[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
FORECLOSURES CONTINUE: WHAT NEEDS TO CHANGE IN THE ADMINISTRATION'S
RESPONSE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON DOMESTIC POLICY
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 25, 2010
__________
Serial No. 111-134
__________
Printed for the use of the Committee on Oversight and Government 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
Subcommittee on Domestic Policy
DENNIS J. KUCINICH, Ohio, Chairman
ELIJAH E. CUMMINGS, Maryland JIM JORDAN, Ohio
JOHN F. TIERNEY, Massachusetts MARK E. SOUDER, Indiana
DIANE E. WATSON, California DAN BURTON, Indiana
JIM COOPER, Tennessee MICHAEL R. TURNER, Ohio
PATRICK J. KENNEDY, Rhode Island JEFF FORTENBERRY, Nebraska
PETER WELCH, Vermont AARON SCHOCK, Illinois
BILL FOSTER, Illinois
MARCY KAPTUR, Ohio
Jaron R. Bourke, Staff Director
C O N T E N T S
----------
Page
Hearing held on February 25, 2010................................ 1
Statement of:
Berenbaum, David, chief program officer, National Community
Reinvestment Coalition; Julia Gordon, senior policy
counsel, Center for Responsible Lending; Ronald M. Faris,
president, OCWEN Financial Corp.; and Edward J. Pinto, real
estate financial services consultant and former chief
credit officer of Fannie Mae (1987-1989)................... 149
Berenbaum, David......................................... 149
Faris, Ronald M.......................................... 211
Gordon, Julia............................................ 185
Pinto, Edward J.......................................... 229
Caldwell, Phyllis, Chief Homeownership Preservation Officer,
U.S. Department of Treasury................................ 91
Sheil, Bill, investigative reporter, WJW-TV8, Cleveland, OH;
Jim Rokakis, treasurer, Cuyahoga County, OH; and Patricia
Stringfield, homeowner, Washington, DC..................... 128
Rokakis, Jim............................................. 129
Sheil, Bill.............................................. 128
Stringfield, Patricia.................................... 136
Letters, statements, etc., submitted for the record by:
Berenbaum, David, chief program officer, National Community
Reinvestment Coalition, prepared statement of.............. 152
Caldwell, Phyllis, Chief Homeownership Preservation Officer,
U.S. Department of Treasury, prepared statement of......... 94
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 31
Faris, Ronald M., president, OCWEN Financial Corp., prepared
statement of............................................... 213
Gordon, Julia, senior policy counsel, Center for Responsible
Lending, prepared statement of............................. 187
Jordan, Hon. Jim, a Representative in Congress from the State
of Ohio, prepared statement of............................. 8
Kaptur, Hon. Marcy, a Representative in Congress from the
State of Ohio, prepared statement of....................... 245
Kucinich, Hon. Dennis J., a Representative in Congress from
the State of Ohio:
Letter dated February 25, 2010........................... 108
Prepared statement of.................................... 4
Pinto, Edward J., real estate financial services consultant
and former chief credit officer of Fannie Mae (1987-1989),
prepared statement of...................................... 231
Rokakis, Jim, treasurer, Cuyahoga County, OH, prepared
statement of............................................... 132
Stringfield, Patricia, homeowner, Washington, DC, prepared
statement of............................................... 139
Turner, Hon. Michael R., a Representative in Congress from
the State of Ohio, Follow-up Report and Policy
Considerations............................................. 38
FORECLOSURES CONTINUE: WHAT NEEDS TO CHANGE IN THE ADMINISTRATION'S
RESPONSE
----------
THURSDAY, FEBRUARY 25, 2010
House of Representatives,
Subcommittee on Domestic Policy,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2 p.m., in
room 2154, Rayburn House Office Building, Hon. Dennis J.
Kucinich (chairman of the subcommittee) presiding.
Present: Representatives Kucinich, Issa, Turner and Jordan.
Staff present: Jaron R. Bourke, staff director; Yonatan
Zamir, counsel; Jean Gosa, clerk; Charisma Williams, staff
assistant; Leneal Scott, IT specialist, full committee; John
Cuaderes, minority deputy staff director; Adam Fromm, minority
chief clerk and Member liaison; Kurt Bardella, minority press
secretary; Hudson Hollister, minority counsel; and Brien
Beattie and Mark Marin, minority professional staff members.
Mr. Kucinich. Thank you very much for being here. Good
afternoon, I'm Dennis Kucinich, Chairman of the Domestic Policy
Subcommittee of the Committee on Oversight and Government
Reform. Welcome to today's hearing, ``Foreclosures Continue:
What Needs to Change in the Administration's Response.''
Today's hearing is a continuation of the subcommittee's
series of hearings examining the characteristics of the ongoing
residential foreclosure crisis and the impact of the
administration's response.
Now, without objection, the Chair and the ranking minority
member will have 5 minutes to make opening statements, followed
by opening statements not to exceed 3 minutes by any other
Member who seeks recognition. And without objection, Members
and witnesses may have 5 legislative days to submit a written
statement or extraneous materials for the record.
I want to acknowledge the presence of my colleague from
Ohio Congressman Turner from the Dayton area. Welcome. I
appreciate you being here. I know that you have another hearing
to go to. And we're going to move through the opening
statements and give you a chance to be heard from as well.
This subcommittee began holding hearings on the subject of
the foreclosure crisis and solutions to it 3 years ago. Since
that time we've met nine times on the subject. It's not
hyperbole to say that this is the worst economic crisis to hit
America since the Great Depression. The fallout from the crash
in the housing market and the recession that has overtaken our
country has left no community in the country untouched. Nearly
every level of economic activity has been affected negatively.
Nationally the unemployment rate is approximately 10 percent,
and in some States it's nearly 15 percent. Foreclosures
continue; 2.9 million borrowers received foreclosure notices in
2009, and it's predicted nearly 2\1/2\ million more borrowers
will lose their homes--will lose their homes to foreclosure
this year.
According to the most recent data, more than 15 percent,
one in six, of all mortgages are in trouble; 2.6 million
borrowers have missed at least three payments on their
mortgages, making them seriously delinquent. This is double the
level of 1 year ago and is the highest number of delinquencies
on record since 1972, according to the Mortgage Bankers
Association.
Now, let's be clear, this foreclosure crisis started well
before the current administration came into office, but like
the Great Depression, the administration that inherited the
crisis will be judged for how they respond, and that judgment
can be as harsh as if they had created the crisis themselves.
The American people expect and the American people deserve
bold initiatives from their government to help as many people
as possible. Unfortunately, in my opinion, much time has been
wasted by relying on lenders and investors to choose to modify
loans to keep people in their homes. Indeed, even as this
administration quickly created a program that the previous one
wouldn't even consider, the Making Home Affordable program, it
continued to rely on the charitable impulses of the industry
that has nearly bankrupted the Nation. But the industry that
received a trillion-dollar bailout has been unwilling to absorb
the losses, to write down bad debts, and their recalcitrance is
holding up the resolution of the foreclosure crisis.
Thus, the administration's centerpiece loan modification
program, known as the Home Affordable Modification Program
[HAMP], has not lived up to its high expectations. The Treasury
points out that 75 percent of the 1 million or so borrowers who
have been offered modifications under the program are making
their payments, and it's just a matter of borrowers getting all
their documents to lenders. And certainly for a program that is
just under a year since its creation, the efforts to publicize
it and encourage participation are laudable, but it's also
severely flawed. It doesn't address one of the key problems
facing borrowers, the problem of negative equity of a house
that is worth less than the mortgage. It is marred by
geographical disparities. And its affordability objectives rely
upon stretching out the payments, an approach that can saddle
the borrower with more debt, not less, and which makes sense
only on the assumption that home values are eventually going to
go right back up.
Now, on Friday this administration announced a pilot
initiative to distribute $1.5 billion in TARP money to five
States. That list did not include Ohio or other States that
were hit harder and earlier by the foreclosure crisis. Even if
Ohio had been included in that list, it would not have been
enough to make a meaningful headway in a crisis. In fact, the
State set a record for foreclosures last year, the 14th year in
a row of increases. But as we will hear today, no matter how
grim the statistics are, there are still plenty of people in
Ohio and in many other States that are hoping and waiting for
some relief.
Americans will be able to tell if Washington is faking it.
Millions of people will have personal knowledge of whether or
not the government gave them real help which for many borrowers
must necessarily include principal reduction. There is still
time in Ohio and in communities across America to create a
positive and fruitful legacy of this administration's response
to the foreclosure crisis. My hope is that this administration
feels the urgency and the need to make this decisive
difference.
I want to--in addition to acknowledging our first witness
Ms. Caldwell, I also want to acknowledge the presence in the
audience of the treasurer of Cuyahoga County, OH, Jim Rokakis,
who has been a stalwart in not just examining this, this matter
of the impact of foreclosures, but has really been a leader
nationally in suggesting solutions and a way forward.
So, Treasurer Rokakis, I appreciate your presence here
today.
We also have a local TV reporter, Bill Sheil, who actually
did an investigation that we're going to give this committee a
quick glimpse of in the same panel a little bit later that Mr.
Rokakis is on. So welcome to Washington.
[The prepared statement of Hon. Dennis J. Kucinich
follows:]
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Mr. Kucinich. I'm going to proceed right now to the opening
statement from our ranking member, Congressman Jordan of Ohio.
You may proceed.
Mr. Jordan. Thank you, Mr. Chairman.
Let me, too, thank Mr. Rokakis for being with us, and Ms.
Caldwell. I know they were both there in Cleveland when we had
the field hearing a few months back.
Mr. Chairman, we do appreciate this hearing today.
Homeowners across the country are suffering. Just last week the
Mortgage Bankers Association reported that the combination of
loans in foreclosure and one payment behind in their mortgage
was over 15 percent, the highest in the history of the survey.
Meanwhile home prices keep falling, U.S. banks are posting
their sharpest declines in earning since 1942.
At the recent field hearings of this subcommittee in
Atlanta and Cleveland, we have received overwhelming evidence
of the failure of the administration's policies and programs to
stem the tide of mortgage defaults and foreclosures. In
addition to trade organizations, think tanks and government
accountability groups have produced reams of reports that
demonstrate how the administration's most active program, HAMP,
has not only failed to accomplish the administration's promise
of assisting 3 to 4 million American homeowners, but is
actually harming homeowners in the broader economy.
This harm, Mr. Chairman, can be measured in several ways.
First, the administration's mortgage modification efforts are
costing taxpayers as much as $75 billion. Since the President
took office, he has told the American people time and again
that the answer to our economic problems is more government
spending and new government programs. And time again this
administration has told the American people that they should
expect a return on their investments through bailouts and
stimulus spending. And they have been told that they will be
able to track this return through an unprecedented level of
transparency and accountability. But once again, the
administration is breaking these promises to the American
people in the face of widespread bipartisan criticism of HAMP.
For example, the Treasury Department has retreated into secrecy
by halting the dissemination of information on the program's
Web site that would allow the public to track the program's
success rate.
The public is also harmed when the government spends their
money on failed programs. It is doubly harmed when the
government tries to disguise its failures by hiding information
from the American people.
We've also learned that many of the people who have
received temporary assistance through the administration's
programs are now discovering they're ineligible for the long-
term mortgage modification. As the New York Times has recently
reported, this means that many Americans are throwing their
money into homes that they believe the government would help
them keep only to find out thousands of dollars later that they
will face foreclosure anyway.
Delaying foreclosure, Mr. Chairman, does not help the many
Americans who are fighting to keep their jobs or find new ones.
Delayed foreclosures only serve to prolong the economic
hardship, drain them of much-needed resources, and defraud them
the opportunities to find more affordable housing options.
In fact, it seems that the only good thing that the
administration's efforts have accomplished is to reinforce in
the minds of the American people the reality that technocratic
tinkering is not an effective solution to our economic
problems. The only viable, long-term solution is to keep more
Americans in their homes and in their jobs. For that matter it
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.
Mr. Chairman, I would also ask unanimous consent to enter
into the record a staff report that was released this morning
along with ranking member of the full committee Mr. Issa, the
title of which is ``Treasury Department's Mortgage Modification
Programs: A Failure Prolonging the Economic Crisis.''
Mr. Kucinich. So ordered.
Mr. Jordan. Thank you.
Mr. Kucinich. Without objection.
[The prepared statement of Hon. Jim Jordan follows:]
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Mr. Jordan. Yield back.
Mr. Kucinich. The Chair recognizes Mr. Cummings from
Maryland.
Mr. Cummings. Thank you very much, Mr. Chairman. Mr.
Chairman, I thank you for holding this hearing. In my 14 years
in Congress, I've devoted more energy to addressing the current
foreclosure crisis than almost any other issue facing our
Nation. Because of that I thank you for holding this hearing,
as well as the field hearings in Atlanta and Cleveland, for
using the Domestic Policy Subcommittee to shine a light on this
very tragic problem.
I also thank all of today's witnesses for joining us. Your
input is crucial to our developing real solutions for real
people who are suffering real problems.
More than a year ago I decided that we were not doing
enough to address foreclosures in my district in Baltimore, so
I hired someone in my district office to work only on helping
our constituents keep their houses. Most of us only have 20
employees. That's between Washington and the District. And I
then soon discovered I needed another one. So literally 10
percent of my staff only deal with foreclosures keeping people
in their houses.
After I hired the first one, I decided that there was still
more that we could do. We figured out that the most common
barriers to mortgage modifications were lost paperwork,
understaffed lender call centers, and lender and servicer
denials without any explanation. And another one was just the
idea that sometimes when they got ahold of the lender, the
lender just simply did not take the time to work with the
borrower. And I want to say that it was not always in a good-
faith manner, but I won't go that far.
But one thing that we did discover is that once my staff
member would sit down a lot of times and go over the paperwork
with the borrower, we discovered that, say, about 80 percent of
those cases, they were able to get a modification.
So this past Saturday we held our third foreclosure
prevention workshop in Baltimore. Over the last year these
events have brought together some 3,000 people from my
district, and, by the way, from all over the country. We had
over 25 lenders, and created the opportunity to keep hundreds,
if not thousands, of families in their homes. We discovered
something as simple as a face-to-face meeting--this is not
rocket scientist stuff--a face-to-face meeting does not seem
that important, but for the men and women who approached me on
Saturday literally in tears after negotiating a modification,
it meant everything. But they are just for whom the options are
severely limited; they are unemployed.
We can do a lot of good with President Obama's mortgage
modification infrastructure. I watched it happen on Saturday in
Baltimore. But the blight of 14.8 million unemployed Americans
demand that we do even more, and more is these three things.
First, we need mortgage assistance; we need mortgage assistance
whether through grants or loans for unemployed persons while
they continue to look for work. We managed to get $3 billion
into the Wall Street Reform and Consumer Protection Act, but
that funding is far from a done deal.
I was pleased that the President's recently announced 4HM
program, Help for the Hardest-Hit Housing Markets, will include
assistance to the unemployed, as well as those who are
underwater in their mortgages. While I would have hoped to see
the program implemented in more than just the five hardest-hit
housing markets, we have to start somewhere.
The second thing we need to do is we need a real jobs
package. The Senate's package yesterday of the $15 billion so-
called jobs bill is better than nothing, but it is not nearly
enough, and it's anticipated we will move on that in the House
this week.
Finally, we need job-training programs that allow workers
to adapt and improve. As CBO Director Douglas Elmendorf said on
Tuesday to another committee which I sit on, the Joint Economic
Committee, so many of the lost jobs simply are not coming back.
New jobs will come from new firms who embrace new technology
and innovation. Worker training, whether through community
college career centers or traditional 4-year schools, must be
part of a long-term solution.
Clearly we need a comprehensive strategy to help the
unemployed, one that should include the elements I just
mentioned, but today's task, foreclosure prevention, is the
first and biggest element of that solution. And so, Mr.
Chairman, I look forward to the testimony. I want to thank the
witnesses. And with that I yield back.
[The prepared statement of Hon. Elijah E. Cummings
follows:]
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Mr. Kucinich. The Chair recognizes Mr. Turner of Ohio.
Mr. Turner. Thank you, Chairman Kucinich. I want to thank
you for your leadership and efforts in the areas of the
mortgage foreclosure crisis, and also the issues of how you've
looked to protect families who are in Ohio as we struggle with
how to address the issue of the mortgage foreclosure crisis and
its effects on our neighborhoods. I want to thank you and the
ranking member for holding this hearing today to focus on the
effectiveness of the administration's Home Affordable
Modification Program in helping struggling families facing
foreclosure stay in their homes.
My congressional district, as well as the entire State of
Ohio, has been significantly impacted by the current
foreclosure crisis. In the counties located within Ohio's Third
Congressional District, there have been over 6,000 housing
foreclosures reported in 2008 alone.
While Congress has made attempts to address the root causes
of the housing crisis, we need to continue to improve Federal
housing policies in order to find new solutions to address
these challenges. We must conduct a comprehensive reevaluation
of our Federal, State and local housing policies in order to
stabilize the housing market, keep people in their homes and
help displaced families return to their homes.
To better understand how the greater Dayton area has been
particularly affected by the current housing crisis, in August
I convened a forum in coordination with the Northeast-Midwest
Institute consisting of two panels to examine the impact of the
housing crisis in our community and to discuss the Federal
response. The Northeast-Midwest Institute is a Washington, DC-
based nonprofit, nonpartisan research organization dedicated to
economic vitality, environmental quality and regional quality
for Northeast and Midwest States.
The first panel was composed of Miami Valley leaders who
discussed the effects of the housing crisis in the region. We
have in attendance today Jim McCarthy, who is in the back of
the room, from the Miami Valley Fair Housing Center, who has
previously testified before this committee on the issues of the
effects in Miami Valley. The second panel was composed of
Federal policy experts who discussed the Federal response to
this crisis. Both panels highlighted recent successes and
identified some of the serious challenges we face as we
continue to determine the appropriate role of Federal
Government addressing the housing issues in our region.
The panelists also provided considerations that address the
current legal and regulatory framework governing the housing
and mortgage-lending markets; the prevalence of fraudulent
mortgage-lending practices; the effectiveness of certain
housing tax credits, grants and programs; as well as providing
a complete reevaluation of Federal housing policies and their
impact on communities across the Nation.
Today I present the report that summarizes a number of the
policy considerations based on the individual testimonies of
discussions held at the housing forum that may assist us in
helping families stay in their homes and stabilize our
neighborhoods. The report, entitled, ``The Impact of the
Housing Crisis on Local Communities and Federal Response,''
discusses preventing predatory lending by increasing financial
product transparency and preventing the issuance of
inappropriate loan products, streamlining the mortgage-
servicing industry, standardizing housing counseling and loan-
modification regulations, improving the neighborhood
stabilization program, and building local organizational
capacity in distressed communities, and rethinking the impact
of low-income housing tax credits on older cities.
The report also provides Congress, government officials and
housing industry with a thorough understanding of the
implications of Federal housing policy's effects on cities like
Dayton.
With that, I would like to offer the report, without
objection, for the record.
Mr. Kucinich. Without objection, so ordered.
Mr. Turner. Mr. Chairman I thank you your support for that,
and I also thank you for your advocacy on behalf of Ohio within
this programs that's the subject matter of this hearing. Thank
you.
[The information referred to follows:]
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Mr. Kucinich. I thank the gentleman, and I thank you for
the opportunity to work with you on this, and also my other
colleagues on this committee.
We are now going to hear testimony from the witnesses. The
subcommittee is going to receive testimony from a witness on
the first panel. Ms. Phyllis Caldwell is the Chief of the
Office of Homeownership Preservation at the U.S. Department of
Treasury. Ms. Caldwell oversees management of the Obama
administration's Making Home Affordable program. Previously Ms.
Caldwell was president of the Washington Area Women's
Foundation, a public foundation solely focused on improving the
lives of women and girls by fostering philanthropic giving in
the Washington metropolitan area.
Ms. Caldwell, I want to thank you for being before this
subcommittee. It is the policy of the Committee on Oversight
and Government Reform to swear in all witnesses before they
testify, and I would ask that you please rise and raise your
hand.
[Witness sworn.]
Mr. Kucinich. Let the record reflect that the witness
answered in the affirmative.
Ms. Caldwell, I ask that you give a brief summary of your
testimony. Please try to keep that summary under 5 minutes in
duration. Your complete written statement will be included in
the hearing record, and I ask that you proceed.
STATEMENT OF PHYLLIS CALDWELL, CHIEF HOMEOWNERSHIP PRESERVATION
OFFICER, U.S. DEPARTMENT OF TREASURY
Ms. Caldwell. Well, Chairman Kucinich, Ranking Member
Jordan, thank you for the opportunity to testify today about
the Treasury Department's comprehensive initiatives to
stabilize the U.S. housing market.
It has been 1 year since the launch of Making Home
Affordable of which the Home Affordable Modification Program
[HAMP], is a key component. Today HAMP is making significant
progress with over 1 million trial modifications started, yet
we recognize the challenges remaining. We continue to monitor
and update program guidelines, to improve implementation and
help more homeowners.
At the end of January, nearly 1 million homeowners were in
active trial or permanent modifications. More than 116,000
homeowners now have permanent modifications, nearly doubling
the number from December. An additional 76,000 permanent
modifications have been offered and are waiting only for the
borrowers' signature.
Homeowners in modifications are achieving significant
savings on their mortgage payments, over $500 per month on
average. And HAMP has proven that it is helping homeowners who
have faced real financial hardship. Nearly 60 percent of
borrowers in permanent modifications have faced a reduction in
income, including loss of wages or hours, or unemployment of a
spouse.
But it's important to remember that HAMP is just one part
of the administration's broader effort to stabilize the housing
market. Together the Treasury and the Federal Reserve have
purchased over $1 trillion in agency mortgage-backed
securities, helping to keep interest rates at historic lows.
Millions of Americans have been able to refinance their
mortgages into lower-rate 30-year, fixed-rate mortgages, saving
an average of $1,500 per year on a refinance. And thanks to the
recently extended first-time homebuyer tax credit, more
Americans are now able to reenter the housing market and stem
the slide in home values.
Through HUD's Neighborhood Stabilization Program, hundreds
of communities across the country are taking important steps to
restore and maintain properties in neighborhoods that have been
hardest hit by concentrated foreclosures and home price
declines.
Finally, the administration last Friday announced that it
will allocate $1.5 billion to work with State housing finance
agencies to help address the foreclosure problems in the five
States that have been the hardest hit by the aftermath of the
burst of the housing bubble as measured by housing prices.
Eligible housing finance agencies means the funding on a number
of homeowner support programs, including programs for
unemployed borrowers, for reducing the burden of negative
equity or for addressing challenges that arise from second
liens. And while there is still significant risks, we are
seeing some signs of emerging stability. Housing inventories
continue to fall. House prices measured on a year-over-year
basis are declining less rapidly, with some house price
measures posting increases in recent months. Data released by
the Mortgage Bankers Association on February 19th showed that
the 30-day delinquency rates on one to four-unit residential
mortgages fell in the first quarter along with the number of
new foreclosures started.
Going forward, we recognize that there are still a number
of challenges ahead. The permanent modification conversion
campaign in December and January yielded valuable insights for
program improvements. We have made a number of program changes
to improve implementation. For example, at the end of January,
Treasury released guidance which requires greater income
documentation prior to beginning a trial modification. A simple
and standard package of documents will be required prior to the
servicer's evaluation of the borrower for a trial modification.
We took these steps to speed up the process of conversions from
trial to permanent modifications in the future. This new
upfront documentation will be required for all new HAMP
modifications that become effective after June 1st, although
mortgage servicers may implement it sooner.
And we continue to make more changes to improve
implementation. One important improvement we are working on now
is protections for homeowners to ensure that the modification
process treats borrowers fairly. Treasury anticipates releasing
guidance soon which will include a set of improved protections
for homeowners in the HAMP mortgage modification program.
Notably the package will standardize outreach for homeowners
who fall behind in their mortgages, and make an offer to
include them in HAMP if they qualify.
Additionally, we recognize that the foreclosure process is
often confusing to homeowners already in distress, and we have
been regularly reviewing guidelines around the process as part
of our ongoing commitment to ensuring transparency and
maximizing program effectiveness.
HAMP has made great progress in its first year. We look
forward to working with you to enhance the program's
performance and to help keep American families in their homes.
Thank you.
Mr. Kucinich. Thank you very much, Ms. Caldwell, for your
testimony.
[The prepared statement of Ms. Caldwell follows:]
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Mr. Kucinich. Last week the administration announced a $1.5
billion program to help five States deal with the foreclosure
crisis. But in designing that program, you excluded a number of
hard-hit, long-suffering States such as Ohio, Pennsylvania,
Texas, to name just a few.
I have here a letter from a dozen members of the Ohio
delegation. It's a letter that is circulated by myself and
Congressman LaTourette, signed by Democrats and Republicans
alike, demanding to know how you could possibly justify the
exclusion of Ohio from any foreclosure initiative. And I ask
for your answer now before this subcommittee.
[The information referred to follows:]
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Ms. Caldwell. Well, first let me say having testified in
your district in Cleveland a few months ago, we really
understand that there are residents suffering in the State of
Ohio and in Cleveland in particular. And I think it's important
to also set the context that HAMP and the programs announced
last week are just one part of a broader administration's--the
broader administration's efforts to stabilize housing. And Ohio
was the recipient of over $145 million in neighborhood
stabilization grants, including $40 million in Cuyahoga County,
to deal with the very real foreclosure processes that were in
place before HAMP was even started.
But I think stepping back to the announcement last week, as
Representative Cummings said, negative equity is a severe
problem, and we had to start somewhere. And so we looked at
those markets that had price declines of over 20 percent based
on the peak to trough, and those markets are the markets that
are going to be the target of this particular program.
Mr. Kucinich. I noted that in looking at the States that
you chose, all but one of the States in that new initiative are
so-called Sun States. I know they've been hit hard, but they
don't have a monopoly on the pain caused by the foreclosure
crisis and predatory lending.
What assurance can you give this committee that future
administration initiatives will not similarly focus primarily
on the Sun States to the exclusion of the hard-hit Midwestern
States like Ohio?
Ms. Caldwell. Mr. Chairman, I think it's very important to
understand that we have a broad array of initiatives, and while
this particular one was focused on those States that had very
high rapid price declines on purchased homes, every day we are
studying the problems facing homeownership in American families
and continue to iterate our programs to address those needs.
Mr. Kucinich. When you make a major public unveiling of
this kind of initiative in Ohio where we, particularly in the
Cleveland area, are acutely aware of the kind of help that
other areas are getting, and we're standing there with massive
amounts of--massive areas that have been foreclosed, some of
which, unfortunately, have been abandoned, your explanation,
well, that's your explanation, is not really acceptable,
because when you have these initiatives, you're still setting
priorities.
That's the message you're sending out. And you're going to
have to do better. You're going to have to be able to come back
to those of us who are in the Midwest and come up with some
specific programs, not--you know, we appreciate the
neighborhood stabilization, that's fine, I just won $145
million. You're talking about a $1.5 billion program you
announced. We know the difference. And Ohio, you know--and our
area is the epicenter of the subprime meltdown. That's not the
only problem.
I'm going to--I have one more question here. Banks and
investors are holding millions of mortgages that are not worth
anything near their paper value. The value of the houses that
secure this debt has fallen to just a fraction. These bankers
and investors have no hope to ever recoup their investment. But
even after they get a taxpayers' bailout, these bankers and
investors refuse to write down the losses. So far the
government hasn't seemed willing to ask the bankers and
investors to pay their fair share. HAMP hasn't resulted in many
principal reductions.
Now, the American people are wondering, is it the political
influence of the very banks and investors that taxpayers bailed
out that is causing you to avoid taking the necessary step of
promoting principal reduction in the Federal response to the
foreclosure crisis, and when is the administration going to
roll out a real program for getting principal reduction?
Ms. Caldwell.
Ms. Caldwell. Mr. Chairman, we continue to speak about
principal reduction and the challenge facing real American
families who wake up every day and realize that the value of
the largest asset that they have is below what they owe on the
house. So we have continued to study how we can make negative
equity and principal reduction work better for HAMP.
Currently the program allows lenders to take principal
reduction at any point in time in the modification. But one of
the things that we've learned is most of the people who are
underwater on their mortgage default after they've had an
employment shock or income shock. And so this program was
designed to target that affordability payment and keep them in
their homes, recognizing that we continue to put pressure on
the financial institutions to sign up for our second lien
program so that we can have more principal write-down on the
second liens and continue to have more on the first.
Mr. Kucinich. I'm going to ask the committee to just
indulge me in a quick followup.
So what's stopping Treasury from writing down the principal
of those loans and thereby giving the borrower a more
affordable mortgage?
Ms. Caldwell. I think as we step back and look at HAMP, I
think it's important to remember that when this program was
started, we were looking at a crisis of epic proportion and a
mortgage industry and a program that was largely voluntary
where there were mortgages, there were servicers, there were
investors, and there were banks. And while many people look at
the place where they write their checks, and they see the name
of the bank, and they think that's where their mortgage is,
when their mortgage, in fact, has been sold to an investor. And
one of the things that this program has done over the last year
is brought together banks, borrowers, servicers and investors
to reshape a mortgage modification industry that last year was
just about collecting payments. This is about keeping people in
their homes with affordable payments. And I think the next
stage is to look at how we can enhance the program to continue
to address the challenges that go forward.
Mr. Kucinich. Thank you, Ms. Caldwell.
The Chair recognizes Mr. Jordan.
Mr. Jordan. Thank you, Mr. Chairman.
And, Ms. Caldwell, thank you again for being with us a
second time.
In your testimony you say in 1 year HAMP has made
significant progress. The numbers we have as of the end of last
month, January 31, 2010, HAMP had achieved just over 116,000
permanent mortgage modifications, again, the stated goal being
3 to 4 million. So I guess my question is is that really
significant progress?
Ms. Caldwell. Member Jordan, I think it's important as we
step back and look at the program goals, the program was set
out to provide an opportunity for 3 to 4 million homeowners to
have a chance at a mortgage modification from program
inception, which was a year ago, through the end of 2012. In
its first year we have 1 million homeowners in trial
modifications, and in those trial modifications, they are
realizing close to 40 percent reduction in their monthly
payment.
Mr. Jordan. Let me ask you this: Do you expect by 2012 to
have 3 to 4 million homeowners in a permanent status? A trial
is one thing. I mean, that's your term, ``trial modification,''
so trial is not there, it's trial. So do you expect it to get
to the goal, stated goal, right from the outset, 3 to 4
million--do you expect to get to that number in 2 years based
on the fact only 116,000 are there today after 1 year?
Ms. Caldwell. Well, again, just to reclarify the goal, I
think--first let me just say we have never seen a mortgage
crisis of this proportion, so it's too soon 1 year in the
program to talk about what will happen 2 years out. But the
program is designed to offer 3 to 4 million homeowners an
opportunity for a mortgage modification, not a permanent
modification, an opportunity. And 1 year in we have 1 million
homeowners saving $500 a month in modification.
Mr. Jordan. I'm sure you're working hard, and I just
question this whole idea that the big Federal Government can do
these kind of things. They come out with a promise, we're going
to do--I mean, we're going to do a stimulus plan, it's going to
keep unemployment at 8 percent; we're going to do a home
modification program, we're going to help 3 or 4 million
people, and we've done 116,000 in 1 year; but we're going to
get to 4 million, we promise, promise, promise by 2012. I mean,
do you, yes or no, do you think by 2012, 2 years from today,
you will have 3 to 4 million people in a permanent modification
plan?
Ms. Caldwell. I'll just say, again, we're 1 year into a
mortgage modification program that is at a scale that has never
been done in history, and it's really too soon to predict what
will happen in 2012.
Mr. Jordan. OK. Let me move to a second one. Let's go to
the transparency issue, if I could, Mr. Chairman, and if I run
out of time, I will wait until the second round. Let's go to--
can we put up slide 1, I think?
This is the number of requests. And I guess my question is
going to go to--they're going to be hard to see. Let me just
cut right to the chase. Why did you decide to quit--if I
understand, in July of last year, August, September, October,
November, every month on your Web site you were putting up the
number of requests for financial information. And here the last
2 months you've decided not to display that number. Is there a
reason why you decided not to put that number up? And if you
had continued the practice you started with, what would the
number be today?
Ms. Caldwell. Well, first of all, let me just emphasize
that since its inception the HAMP program has been focused on
affordability, stability and transparency. And so we are very
committed to transparency of the program.
Mr. Jordan. But you admit you're no longer putting that
piece of information up.
Ms. Caldwell. Correct. The number you're referencing there
was removed because it was confusing to the public. Just to
clarify, the number is the number of requests for information
that lenders send or servicers send to their entire portfolio
of 60-day delinquent borrowers. It's not a measure that has
anything to do with applications to HAMP or the Making Home
Affordable program. That's just a measure of solicitations or
inquiries on any modification. And many people were confusing
it with HAMP, and so we removed it because it was causing
confusion in the report.
Mr. Jordan. Well, I mean, you've heard from taxpayers,
you've hear from American citizens that was confusing, or you
just decided that it was confusing?
Ms. Caldwell. We heard from a number of people on
conference calls, on Hill visits and press visits. But if it's
an important number to the public, we'll put it back in.
To your question on what would it be today, it's about 3.5
million.
Mr. Jordan. So it's up. So you'll make a commitment to put
that number back up there.
Ms. Caldwell. We will, but with more clarity that it
relates to overall solicitations, not just HAMP.
Mr. Jordan. I think that's a good thing. Transparency is
transparency. The American people are smart people. They put
Kucinich and Jordan in Congress. No, I'm kidding. They can
figure it out, so I think that's something that should be up
there.
Thank you, Mr. Chairman. I yield back.
Mr. Kucinich. I thank the gentleman.
The Chair recognizes the gentleman from Maryland. Mr.
Cummings, you may proceed.
Mr. Cummings. Thank you very much, Ms. Caldwell.
What does the average trial modification--what's the
savings for the borrower in a trial modification, and is that
different than the savings in the permanent?
Ms. Caldwell. In terms of the data collection, we don't
have exact data on the savings in a trial modification, but if
there's been no change in the borrower's income, it should be
the same. And so our population has a median savings of just
over $500 per month.
Mr. Cummings. So in other words, when they negotiate the
trial, if they don't--if their income doesn't change when they
move to that date that would make them permanent, then you
would assume it's pretty much the same, right?
Ms. Caldwell. Right. Because it's based on affordability,
on 31 percent debt to income.
Mr. Cummings. It was reported in the press on Monday that
Treasury plans to implement changes to HAMP, including a
prohibition against lenders filing foreclosures while a
borrower is in the modification process. Are you familiar with
that, right?
Ms. Caldwell. I am familiar, yes.
Mr. Cummings. And I'm very pleased about that because I
cannot tell you how many people in my event on Saturday and the
two previous events that we had said that their lender went
ahead with filing foreclosure while they were in the process.
If you could please run down other changes in HAMP that are
being considered? Are there other things that are being
considered?
Ms. Caldwell. Well, let me just first back up to the
changes that you reference that were mentioned in the paper
earlier this week. Those have not been confirmed or approved;
those are changes under discussion. And as a program that has
multiple stakeholders, those were changes that are being
recommended, considered and were being vetted with
stakeholders, and that were leaked to the press in advance of
approval. And I think everyone in this room has experienced an
advance leak. So that certainly is along the lines of what is
being considered, but it is not yet finalized. In terms of----
Mr. Cummings. Let me just ask you real quick. And what
would be the process for finalizing those things that have been
leaked to the press?
Ms. Caldwell. Full approval within Treasury.
Mr. Cummings. And----
Ms. Caldwell. But let me go on to say just in terms of
future iterations to the program, every single day my office is
looking at the homeowner experience in this program and what we
can do to make it better. And so we have continually made
adaptations, and we will continue to iterate until we are doing
the service that we need to have to American homeowners.
Mr. Cummings. Is there a--tell me about the sense of
urgency with regard to the one change that we just talked about
with regard to not putting people out while they are trying to
modify.
Ms. Caldwell. Well, let me just be clear at the front. The
HAMP current guidelines prohibit a home from going to
foreclosure sale while the homeowner is in HAMP trial
modification. And so these changes are not--these changes are
designed to enhance the communications so that homeowners have
a clear understanding of their rights, and that they know that
their home cannot go to sale while they are in a HAMP
modification. That has been the case since the program was
started.
Mr. Cummings. And how important is it that you have
cooperation of the lender or servicer in the HAMP program?
Ms. Caldwell. It's very important. HAMP is a voluntary
program, but I think it's important once a servicer signs up
for HAMP, they are under contract with U.S. Treasury, and they
must perform. When the program was launched a year ago, folks
said, you'll never get servicers to sign up to modify
mortgages. Within the first year we went from zero servicers to
100 servicers, covering 90 percent of U.S. mortgages. And so
while it is a voluntary program, once someone is in, they are
under contract, and they must comply with the regulations.
Mr. Cummings. And that leads me to the question, in my
district, you heard what I said a little earlier. I mean, we
work very hard to put lenders together with borrowers, and the
No. 1 complaint is that the borrower can't get ahold of anybody
in the lender's office. I don't care who it is. We dealt with
25, we had them all in one place this weekend, past weekend,
weekend before last.
And so I'm trying to figure out where the problem is here.
There's a disconnect. Are you following me? And I'm sure this
is happening all over the country. And that's the No. 1
complaint. And I can get 1,000 people out on a Saturday morning
in the snow, I'm serious, but they can't get a lender--and the
reason why they come to me--and they shouldn't have to have a
Congressman to facilitate them. You know, so I'm just trying to
figure out. I mean, you just said that you all were trying to
make sure that you try to address all the issues because I know
you want to be as effective and efficient as you can be, and
I'm just wondering if there is anything that we're missing
here.
Ms. Caldwell. Well, let me first say that homeowner events
like the one you held last weekend are very important. I was
actually supposed to speak at the one when it was originally
scheduled for the first part of February when we had the big
snow, and so those are very important.
I happened to be at a similar event that our office was
hosting in Houston, Texas, and that opportunity for face-to-
face connection with the servicer is important. But I think it
is important to remember a year ago servicers were just in the
business of collecting checks, making phone calls and
foreclosing. And as part of this crisis, they have had to
fundamentally reshape their operations to handle homeowners in
crisis, to follow the rules of a government program, to shift
modifications from those that used to increase a homeowner's
payment to those that are long-term and sustainable. And so as
they have ramped up, there have been some implementation
challenges. Some signed up before they were ready; some are
doing better than others. And part of our commitment to
transparency is publishing a monthly servicer performance
report so that we can judge who is getting the job done and who
is not.
Mr. Kucinich. Thank you.
The gentleman's time is expired.
The Chair recognizes Ms. Kaptur.
Ms. Kaptur. Thank you, Mr. Chairman, for holding these
hearings.
Welcome, Ms. Caldwell.
Could you please for the record state at which institution
you first began as a mortgage loan officer?
Ms. Caldwell. I have never been a mortgage loan officer.
Ms. Kaptur. Thank you.
Have you ever in your prior positions handled the assets
and liabilities of a financial institution and how they
actually account for the value of real estate?
Ms. Caldwell. Yes, ma'am I, have.
Ms. Kaptur. OK. And for which institution was that?
Ms. Caldwell. With Bank of America.
Ms. Kaptur. Bank of America.
Have you ever been a part of the resolution of an
institution or any instrumentality of Bank of America as they
tried to work out on the books of that institution troubled
real estate loans?
Ms. Caldwell. Yes.
Ms. Kaptur. And have you marked, been a part of an effort
to mark, the value of those assets to market for those
institutions on their own books?
Ms. Caldwell. Certain asset classes are required to mark to
market, and some aren't, so it really depends on the accounting
rules with the various assets that I've been a part of.
Ms. Kaptur. I am trying to understand. Now, you're over at
the Treasury Building, right?
Ms. Caldwell. Correct.
Ms. Kaptur. I have found this whole approach to dealing
with the housing market foreign to anything I have ever known.
And in a way I think you have a job that's doomed to failure.
And I don't understand why the last administration and this
administration are using these means to deal with the real
estate implosion in this country.
So some of my questions--and I asked Secretary Geithner
yesterday to come and see the people over in the administration
who are involved in these programs, because I can't figure out
if Treasury has been selected to try to dig out of this
avalanche of troubled loans because the system can't find the
loans on the books of the institutions that originated them and
then sold them upstream, or if they're doing it for some other
reason that I don't really understand.
But what's been happening in communities like my own,
foreclosures are going up and not down. Home values are going
down, not up. Credit is frozen across this country because the
banking system doesn't have confidence that the regulators or
those in charge of regulating the financial institutions of
this country have any consistency in what they are doing.
And so this recent decision by TARP, TARP, the group that
decided that Merrill Lynch would be merged but Lehman would go
down, now the same instrumentality has decided that five States
are going to get TARP money to deal with home foreclosures, but
45 other States aren't. And I can tell you I represent a
district where the unemployment rates in the four counties I
represent are higher than the unemployment rates of the States
of Nevada and California and Florida and the other States that
were selected. So it's really I'm thinking, hmmmm. So Treasury
now picked five, but it didn't pick troubled areas of the other
four.
It makes no sense to me. And I'm wondering why the FDIC and
the SEC aren't being used to deal with home value in a normal
manner so that the books are resolved at the institutions that
have held these loans, but rather all this is being thrust at
you, at Treasury, which is not a housing agency. It never has
been. It's a bonding agency. It sells bonds, it collects taxes.
That's what it does. The real housing knowledge is inside of
HUD, it's inside of FDIC, because those lines are on the books
of the institutions that made the loans, and it's over at the
SEC.
So we're not resolving the--in fact, what we're doing,
what's happening is the approach is procyclical. What's being
done to date is driving us into further recession, less lending
and more delinquencies. And I can tell you--I mean, I'm not the
only one up here--in the HAMP program it's not working. As hard
as you try, they've given you an impossible job. And to resolve
what's wrong with the housing market, I asked Secretary
Geithner for a meeting, and I guess he's agreed to do it. He's
not a houser, hasn't been involved in real estate.
This is really complicated. We need to use the proper
regulatory instruments, and we're not using them. And it's
beyond me why, unless you can't find the loans, unless they're
missing somewhere, and I don't believe that. I think that we
can resolve them on the books.
So I guess rather than giving you all the troubled real
estate loans in the country, what I think should be happening
is every single institution that made those loans, we should be
resolving and taking those losses, writing down the principal
on those assets and liabilities on the books of those banks.
That's what bank examiners do. That's what the FDIC does. So my
fundamental question is why aren't we doing that?
Mr. Kucinich. The witness will have time to give a brief
response.
Ms. Caldwell. Let me just say for the HAMP program, which
is what my team does every single day, when you look at the
mortgage structure that we have today, over 90 percent of the
mortgages in the United States are serviced by HAMP-eligible
servicers. And that happened from within its first year of
operations. We have 1 million homeowners that are saving 40
percent a month on their mortgage payment. And this is only one
piece of the administration's overall housing solution when you
think about interest rates, you think about refinance, you
think about the purchase of mortgage-backed securities, and you
think about HUD neighborhood stabilization funds. There are a
number of agencies working together to address what is the
largest housing crisis of our time.
Mr. Kucinich. We're going to go to Mr. Tierney of
Massachusetts, then we're going to have one more round, Ms.
Caldwell, because myself, Mr. Jordan and perhaps other Members
have some additional questions.
What about Ohio? Tell me what are you going to do, what are
you going to do for Cleveland? You've got to do more. What are
you going to do?
Ms. Caldwell. Well, I think it's important to keep in mind
that right now there are over 22,000 homeowners in trial
modifications in the State of Ohio, and our job No. 1 is to get
those homeowners into permanent modifications, and so we are
focused on that every day.
Mr. Kucinich. Don't you have about 19.4 percent of people
in Ohio that are already underwater?
Ms. Caldwell. I don't know the underwater statistics for
Ohio, but we continue to look at everything we can do in Ohio
and across the United States to keep homes--to keep those
people in their homes.
Mr. Kucinich. OK. That's not good enough. You're going to
have to do more. We'll be in conversation about these things,
but I'm not satisfied. Listen to what Mr. Rokakis has to say on
the next panel, because he has some of the granular details
about what's going on in Cleveland, Cuyahoga County.
I'm sure you're doing your best, but this is a wake-up
call, and consider it a friendly wake-up call. I'm concerned
that you haven't done enough to pressure the loan servicers and
investors, and all the effort put into this program will not
make a meaningful difference for the large number of homeowners
in America who need help. That is the underwater borrowers, the
borrowers who do not get modifications because of conflict of
interest by the lenders owning both the first and second
mortgages. Four biggest banks control two-thirds of all loan
servicing. What's Treasury doing to address this problem?
Ms. Caldwell. We're doing a number of things. I think
that--and transparency is key here. Beginning in November with
our--actually our data published in December. We published by
servicer, by servicer performance reports, and that is a big
motivating tool in getting those modifications made and
converted.
In addition we've hired Making Home Affordable Compliance.
It is a separate unit of Freddie Mac that goes in and inspects
all the major servicers to make sure that they are
appropriately soliciting homeowners that are eligible for HAMP
modifications, and that they are doing it in the appropriate
way.
And third, we run a call center in partnership with HOPE
NOW and NeighborWorks to make sure that we are providing
homeowners across America an opportunity to get help on their
loan and get referred to a counselor where needed.
Mr. Kucinich. I've looked at your testimony, all of it, and
it touts the accomplishments of the HAMP program, but it's hard
not to conclude that the administration has created a system
that's all carrot and no stick. All along we've heard reports
of the poor treatment of borrowers by loan servicers.
Counselors in foreclosure prevention programs across the
country relayed their stories through the media. And we heard
that one of the most common reasons loan servicers deny
borrowers modifications is the alleged reason that the
borrowers' hardship isn't permanent.
What can you tell borrowers who are getting this kind of
treatment from loan servicers?
Ms. Caldwell. You know, our office and the call centers
speak with borrowers every day on the phone. We have been out
to 40 cities across the United States, or made a commitment to
go to 40 cities--we've been to 22--to meet with homeowners in
person. We regularly go out into the district offices because
we want to hear about the experience that people are having.
This program was designed with the borrower at the forefront,
and every day this office takes seriously the experience of
homeowners across America.
Mr. Kucinich. How do people get ahold of you and--and
indicate their experience? Do you have a Web site?
Ms. Caldwell. We have a Web site, and we----
Mr. Kucinich. What is that address?
Ms. Caldwell. It is MakingHomeAffordable.gov, and we have a
phone number which I'll have to provide to you, but I know the
last four digits are H-E-L-P.
Mr. Kucinich. We don't want that to be wrong. Well, we will
make sure that we work with you in circulating that
information.
Now, one big complaint among borrower advocates is that
loan servicers can proceed with a foreclosure while the
borrower is still being evaluated for and is in a trial period
for a loan modification. What are you doing to change that?
Ms. Caldwell. Well, again, as I said earlier, I think it is
important to understand that HAMP guidelines have always said
that a home may not be sold, go to foreclosure sale while a
borrower is in HAMP. Foreclosure laws do differ across States,
and so there are some States where there may be borrowers or
homeowners in a foreclosure process, albeit not a sale, while
undergoing HAMP. And so one of the things that we are very
committed to doing is making sure that homeowners understand
that process, that servicers understand their responsibility in
the process, and that there are no situations where a homeowner
goes through an avoidable foreclosure.
Mr. Kucinich. My time--thank you. My time has expired, but
I am going to ask you to be open to submissions by members of
this subcommittee of followup questions that we may have. I
have a followup question about underperforming services, but I
will put it in writing.
We're going to move along with this and get to the second
panel after other Members have had a chance to ask a second
round of questions.
The Chair recognizes Mr. Jordan. You may proceed for 5
minutes. Thank you.
Mr. Jordan. Thank you, Mr. Chairman.
Ms. Caldwell, let me get back to the transparency concern
of--for the $75 billion--potentially $75 billion program. The
Special Inspector General for TARP has made a recommendation
that Treasury should require the servicer to compare the
income--I mean, it is straight out of the book--compare the
income reported on the mortgage modification application with
the income reported on the original loan. They list in their
latest report that this recommendation has not been
implemented. Why hasn't it? I mean, that seems to me, looking
at potential fraud, just a good government type of thing that
could happen. Why haven't you done that? Why haven't you
required that?
Ms. Caldwell. The HAMP program is a modification program,
not an origination program, and so this program is designed to
prevent avoidable foreclosure. So the focus is on what is the
homeowner's current hardship and the documentation of the
income that they have today----
Mr. Jordan. But don't----
Ms. Caldwell [continuing]. And keeping affordable payments.
Mr. Jordan. Ms. Caldwell, don't you think in light of all
that took place a few years ago when we talked about some of
these loans that were made, and there was maybe no
documentation, not--there was potential fraud, don't you think
it makes sense--you as a professional who serves in this
industry, don't you think it makes sense to look at that? And
the guy who is supposed to inspect, the inspector general of
the program, is supposed to watch out for the billions of
taxpayer dollars potentially at risk. I mean, why wouldn't you
do it? The inspector general is telling you to do it. It makes
sense. It was part of what started us in this mess to begin
with a few years back. It seems to me that would be something,
oh, yeah, no-brainer, let's do it.
Ms. Caldwell. Our focus right now in the HAMP program is
getting the documentation in from the borrowers currently in
trial modifications on their income and the hardships that they
are facing today so that they----
Mr. Jordan. Do you----
Ms. Caldwell [continuing]. Converted to permanent
modifications, not on whatever documentation----
Mr. Jordan. Do you intend to at any point over the next 2
years, as you are trying to get to this goal of 3 million, 4
million, and you have only done 116,000, do you intend at any
point over the next 2 years to do what the inspector general
has asked you to do?
Ms. Caldwell. We're always looking at ways to iterate and
improve the program to provide a better experience for the
borrower and for the taxpayer. Right now we're focused on the
conversion from trial modifications to permanent modifications,
but will continue to look at the program.
Mr. Jordan. Is that a no? You're not going to do what the
inspector general suggests you do?
Ms. Caldwell. It is a--I can't say today 1 year into the
program what we're going to do between now and 2012, but I can
commit that we will continue to review it.
Mr. Jordan. What's the qualification rate? One million
people have--have applied and are in trial modification. What--
116--do you know the percentage of folks--- do you anticipate
those who are still in trial modification, what percentage of
those will make it into permanent modification of their loan?
Are the vast majority going to continue to be rejected? Is that
your--that's the history. You anticipate that being the case as
we move forward?
Ms. Caldwell. In terms of a conversion ratio, it is too
early to predict what the long-term conversion ratio can be.
The one prediction that I would be prepared to say is that when
documentation is required up front, the conversion ratio will
be higher, because the documentation collection has been a
challenge.
I do think it is important to just again emphasize that the
program is designed to provide 3 to 4 million in opportunity
for modification, not a commitment to modify 3 or 4 million
mortgages.
Mr. Jordan. OK. Well, let me ask, it looks like a high
number are going to be in trial and not make it to the
permanent. With that fact in mind, if homeowners who get trial
modifications but don't qualify for permanent ones end up
defaulting on their mortgages, wouldn't it have been better for
them to pursue some other type of approach, some other type of
remedy for the difficult economic situation they are in?
Ms. Caldwell. I think it's important to remember that HAMP
is a pay-for-success program, so incentives do not get paid to
the servicer until the loan becomes permanent. And then there
are incentive payments as the loan stays current over a 5-year
period. So to the extent that a loan does redefault, taxpayer
money is not paid to support that loan.
In terms of keeping homeowners in their home and avoiding
foreclosure for a longer period of time, I think that is a good
outcome.
Mr. Jordan. Let me ask one final question, if I could, Mr.
Chairman.
This is from a week or two ago, a Wall Street Journal piece
on a program, the date February 9th. Former head of Freddie Mac
David Moffett said--he and others warned administration
officials that the loan modification goals were unrealistic,
that borrowers whose homes weren't worth what they owed were
unlikely to take part, and that many participants would be
likely to redefault within months. They didn't want our views,
Mr. Moffett says.
It looks like he was somewhat, you know, visionary or
prophetic on his statement there.
Is that statement accurate in your mind, Ms. Caldwell? And
were, in fact, you--those of you at Treasury, I don't know if
you were there quite yet, but do you know if folks at Treasury
were warned about, you know, got this warning that Mr. Moffett
states in the article?
Ms. Caldwell. You're--you're correct, I joined Treasury in
November 2009, so I can't speak to what people were thinking at
Treasury, but what I can say is that in the program today we
have over two-thirds of the homeowners current on their
mortgage, and that is--we've never had anything at this scale,
so we don't have historical data to fall back on, but what we
do know in loss mitigation prior to this crisis, close to 45 to
50 percent redefaulted. So we are outperforming in terms of
prior history.
Mr. Jordan. Mr. Chairman, if I could, you know, if you have
another hearing, I don't know if you're going to, but if you
do, we may want to get Mr. Moffett.
Mr. Kucinich. I have the feeling we're about to become good
friends here.
Mr. Jordan. Mr. Moffett may be someone we want in front of
the committee. Thank you.
Mr. Kucinich. Thank you very much.
The Chair recognizes Mr. Cummings.
Mr. Cummings. I thought Mr. Tierney was----
Mr. Kucinich. Mr. Tierney waived that in the last round,
but I would be happy to begin with Mr. Tierney.
Mr. Cummings. No, I'll yield to Mr. Tierney.
Mr. Kucinich. OK. Mr. Tierney.
Mr. Tierney. Thank you. Thank you.
I apologize for missing your remarks and the early part of
the questioning, so some might be repetitive, I'm sure it
probably is, but as long as we're here, can you tell me why the
administration hasn't considered any sort of principal
reduction program or whether it might do that in the future,
and what it would look like if it did?
Ms. Caldwell. Right now HAMP currently allows for principal
write-down at any point in time in the mortgage modification. I
will also say that----
Mr. Tierney. It allows for it, but it doesn't naturally
move in that direction.
Ms. Caldwell. It doesn't require it. And the administration
has been studying ways to look at principal write-down as part
of the mortgage modification, but one of the things that we
have learned is that the bulk of the people who are underwater
in their mortgage are currently paying, and so we're always
examining that in the lens of cost to the taxpayer, moral
hazard and keeping the program running. And so with that in
mind, this program was designed for affordability to make sure
that people could stay in their homes with a payment they could
afford.
Mr. Tierney. Now, when you're looking at this new plan to
divert about $1\1/2\ billion in TARP funds to just five States,
will there be a change in attitude with respect to that since
there is TARP money in a lot of those banks that may be
involved, actually took taxpayer money, will be requiring a
little bit more from them in terms of principal forgiveness?
Ms. Caldwell. Right now we're looking at this program
announced last week. We're trying to get it up and launched and
learn from what the local housing finance agencies are doing.
And like with everything else we have done with this kind of
crisis, that is something we've never seen before in our
history. We want to take the lessons that we learn from this
and all of our other housing initiatives and try to make our
program better.
Mr. Tierney. So that's a no, right?
Ms. Caldwell. It's a--it's a too early to tell. We're all
learning through this together as we go along.
Mr. Tierney. Well, you have not done it in the past. There
was nothing to learn from the past about doing it because you
haven't done it, so I am asking you whether or not you are
going to take some consideration and maybe emphasis on trying
something new, particularly where some of the banks involved
have already taken the taxpayers' money, and now say, in some
instances where appropriate we are going to make a conscious
effort to aggressively go and get principal reduction, see if
we can get these people to stay in their homes and have these
banks do something responsible? Is that not something you're
going to go aggressively after?
Ms. Caldwell. Our office has been aggressively considering
proposals from--on all areas that we can do to address the
foreclosure crisis in this country and prevent affordable
foreclosures. But as I said earlier, we have to do that with
the lens of affordability, stability and transparency, and we
have to think about it with the taxpayer dollars.
Mr. Tierney. All right. It seems to the me you have an
aversion to that, but we'll see how it develops.
Yield back to Mr. Cummings.
Mr. Kucinich. Mr. Cummings.
Mr. Cummings. Just one quick question. He just yielded back
to me, Mr. Chairman.
One of the disturbing things that you said that upsets me
tremendously, and I just checked with my office to make sure,
there are people--I don't care whether it is in law or not,
there are people who are being foreclosed upon, whether it is
in the law or not. And we can give you name, dates, and serial
numbers. And some kind of way we have to get to that. I mean,
apparently there is no enforcement mechanism, that's No. 1.
No. 2--in the HAMP program, by the way. No. 2, I was--you
seem to make a big deal out of this thing of listing the
servicers and how many--what they did. I'm trying to figure out
how do you see that as an incentive? The--is there any data
that shows that they get--I mean, they get overjoyed or
something when they see their name listed, and there are a lot
of--you know, they have a lot of--they have done a lot of these
modifications, because it doesn't seem to be working.
Ms. Caldwell. You know, public pressure and transparency is
one tool, but I think it is also important to remember that
HAMP is a pay-for-success program. So modifications don't
convert, servicers don't get paid. And so you get paid for
success.
In addition, if there are modifications that have not been
done appropriately, then under the contract Treasury can go
back and take back that incentive.
Mr. Cummings. So if we have situations where people are
doing that, the thing about with the foreclosures while they
are working out the HAMP program, we should get that
information to you?
Ms. Caldwell. Absolutely. If there are cases where you have
servicers in your market that have violated the guidelines
under HAMP, we want to know about that.
Mr. Cummings. And what will you do?
Ms. Caldwell. We then turn that to our compliance agent. We
have a compliance committee. They review it, they determine the
facts, and then there is a recommendation made about remedies.
Mr. Cummings. Thank you, Mr. Chairman.
I yield back.
Mr. Kucinich. I thank the gentleman.
The Chair recognizes the ranking member of the full
committee Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman.
Ranking Member Jordan had asked you about transparency
pursuant to the special IG for the TARP, and I don't think he
got a satisfactory answer.
Do you believe that the American people deserve 100 percent
transparency on your actions and your progress?
Ms. Caldwell. I do. As we said, this program has been
designed to look at affordability, stability and transparency.
Mr. Issa. OK. Well, going to the transparency, since you've
only done 116,000 permanent loan modifications, or 3 percent of
your goal, and we are well into your time horizon, how can we
see in a transparent way your progress so that we can determine
whether or not you have any hope of, in a qualified way, in an
effective way, achieving anywhere close to your original goal?
Or if you're not to take back a substantial portion of the 75
billion--because ultimately if you're not going to get close to
3 to 4 million in permanent loan modifications, shouldn't we
encourage the President to reallocate that money?
Mr. Caldwell. Let me answer, I think, your first question
was about the 3 to 4 million, and it's important to again
stress as I did for Member Jordan that it was not designed to
provide a commitment of modifications to 3 to 4 million people,
but rather 3 to 4 million homeowners an opportunity for a
permanent modification. So if you come in the first year----
Mr. Issa. Well, let's go back through. How much of the 75
billion have you used with 116,000 permanent loan
modifications?
Ms. Caldwell. I don't have the exact answer to that, but it
is important to remember that----
Mr. Issa. OK. If we're going--ma'am, if we're going to have
transparency, then where can I go and find out how much you
spent in somewhere close to real time? This committee wants
transparency; we demand it. We're demanding it of the banks. We
are demanding it of all kinds of institutions we didn't before.
If you don't have--if you come before the Congress in a
scheduled hearing, and you don't have the answer to a question
of how much you've spent, then I would like for the record a
place where my staff can go on a daily basis from here forward,
click on a public site, or, if there is a reason for it not to
be public, then a less than public site, and get that answer.
Can you make that commitment to me today that you will bring us
back that answer?
Ms. Caldwell. I can bring you back an answer on the amount
spent, yes. But I will again say because the--because the
program only pays for permanent modifications, it has not spent
much.
Mr. Issa. OK. Do you, by the way, receive a tally on a
daily basis or as requested immediately of how much has been
spent? Is that a question you ask and get answered
periodically?
Ms. Caldwell. It's a question asked periodically, but not
daily.
Mr. Issa. When you ask it, how long before you get an
answer usually?
Ms. Caldwell. It is hard to say.
Mr. Issa. Well, just give me a--one example, that would be
fine. A day, a week, a month, an hour?
Ms. Caldwell. Within the time requested, but it is
published.
Mr. Issa. You're telling me that this is published, and my
staff could go during this meeting and get that information?
Ms. Caldwell. From the TARP funds, yes. There is financial
statements for the TARP.
Mr. Issa. The special IG basically said, no, there isn't.
That's one of the problems is the accountability and
transparency in his report, which is rather lengthy, it comes
up with a not so good. You know, this is not a B-plus exercise,
this is a D-minus exercise in many of the things that he said.
Well, let me move on to just maybe one or two other
questions.
You're now well enough into it with 116,000 modifications.
Let me go to a question that was asked before maybe to set a
stage. How many banks did we give money to in the TARP? Not in
your program, in the TARP overall. Did we give money to
anybody, or did we loan money to them?
Ms. Caldwell. In the TARP?
Mr. Issa. Yes. We loaned money to the banks, right? And
they paid back with interest, and most have exited, the largest
banks have exited.
Ms. Caldwell. Most, yes.
Mr. Issa. When you're going to the banks and asking them to
do loan modifications to basically forgive, in some cases,
substantial portions of principal, you haven't given them any
money; the only money is the money that you, in fact, are
standing there out of your 75 billion? Isn't that correct that
their inducement is whatever you bring in with your $75 billion
in funds; is that right.
Ms. Caldwell. And enforcement under a contract that they
have signed.
Mr. Issa. If they choose to participate with you.
Ms. Caldwell. Of which over 100 servicers have covering 90
percent of the mortgages. And the TARP banks servicers have all
signed up.
Mr. Issa. But those are those who chose. I just wanted to
make clear that the gentleman on the other side was implying we
gave money and therefore had an obligation. But the only people
who have an obligation are those who signed up for this program
and you are giving them money from the 75 billion; is that
right?
Ms. Caldwell. For their performance under the contract,
correct.
Mr. Issa. Very good.
Thank you, Mr. Chairman.
Mr. Kucinich. The gentleman's time has expired.
The gentleman recognizes Ms. Kaptur.
Ms. Kaptur. Thank you.
Mr. Chairman, I want--I would appreciate it if Ms. Caldwell
would answer do you possess a degree in finance, or banking, or
accounting?
Ms. Caldwell. Finance.
Ms. Kaptur. Accounting science?
Ms. Caldwell. No.
Ms. Kaptur. Your degree is in science.
Ms. Caldwell. The degree is in finance.
Ms. Kaptur. Finance. Thank you very much.
According to the information that I have, in Ohio in the
past year, 2,529 homeowners got what are called permanent
modifications. That doesn't mean that anything actually
happened, it just means they went through some process that got
them to some point. Of the programs that you have
responsibility for the HAMP program, what percent of those
individuals that have come to the Government of the United
States through your programs have actually been resolved? All
those servicers you said that signed up for your program, what
percent? Is it 5 percent, 3 percent? What's the number for the
country?
Ms. Caldwell. I'm sorry, can you ask the percentage of
what--I didn't understand your question.
Ms. Kaptur. Of the home loans that have actually been
refinanced and resolved where the people were able to stay in
their homes either through principal reduction, reworking of
the mortgage loan, whatever, what percent in your program?
Ms. Caldwell. In our program we at this point in time,
because we have homeowners in a temporary review, at the end of
December we put homeowners in a trial modification to do one
more review so that we could make sure that those--that they
understand what documents needed to be in and that they had a
chance to become current. So therefore, we have not had very
many people declined in order to--so that's not a number we can
give you. Everyone that's still in a trial, unless their
property is ineligible for HAMP or they have withdrawn from
HAMP, they have not been able to be declined.
Ms. Kaptur. Well, according to the numbers I have, Ohio had
about 90,000 homeowners who were foreclosed on in the last
year, and of that number we have 2,529, a very small
percentage, who got permanent modification to their mortgage.
But when you really probe beneath that surface, that permanent
modification doesn't necessarily mean that they remained in
their home, because something can change, because it's in the
program, and something else can happen to it. So my point is
it's a very, very small number of people who have gotten any
home security out of this program after 1 year in Ohio. Maybe
it is different in other States, I don't really know, but
certainly in Ohio we don't see any kind of real bounce from
this program.
If it is all right, I would like to state some of the
difficulties that we are having in Ohio. The servicers really
aren't serious. Participation is voluntary; they can fiddle
around with a loan for months. There is no strong arm of FDIC
in there or the SEC working with the institutions, which goes
back to my original question. It is very curious to me that
these mortgage loans are being worked out at Treasury. That's
never been a housing--Treasury certainly doesn't do servicing.
I mean, it's just an odd place in the Government of the United
States to conduct these activities.
But let me just state for the record a couple of real
problems here. The 31 percent threshold that is used in the
program that you manage is unrealistic in regions that have
traditional affordable housing stock like Ohio. We didn't have
the big bump-up like Arizona. I'm sort of offended, California,
you know, Arizona, all of places that have hyperinflation, they
get attention. And yet, you know, the heartland gets run over
with a Mack truck because the people in our area were paying
less than 31 percent of their income for their mortgage. And
the modification process actually increases their payment and
exceeds the 31 percent threshold, so, again, it is just
another--it becomes a procyclical means of denying people the
ability to work out their mortgage.
As you know, there is huge lack of coordination between the
legal, the loss mitigation, the collection, and the
homeownership offices of lenders or servicers, total confusion,
loss of documents. And I will tell you one of the worst
companies is Bank of America. We get so many complaints about
Bank of America, your former firm, and documents are constantly
being lost. And I just wonder what you think----
Mr. Issa. I would ask unanimous consent that the gentlelady
have an additional minute.
Mr. Kucinich. The gentlelady's time is expired. There's a
unanimous consent to give her another minute. You can ask--if
you could ask a question, we'll ask Ms. Caldwell to respond.
Ms. Kaptur. I thank the chairman, and I thank the ranking
member.
I want to know what you can do to get the servicers to
really do their job.
Ms. Caldwell. Now, I think it's--again, as I stated
earlier, this program went from startup to 1 million homeowners
in trial in a year and zero to 100 servicers in the first year.
And we have acknowledged there have been implementation
challenges as this industry fundamentally restructured. And so
we continue every day to learn from what's happened in the
prior month to make improvements.
Now when you talk about permanent modifications, we started
the month of December with 31,000 modifications. Back when I
testified for the chairman and the ranking member a few months
ago, we had 31,000 modifications. Through daily efforts with
the servicers, setting goals, improving processes, we now have
116,000 modifications, that's in 2 months, with another 76,000
out the door awaiting signatures.
Ms. Kaptur. Can you define what ``modification'' really
means?
Ms. Caldwell. The permanent modifications where a homeowner
has been through trial and converted to permanent modification.
So that's been a doubling of pace in the last 60 days, and
that's a result of just growing into the system and learning
from the startup process.
Ms. Kaptur. If there is a third round, Mr. Chairman, I will
continue my questioning.
Mr. Kucinich. The gentlelady's time has expired. This is
the end of the second round of questions.
We've got three panels, and we're going to need to move on.
To my colleague Congresswoman Kaptur, Ms. Caldwell has
consented to answering any questions that can be put in
writing.
Ms. Kaptur. OK.
Mr. Kucinich. And we'll make those, if we get a timely
response, part of this.
As has been pointed out by my colleague, SIGTARP has said
that the American people deserve better. Ms. Caldwell, I hope
that you will agree. Thank you very much for being here,
Mr. Kucinich. We're going to ask our second panel to come
up. I want to thank all my colleagues, Mr. Tierney, Mr.
Cummings, Ms. Kaptur, Mr. Jordan, Mr. Turner, Mr. Issa, for
being here.
The second panel, will you step forward, and we will move
to swear in the witnesses. While you're coming forward, I will
do some introductions.
Second panel consists of Mr. Bill Sheil. Mr. Sheil is a
journalist and investigative reporter for WJW FOX channel 8 in
Cleveland, OH, where he's won numerous regional Emmys, as well
as the Edward R. Murrow award for his reporting.
Mr. Jim Rokakis has served as the Cuyahoga County treasurer
since 1997. Under his leadership the office took an early role
in combating the foreclosure crisis, particularly with regard
to abandoned properties and the creation of a county land bank.
He helped create and oversee the county's Don't Borrow Trouble
mortgage foreclosure prevention program.
Finally, Ms. Patricia Stringfield is a resident of
Washington, DC, and has lived here all her life. She has been a
homeowner since 1988 and has sought a modification of her home
mortgage under the HAMP program.
So I'm going to ask the witnesses to stand.
It is the policy of the our committee to swear in all
witnesses, and I would ask if you would rise and raise your
right hands.
[Witnesses sworn.]
Mr. Kucinich. Let the record reflect that each of the
witnesses have answered in the affirmative.
Now I am going to ask that each of witnesses give a brief
summary of their testimony. Please keep in mind that your
testimony should be no more than 5 minutes in duration. Your
complete written statements will be included in the hearing
record.
Mr. Sheil's our first witness, and his testimony is in the
form of an excerpt from an investigative report he produced for
FOX Cleveland's I-team. If we can play the video, and if you
have any comment over the video, that would be fine, Mr. Sheil.
Can we--staff, do you want to--you're working on it?
[Video played.]
STATEMENTS OF BILL SHEIL, INVESTIGATIVE REPORTER, WJW-TV8,
CLEVELAND, OH; JIM ROKAKIS, TREASURER, CUYAHOGA COUNTY, OH; AND
PATRICIA STRINGFIELD, HOMEOWNER, WASHINGTON, DC
STATEMENT OF BILL SHEIL
Mr. Sheil. So what we did here is these are some pictures
in New Orleans, and these are some pictures in Cleveland
interspersed, and we're asking you, can you tell the
difference? That's part of Hurricane Katrina. Some of this
video is Cleveland. They are interspersing with New Orleans.
The point of the story was to be that you can't really tell
which is which. That is Cleveland right there, those four homes
in a row that are vacant.
Tony Brancatelli is a councilman.
That's Slavic Village and what it looked like about 30
years ago, a middle-class neighborhood just south of the city.
This is a sense of what Slavic Village looks like today. These
are pipes inside a house that's more than a century old that
had gas lamps in it, plumbing in the back.
Obviously, another shot of Katrina as we go back to New
Orleans.
The Councilman Brancatelli showing us that it was the
perfect storm in Cleveland that led to this housing crisis in
many ways. These homes have outlasted their usefulness. The
plumbing is in the back because they predate indoor plumbing,
and the plumbing was attached later. They are often flipped and
sold and paint slapped on them, and then they are resold. And
we have the problem again and again and again, which is what
I'm saying, hopefully better than you're hearing it from me
now, right there. And the question is are there ways that we
can, you know, improve the region, and are there ways that we
can make things better?
This is a pair of teachers. They are talking about the
problems in their neighborhood, and how they want things to get
better, and how they want to be part of the solution, and how
they want to purchase this old, abandoned home. And they had
some problems making the purchase; some problems, quite
frankly, dealing with the governmental agency that I think have
been resolved now.
But this is on the west side of Cleveland; this is a
totally separate area from Slavic Village. We are focusing only
on one house here because it is next door to the new home that
they invested in, and they are trying to make the city work
just in their neighborhood, but it is very hard to do with that
eyesore next to them; that they want to be part of the solution
for bringing it down and putting a park, quite frankly, on that
corner, which is not far from Lake Erie. It's a beautiful piece
of property. And they are explaining that they are just
frustrated by what's happened in the neighborhood that they've
invested in, and that they want the neighborhood to get better,
and they want the Government, however it should, to help them.
That's their house on the right. That's the property that's on
the corner. Behind them is a view of the lake.
Councilman Brancatelli in Slavic Village indicating that,
you know, the local officials need help making this happen;
talking about all the different for sale areas around Slavic
Village.
We had a lot of copper stolen from all of these homes when
copper prices were high. This is what some people think the
solution is actually, which is to knock down these homes that
no longer have value, give them to the neighboring homeowners,
plant trees, do something other than having boarded-up drug
houses in the areas.
This is--that is--if you look up top there, that's where
kerosene came in, predating electricity. This is where all the
copper was stolen when copper prices were high from these
abandoned homes, and the people sold them for money.
The tragedy in these neighborhoods in part is a lot of
older people still live in the area who can't leave. We're
talking here, I think, about the infrastructure that still
exists in these neighborhoods, banks, gas stations. The
neighborhoods have not yet died. There still is the
infrastructure that creates neighborhood there if something can
be done about what you're seeing behind me here.
And I want to say these are not isolated neighborhoods. You
could go to 12 neighborhoods in Cleveland and get this.
This is explaining a process where--how money flowed into a
government account and how that was part of the problem. Again,
I think that's been addressed. And I think that's the portion
we're showing.
Mr. Kucinich. I want to thank you, Mr. Sheil, for being
here and for the investigative report. We're going to go to
questions to you when we finish with the other witnesses, but
thank you for that presentation.
The Chair recognizes Mr. Rokakis. You may proceed for 5
minutes.
STATEMENT OF JIM ROKAKIS
Mr. Rokakis. Thank you, Mr. Chairman.
I'm going to ask the gentleman from IT to have the slides
ready, I hope they are up.
I'm the treasurer of Cuyahoga County. While the collapse of
the real estate market has shifted the focus away from Cuyahoga
County, OH, it's important to note, as you pointed out, Mr.
Chairman, that no other community has suffered the cumulative
impact worse that Cuyahoga County, OH
Cuyahoga County was first nationally from 2000 to 2006 when
the real estate bubble burst at the end of 2006. When this
dubious distinction, worst in the country, moved to other
communities and places like California, Nevada, Arizona and
Florida, this crisis did not go away in communities like
Cleveland or in States like Ohio.
In 2006, the last year Cuyahoga County led the country in
foreclosures, we had 13,600 foreclosures. We had over 13--
14,000 in 2007, when we were no longer first; almost 14,000 in
2008; 14,000 in 2009; and we're expecting a similar number in
2010.
A quick review of the county foreclosure maps. I don't know
if you have them there. We have a glitch with ITMs. Every time
I attempt to do this, Mr. Chairman, I botch it. But a quick
review of these maps would show you that the foreclosures,
while they have decreased just a bit in Cleveland, the core
city, in part because there is nothing left, they have really
picked up in the inner-ring and outer-ring suburbs. If you move
the progression through to 2009, you'll see those shifting dark
shades result--are density in foreclosures. They have moved
from the core city, 2007, 2008, 2009 the last year, and as you
see, this cancer has spread out.
Even more troubling is evidence that tens of thousands of
loans that could be foreclosed are backed up and are at least
90 days late as evidenced by this next progression of slides.
You will see, and these slides clearly demonstrate, that
delinquent loans are backed up in the foreclosure queue. Look
at the 90-day slide to the right. Just keep progressing
forward. What you will see, that there are tens of thousands of
loans in Ohio that are now 90 days late. They backed up in this
foreclosure dam, and when they burst, and they will burst, it
will add to the misery and despair we feel in our communities.
This crisis has resulted in at least 35,000 vacant
properties, 18,000--18,000 to 20,000 properties awaiting
demolition in Cuyahoga County, and a population loss in
Cuyahoga County that is second only to Orleans Parish in
Louisiana, and we know why they are first. Cleveland, which had
473,000 residents in the 2000 census, it has been estimated may
drop to as few as 325,000 residents in the 2010 census, a 30
percent loss of population in just 10 years.
Property values have plummeted throughout the county. Half
of all sales in Cleveland last year, Mr. Chairman and members
of the committee, were sheriff sales. The consequences on
governmental budgets, especially public schools which rely
heavily on property taxes, will be felt for the next
generation. In one recent study, if you could put that up, it's
a study of negative equity, Ohio shows up as negative ninth in
the country, but Congressman Kaptur made a very good point. We
never experienced the run-up of real estate prices that many of
the other States ahead of us on that list experienced, so our
losses are more significant as they took away real value, not
one driven by real estate speculation.
We are talking here today about the disappointment with the
HAMP program. Those reasons have been well reported. But HAMP
has been especially ineffective in Ohio, as you see on that
chart, members of the committee, as only three States have
experienced a lower percentage of loan modifications than Ohio.
For all these reasons we were stunned to see the roll-out
of the plan last week by the Obama administration to use $1.5
billion in TARP funds to assist California, Nevada, Florida,
Arizona and Michigan. How can a State at the epicenter of this
crisis for so long be ignored once again? How is that possible?
The only effective remedy, in our experience, that works in
this fight is foreclosure counseling. And to Congressman
Cummings' port--point, I am not talking about the 1-800 call-in
numbers to call-in centers. I'm talking about the intense,
face-to-face, personal counseling where trained foreclosure
counselors work with homeowners in distress and stay with them
as they do loan modifications.
A program we established in Cuyahoga County, our Don't
Borrow Trouble campaign, is one of the most effective in the
country. It takes people who call 2-1-1 and refers them to four
trained counseling agencies where people sit down face to face
again, not over a long-distance phone number. Homeowners are
then assigned to foreclosure counselors who meet with them,
gather financial information, assess the situation, and proceed
to work on their loan modifications with the servicer.
Our success rate in 2008 was 56 percent of those who came
in and sat down with our counselors has the loans modified.
Now, some of these mortgages are beyond repair, but our success
rate when a homeowner calls us, again, as I said, we think is
the best in the country.
Which brings me for my major reason for being here today,
which is to plead with you, Mr. Chairman and members of this
committee, to restore funding to the National Foreclosure
Mitigation Counseling Program [NFMC], which is an arm of
NeighborWorks.
Reduction at the Federal level to this program resulted in
direct funding cuts to counseling agencies in Cuyahoga County
and Ohio, organizations like ESOP, a nationally regarded
community group that is, I think, the most effective housing
counseling agency in Ohio. Last year ESOP received $1.7 million
in funding through NFMC. Because of reductions in funding,
their allocation this year is only $568,000. They are laying
off counselors, housing counselors, beginning Monday. Other
organizations throughout the State are doing the same. Last
year ESOP counseled 8,000 family statewide; this year as a
result of the cuts, they expect to only be able to counsel
3,000 families.
The chart I'd like to show you there, the last chart,
graphically demonstrates Federal policy is moving in the wrong
direction. Delinquencies are moving up, but foreclosure
counseling dollars are moving down. This is incomprehensible,
nonsensical and wrong. Time is running out. If only two-tenths
of 1 percent of the amount allocated each of those States,
assume an even split, $300 million, if two-tenths of 1 percent
of the moneys allocated to those five states last Friday were
allocated to these programs, we could keep these housing
counselors on and continue what I think is the good fight and
the only effective program that has worked thus far.
Thank you, Congressman Kucinich and members of the
committee, for listening to me today.
[The prepared statement of Mr. Rokakis follows:]
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Mr. Kucinich. Mr. Rokakis, your testimony is very
important, and I have just had staff take a copy of it over to
Ms. Caldwell, who, unlike most people who testify in front of
our committees, actually stays to hear what other people have
to say.
I always appreciate that about you, Ms. Caldwell. But I--
make sure that Mr. Rokakis's testimony--if you look at the maps
and see the progression, I think it would be helpful. And you
understand why those of us in Cleveland, Cuyahoga County, and
in the State are so concerned when we get a signal from the
administration that perhaps it is not looking closely enough at
what's happening in our communities.
I also want you to know, Mr. Rokakis, that this afternoon
we'll have a copy of your testimony sent over to the Treasury
Secretary as well. We believe this is a very important message.
Mr. Kucinich. Another important message about to be
delivered to us from someone who lives in the neighborhoods of
Washington, DC.
Ms. Stringfield, would you proceed with your testimony and
share with this subcommittee what your experience has been. I
thank you.
STATEMENT OF PATRICIA STRINGFIELD
Ms. Stringfield. Good afternoon. My name is Patricia
Stringfield. I am a resident of the District of Columbia, and I
have come here today to tell you a story of my situation. I am
a single mother who has worked my entire life to make sure that
my son and I are taken care of and that he had a stable home
environment. In 1988, I purchased my home from my mother. I did
so because I had grown up in the neighborhood, and I knew it
would provide me with a peace of mind. I purchased the home for
$66,000. Over the years I refinanced a few times to cover
expenses, take advantage of lower interest rates, and to do
some repairs and cover college expenses for my son.
When things seemed like they were under control, my mother
developed a medical condition forcing her to no longer be able
to work, and I had to take over paying her bills. My mother has
now been diagnosed with dementia, and I am now her primary
caretaker. She receives Social Security payments to cover her
insurance and her medicine, but little is left to cover food
and basic expenses. When I contacted my lender, they told me
that they would happily refinance my loan again to help me
cover the increased balance on my credit cards and to pay off
my son's school expenses.
They suggested that I go to another lender to get a second
mortgage, as my home had plenty of equity, and it could help me
pay the bills. I followed their advice and took out a second
mortgage. This finally solidified my situation for a few years
until the price of gas and utilities rose sharply. I depend on
my car to get to work. Making ends meet became so difficult
that I had to dip into my savings accounts until it was
depleted. And at this point I turned to taking out loans on my
401(k) until I no longer could be allowed to do so.
Despite the financial stress, I was able to keep making
mortgage payments for several months; however, I finally missed
my first payment in September 2008. And as I ran out of ways to
get extra income, I attempted to work with my lender several
times, but was not given any option for resolutions. I had to
turn to my neighbors to help pay for food for me and my mother.
I missed a few payments, received warnings of foreclosure from
my lender.
When I finally was able to get in contact with National
Community Reinvestment Coalition, NCRC, NCRC was able to
arrange a workout only to find out that the lender on my first
mortgage was unable to find an acceptable workout solution.
This caused my lender on the second loan not to offer anything
because the first was not modified.
As the days passed and the foreclosure sale date
approached, I decided to move out of my home because my
mother's doctors didn't think she could handle being thrown out
on the street. I began to move out on February 22, 2009, into a
rental apartment with my mother. We awaited until NCRC got a
resolution. The lender canceled the foreclosure sale, and I was
put into a 3-month HAMP trial period.
Because of the modification on the first loan, my second
loan holder was able to reduce my monthly payments by $100. But
this news--excuse me, with this news we returned to our home in
April. The landlord, however, asked me for 6 months of rent,
claiming I had broken the lease. NCRC then stepped in again and
is engaged in negotiation with the landlord.
When I received the first trial modification, I made two
payments on it, but then sent--but then was sent another
agreement to begin in June 2009 with a different payment
amount. I made my payments for 5 months only to be told that it
was denied because of missing information. This was not the
case, as we had submitted all documents to them.
NCRC tried several times to get them to reduce the amount I
owed, but was not successful even though my house is worth less
now than the amount currently owed. After they declined me
again, my counselor at NCRC went back to the lender, asked them
to review the file once more for the program.
After several weeks of being told that I was in foreclosure
again, I began to panic. I thought that we had already fixed
everything back in April 2009, but we were still in a back and
forth. I do not understand how this works and became frustrated
to the point of crying almost every night.
I have listened to everyone that has helped me, and through
the hard work of so many people over at NCRC, I hope that this
is the last modification that I received this week will be the
final one and will be approved. I have had four HAMP trial
modification loans.
I hope that you can take my situation to heart and
understand that these issues face real people, and the
decisions that you make affect us all. I don't understand how I
can be told 1 month that we are OK and everything is on track
to be modified, begin the trial period, and have it turned down
because it seems to be technicalities. It seems to me that if I
owe more than what my house is worth, they could just reduce
what I owe to the value of my home.
Thank you again for your time. I hope you can provide some
help to other homeowners like myself who are struggling to get
by every day, but want to pay their bills and take pride in
owning their homes. Thank you again.
[The prepared statement of Ms. Stringfield follows:]
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Mr. Kucinich. Ms. Stringfield, thank you very much for
testifying in front of this subcommittee. And in a moment I'm
going to ask some questions of you to try to bring out more
about the plight that you and your family have experienced,
which is really something that many Americans are experiencing.
It's my time for questions. I have 5 minutes, I want to
start with Mr. Sheil. You showed pictures of a neighborhood in
Cleveland, but you get around the city a lot because that's
your job. Would you say that the effects of the foreclosure
crisis in Cleveland's residential neighborhoods is--just based
on what you've seen, is it pretty evident as you get around?
Mr. Sheil. You can't miss it. Cleveland, as you know----
Mr. Kucinich. Make sure that mic is on. Would you try
again?
Mr. Sheil. Can you hear me now?
Mr. Kucinich. Yeah.
Mr. Sheil. You can't miss it. You could go into every
neighborhood, you know. When we show pictures like this, one of
things that we're concerned about is do people think we just
went and took the one bad street in the neighborhood and took
it? I could have pointed my camera in probably almost every
neighborhood in Cleveland and found similar scenes. And as
Treasurer Rokakis indicated, he has the statistics, ours is
just visceral. When you go out to suburbs now, you can start to
see this as well. It is just--it's rotting.
And I think, Mr. Chairman, what is significant when we talk
to local people there, they want to save these neighborhoods.
They still have the infrastructure of neighborhoods in place,
but in 5 years I don't think that infrastructure will be there.
Mr. Kucinich. Well, thank you, Mr. Sheil, again for your
testimony to this subcommittee.
Mr. Rokakis, you made a case about instability in
neighborhoods in Cuyahoga County. Can you talk about how
principal reduction would make a meaningful difference? And
what have loan servicers said about it?
Mr. Rokakis. Chairman, I've been involved in this crisis
now actually for about 9 years. We went to the Federal Reserve
Bank of Cleveland back in the fall of 2000 with complaints
about what was going on with loans and lending in northeast
Ohio in the hopes that the Fed would step up under HOEPA and
take some measures to slow the runaway train down. So I've been
involved going back to late 2000, very intensely involved in
the past, let's say, 5 years with banks and counselors and
workouts, and I have to tell you I am exhausted.
And I find that the tools that we really need--as long as
these are all voluntary agreements, we are right where we were
when we started this process years ago. As long as all we have
is maybe a carrot but no stick, as long as all we--all we can
do is rely on the goodwill of the banks, voluntary--the words
``voluntary'' and the phrase ``bank loan modifications,'' bank
loan modifications typically don't go together. And what we
have found, I'm not surprised by the low percentage of
workouts. We've experienced this for years, it is hand-to-hand
combat.
I think the one tool that we would like to have is the tool
that you and other Members alluded to, Congressman Tierney. If
we had the ability to force principal reductions of loans, I
think we could--pick a number--triple, quadruple our success of
loan modifications.
Mr. Chairman, what I find stunning is that when they
agree--when they refuse to modify those principal loan
balances, typically the loan and the foreclosing, the family
ends up leaving, the property ends up being vandalized, the
home value is completely lost, as opposed to partially some of
the value lost, and it destroys remaining value left in
neighborhoods. If we had the ability to force principal loan
modification write-downs, I think we could make a real impact
on this problem, but we're losing hope, Mr. Chairman.
Mr. Kucinich. Thank you very much for your testimony, Mr.
Rokakis.
I would like to go to Ms. Stringfield. I want to know a
little bit more about your experience with the lending
industry. You said that you've been able to refinance your home
over the years, and since you bought your home in 1988, for
about 20 years you managed just fine with your payments. Now--
can you tell us, were you marketed by your lenders?
Ms. Stringfield. Yes, they contacted me.
Mr. Kucinich. Did they try to get you to refinance?
Ms. Stringfield. Yes. How are you doing? How is things
going? Are you having any problems? Yeah, things are a little
rough right now.
Mr. Kucinich. What did they tell--what did they tell you
about the--what kind of money you could get, what kind of loans
you could get?
Ms. Stringfield. They said that I could refinance my first
mortgage.
Mr. Kucinich. For how much?
Ms. Stringfield. Depends on what I needed, like----
Mr. Kucinich. Did they tell you your home was worth
$420,000?
Ms. Stringfield. Yeah, yeah. I mean, when I talked to them,
I told them that I took the loan out for $66-, and when I
refinanced with them, it was----
Mr. Kucinich. You told them what?
Ms. Stringfield. $66,000.
Mr. Kucinich. And they wanted to refinance $420,000?
Ms. Stringfield. Because that's what the guy came back that
did the appraisal.
Mr. Kucinich. So what happened?
Ms. Stringfield. They came back--well, the first time they
came back with the $420-, I said, I don't need that much. They
says, well, you can get another $50,000 on your home, and that
would pay your son's college, it would help you with your
bills. OK. And it is not going to make your payment that much
more.
Mr. Kucinich. So they kept trying to get you to borrow more
and more money on a house that wasn't worth----
Ms. Stringfield. Yeah. When it turned out--when I came back
to them and said, listen, I need to restructure my loan because
my mom is really ill, I don't have any money, I need to get
this restructured, I don't want to default. All I want you to
do is restructure it and let me lower the interest and get it
where I can handle it. And they says, well, we'll have to send
somebody out and do the appraisal. This appraisal came out, and
he valued the house at 325-.
Mr. Kucinich. Wow. Now, when you told--you know, you're
getting--this value of the house keep getting bigger as they
want to loan you more money.
Ms. Stringfield. Yeah.
Mr. Kucinich. The question is, did you ever have a
discussion with them about what happens if you get in trouble
paying the loan back?
Mr. Stringfield. Oh, yeah. I asked, I says, well, you know,
right now I don't have this money. What if I don't get--oh, Ms.
Stringfield, you'll be all right. You know, you can always work
it out. We can help you.
Mr. Kucinich. They'll work with you, right?
Ms. Stringfield. There is not going to be any problem,
we'll work with you.
Mr. Kucinich. Did they work with you?
Ms. Stringfield. No.
Mr. Kucinich. What happened when you fell behind.
Ms. Stringfield. When I got in trouble, you--the first
thing I did was from the literature is call your mortgage
company, let them know before you get in trouble. I called
before I got in trouble. I was told, we can't do anything until
you are 1 month late. Well, ma'am, I'm trying not to be 1 month
late. The day of that call was May 3, 2008. And at that time
they told me I would have to write a letter. May 15th that
letter was in their office because I faxed it in along with a
financial report of my earnings and what I had going on.
They then had HOPE NOW contact me. The HOPE NOW
representative said, Ms. Stringfield, you're overextended. You
need to let your house go. I said, sir, I've been in this house
since 1962. Why would I want to let go of my home? Well, you
can't afford it. What you need to do is let go of the home and
contact D.C. or Maryland and try to get into one of the welfare
homes.
Mr. Kucinich. Now, you did eventually get in touch, though,
with the National Community Reinvestment Coalition?
Ms. Stringfield. Right. A friend of mine told me about
them.
Mr. Kucinich. Did they help you?
Ms. Stringfield. They have helped me.
Mr. Kucinich. I want to thank you for your--your answer to
the question, Ms. Stringfield.
We're going to go now to Mr. Jordan of Ohio for any
questions he may have.
Mr. Jordan. Thank you, Mr. Chairman.
To our witnesses, thank you for being here. And you all
were here, I believe, when Ms. Caldwell gave her testimony. Do
you think the HAMP program has demonstrated significant
progress over its 1 year?
Mr. Rokakis. I can't speak to the results in Arizona,
California, Nevada. I saw the chart just like--I can only speak
to the results in Ohio, and I can speak to the results in the
community I represent. And the chart speaks for itself. We're
third from the bottom.
I spoke with a group of housing counselors who were on a
conference call last week. I believe Mr. McCarthy was in on the
call. And I thought it interesting that one of the comments
made by folks on the phone is that they felt that servicers
were more willing to work out a $500,000 mortgage in California
than they were to work out seven $70,000 mortgages in Toledo or
Cleveland or Dayton. And they felt that they had prioritized
which mortgages were really worth their time and energy. They
might bristle at that suggestion, but I heard it from too many
people on that phone call and others.
So I think that chart--you have to look at that chart that
we posted up on those slides. We are third from the bottom.
Mr. Jordan. Significant progress or not?
Mr. Sheil. Pardon me?
Mr. Jordan. Significant progress or not?
Mr. Sheil. In my role I don't like--I'm not going to
comment per se on government--I'm not going to comment on
whether a government program is making progress or not. I will
say this: Really just going around Cleveland and Dayton and
Akron, you can see--you don't really--the charts prove it, but
if you just tour the neighborhoods, I don't know whether it is
this program or not, but there is an evident decline. I've been
covering Cleveland for 20 years. The neighborhoods do not look
like what they looked like two decades ago.
Mr. Jordan. Mr. Rokakis, you talked a lot about the
counseling program. This is a local counseling program, is my
understanding, local people.
Mr. Rokakis. There are four counseling agencies we work
with. I mentioned ESOP because, at the request of the attorney
general and the Governor, ESOP expanded statewide. They have 11
offices around the State. They're very effective in doing what
they do.
Mr. Jordan. But there are people in Ohio helping Ohioans
figure out what's at stake, what's involved, how they're going
to do it.
Mr. Rokakis. Face-to-face counseling, not a call-in number,
face-to-face counseling, which, as Congressman Cummings pointed
out, is the most effective.
Mr. Jordan. I understand.
In your professional judgment, years of experience with
this, years of being in Cuyahoga County, years as the treasurer
of that county, something as a conservative Republican I
believe in is, don't you think you would be better off, instead
of having this $75 billion program, 116,000 mortgage
modifications done, 3 million the goal but only 116,000 done in
1 year; might we be just a little better off if we said,
instead of going with this crazy program, let's take a few of
those dollars and let local people help local people, people
like Ms. Stringfield, if she were in Ohio or, in the case of
D.C., here, help them with some counseling, help them deal with
it on a local level versus this concept that we have so
embraced around this town over the last 1\1/2\ years, big
Federal Government with regulations and spending taxpayer
dollars and doing all the things they're doing? Do you think
maybe that might be a little better approach?
Mr. Rokakis. I have seen two programs now. One was a
program under the prior administration. I've seen this program.
And obviously, both have fallen short. The only thing I can
tell you is nothing beats face-to-face counseling one on one,
local people helping local folks.
The difficulties faced by Ms. Stringfield, just multiply
that by millions of homeowners like her who try to navigate
these complicated documents, mortgages being sold once and
twice and three times, servicers that aren't responsive.
Nothing works better than a counselor.
Mr. Jordan. I just want to make clear, big Federal
Government programs administered by Republicans are no better
than big Federal Government programs administered by Democrats;
that's the problem. So something on the local level done with a
lot less dollars would be much better for the folks who are in
a tough situation and, frankly, much more respectful of the
taxpayers across this country who are paying for the darn
thing.
Mr. Rokakis. I would love to avoid those layoffs on Monday.
Unfortunately, there are a lot of people going to be looking
for help in Cleveland and in Ohio on Monday. They are going to
get a tape-recorded message sending them to an 800 calling
number.
Mr. Jordan. Thank you, Mr. Chairman.
Mr. Kucinich. Thank you very much Mr. Jordan.
The chair recognizes Ms. Kaptur.
Ms. Kaptur. Thank you, Mr. Chairman, for holding this
hearing.
I'm really honored to join my Ohio colleagues, and I want
to thank this panel for being here today. What's left of
democracy in this country we are helping to move forward by
your presence. And we are up against some pretty big forces.
What's happened in Cleveland and in Washington and every
place else is the largest transfer of wealth in American
history. That has come from the equity, from the heart of
America, and transferred to a group of people in some of the
biggest banks in the world here in our country on Wall Street
and down there in Charlotte, NC, who have no conscience for
what they have done. In fact, their bonuses this year will be
bigger than last year.
Those banks are Bank of America, JP Morgan Chase, Wells
Fargo, HSBC and Citigroup.
I was going to ask you, Ms. Stringfield, and thank you very
much for being here, which bank were you dealing with? Are you
allowed to say?
Ms. Stringfield. Wells Fargo.
Ms. Kaptur. Thank you. So it's on the list.
The whole conversation about servicers in a way is
irrelevant because you can't get at them. They're cleverly
sandwiched in between the big banks, who have all the power and
are making all the money, despite the unemployment rate of this
country and people losing their homes, and Main Street America.
You just can't get them.
And in fact, by the servicers extending the servicing
period, they're making fees all the time, so they're making
more money out of your grief, so they have no incentive. Even
though it looks like HAMP gives them an incentive to try to
settle, forget it, they're making more money through the Tax
Code and through servicing fees by letting the agony continue.
It's interesting we don't have a list of who the 100 or 110
servicers are. I will ask Ms. Caldwell to provide that for the
record. But we have to put the pieces of this puzzle together.
What didn't come out at most of the hearings in Congress yet is
the securitization process failed. The banking system has been
changed to not provide accountability and responsibility for
those who created the damage. It is a very clever system. It is
so clever. You have to have masters degrees in order to create,
probably Ph.D.'s, to create this kind of house of cards. But
they have done it masterfully.
We need to restore the mortgage loan process, so, Ms.
Stringfield, you're not dealing with somebody way out there,
but you've got a financial institution here in the Nation's
Capital that you can deal with face-to-face and you don't have
to go through some absentee counselor here and some group here,
but in fact, that the prudent lending system of this country is
restored.
And that's the real fight, because the net yield of all of
this over all, the crisis that the American people are facing
right now is that the biggest banks caused this problem, five
of them, now hold over 40 percent of the deposits in this
country. It used to be 35, 33. They're going to get half. Five
institutions are going to have that much power, and they have
that much power.
I was interested in what several of you recommended.
Mr. Rokakis, you're a giant in my eyes. Thank you so much
for what you're doing, and don't lose faith because this is the
process that should restore America, or at least we have some
hope of it happening, if we do our job right.
And I want to thank our chairman. He's got the courage of
his convictions, and he's trying to help us in a Congress
that's really locked down and not holding the kinds of
hearings.
Ms. Stringfield, we should have a thousand of Americans
like you testifying. But this Congress isn't meeting its
responsibilities to the people, and our people are suffering
all over this country. So your presence here today is very
important because it's like water in a desert. And so you're
doing what you must do on behalf of many that are not being
invited to testify by the other committees that should be a
part of this.
The idea of principal loan modifications should be being
done like that. And if the Securities and Exchange Commission
and the Accounting Standards Board and the FDIC were doing its
job, that would be happening, but they're not. They're not. And
so what's happening is, the net yield is those that caused this
have profited so handsomely, grossly, unethically are being
rewarded.
And the only way that this changes is if conscious people
in the press, like Mr. Sheil, you keep doing your job.
And Mr. Rokakis, don't lose hope, don't lose faith. You
keep doing your job.
And Ms. Stringfield, you work with the Community
Reinvestment Group; they're wonderful.
We have to keep doing our job and take this to America
because the people are losing hope, and we haven't lost hope,
so this process really does work.
On the good news front, Secretary Geithner was before our
Budget Committee yesterday, and I would like to suggest to the
chairman--he offered that Ohio could meet with him--we take him
up on that offer.
In fact, I was going to call you, Mr. Rokakis, because I
said I know an expert who is not in my district but in ESOP and
many other groups. Through the chairman's efforts here, maybe
we can structure a session with Mr. Geithner either directly by
bringing people to Washington or through teleconferencing where
we can get the Treasury, and they shouldn't be the only ones in
the room--we should have the FDIC and the SEC and some bankers
who really know how to resolve troubled loans on books--in that
room and try to make it work for Ohio. And if we make it work
for Ohio, it will work for the rest of the country.
Mr. Kucinich. To respond to my colleague's question and
suggestion, we, this subcommittee, in fact, and myself as
chairman, we are in touch with Treasury and Mr. Geithner's
office about this specific matter. And I'm glad that he
responded to you, because I'm hopeful that he'll be similarly
responsive to a meeting with Ohioans and the Congress that want
to see what can be done to try to save all these homes that are
being threatened.
If nothing is done, we can come back here a year from now
and all what we'll see is the kind of maps that Mr. Rokakis
presented today, just widening. There won't be any open space
at all. And we know there will be more people with Ms.
Stringfield's story, and there will be more reporters who will
be covering neighborhoods across America that are boarded up
and abandoned.
I have to tell you, we're going to dismiss this second
panel right now, but when I saw, Mr. Sheil, your report and I
saw the claw of that steam shovel going to the house, I
actually could feel that.
I come from a neighborhood like that. And I represent
people in those neighborhoods. We all do. But I come from a
neighborhood like that. Being from a Slavic Village, in my
district, I know the people that lived in homes like that. I
know how people put their entire life on the line to get that
kind of a house, who worked day and night, who worked their
fingers to the bone to be able to just have a little something,
have a piece of that American dream that's called
homeownership.
And then you see the big claw just crushing it. It breaks
your heart, it really does.
Thank you all for being here with this testimony, and
really much appreciated.
We're going to go to the third panel.
Thank you.
While the panel is in transition, I'm going to make the
introductions of the credits of the individuals who are going
to be before us. They have quite a number of accomplishments,
and I think that, by the time they're seated, I'll still be
reading those accomplishments.
Mr. David Berenbaum is the Chief Program Officer of the
National Community Reinvestment Coalition. It's an association
of 600 community-based organizations that promote access to
basic banking services, including credit and savings, to create
and sustain affordable housing and job development.
Mr. Berenbaum is responsible for coordinating NCRC's fair
housing and fair lending compliance initiatives, and he also
manages NCRC's Housing Counseling Network, which, with its
affiliates, is a HUD-certified housing counseling intermediary
participating in the Neighborhood Works Foreclosure Mitigation
Counseling Program.
Ms. Julia Gordon is Senior Policy Counsel at the Center for
Responsible Lending. It's a not-for-profit, nonpartisan
research and policy organization dedicated to protecting
homeownership and family wealth by working to eliminate abuse
of financial practices. She specializes in legislative and
regulatory policy issues relating to consumer lending,
particularly in the area of mortgage lending.
Mr. Ronald Faris is the President of Ocwen Financial Corp.
and Ocwen Loan Servicing, LLC; served as Director of Ocwen
since May 2003 and as President since 2001. Prior to serving as
President of Ocwen, he has held numerous executive positions
there and served as comptroller for a subsidiary of Ocwen. He's
also served in the General Audit Department of Price Waterhouse
Coopers LLP.
Finally, Mr. Ed Pinto served as Executive Vice President
and Chief Credit Officer for Fannie Mae in the late 1980's.
Since then, he has worked as a consultant to the financial
services industry, focusing on credit policy, marketing and
product development, published research, commentary and views
which are regularly cited by numerous major newspapers,
magazines and think tanks.
I would ask the witnesses to stand. It is the policy of our
Committee on Oversight and Government Reform to swear in all
witnesses before they testify.
I ask that you raise your right hands.
[Witnesses sworn.]
Mr. Kucinich. Let the record reflect that each of the
witnesses has answered in the affirmative. I ask that each of
the witnesses give a brief summary of your testimony. Please
keep this summary under 5 minutes in duration. I want you to
know that your complete written statement will be included in
the hearing record.
Mr. Berenbaum, you're our first witness. Please proceed.
Thank you.
STATEMENTS OF DAVID BERENBAUM, CHIEF PROGRAM OFFICER, NATIONAL
COMMUNITY REINVESTMENT COALITION; JULIA GORDON, SENIOR POLICY
COUNSEL, CENTER FOR RESPONSIBLE LENDING; RONALD M. FARIS,
PRESIDENT, OCWEN FINANCIAL CORP.; AND EDWARD J. PINTO, REAL
ESTATE FINANCIAL SERVICES CONSULTANT AND FORMER CHIEF CREDIT
OFFICER OF FANNIE MAE (1987-1989)
STATEMENT OF DAVID BERENBAUM
Mr. Berenbaum. Thank you.
Good afternoon, Chairman Kucinich, Ranking Member Jordan,
and other distinguished members of this committee. We are
honored to testify today before you regarding mortgage reform,
mortgage foreclosure prevention and the activities currently
under way to suggest improvement in this area.
Solving the foreclosure crisis is critical for the economic
health of this country. Since the onset of this crisis, $7
trillion of household wealth has been lost. This loss of
household wealth translates into reduced consumer spending,
depressed business activity, lower gross national product,
lower property tax receipts and higher local and State budget
deficits.
Foreclosures not only impact individual homeowners but
entire neighborhoods through declining property values,
increases in abandonment, decay, crime and vandalism. In short,
the continued failure to adequately address this crisis
multiplies the profound social, cultural and economic injury to
our Nation.
The foreclosure tsunami has been further compounded by the
highest unemployment rates in the last quarter century. In a
vicious cycle, the record rates of unemployment and reduction
in wages are now feeding continued foreclosures.
In the face of this great recession, the Bush
administration encouraged the private sector to create the HOPE
NOW Alliance. The HOPE NOW Alliance recorded 3.1 million loan
workouts during 2007 and 2008. But two-thirds of these workouts
deferred or rescheduled borrower payments without lowering
monthly payments. Meanwhile the foreclosure crisis worsened.
Subsequently, the Obama administration created two
programs; the Home Affordable Modification Program and the Home
Affordable Refinance Program. Unfortunately, as been noted
already both by the chairman and the ranking minority member,
these programs are not keeping pace with the foreclosures that
we are seeing today.
Our written testimony discusses in detail the origins of
the crisis, problematic nonprime and nontraditional lending,
compounded by regulatory failure, greed and malfeasance, little
or no fair lending or consumer protection oversight, and
serious safety and soundness lapses. An analysis of the public
information that is available documenting the performance of
each of the programs is in our written statement.
The experiences of our Housing Counseling Network,
qualified housing councils around the Nation, as well as the
testimony of Mrs. Patricia Stringfield document the importance
of HUD counselors in this process. However, the magnitude of
the foreclosure and unemployment crisis calls for more
proactive intervention, and that means a private partnership
between both government officials as well as servicers,
investors, securitizers and others.
Despite the best of intentions, we are not seeing results
in these programs because of their voluntary nature, and a more
considered mandatory approach should be taken. Yesterday, the
Mortgage Bankers Association announced a voluntary unemployment
borrower bridge to HAMP modification programs. That will help a
limited number of borrowers who experience temporary
unemployment for a period of up to 9 months.
It certainly will not address the preexisting problematic
underwriting that occurred, overvaluation, or serve as a
substitute for permanent principal reduction or other programs,
such as NCRC's HELP Now model that we have suggested in our
testimony. The HELP Now model originated in discussions with
Wall Street. It uses Wall Street's own reverse auction process
to in fact promote the sale of large groups of mortgages,
mortgage-backed securities to Treasury or another agency. It
could also be, for example, other departments; it could be HUD.
But using the current market value of the homes and then
passing those savings on to the homeowners, so they have
principal reduction, and in turn selling those loans back as
30-year, 40-year fixed rate loans to the private sector at
little or no cost to the taxpayer.
Authority for this program exists under the current TARP
program. It exists under eminent domain, and frankly, it could
be done with modest changes to the tax requirements if in fact
Congress chose to act in that direction.
As well, we want to see loan programs established for the
unemployed, such as H.R. 4173 passed by the House, as well as
more broad interpretation for principal reductions within the
HAMP program. Substantial research documents that the most
successful loans, the loans that are not falling out of
permanent modifications are in fact loans that have had
principal reduction. Last week the administration announced a
$1.5 billion initiative to target five States.
We agree with this committee that in fact a much more broad
need is necessary. There is no reason to focus on volume or
size of loans over the quantity of modifications that are
currently needed across our Nation.
In closing, let me say that we also suggest other
improvements for HAMP. Those improvements include greater
transparency in reporting of data. It includes also expanding
areas of the law and judicial modification, as well as
expanding and modernizing the Community Reinvestment Act. Thank
you.
[The prepared statement of Mr. Berenbaum follows:]
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Mr. Kucinich. I thank you, Mr. Berenbaum, for your
testimony.
Ms. Gordon, you're recognized for 5 minutes. Thank you.
STATEMENT OF JULIA GORDON
Ms. Gordon. Thank you.
Good afternoon Chairman Kucinich, Ranking Member Jordan and
members of the committee.
Thank you so much for inviting me today to talk about the
Government's response to the foreclosure crisis. We need a much
more robust and effective plan to save homes and prevent
unnecessary foreclosures. Over 6 million homeowners are now
behind on their mortgages and at risk of foreclosure. More than
2 million foreclosures have occurred in the past 2 years alone.
By 2014, researchers predict that up to 13 million
foreclosures may have taken place. This crisis has been
particularly hard on African American and Latino communities,
widening the already sizable wealth gap between whites and
minorities and wiping out entire formerly middle class
neighborhoods. The spill-over costs are massive, including lost
property values, even for homes current on their mortgages;
erosion of the tax base; and the increased burden on municipal
services.
Before I talk about the details of foreclosure prevention,
I want to refer to the many people who will try to convince you
that this crisis was caused by public policies aimed at
expanding the American dream of homeownership to all
communities. This claim is nothing short of outrageous and
insulting. Every single bank regulatory agency has pronounced
this allegation false, and there is no good data to back it up.
This foreclosure crisis was caused by toxic loan products that
were sold to people for profit purposes and that preyed
particularly on the communities that I've mentioned above.
Most borrowers could have qualified for cheaper mortgages
with less risky terms, and the vast majority of these loans
weren't even sold to first-time home buyers. These products
were designed to become unaffordable within a couple of years
so that mortgage brokers could refinance the same customers
over and over again, like Ms. Stringfield, and receive a fee
each time. Wall Street's appetite for risky loans was seemingly
insatiable, and lenders scrambled to deliver more loans to keep
the money coming.
It's also not true that unemployment right now is the
culprit rather than bad lending. Risky loans are approximately
three times more likely to default no matter what the
underlying economic conditions or where you live. In fact,
during every other period of high unemployment in recent
decades, foreclosure rates remained essentially flat because
people had home equity that could cushion the blow.
In responding to this crisis, the Government so far has
given the most help to the people who need it the least.
Programs to lower mortgage interest rates and the home buyer
tax credits have helped support the housing market in the face
of historic levels of default but haven't helped the people at
highest risk of losing their homes.
As we've discussed already, the centerpiece of the
administration's foreclosure prevention effort, the Home
Affordable Modification Program, has not reached its potential.
A key obstacle impeding HAMP's success is that the private
servicing industry has been either unable or unwilling to do
the job they need to do. Originally, the HAMP program was meant
to be coupled with other legislative changes that would have
backstopped the program and provided other incentives for
servicers to perform, but those legislative changes did not
occur.
As a result, HAMP is essentially a voluntary program where
homeowners themselves still have no power or control over their
situation. Participating servicers routinely violate the
program's guidelines and fail to convert performing trial
modifications into permanent ones in a timely way. Homeowners
are given very little information about how their loan
modification request was evaluated, and they have no
independent appeals process if they believe their request was
denied unfairly.
In our written testimony, we've laid out a number of
detailed suggestions for improving HAMP. What I want to focus
on here is the importance of requiring servicers to reduce the
principal balances for under water homeowners. Being under
water is the most accurate predictor of default or redefault.
And until mortgages are right sized on a routine basis, it is
unlikely we will see the end to this cycle of redefault.
We also need action outside of HAMP to make HAMP work. A
law requiring that servicers evaluate all homeowners for loan
modification prior to initiating foreclosure could give
homeowners the right to fight their foreclosure if such an
evaluation were not conducted.
It's also crucial to permit judicial modifications of
mortgages on primary residents. This solution costs nothing to
the U.S. taxpayer. It's the only solution that cuts through the
Gordian knot of second liens, securitizations, negative equity
and back-end consumer debt.
Finally, we need commonsense rules that prohibit lenders
from making loans that borrowers can't afford, and we need an
independent Consumer Financial Protection Agency. If there's
nothing else that we've learned from this crisis it's that it's
much easier and far less expensive to prevent problems than to
clean up after them.
Thank you so much for inviting me today, and I look forward
to your questions.
[The prepared statement of Ms. Gordon follows:]
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Mr. Kucinich. Thank you for your testimony.
The Chair recognizes Mr. Faris. You may proceed.
STATEMENT OF RONALD M. FARIS
Mr. Faris. Thank you Chairman Kucinich, Ranking Member
Jordan and distinguished members of the subcommittee for the
opportunity to participate in today's hearing. My name is
Ronald Faris, and I am the President of Ocwen Financial Corp.
At Ocwen, we share your sense of urgency to find a lasting
solution to our Nation's daunting foreclosure crisis, a crisis
that threatens millions of families with the loss of their
home.
Ocwen is not a loan originator. We did not make the bad
mortgages that are causing the problems. But as a loan
servicer, we are doing everything we can to fix them. We were
the first in the industry to adopt a comprehensive loan
modification program, one that provides homeowners in distress
lower mortgage payments that are both affordable and
sustainable and result in greater cash-flow for investors than
from foreclosure. We are proud to have saved well over 100,000
homes from foreclosure since the onset of the mortgage crisis
through loan modifications.
Ocwen supports the administration's HAMP program. We
believe it is a well designed response to the mortgage crisis.
Even so, almost a year into HAMP, too many homeowners facing
foreclosure are having difficulty getting their loans modified.
In our view this is due mainly to a lack of sufficient capacity
and expertise in the industry to handle the volume. Ocwen has
invested over $100 million in R&D to build our own loan
servicing technology. Our platform is both scaleable for high
volumes and incorporates behavioral science research for
effective customer communication.
Using technology, we have been able to convert trial
modifications to permanent modifications at a rate that is 10
to 20 times higher than the big banks in the program. But the
key metric for long-term success is the redefault rate.
According to a recent industry report 3-month redefault rates
on HAMP mods have ranged from 18 to 33 percent. Through our
technology advantage we have kept our redefault rates to below
5 percent.
As part of Ocwen's continuing commitment to make HAMP a
success we would like to share with the subcommittee some of
our recommendations for program enhancements. First, the
required debt-to-income ratio should be lower to below 31
percent. One out of every four HAMP applications is rejected
for failing to meet this standard. Usually these are families
struggling with higher household expenses for food, clothing
and education. HAMP should instead use a flexible residual
income approach to determine a payment that the homeowner can
actually afford. Alternatively, there should be either an
across-the-board DTI of 28 percent or a sliding scale DTI that
varies based on the number of dependents on the borrower's tax
return.
Second, principal reduction modifications are needed to
overcome the negative equity problem. This is a primary driver
of defaults on mortgages. In redefaults on modified mortgages,
11.3 million mortgages in this country or 24 percent are
currently under water, and these numbers will likely grow. In
Ocwen's experience negative equity increases the chance of a
redefault by 1.5 to 2 times. Accordingly, approximately 15
percent of all of our loan modifications have involved some
element of principal reduction.
HAMP already addresses principal forbearance, but there is
no provision for principal forgiveness. We believe step
principal forgiveness is best; that is incremental principal
reductions over time so as long as the loan remains current.
Third, additional funding should be made available for housing
counseling groups. Grass roots organizations like NCRC, who is
here today; ESOP in Ohio; Home Free-USA; National Council of La
Raza; and so many others around the country are providing much
needed homeowner outreach and counseling. We urge financial
support for any HUD-certified counseling organization assisting
homeowners through a successful permanent modification under
HAMP.
Fourth and last, underperforming HAMP servicers should be
required to outsource to performing servicers. Whether for lack
of effort or just an inability to handle the volume, too many
banks are not producing the results needed to achieve program
goals. Treasury should be empowered to redirect servicing to
those with a proven track record and available capacity to
execute trial modifications and convert them to permanent
solutions. Let me conclude by thanking you again for inviting
me to testify today and asking that my full written statement
be entered into the record. Thank you.
[The prepared statement of Mr. Faris follows:]
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Mr. Kucinich. It is so ordered. And thank you.
Mr. Pinto, you may proceed for 5 minutes. Thank you.
STATEMENT OF EDWARD J. PINTO
Mr. Pinto. Chairman Kucinich and Ranking Member Jordan,
thank you for the opportunity to testify today. Let me first
provide some background regarding the cause of the foreclosure
crisis. I have a chart. Chart one demonstrates the loan-to-
value ratios and foreclosure rates that have been increasing in
this country for decades. You will see that FHA has been
leading the way for decades also in rising loan to values. FHA
foreclosure start rate now stands at 32 times the level that it
had in 1951. The collapse of the mortgage market had a single
cause: the accumulation of an unprecedented number of weak
loans. In 2008, approximately 50 percent----
Mr. Kucinich. I'm going to ask the gentleman to suspend.
We've got to make sure we can hear you. You need the mic, and
speak into it. Thank you.
Mr. Pinto. The collapse of the mortgage market had a single
cause; the accumulation of an unprecedented number of weak
mortgages. In 2008, approximately 50 percent of outstanding
single-family mortgages were weak and prone to failure with
two-thirds being the result of Federal programs. How did this
happen?
In 1995, the Federal Government issued its national
homeownership strategy. It required the use of flexible and
alternative lending in, quote, an unprecedented public-private
partnership to increased homeownership to record high levels
over the next 6 years. With this national policy in place, the
lending equivalent of Gresham's law took place. Weak lending
drove out good.
Turning to the administration's Home Affordable
Modification Program, I would like to recall HAMP's original
goal that still is posted on their Web site. To help as many as
3 to 4 million financially struggling homeowners avoid
foreclosure by modifying loans to a level that is affordable
for borrowers now and sustainable over a long term.
The Treasury Department has consistently painted rosy
scenarios regarding HAMP's progress. In an apparent desire to
post big numbers early on, the concept of a trial modification
was introduced. Borrowers were allowed to enter a trial without
qualifying on the basis of income. This wasn't fair to
borrowers who had no chance of qualifying. Many will be worse
off than if they had been given a quick no and encouraged to
find alternative housing.
As a result, the HAMP pipeline became hopelessly clogged
with a lion's share of the blame, in my opinion, falling on
Treasury. The January 2010 HAMP report contains a statement
that strains credulity. It noted, ``the program is on pace to
meet its overall program goal of providing 3 to 4 million
homeowners the opportunity to stay in their homes.'' That was
not the goal.
The truth is HAMP has been a spectacular failure when
measured against that goal. In the first 11 months, there have
been 116,000 homeowners who received permanent modification.
Subtract expected redefaults and you might end up with 75,000
homeowners who are safe from foreclosure, about 2 percent of
the goal. I predict that ultimately HAMP will only meet a small
percentage of its 3 to 4 million foreclosure goal.
The same redefinition of program goals applies to HARP, the
Treasury's refinance program. It was to help 4 to 5 million
homeowners shut out from refinancing because their current loan
to value was above 80 percent. Through December 2009, Fannie
and Freddie have completed 190,000 HARP refinances, less than 5
percent of their goal. Not a problem. Making Home Affordable
2010, a January 2010 report, now takes credit for 4 million
refinances of all type regardless of LTV.
Treasury promised transparency. What we get are
disingenuous progress reports when it comes to program goals.
This committee and the American people deserve an honest
assessment of what HAMP and HARP can do. Why is the problem so
intractable? We're facing a more challenging situation than
ever because credit standards were severely compromised by
Federal policies prior to the onset of the current crisis.
What delinquent borrowers in the housing market need is
triage that provides quick answers and fast decisions. This
will allow the shadow inventory of millions of defaulted loans
that cannot benefit from modification to end up in the hands of
qualified homeowners.
Late last month Treasury announced changes to HAMP process
which should help meet the goal of providing quick answers and
fast decisions. It will hopefully put an end to no-doc trial
modifications. Unfortunately, the changes do not take effect
for three more months.
One last note, in Ms. Caldwell's testimony, it's noted that
$2 billion in savings have already been recognized by HAMP
participants and administrative action has kept interest rates
at historic lows.
But I think we must be honest; there is no free lunch. Tens
of millions of Americans, many pensioners living on their
savings, many of your constituents, are suffering a real loss
of income due to these low rates. Households in this country
own $11 trillion in fixed assets. Many now earning about 2
percent less than previously. That's over $100 to $200 billion
a year in lost income and tens of billions of dollars in lost
taxes. Thank you, and I look forward to your questions.
[The prepared statement of Mr. Pinto follows:]
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Mr. Kucinich. Thank you, Mr. Pinto.
There's no such thing as a free lunch but apparently,
there's multi-billion dollars in bonuses for bankers who got
TARP, so we have to figure out that squares with folk wisdom.
I heard Ms. Gordon correctly talk about the root of the
crisis. And I think we should be clear that this foreclosure
crisis started well before the current administration came into
office, and it is rooted in policy decisions that created the
largest asset bubble in American history, an $8 trillion home
mortgage bubble. So to call this crisis a prime crisis would
miss the point.
The bubble was created by Federal Reserve policies that
kept interest rates low for the explicit purpose of allowing
home prices to inflate, knowing and expecting and tacitly
encouraging that homeowners would use their rising home values
to supplement stagnant wage incomes using a house as an ATM. It
wasn't a product of greedy and irresponsible homeowners, it was
a product of a shrewd but ultimately disastrous government
calculation and policy.
And American workers have been the biggest losers in this
crisis so far. They're the ones who have been thrown out of the
work place in large numbers, had their hours reduced, their
benefits cut, they're the ones who have been forced to give up
their family homes and do a bankruptcy and the ignominy of
public foreclosure proceedings, so labeling this crisis a
subprime crisis would really be blaming the victims.
The crisis was not caused by people who lost their homes
and their life savings and their reputation, it was caused by
people who perpetrated what I think is kind of a hoax.
Responsibility for the crisis in repairing the damage falls on
every person and every institution, including past and current
Representatives of both Members--of Congress or both parties in
Congress, rather, as well as the last administration, and this
current administration now has the responsibility, who should
have been and are responsible for assuring the ethical and
financial integrity of our banking and monetary system.
We're picking up the pieces here.
Now, Mr. Berenbaum, you mentioned in your testimony the
role of credit rating agencies and influencing loan servicer
behavior making them to be more inclined to act on a delinquent
loan first by foreclosing on it, then modifying it and only as
a last resort cutting principal. Can you elaborate how credit
rating agencies influence this process?
Mr. Berenbaum. Certainly, Mr. Chairman.
There's, unfortunately, more and more growing evidence now
that the SEC failed to appropriately regulate or monitor the
credit rating agencies in this Nation. And the way the system
worked, in fact it worked toward incentivization of profit and
simply affirming whatever paper was presented before those
rating agencies.
They actually even called themselves publishers of
information rather than in fact reviewers of that information.
This also led to significant fair lending issues because if you
look at in fact many of the triple A ratings that those
agencies gave, subprime, nontraditional, it was the companies
such as Ameriquest, New Century and others which is impacted
not only on Ohio, but frankly low- to moderate-income
communities across the country.
Mr. Kucinich. Thank you, Mr. Berenbaum.
One final question, Ms. Gordon. Are there legal solutions
to the obstacles that some might see in doing principal
reduction for borrowers.
Ms. Gordon. I'm not sure what you mean by legal solutions.
But one of the obstacles right now is that a number of these
loans held by investors have second liens on them; about half
of all securitized loans have a second lien.
Mr. Kucinich. So does Treasury have leverage to get around
that?
Ms. Gordon. Treasury has a program--Treasury unveiled a
program in the spring of last year, the 2MP program, designed
to try to attack the second lien program, but no servicers have
used it. I had heard that Bank of America has now signed up for
it. I don't exactly know what that means. But as far as I know
no one has yet used the 2MP program in the HAMP program. It
seems to us that Treasury should require servicers to use the
2MP program to resolve these second liens, which are
essentially worthless at this point in most cases.
Mr. Kucinich. Thank you.
Mr. Jordan.
Mr. Jordan. Thank you, Mr. Chairman.
Ms. Gordon, do you believe that HAMP is, do you believe
HAMP is working at all? Do you think it's a pretty bad program?
I mean, do you think like I do; do you think the track record
of HAMP is terrible?
Ms. Gordon. It's clearly underperforming what we need to do
to get ahead of this crisis.
Mr. Jordan. Here's how I'm a little confused. Because in
your testimony, you said Federal policies had nothing to do
with contributing to the mess that we got in. So the Government
had nothing to do with contributing to the mess we got in, even
though the track record of Government trying to fix is
pathetic.
Ms. Gordon. The Federal policies I'm referring to in that
section are there's been a lot of talk about how the Community
Reinvestment Act and other policies, in fact I think Mr. Pinto
mentioned this earlier, are somehow responsible for the toxic
loan products, when in fact, for the most part, the loans made
under CRA were safer loans and ended up having a much better
performance profile than the risky loans that were made outside
of that system.
Mr. Jordan. Mr. Pinto, is that an accurate statement, the
loans, the one that Ms. Gordon just made relative to the
Community Reinvestment Act?
Mr. Pinto. The accurate part of the statement is most
Community Reinvestment Act loans were fixed-rate, lower-
interest-rate loans. If you compare those loans to other fixed-
rate loans that had higher interest rates, my research shows
that the default rates on the CRA loans are also high.
I'll give you one example, ESOP, with Third Federal
Savings, and ESOP has testified a number of times about the
great job that Third Federal had done. What they haven't
testified about is the performance of those loans. These were
CRA loans, low interest rates. They were subsidized generally.
They are running at 37 percent delinquency rate on a $300
million portfolio. Third Federal has suspended the program
because of its poor performance.
Mr. Jordan. Do you agree with my statement that I made in
my question to Ms. Gordon that Federal policies--I know you
agree with this--Federal policies helped get us in this mess;
how in the world are Federal programs going to help get us out
of it? I come from this whole thing, big government spending,
big government programs are going to get us out of this
economic concern we have been in. Well, heck, we would have
been out of it a long time ago, because that's all we've been
doing for 2 years. We have seen things we never imagined we
would see in the United States of America.
And we can't even get, now, Treasury just to comply with--I
mean, you were here for my earlier question of Ms. Caldwell--we
can't even get them to comply with what the Inspector General
wants them to do on the original no-doc loan, getting
documentation. I mean, it just highlights and underscores, when
you travel down this road, you end up making things worse. And
when you attempt to solve it, what you do is put a lot of
taxpayer money at risk, and not really help the people who, I
agree with my colleague, who has passion. I mean, we all do.
You don't really help the folks who, frankly, need some help,
so comment on that and then I will yield back.
Mr. Pinto. Let me just comment that in the first quarter of
2009 the OCC, OTS puts out their mortgage metrics report, and
there were 190,000 modifications that were done in that
quarter. There are about 150,000 that were done in the second
quarter. This is before HAMP got ramped up. And there was a
growing tide of those, heavily growing tide into interest rate
reduction, much like HAMP.
Since then, the number of modifications reported has
declined, and I believe we're going to end up seeing that the
$190,000--excuse me, 190,000 loan number that existed in the
first quarter won't be surpassed in 2009, so it's actually
slowed down the process. And I think my suggestion is focus on
Fannie and Freddie, which I think are 60 percent of HAMP, and
let the private sector on their loans deal with them the way
they were actually doing many things back in early 2009.
Mr. Jordan. Homeowners would be better off financially.
They would get some quicker remedy, you know, quicker action,
whatever that would be, and we could focus on what the bigger
problem is with Fannie and Freddie.
Mr. Pinto. Right.
Mr. Jordan. Great point, great point.
Mr. Kucinich. I thank the gentleman.
The Chair recognizes Ms. Kaptur.
Ms. Kaptur. Thank you, Mr. Chairman. This has been an
outstanding panel. And I thank you very much for coming today
and what you've placed on the record.
Several witnesses today, including many of you, recommended
principal write downs. Let me offer the observation that I
don't think servicers can do principal write downs. Many
servicers have business with the five biggest banks that caused
this mess to begin with, coupled with the changes in the
banking laws back through the 1990's that changed prudent
lending to securitization, and local banks holding a portion of
those loans, and we moved it to a bond. We changed a loan to a
bond, and they sold it to everybody on the face of the earth.
And so the collectability issue, Mr. Pinto, you used three
words, collateral, credit and capacity. I always say character,
collateral and collectability. There's no collectability. And
so, how do you do the loan workout? How do you do the normal
accounting changes, that's where I want to go, by using FDIC,
SEC and those involved in that given loan? I don't think we can
get it through the servicers. I think HAMP is proving that. We
can't do it.
So we need to be able to do what we did back in the 1980's.
We need to be able to work out those loans, get the assets and
liabilities to balance on those books, and there's going to
have to be some real estate write downs. We're going to have to
get down to some level within the banking system, and that is
what is not happening.
And I wanted you to comment on that. I wanted you to
comment on two things for me. One is your view of servicers
being able to solve this problem through HAMP, even as you ask
for principal write downs. And if you were to recommend to the
President how to rearrange what he's doing in order to get at
this real estate crisis so we don't have millions of homes
vacant across this country, who would you tell him to bring
into his office, the Oval Office, all these agencies so we can
get at the value of real estate and do loan workouts where we
can get them done?
So I want you to comment on the principal write down, who
can actually do it? And I don't believe the servicers can. And
then what would you say to the President to get to where you
want to go and help us to move the housing market to a more
positive position and keep people in their homes?
Mr. Berenbaum. Ms. Kaptur, if I may jump in, I think that's
an excellent question. And I will respond quickly to allow each
of the panelists their opportunity. Right now, there's an
overreliance in balloon payments by servicers across this
country, so really there is no principal reduction.
Frankly, what we are hearing from the investor community is
that they are ready to begin some serious principal reductions,
and to paraphrase, they are ready to take their share of the
haircut that's necessary to correct the marketplace. But the
system right now is loaded with conflicts. For example, you
noted earlier that a majority of the seconds are held by the
banks, the same banks that operate a majority of the servicers
in this Nation, conflict No. 1.
Conflict No. 2 is some of the accounting rules that we've
been discussing in this presentation and before this hearing as
well.
Issue No. 3, we have to get beyond the blame game. Everyone
is at fault. There is shared blame here. And if we are going to
move ahead, we need to ensure a meaningful regulatory structure
that embraces the Community Reinvestment Act for what it has
done in responsible lending for community reinvestment. We need
to embrace the strong Consumer Financial Protection Agency, and
we need to work with responsible servicers and lenders who are
willing to do business in the way that is required to bring
trust back to the market that you spoke to earlier.
We are not going to see global investors or pension funds
or others buy in the secondary market until those minimum
requirements are made.
Last one more point that I would like to make is that we do
need to focus on the HARP program as well. Ultimately, who owns
that $400 billion of risk right now? It is not the private
sector; it is the taxpayers. What a wonderful way to go about,
in fact, reaching 70 percent of the outstanding mortgages by,
in fact, reducing the risk associated to the taxpayer through
principal reduction. We have the power to do that through
eminent domain or through the power of Congress.
Ms. Kaptur. Thank you.
Ms. Gordon, did you want to say something there?
Ms. Gordon. Well, I agree with most of what Mr. Berenbaum
has said.
I will note that servicers in serving accounts that are
held in portfolio seem quite able to do principal reductions.
There are principal reductions happening; they're just not
happening for the securitized loans.
Ms. Kaptur. And what percent are represented of the
portfolio of securitized loans?
Ms. Gordon. That depends on the servicer. But in terms of
the troubled loans, quite a lot of them are securitized.
The places where the portfolio loans are doing the most
principal reductions is with respect to payment-option ARMs,
which for the most part are so under water, not only because
they're located in some of these highest price decline States,
but also because they had negative amortizations built into the
loans. These loans are poorly served by HAMP. HAMP can't really
help them for a variety of structural reasons.
So it's clear that the problem does have to do with these
conflicts of interest. And I completely agree with you that not
all of the banking and securities regulators that need to be at
the table seem to be at the table rowing in the same direction
with the Treasury's program. I know the folks at Treasury, and
despite my concerns about the underperformance of the program,
I know that they're trying their best, but there needs to be a
team approach here, and we already know that the prudential
regulators have not had a history of putting consumer interests
at the top of their agenda. That's why it's so important to
have an independent consumer protection agency.
But most of all, this is why it's so important to do things
like change the Bankruptcy Code. I mean, ultimately, you need
someone to just--who has the power to cut through all of this,
regardless of the various interests and conflicts involved. We
already have a system set up in this country for that. The
entire bankruptcy system does just this. Principal-residence
mortgages are the only type of debt that can't be restructured.
Your second home mortgage can be. Your yacht can be, but not
the home that you live in and have made your life in.
Mr. Kucinich. Thank you very much for your testimony.
I want to thank all the witnesses.
This is the Domestic Policy Subcommittee joined by my
colleague, Congresswoman Kaptur, and we've had a full hearing
today with many Members of Congress testifying--or rather
participating.
I'm Congressman Dennis Kucinich, Chair of Domestic Policy.
We are going to continue our work on this issue, and we are
going to continue to work for a serious program of principal
reduction in order to help keep people in their homes.
Thank you very much. Adjourned.
[Whereupon, at 4:50 p.m., the subcommittee was adjourned.]
[The prepared statement of Hon. Marcy Kaptur and additional
information submitted for the hearing record follow:]
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