP-eligible loans until the borrower has had a chance 
to apply for help from the making home affordable program. I 
think that is just remarkable, and I applaud you for that. That 
is the kind of thinking I think that has to go into making 
certain that people are able to sort of stay in their homes.
    I know some will not be able to, but I think that we can do 
a whole lot better than what we are doing, and this should help 
with one of the biggest complaints borrowers have: that they 
have been unable to contact their lenders, that their paperwork 
is lost over and over again, and that I can't get anybody on 
the phone and nobody will talk to me, and that they have not 
been given the opportunity to otherwise participate in HAMP.
    Also, over the last 24 hours the biggest mortgage lender in 
the country, Bank of America, announced that it was adopting a 
mortgage reduction program for severely underwater homeowners--
I think that is remarkable--under which a significant part of 
the principal will be forgiven.
    I hope that in your position you can encourage other banks 
to take a very serious look at this, and I think this would 
help a lot of people, and maybe Bank of America can lead the 
way and others will be able to join in it.
    Reducing the amount owed on a mortgage strikes me as a very 
effective way to preserve homeownership while giving homeowners 
a realistic way to get their heads above the water again.
    Again, I strongly urge the Treasury Department to give 
serious consideration to a similar improvement to the HAMP 
program, but it should not stop there. I am asking the Treasury 
Department to expand that idea, to include more borrowers, and 
more lenders. The time to stem the home foreclosure crisis is 
now.
    I think that being creative, I really do believe that we 
can do a whole lot better than what we are doing in being able 
to keep people in their homes.
    This is a very sad and serious situation when you have 
young children concerned about the fact they have to move out 
of their home, they have to move out and move to another 
neighborhood, go to another school, only because their mother 
and father are having difficulty paying the mortgage. And in 
many instances they have been in the house for several years. 
To me, I think there must be a way that we can deal with it.
    So I want to thank you, Mr. Allison, for coming and staying 
the entire time.
    On this note, the committee stands adjourned.
    Mr. Allison. Thank you.
    Chairman Towns. Reserving the right to do object, the 
record will be kept open for 7 days, so that Members may submit 
information for the record.
    [Whereupon, at 1:51 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Diane E. Watson and 
additional information submitted for the hearing record 
follow:]

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