[Senate Hearing 111-142]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 111-142
 
     FORECLOSURE MITIGATION UNDER THE TROUBLED ASSET RELIEF PROGRAM

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


                             FIELD HEARING

                               before the

                     CONGRESSIONAL OVERSIGHT PANEL

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

    HEARING HELD IN PHILADELPHIA, PENNSYLVANIA ON SEPTEMBER 24, 2009

                               __________

        Printed for the use of the Congressional Oversight Panel




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                     CONGRESSIONAL OVERSIGHT PANEL
                             Panel Members
                        Elizabeth Warren, Chair
                          Rep. Jeb Hensarling
                             Paul S. Atkins
                           Richard H. Neiman
                             Damon Silvers

                            C O N T E N T S

                                                                   PAGE
Opening Statement of Damon Silvers, Member, Congressional 
  Oversight Panel................................................     1
Statement of Richard Neiman, Member, Congressional Oversight 
  Panel..........................................................     1
Statement of Paul Atkins, Member, Congressional Oversight Panel..     5
Statement of Damon Silvers, Member, Congressional Oversight Panel     7
Statement of Seth Wheeler, Senior Advisor, U.S. Department of the 
  Treasury.......................................................    11
Statement of Eric Schuppenhauer, Senior Vice President and CFO/
  Program Executive, Homeowner Affordability and Stability Plan, 
  Fannie Mae.....................................................    22
Statement of Edward L. Golding, Senior Vice President, Economics 
  and Policy, Freddie Mac........................................    29
Statement of Honorable Judge Annette M. Rizzo, Court of Common 
  Pleas, First Judicial District, Philadelphia County; 
  Philadelphia Mortgage Foreclosure Diversion Program............    46
Statement of Irwin Trauss, Supervising Attorney, Consumer Housing 
  Unit, Philadelphia Legal Assistance............................    59
Statement of Eileen Fitzgerald, Chief Operating Officer, 
  Neighborworks America..........................................    78
Statement of Deborah Goldberg, Director, Hurricane Relief 
  Project, National Fair Housing Alliance........................    85
Statement of Dr. Paul Willen, Senior Economist and Policy 
  Advisor, Research Department, Federal Reserve Bank of Boston...   112
Statement of Allen Jones, Senior Vice President for Default 
  Management, Bank of America Home Loans.........................   120
Statement of Larry Litton, President and CEO, Litton Loan 
  Servicing......................................................   127
Statement of Joe Ohayon, Vice President for Community and Client 
  Relations, Wells Fargo Home Mortgage...........................   133


  FIELD HEARING ON FORECLOSURE MITIGATION EFFORTS UNDER THE TROUBLED 
                          ASSET RELIEF PROGRAM

                      THURSDAY, SEPTEMBER 24, 2009

                                     U.S. Congress,
                             Congressional Oversight Panel,
                                        Philadelphia, Pennsylvania.
    The Panel met, pursuant to notice, at 10:03 a.m. in the 
Kirby Auditorium, National Constitution Center, Damon Silvers, 
presiding.
    Present: Damon Silvers, Richard Neiman, and Paul Atkins.
    Mr. Silvers. This hearing of the Congressional Oversight 
Panel is called to order. I thank you all for joining us today. 
My name is Damon Silvers and I serve as Deputy Chair of the 
Congressional Oversight Panel. The Panel's Chair, Professor 
Elizabeth Warren was called to testify before the Senate 
Banking Committee this morning at a hearing on TARP oversight 
in Washington, DC. She deeply regrets that she is unable to be 
here, but we are after all the Congressional Oversight Panel.
    I will now turn the gavel over to my colleague on the 
panel, New York Banking Superintendent Richard Neiman. Richard 
serves as the Chair of New York Governor Patterson's Halt 
Abusive Lending Transactions Taskforce and is a member of the 
Multi-State Foreclosure Prevention Working Group. 
Superintendent Neiman has done extraordinary work in the area 
of mortgage foreclosure prevention for this panel including, 
but not limited to, his efforts to put this hearing together. 
Consequently, it seemed appropriate to us for Richard to chair 
this morning's hearing. Richard, the gavel.

 STATEMENT OF RICHARD NEIMAN, MEMBER, CONGRESSIONAL OVERSIGHT 
                             PANEL

    Mr. Neiman [presiding]. Thank you very much Damon for those 
kind words and also for the opportunity to share today's 
hearing. Good morning. First, I do want to thank and am very 
grateful to the City of Philadelphia and the National 
Constitution Center for hosting this hearing of the 
Congressional Oversight Panel. This city has been hard hit by 
the foreclosure crisis. Too many Philadelphians know firsthand 
what it means to have a home taken away.
    The Panel would also like to thank Senators Casey and 
Specter and Congressmen Brady and Fattah and their staffs for 
helping to plan today's hearing on this important issue. I also 
want to give a special thanks to Judge Rizzo of the 
Philadelphia Court of Common Pleas for working with the Panel's 
staff on the hearing and inviting us to visit the court this 
afternoon to learn more about its innovative mediation program.
    The number of families at risk of foreclosures here in 
Philadelphia and across the country is on the increase. What 
started as a crisis driven by subprime borrowers with 
inappropriate products has now spread to include families with 
traditional mortgages. Even prime borrowers are now losing 
their homes as a result of the downturn in the economy and the 
downturn in housing prices and job losses resulting from a 
recession that few predicted.
    Today's three panels of witnesses will convey the view of 
(1) the homeowners who are in jeopardy; (2) the lenders and 
servicers who can modify mortgage terms to keep people in their 
homes; and (3) the government that is implementing and 
overseeing the programs to facilitate these modifications. Only 
with these three groups of stakeholders working together can we 
develop affordable and sustainable solutions to the housing 
crisis and a greater level of engagement and cooperation that 
is long overdue. I am concerned that the pace of modifications 
is not keeping pace with the rise in foreclosures. We are also 
hearing specific concerns from borrowers and housing counselors 
regarding the responsiveness and the capacity of mortgage 
servicers and we will hear much more from them today.
    To my knowledge, this hearing is the first time that 
Treasury, Fannie Mae, and Freddie Mac are together in a public 
forum along with housing advocates and mortgage servicers to 
discuss the progress of the Administration's foreclosure 
prevention programs. We need to see this crisis from the 
perspective of those who are facing foreclosure, as well as 
those who are helping these families through counseling, 
modifications, and the judicial process.
    The broad representation that we have here today from the 
servicing industry is especially critical. Housing counselors 
and government agencies may design initiatives to help 
borrowers at risk, but ultimately it is the servicers and 
lenders who will determine whether these programs succeed. They 
have the power to decide whether to modify a loan or to pursue 
a foreclosure.
    As New York's Superintendent of Banks since 2007 when the 
crisis began, I have seen firsthand the positive results for 
homeowners can be achieved when the public, private and 
nonprofit sectors come together with a common purpose. 
Foreclosure, as we all know, is in no one's best interest.
    Now, some procedural issues. Because of the number of 
witnesses appearing today and the extensive scope of the 
testimony, we invite each witness to make an opening statement 
limited to five minutes. All of us have already read your 
written testimony, so in the five minute time period I strongly 
encourage you to highlight those points that best capture your 
main positions and constructive suggestions for foreclosure 
prevention. We need to be strict on our time constraints in 
order to hear from everyone, so I ask that you be conscious of 
the time. We'd like to finish our work before 1 p.m. and allow 
time for members of the public to share their comments with us, 
as well.
    So, with those opening remarks I'd now like to turn it over 
to Commissioner Paul Atkins for remarks.
    [The prepared statement of Mr. Neiman follows:]

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STATEMENT OF PAUL ATKINS, MEMBER, CONGRESSIONAL OVERSIGHT PANEL

    Mr. Atkins. Thank you very much and I'd also like to thank 
Philadelphia for hosting this in the Constitution Center and 
most importantly to all of the witnesses who are appearing 
today at this hearing, some upon rather short notice. So, thank 
you very much for your efforts in coming here.
    The issue of foreclosure mitigation and its effectiveness 
is one of the areas that Congress specifically tasked this 
particular Panel to report on under the Emergency Economic 
Stabilization Act of 2008. I think it's appropriate for us to 
review what's being done in this area to help address the large 
number of foreclosures that the U.S. is experiencing these 
days. I welcome the opportunity to learn from our panel of 
witnesses today. This is an area that like much of what is 
being done by the U.S. government in the past year is fraught 
with moral hazard if poorly implemented. The interest, of 
course, is in helping those who may be in trouble through an 
interaction of bad luck, a bad economy, and perhaps bad 
personal circumstances. If you're out of a job, it is really 
difficult to make payments unless you've saved over time. But, 
just like that proverbial dichotomy between the ant and the 
grasshopper, we want to be sure that we're helping the ant and 
not necessarily the grasshopper.
    So, I'll be interested today to hear how these programs are 
operating, what steps are being taken to help those who 
actually deserve it, what measures are built in to root out 
fraud and who is actually bearing the cost of these 
extraordinary measures in particular, the taxpayers and the 
investors. Because I think they deserve to have accountability 
in this area. Thank you very much.
    [The prepared statement of Mr. Atkins follows:]
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    Mr. Neiman. Mr. Silvers.

    STATEMENT OF DAMON SILVERS, DEPUTY CHAIR, CONGRESSIONAL 
                        OVERSIGHT PANEL

    Mr. Silvers. Thank you, Richard and good morning. It's a 
pleasure to be here in Philadelphia, which is the city where I 
lived as a child. I mention this not as an exercise in mere 
nostalgia, but because we are here to talk about home 
foreclosures. An event in which banks, servicers, investors, 
courts, and ultimately officers of the law come together to 
remove a family from their home and their community and their 
children from their rooms and from their schools and their 
friends.
    I said this at our hearing in February on this subject and 
I will say it again. The fact that a lender can throw a family 
out of their home is a necessary part of a system of lending, 
but it is also an act of emotional violence and economic 
destruction. Foreclosed homes typically yield less than forty 
cents on the dollar to lenders while destabilizing 
neighborhoods. Foreclosure should be the last option after 
everything else fails.
    Before I turn to those economic consequences, I just want 
to say that I still see this issue through the eyes of the 
eight-year old I was here on Hamilton Street in Philadelphia 
and how I would have felt if we had suddenly been forced out of 
our house. Public policy should be about minimizing 
foreclosures for the same reasons it should be about minimizing 
child abuse or protecting the public health or educating our 
children. Others may disagree. Some may see no particular 
reason to view a home foreclosure any differently than any 
other failed financial transaction. Some may feel that the 
children should suffer from the sins of the parents. Some may 
feel that before the government can act to help a family, it 
should undertake an exhaustive inquiry into that family's 
morality, business judgment, and general character, for fear 
that some of the money that would otherwise go indiscriminately 
to the stock and bond holders of our large banks might be 
tragically and improperly diverted to a less than upstanding 
homeowner.
    The remainder of my statement is addressed to those who 
share one or more of those views. For the reality today is that 
the continuously escalating mortgage foreclosure crisis 
threatens to overwhelm the entire effort to stabilize our 
financial system in the interest of broader economic recovery. 
This is the intersection of morality and economics.
    Current estimates from the Mortgage Bankers Association are 
that so far we've had between five and six million 
foreclosures, which sounds big until you recognize that this is 
less than half of what is projected to occur between now and 
the end of 2010. This tidal wave appears to be the result of a 
combination of predatory lending, a collapse of underwriting in 
the bubble, rising unemployment, and the inability of 
homeowners with negative equity to refinance. This tidal wave 
threatens a vicious cycle in which foreclosures exert downward 
pressure on housing prices, falling real estate values and 
defaulted mortgages push down on bank capital, weakened banks 
pull back on lending, causing business activity to decline and 
unemployment to rise, feeding more defaults.
    This panel takes up the issue of foreclosure prevention--as 
my colleague Paul Atkins said--a statutorily mandated purpose 
of both the TARP and this panel against the continuing mystery 
of why lenders and processors are unable to renegotiate 
troubled mortgages at scale, when it has long been clear that 
such restructuring is generally in both parties' interest. 
Despite the enduring nature of that mystery, two things have 
changed since our panel held its last focused hearing on 
foreclosures. The first is that the Obama Administration's plan 
for prevention has been in operation. The second is that the 
driving force appears to have shifted from predatory loans to 
unemployment and negative equity. The Administration's 
commitment to help families is admirable. However, it appears 
that without addressing these issues of unemployment and 
negative equity, it may not be effective. I continue to believe 
there is no way to do this on a national scale without allowing 
judges to do so in bankruptcy.
    Finally, the problem of mass foreclosures is the other side 
of the coin of weak bank balanced sheets. So long as we make 
our policy centered on pretending we have strong banks, we may 
not be able to admit that these loans have to be written down 
if we are to end up with viable housing markets and stop the 
downward spiral.
    As Superintendent Neiman has said, we have outstanding 
examples of innovative approaches here in Philadelphia and 
Pennsylvania. The program Judge Rizzo has been leading, the MHA 
Program at the state level, I think is a large part of why we 
are here today. We have an outstanding set of panels and 
hopefully it will shed light on some of these questions and how 
we can make this epidemic of foreclosures a thing of the past. 
Thank you.
    [The prepared statement of Mr. Silvers follows:]
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    Mr. Neiman. Now, for our first panel of the morning. We are 
happy to have three distinguished gentlemen who share 
responsibility for running the Making Homes Affordable Program 
of this Administration. I'm pleased to welcome Seth Wheeler, 
Senior Advisor in the U.S. Treasury Department, Eric 
Schuppenhauer, Senior Vice President and Program Executive for 
the Homeowners' Affordability and Stability Plan at Fannie Mae 
and Edward Golding, Senior Vice President, Economics and Policy 
at Freddie Mac.
    Mr. Wheeler would you like to start with your opening 
statements?

 STATEMENT OF SETH WHEELER, SENIOR ADVISOR, U.S. DEPARTMENT OF 
                          THE TREASURY

    Mr. Wheeler. I would, thank you. Members Neiman, Silvers 
and Atkins, thank you for the opportunity to testify today 
about the Treasury Department's Making Homes Affordable Program 
and our efforts to stabilize the U.S. housing market and 
support homeowners. I'd also like to thank Chair Warren and 
Representative Hensarling for this invitation, though they're 
not able to be here today. I'd also like to recognize some of 
the housing counselors and advocates that will be on the next 
panel, who have been important partners in helping us 
understand how we can improve our efforts, as well as the 
servicers who are key in implementing it.
    We announced Making Homes Affordable or MHA in February. A 
plan to stabilize the U.S. housing market, support loan 
mortgage rates and offer assistance to millions of homeowners 
by reducing mortgage payments and preventing avoidable 
foreclosures. There are clear signs that MHA is already having 
a meaningful impact. However, as with any new program of this 
size and complexity MHA faces a number of challenges. The 
Administration is working to address these challenges and to 
expand and improve the program going forward.
    The Making Homes Affordable Program includes three key 
elements. First, broad support for the GSEs--Fannie and 
Freddie--to support mortgage refinancing and affordability 
across the market. We have supported loan mortgage rates by 
strengthening confidence in Fannie Mae and Freddie Mac, 
including through a $200 billion increase in the Stock Purchase 
Agreements and continued support for market liquidity.
    Second, we increased refinancing flexibilities for the 
GSEs, providing more homeowners with an opportunity to 
refinance to lower monthly payments. Lower rates have enabled 
nearly 300 million borrowers with GSE loans to refinance since 
the announcement of the Administration's comprehensive housing 
plan.
    Third, a key part of the Administration's broad housing 
plan is a comprehensive $75 billion program to lower monthly 
mortgage payments for borrowers and providing modifications on 
a scale never before previously attempted. On launching the 
modification program, we estimated the program could help as 
many as 3 to 4 million borrowers through 2012 targeting a run 
rate of 20,000 to 25,000 trial modifications starts per week.
    Six months into the program, there are clear signs that the 
program is working. Over 57 servicers have signed up for the 
program. More than 85 percent of loans in the country are now 
covered by the program. As of the end of August, servicers had 
approved and extended over 570,000 trial modifications offers. 
Also, as of the end of August, over 360,000 trial modifications 
were already underway.
    At the beginning of October, we will report on substantial 
progress that has been made in September. We are above our 
target pace of 20,000 to 25,000 trial modifications started per 
week and are on track to reach our goal of 500,000 trial 
modification starts by November 1st, but we can do better.
    On July 28th we held a meeting with servicers at Treasury 
where we told them that they need to ramp up modifications and 
treat borrowers better. We asked servicers to commit to doing 
better. Servicers must add more staff than previously planned, 
expand call center capabilities, provide a process for 
borrowers to escalate servicer performance and decisions, 
bolster training, enhance on-line offerings and send additional 
mailings to potentially eligible borrowers.
    I think we are making key progress here. We were hitting 
20,000 modification starts prior to that meeting and we've 
bumped up that number by 50 percent to over 30,000 since that 
meeting, but there is more to do.
    We are working with servicers and Fannie Mae to streamline 
application documents and develop web tools for borrowers. We 
are committed to transparency and accountability.
    First, on August 4th we began publicly reporting servicer 
specific results on a monthly basis. The second public report 
was published earlier this month. These reports provide a 
transparent and public accounting of individual servicer 
performance. In the future, we'll expand the content of these 
reports to cover additional areas.
    Second, we are working to establish specific operational 
metrics to measure the performance of each servicer and will 
include these metrics in our public reports.
    Third, servicers must report the reason for modification 
denials, both to Treasury and to borrowers.
    Fourth, we asked Freddie Mac, as a compliance agent, to 
develop a ``second look'' process pursuant to which Freddie Mac 
will audit a sample of MHA modification applications that have 
been denied. The ``second look'' process began on August 3rd 
and is designed to minimize the likelihood that borrower 
applications are overlooked or inadvertently denied.
    In addition, we are improving borrower outreach, which is 
essential to the success of the program. We have launched a 
consumer focused website, established a call center for 
borrowers and launched a series of borrower outreach events in 
cities facing high foreclosure rates across the country.
    President Obama's Housing Stabilization Plan has made 
significant progress in assuring the flow of mortgage credit, 
bringing down mortgage rates and providing many families with 
the second chance to stay in their homes. We are on track to 
meet the goals we set for the program. To reach 500,000 trial 
starts by November 1st and offer help to 3 to 4 million 
borrowers by the end of 2010. But, we can and we must redouble 
our efforts to broaden the reach of these programs.
    We look forward to working with you and your staff to 
achieve these goals. Thank you.
    [The prepared statement of Mr. Wheeler follows:]
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    Mr. Neiman. Thank you very much for keeping right on time. 
Mr. Schuppenhauer.

STATEMENT OF ERIC SCHUPPENHAUER, SENIOR VICE PRESIDENT AND CFO/
PROGRAM EXECUTIVE, HOMEOWNER AFFORDABILITY AND STABILITY PLAN, 
                           FANNIE MAE

    Mr. Schuppenhauer. I appreciate the opportunity to 
participate in today's hearing on behalf of Fannie Mae. In my 
opening statement I'll briefly touch on the main points of the 
testimony we've submitted today.
    First, as the Department of Treasury's Administrator for 
the Home Affordable Modification Program, our principal 
activities include, implementing the program guidelines and 
policies, preparing the requisite forms, tools and training, to 
instruct mortgage servicers on how to modify mortgages under 
the program; serving as paying agent to calculate subsidies and 
compensation under the program; serving as record keeper for 
executed loan modifications and program administration; 
coordinating with Treasury and other parties to achieve the 
program's goals.
    As Mr. Wheeler has testified, the program is making 
progress and several extensions of the program are in the works 
or underway.
    To make further progress, we're focused on two main 
challenges. First, we're helping servicers to ramp up their 
operations to modify loans under the HAMP program. We are 
providing information and resources that servicers need to 
implement the program through a special website for servicers 
as well as through our own business-to-business website for 
Fannie Mae servicers. We are also communicating all aspects of 
the program to servicers during both the initial rollout and as 
program parameters evolve. And, we are helping servicers 
implement the program and integrate with new systems and 
processes deployed for it. We work closely with the servicers 
every single day. We setup a servicer support call center. We 
have conference calls every week with the leadership of 
participating servicers. And, we provide servicers with ongoing 
training, both web-based and in person.
    Our second main focus is on expanding borrower awareness of 
the program. For example, we helped Treasury develop a website 
and a call center where borrowers can find out whether they're 
eligible for the program and find out more details. This 
website has received more than 36 million page views since its 
launch in March 2009. The call center offers free HUD certified 
counseling if borrowers need in-depth help with their case. The 
call center has received hundreds of thousands of calls since 
it launched in June 2009. We've also produced consumer oriented 
direct mail, flyers and brochures describing the program. Also, 
we're expanding our program tracking system to collect data on 
borrowers who did not obtain a modification to find out how to 
further assist them. And, we're supporting Treasury's efforts 
to train counselors so they can work more effectively with 
borrowers about the program.
    In addition, we're continuing to work with Treasury on a 
multi-city borrower outreach campaign that Mr. Wheeler 
mentioned. The goal is to draw struggling homeowners to events 
where they can meet with counselors and servicers and get the 
help they need. The events we've held so far drew nearly 10,000 
borrowers that were in need of help. In two weeks, we'll be 
right here in Philadelphia as we continue to target the hardest 
hit markets from a foreclosure standpoint.
    On top of our support of Treasury's efforts, Fannie Mae 
also has participated in over 140 foreclosure prevention events 
in roughly 70 markets in the United States with a range of 
public, private, nonprofit and industry partners. As we carry 
out the loan modification program, I also wish to note that 
through August we've entered into 133,000 HAMP trial 
modifications, just on Fannie Mae loans. We've also completed 
nearly 88,000 loan workouts outside the HAMP program to help 
our borrowers avoid foreclosure.
    Finally, I'd like to touch on what we are doing to help 
borrowers refinance their homes. Last month, FHFA, our 
regulator reported that Fannie Mae and Freddie Mac have 
refinanced more than 2.9 million loans this year through July. 
Of those, Fannie Mae has refinanced about 1.7 million loans. 
We've also made progress carrying out the Home Affordable 
Refinance Program to help our borrowers who saw their equity 
disappear as home prices fell. Previously, many of these 
homeowners were unable to refinance. Thanks to this program, 
borrowers with loan-to-value ratios above 80 percent and up to 
125 percent can refinance for a better loan and a better chance 
to keep their homes. To support this program, we built a loan 
lookup tool on Fannie Mae's website where borrowers can 
determine whether we own their loan and whether they can get 
refinancing assistance. We also streamlined the loan process 
and we offered new refinance flexibilities on credit scores, 
mortgage insurance and appraisals to support the Home 
Affordable Refinance Program.
    In closing, the Making Home Affordable Program has provided 
powerful tools to help borrowers modify or refinance their 
mortgages. The main program elements are now in place and we 
are steadily helping more borrowers. Clearly however, we have 
much work to do and progress to make. Fannie Mae sees this as a 
critical responsibility and we'll get the job done.
    [The prepared statement of Mr. Schuppenhauer follows:]
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    Mr. Neiman. Thank you very much. Mr. Golding.

    STATEMENT OF EDWARD L. GOLDING, SENIOR VICE PRESIDENT, 
               ECONOMICS AND POLICY, FREDDIE MAC

    Mr. Golding. To the members of the Congressional Oversight 
Panel, thank you for inviting me to speak today. I am Ed 
Golding, Senior Vice President of Economics and Policy at 
Freddie Mac and I head Freddie Mac's team that supports the 
President's Making Home Affordable Program. Freddie Mac is 
proud to play a vital role in Making Home Affordable and in 
fact MHA is our number one priority. To help meet the 
President's goal of helping millions of families lower monthly 
costs and avoid foreclosure, Freddie Mac has introduced two new 
initiatives. The first is our Relief Refinance Mortgage 
Program. It assists families who are current on their 
mortgages, but cannot refinance because of declining home 
values. The program enables borrowers to lock in today's low 
rates and refinance loans up to 125 percent of the value of 
their homes. We also continue to support the broader mortgage 
market's refinancing needs. Freddie Mac, so far this year has 
refinanced more than 1.3 million mortgages and on average, 
these refinances reduce the mortgage rates by approximately 
1.25 percent, one and a quarter points. This saves families $4 
billion per year.
    The second initiative is our implementation of Home 
Affordable Modification Program or HAMP. HAMP helps at risk 
borrowers keep their homes by lowering monthly payments to 
affordable levels. HAMP requires borrowers to go through a 
trial period after which the loan will be permanently modified. 
Through mid September, approximately 80,000 of our borrowers 
have entered trial periods. We are working diligently to turn 
these trials into final modifications through direct outreach 
to borrowers. We are also pushing hard to get financially 
stressed families into the trial plans even before they become 
delinquent.
    Freddie Mac also plays a major role in MHA as the 
compliance agent for Treasury. In this role we conduct 
examinations and review servicer compliance with program rules 
and guidelines and report these findings to Treasury.
    Because of confidentiality issues, Freddie Mac has created 
a separate business unit within the company known as MHA-C to 
carry out these duties. MHA-C has over 100 employees and is 
continuing to staff up. MHA-C has developed an extensive and 
robust internal control and compliance system and it has the 
authority to conduct both announced and unannounced audits of 
the servicers. Based on these reviews, we are identifying 
corrective actions and follow-ups with the servicers. We will 
be using a number of fraud detection and compliance techniques 
to identify borrower, servicer, and systematic fraud and to 
improve the quality controls in the servicers.
    Additionally, we are reviewing servicers' implementation of 
the NPV model, which is a key component for determining 
borrower eligibility. We are testing whether they are using the 
model appropriately as the program requires.
    Treasury has also asked MHA-C to develop what is termed the 
``second look'' process to minimize the likelihood that 
borrowers are incorrectly deemed ineligible. We are ramping up 
``second look'' efforts significantly to increase the number of 
files reviewed and to help increase the number of HAMP 
modifications. In our reviews we have found variations in how 
servicers communicate with borrowers who are deemed ineligible. 
As a result, Treasury has issued guidelines earlier this month 
to standardize and improve communication between the servicer 
and the borrower. As more borrowers transition to permanent 
modifications and incentive payments are disbursed, we will be 
conducting audits to help ensure that the correct payments are 
made. As we move forward with MHA, we will continue to improve 
features of the compliance program to assist the greatest 
number of borrowers in need at the least cost to taxpayers.
    In conclusion, the employees of Freddie Mac come to work 
everyday highly motivated to make a positive difference for 
millions of families by lowering mortgage costs and helping 
more families keep their homes. We are focused on meeting the 
challenges involved in fulfilling our duties under the Making 
Home Affordable program and helping to ensure its success.
    Thank you for this opportunity to testify. I'm happy to 
answer questions.
    [The prepared statement of Mr. Golding follows:]
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    Mr. Neiman. Thank you very much for all keeping it within 
those timeframes and we'll try to keep that as a habit. My 
first round of questions, I'd like to start with the metrics of 
success because that is what is published every month and I 
think by which the program will be judged. As Mr. Wheeler 
indicated, through August there was a reported 360,000 trial 
modifications started. But, I think we would all agree that the 
success of the program really will be the degree of permanent 
sustainable modifications that are eventually implemented. 
Though the data may not all be in yet--particularly with regard 
to borrowers who have three months of payments--are there any 
estimates or target projections that the Treasury is using to 
assess what percentage of those trial modifications we can 
expect to convert to permanency?
    Mr. Wheeler. Thank you for that question because I think 
that highlights one of the biggest challenges and most 
important priorities for Treasury. As you noted as of the end 
of August and as we discussed 360,000 trial modifications were 
underway. When we update again with this month's report there's 
certainly many more. It's absolutely critical if the borrowers 
are to remain in their home that they complete these trial 
modifications and then ultimately are successful on their 
official modification. In terms of reporting, as you've noted 
right now we don't have any robust reports or any reports that 
we've put out to date on official modifications. The number of 
official modifications is still very low. As you probably know 
we put out a grace period of 60 days. In ramping up the program 
we laid out the program, set forth all the documentation 
standards that borrowers are required to complete and to ensure 
that we have as high a conversion rate to fulltime official 
modifications as possible. We also instituted a 60 day grace 
period while we review all those documentation standards to 
ensure that as many as those as possible are able to convert.
    Mr. Neiman. Any best guesses? Are you operating under any 
operating assumptions as a particular percentage of those trial 
modifications?
    Mr. Wheeler. At this point most of the information is 
anecdotal as we talk to servicers, which I'm sure you have. 
Right now there's certainly risk. If we're not able to close 
out those modifications there's certainly a risk that a high 
portion are not able to complete their trial modifications. 
There will be some who don't make payments and I don't know 
exactly what that number is, but certainly not a trivial 
number. And another segment even if they're making payments, 
they will not complete their documentation for completing the 
modifications.
    Mr. Neiman. And we will hear information and issues around 
the documentation and outreach necessary to complete a 
permanent modification. The monthly reports also show great 
disparities between servicers in trial modification starts. 
Partly, it could be the result of the fact that some trial 
modifications may start with verbal information as opposed to 
those that utilize full documentation. Those requiring full 
documentation will of course have a higher conversion to 
permanent as opposed to those with verbal. Is this a concern 
and is that an issue that you are rethinking to address that 
issue or taking any actions to address that concern?
    Mr. Wheeler. On that topic, I think you've correctly laid 
out the range of possibilities. Certainly, that may not explain 
all of the disparity, but a good portion may be explained on 
how far along they're able to document before borrowers start 
the trial modification. I think our number one priority now is 
that since we've ramped up capacity that it's essential that we 
have a program with both documentation standards, if we learn 
that documenting upfront is much more successful, and then 
allowing flexibility to start a trial modification. Then, I 
think we will rethink our standards and what we encourage 
servicers to do. At this point we have given them that 
flexibility. And just again to be responsive to this question, 
as soon as we have more robust data, we absolutely plan on 
reporting as soon as we're confident in the data. So, we 
understand the critical importance of being flexible on policy 
as we learn, as well as being accountable in reporting.
    Mr. Neiman. We're going to hear from servicers and 
borrowers later this morning. And we expect to hear that 
modifications are being hampered by response time and concerns 
about eligibility issues and servicer capacity. What is the one 
area that you would say that borrowers should stop doing--that 
servicers should stop doing or should be doing better to 
address those issues?
    Mr. Wheeler. I certainly have thoughts. I don't want to use 
up all the opportunity to share perspectives. So, Eric do you 
want to?
    Mr. Schuppenhauer. Yes, thanks Seth. I think from a 
servicer's perspective it's recognized that more needs to be 
done. We're in the ramp up phase. Servicers have been adding 
staff, have been adding personnel, have been adding 
capabilities to handle the shear level of documentation 
required under this program. It has taken time. Part of the 
reason why we instituted the 60 day grace period was to allow 
that further ramp up without dropping people out of trial 
periods. We'll continue to evaluate and that's why we are 
spending every single moment we can to understand the issues 
and continue----
    Mr. Neiman. Well, I'm over my time. Unless either of you 
have a quick response to what a servicer should stop doing.
    Mr. Golding [continuing]. Standardizing the documents and 
reviewing which documents are necessary. Sometimes there are 
variations in how much documentation is taking place from 
servicer to servicer.
    Mr. Atkins. Thank you very much again. I wanted to move 
from maybe the macro-level down to the micro-level a bit. We 
talked about successful modifications. We've talked a little 
bit about that as you're looking at the program. Overall, what 
about on the micro-level, what makes a successful modification 
of an individual loan?
    Mr. Wheeler. I'll take the first crack. For a successful 
modification, I think the only metric that can be used is 
whether the borrower is able to complete the trial modification 
and is able to remain in their home. We designed the program, 
the incentives to servicers and borrowers will continue. The 
borrower incentives reach out for five years. The servicer 
incentives reach out for three years. We think that clearly 
tying those incentives out to that long a period is critical in 
these challenging times that borrowers whose loans are modified 
don't just make it six months or a year, but they're able to 
stay in those homes and help stabilize those communities. So, I 
think that's ultimately the measure of success. In early 
measures it was how quickly we've ramped up. Our next view will 
be how successful we are at converting trial modifications into 
official modifications. But, ultimately when looking back five 
years from now the measure is how successful are we at helping 
these borrowers stay in homes, helping economic stability and 
stabilizing neighborhoods.
    Mr. Atkins. So, staying in their homes and meeting their 
obligations, I take it?
    Mr. Wheeler. And meeting their obligations, correct.
    Mr. Atkins. And then do you have any tracking? I know it's 
still at the early stages, but are there some studies--and I 
guess we'll hear more about that a little bit later--tracking 
the ongoing nature of these modifications whether we will fall 
into a re-default situation and what sort of percentage that 
looks like?
    Mr. Wheeler. Perhaps, briefly Eric could comment as Fannie 
is running the data reporting efforts and then Ed could 
comment, Mr. Golding could comment on the compliance efforts to 
ensure that we have accurate tracking.
    Mr. Schuppenhauer. Mr. Atkins, we are tracking a number of 
data elements as we go through the program. It is too early to 
tell at this point in the program. The first modifications were 
done in May, but we haven't had enough time to assess. However, 
we do plan to provide a tremendous amount of transparency about 
the types of modifications that have been done. Once the 
modifications become permanent, it would be the appropriate 
time to show how deep the modifications are, the payment 
reduction, as well as their sustainability. We are committed to 
providing that information as we go forward.
    Mr. Golding. And we, of course will be reviewing loan 
files. And it's important to point out we're reviewing both 
loan files that have been completed along with those that were 
not completed, that the person was determined ineligible. So, 
we'll have data of Type 1 and Type 2. Both the ones that were 
given the modifications, we'll also be able to look at those 
that were not given modifications.
    Mr. Atkins. As far as geographic distribution of this 
effort, is it more concentrated on the coast versus the 
interior of the country or how does that pan out?
    Mr. Wheeler. At this point, we're starting to get the data 
and trying to verify it. Certainly, expectations are that the 
hardest hit neighborhood; areas will see the most number of 
modifications. Certainly, California, Florida, Nevada, Arizona 
and Ohio, Michigan are especially hard hit areas along with a 
number of others, Pennsylvania included. So, I think we expect 
that we'll see modifications where there is the most need. But 
we are collecting that data and starting to verify that data 
and we will report it in the coming months on a detailed basis, 
determining how successful we are in each area.
    Mr. Atkins. Okay. Well, my time is up so I'll yield the 
floor.
    Mr. Silvers. Let me pickup on some of this a little bit in 
the same vein. Mr. Wheeler, what is Treasury's estimate of the 
current rate at which foreclosures are being initiated on a 
monthly basis?
    Mr. Wheeler. On a monthly basis we read analysis reports, 
we don't have an independent estimate.
    Mr. Silvers. But what's your collective sense of the data 
you received?
    Mr. Wheeler. I think several hundred thousand. Certainly, 
several hundred thousand modifications are being started each 
month.
    Mr. Silvers. No, I don't mean modifications.
    Mr. Wheeler. I'm sorry, foreclosures.
    Mr. Silvers. And you said that the Treasury's target is 
20,000 a week?
    Mr. Wheeler. 20,000 to 25,000 trial modifications.
    Mr. Silvers. So, 100,000 a month roughly?
    Mr. Wheeler. Roughly, 100,000.
    Mr. Silvers. In light of that, don't you think you ought to 
be adjusting the goal? I mean, is the goal adequate? Is the 
goal of roughly a million intakes a year against a run rate of 
3 to 4 million, is that an adequate goal?
    Mr. Wheeler. I think again, this an excellent question. I 
think a response can be made in several parts. First, it is the 
design and who our target population is in terms of borrowers 
and then second, how well we're going against helping those 
borrowers. So, each of those can be evaluated. I think on the 
first point we are trying to help all borrowers and we will see 
millions, as you noted, millions of foreclosure starts over the 
next several years. We are targeting a subset of those 
foreclosure starts or those borrowers that are facing the risk 
of foreclosure. We've targeted borrowers who occupy their own 
home or residence. Borrowers whose loan balance is below 
729,000 in principal balance and then which we've deemed that 
the eligible population.
    Mr. Silvers. Can I stop you there? What I'm really 
interested in is not the question of meeting your targets and I 
think my opening remarks indicated that. I'm not really 
interested in the question of who's been a good boy or girl and 
who is not. I'm interested in whether or not we're going to be 
able with the targets you've got--and I understand that they 
seemed appropriate at the time they were sent--will that be 
sufficient to counteract the downward pressure of the 
foreclosure epidemic on housing markets in our economy?
    Mr. Wheeler. I think not only are we trying to help 
individual families, but we are trying to stabilize 
neighborhoods. The question is, who is our targeted population 
and who are we able to help in that targeted population enough 
to help stabilize neighborhoods? I think a second distinction 
I'd make is between foreclosure starts, which could certainly 
be traumatic for families and borrowers and foreclosure sales, 
where borrowers actually lose their homes. The foreclosure 
sales rate is much lower, but still very, very high. I think we 
are, right now, focused on as quickly as possible getting the 
program up and running, implemented as you know. For our entire 
target population we have a rule that servicers are not allowed 
to start foreclosure proceedings. They cannot go through a 
foreclosure sale until a borrower has been fully evaluated and 
we strongly encourage them not to even initiate foreclosure 
proceedings until a borrower has fully been evaluated. I think 
we are trying to move as quickly as possible to help as many 
borrowers as possible. But I think in terms of neighborhood 
stabilization and as we watch foreclosure sales rates and 
borrowers losing their homes, I think we will need to continue 
to evaluate.
    Mr. Silvers. Mr. Wheeler and other members of the panel, I 
think we had hoped that you might be the last panel rather than 
the first. We understand that you could benefit from the other 
witnesses. We understand that was not possible for scheduling 
reasons. I think that's regrettable. However, I'm going to do 
my best to make up for it by giving you a glimpse of the 
testimony that's going to be heard later on in the day. This is 
from Irwin Trauss, who is the Supervising Attorney for 
Philadelphia Legal Assistance and I'd like you to react to 
these statements. He says, ``The noncompliance with the HAMP 
guidelines is pervasive.'' He's talking about servicers. ``The 
absence of a meaningful method to challenge this noncompliance 
is frustrating to advocates particularly, to housing counselors 
who were led to believe that HAMP would be streamlined and self 
effectuating without the need for an attorney or for 
litigation.'' It's an odd thing for an attorney to say, in a 
way. ``To address this situation, we need a multi-pronged 
approach that is not dependant on the willingness of the 
mortgage servicers to agree to the solution and is not 
dependant on the lenders themselves determining for themselves 
whether they have complied with the requirements of the 
program.'' Can you comment on that assessment?
    Mr. Wheeler. I'll take just twenty seconds and then let Mr. 
Schuppenhauer and Golding cover the balance. We've certainly 
heard those concerns. So, it has been a primary part of our 
focus in recent months. The comments I'd like to make concern 
empowering borrowers and in terms of providing transparency 
around the process. These have been the key areas of feedback 
we've heard from housing counselors and advocates. So, we are 
undertaking a number of initiatives, many of which I outlined 
in my opening comments. I'll let Mr. Schuppenhauer comment in 
detail on that effort. But, equally important is the compliance 
role of Freddie Mac. Specifically, if services are not getting 
the job done, then recommendations can be made by Freddie Mac 
to close that gap or penalties assessed as appropriate. So, Mr. 
Schuppenhauer.
    Mr. Schuppenhauer. Thank you, Mr. Wheeler. There are two 
important points here. First, there is an escalation process 
that we've put in place that serves the borrowers very well. 
First, they can contact the Help Hotline that's been 
established, 888-995-HELP, which is a trusted source for 
information. Second, counselors can also contact our HMP 
Support Center if there are pervasive issues. Finding out about 
these issues and dealing with them is of paramount importance 
from our standpoint so we can get the right training and the 
right tools out there in the servicers' hands. I'll turn it 
over to Mr. Golding to talk more about the compliance.
    Mr. Golding. As I mentioned, we launched ``second look'' 
this month. We soon think we'll be able to have a large enough 
sample so that we would be able to detect whether any servicer 
was systematically denying modifications that should have been 
approved.
    Mr. Neiman. I'm going to use my time to follow-up on the 
compliance issues because that really is the bulk of what we 
will be hearing from housing counselors on the next panel. 
Evidence that servicers may not understand the various terms, 
specific noncompliance, or violations of the HAMP guidelines. 
I'd like to understand a little further about, what are the 
compliance process schedules that Freddie Mac really intends to 
employ and also what kind of reporting will there be? And also, 
how transparent will it be both in terms of overall compliance, 
but also servicer by servicer reporting? Also, to the extent 
that you can address, what's the response, are there any 
remedies built in as a result of that noncompliance for 
borrowers or sanctions against those servicers? I threw a lot 
at you, but please do your best.
    Mr. Golding. Yes. Please come back to me if I miss any of 
them. Basically, in terms of the review of servicers I divide 
it into two. One is the on-site visits looking to see what 
their procedures are, lining them up with HAMP. Are they 
basically implementing HAMP as directed by the guidelines?
    Mr. Neiman. What's the staffing for this?
    Mr. Golding. We currently have a hundred employees. We're 
ramping up. Our expectations are to be around 200 and we will 
use contractors as necessary to make sure that we're adequately 
staffed to reach the servicers that we need to reach. It's 
basically first lining up--I think of this as two steps--first 
lining up their procedures with the HAMP requirements and then 
the second test is going back and seeing whether or not they 
improperly implemented the procedure. So, testing against their 
stated procedures, including looking at individual loan files. 
I should also point out; Eric talked about the escalation 
process. We are also in constant contact with Fannie Mae as the 
program administrator listening to what complaints they're 
getting following their data also.
    Mr. Neiman. Once those violations are identified they will 
be recorded, too?
    Mr. Golding. Well, first this goes a little bit into the 
remedies. Clearly, if there's a violation where there should 
have been a modification, the first thing is to stop the 
foreclosure and make sure that the homeowner gets the 
modification. Then there are two areas. Let me go to the 
reports and then I'll get to the remedies and I think I will 
have covered the three prongs. The reports; we are an agent of 
Treasury; the reports will be written up servicer-by-servicer 
and given to Treasury. We are in discussions with Treasury as 
to how much of that information and what the content will be 
made public. That's still to be determined.
    As for the remedies, clearly there's a range of remedies 
that we've talked about. One of them would be to withhold the 
servicer incentive payments that were discussed. Clearly, 
remedies could go as far as terminating someone from the 
program. That's not a remedy you would want to use right away 
because all you're doing is hurting someone on that. So, what 
we really are focused on are correcting and making sure the 
homeowner gets that modification. I think correcting the 
procedures are the most important. If they are not implemented 
properly, getting to the servicer, having them correct it, and 
making sure that they try to maximize the number of eligible 
borrowers that are offered modifications.
    Mr. Neiman. So, if I heard you correctly decisions with 
respect to making these reports public and in which format, as 
well as sanctions are still open issues that have not yet been 
decided?
    Mr. Wheeler. They have not been decided and certainly we 
have a strong commitment to supporting Freddie Mac in their 
role as compliance agent and ensuring that these problems are 
identified and disclosed. Exactly what the content will be has 
not been determined, but appropriate remedial measures will be 
taken.
    Mr. Neiman. In my last 30 seconds, I'm going to ask for a 
one letter response. What I'd like to do is, I think we should 
all be evaluating each other's performance. So, what I'd like 
you to do is give a grade to the servicers in assessing their 
performance, recognizing this maybe the first semester in terms 
of A to F.
    Mr. Wheeler. If ``C'' means average then I think I give 
them a ``C''. They're doing very well, again against program 
goals, but we have a lot more work to do on helping borrowers 
and implementation.
    Mr. Neiman. Any other differences in grading?
    Mr. Schuppenhauer. That is a fair assessment, it's the 
first semester.
    Mr. Golding. Obviously, I've had college aged kids. Seth, 
there's been grade inflations since you've been in college. I 
gave one of my students a B+ and he complained it was the 
lowest grade he had ever gotten and I ruined his life. So, I'm 
with the old scale, I think C is appropriate, but maybe on the 
new scale they don't give C's anymore.
    Mr. Atkins. I want to turn to cost, the flip side of all of 
this because when you were talking about $4 billion of savings 
on the Freddie Mac side for borrowers, obviously the money is 
coming from somewhere. So, I was wondering if you all could 
address what the estimated cost of all this activity is so far 
to taxpayers, in general? Obviously, we're talking to both 
Fannie Mae and Freddie Mac which now are explicitly government 
entities.
    Mr. Wheeler. So, there are at least three different types 
of cost. There's the cost of TARP direct outlays in terms of 
the financial instruments, SPA's that enable the non-agency 
programs to operate. There's the cost associated with lost 
mitigation in order to avoid future losses on Fannie and 
Freddie. And then the program administration cost--what we pay 
Fannie and Freddie. Right now, as you can see on the third one 
we don't have a detailed cost estimate. We are trying 
aggressively to manage cost and Fannie and Freddie certainly 
they are doing their best to keep cost down. But, we also want 
to do the program right. It's a balancing act.
    The first two we've allocated up to 50 billion in cost for 
the program and the process by which that's obligated. Each 
time a servicer signs up, we establish a servicer cap for the 
agreement that we purchase via Fannie Mae on Treasury's behalf. 
So, right now we have a certain amount that's been obligated. 
That doesn't mean all of that will go out the door and then 
ultimately we are able to increase those obligations as needed 
through the end of the year. Very few dollars have gone out the 
door and the program is structured so that we only pay for 
success. No trial modifications, unless they're successful, 
cost the taxpayer a dime. When they are successful, even then 
the incentives are back loaded so servicers can earn much more 
all the way through an official modification. So, we've tried 
to be very thoughtful of shepherding and stewarding taxpayer 
resources. But again, this is a strong, strong priority of the 
Administration to achieve economic stability and stability in 
the housing market. So, certainly we are thoughtful on both 
sides.
    Mr. Atkins. Any further on your individual sides?
    Mr. Golding. I might just add that part of what we're doing 
in general in lowering the frictions in the mortgage market and 
trying to get it easier to get the modification, easier to get 
the refinancing. I think to the extent that if you lower 
frictions, the transaction costs that benefit the system.
    Mr. Schuppenhauer. And, as we stated in our written 
testimony and in the earlier questioning, transparency around 
this is something we hold very dear. It is in the early innings 
or the early semester, however you want to phrase it. Very few 
dollars have gone out the door, but we will be giving a full 
accounting as time progresses. A very full public accounting in 
terms of the cost of running the program, as well as the cost 
involved in the incentives to make these modifications happen 
and be sustainable.
    Mr. Atkins. I have a little bit of time here remaining. I 
want to focus on quality control a little bit and just how you 
all are focusing on that internally, as far as internal audit. 
Do you have a special program that is supervising these 
internally?
    Mr. Wheeler. Are we talking compliance?
    Mr. Atkins. Yes.
    Mr. Wheeler. Mr. Golding, you want to take a first answer 
to that?
    Mr. Golding. Yes. I guess the simple answer is yes, we have 
internal audit. They obviously report independently to the 
Chair of the audit committee. They have reviewed our processes. 
We have two functions. One is we're implementing the 
President's program on our own book and then we have the 
separate unit, MHA compliance. And audit has been involved in 
both of those.
    Mr. Wheeler. Mr. Atkins, I'd point out that the Office of 
Financial Stability within Treasury obviously has its own 
compliance function and dedicated teams that work with Freddie 
Mac. They design plans, establish protocols and ensure that 
these programs are following the directives.
    Mr. Golding. And I'd be remiss not to mention that we also 
have a federal regulator who has also reviewed our 
implementation.
    Mr. Atkins. The Special Inspector General for the TARP, has 
he been involved yet with this, with you all?
    Mr. Wheeler. Certainly, at various points TARP, both Mr. 
Barsharfsky, as well as his team have been consulted. They've 
been very constructive and thoughtful. They've challenged us, I 
think more deeply about how we can do a better job and given us 
very good feedback. As well, I should point out the GAO has 
also given us constructive feedback and we have tried to be 
very open. Many of those are very, very good recommendations 
and we've tried to act on nearly all of those to improve the 
program.
    Mr. Silvers. I want to continue on the vein of testimony we 
haven't heard yet. First, I read you a quote before from Mr. 
Trauss that would appear to allege a fair amount of improper 
conduct by servicers trying to avoid restructuring people's 
loans. One of your testimonies, I believe in Mr. Wheeler's 
testimony, you talked about an interagency group that's met to 
discuss fraud and other misconduct involving law enforcement 
and so forth. I would like Mr. Trauss' testimony reviewed as to 
whether or not it constitutes a legal problem in any respect 
for any servicers. In particular, whether or not any servicers 
are accessing TARP money upon assurances that they're doing 
things, which they are not doing, which strikes me as raising a 
whole series of rather serious legal issues, if that's the 
case.
    Now, I'd like to come to some other testimony, briefly. Two 
important financial issues are covered in later testimony. One 
is what the likely re-default rate is going to be on mortgage 
restructurings and the second is the issue of self-cure. How 
many people, having been served a foreclosure notice for 
getting 60 days behind, how many people have actually been able 
to get out? There are some historical data, I gather, that 
suggest that self-cure rates of 30 percent have been common in 
the past. On the other hand, we're not really in the past and 
there's data that says that self-cure rates now are 6 percent. 
Do any of you have an opinion as to which number is the right 
number to be thinking about here as we look at the economics of 
restructuring?
    Mr. Golding. First of all, it's been a while since I've 
looked at--and I'd be glad to get you a further answer later. 
As I read the study, it is sort of a little bit of apples and 
orange versus the long term rate because the 30 percent cure 
rate--and sometimes you'll hear as high as 50 depending on how 
serious the delinquency is--tends to be the long term. As I 
read the study, they were looking at a shorter time period. So, 
I will have to go back and make sure to see whether they've 
lined up the time periods. But as I read that there was a 
difference. I think your basic point is absolutely right we 
have to wait and see. This is a very different environment than 
historical studies where you saw just a few local regions with 
a downturn.
    Mr. Silvers. You don't disagree that the 6 percent numbers, 
the data we have on the current environment although its short 
term dropped.
    Mr. Golding. I agree that the cure is likely to be lower.
    Mr. Silvers. Lower than historical?
    Mr. Golding. Lower than historical, yes.
    Mr. Silvers. Mr. Wheeler.
    Mr. Wheeler. I'll weigh in with a few thoughts here. You 
started with re-defaults and clearly re-default is essential 
for how we establish metrics for success and how to measure how 
well we're doing, as well as in the NPV model. We've had a 
number of teams in our agency across both federal regulators, 
as well as the enterprises in developing an NPV model. They 
looked at the experience of OCCOTS. They looked at the FDIC 
experience. They looked at other reports on re-defaults to try 
to start a benchmark of what a set of re-default assumptions 
might look given certain borrower characteristics. I think 
importantly though, some of those reports have indicated a very 
high re-default rate and we do expect re-defaults. But, in 
program design we try to minimize those.
    Mr. Silvers. Mr. Wheeler, is it not the case that if you 
design a poor mortgage relief program, one that doesn't grant 
real relief, that re-default rates will be very high. And, if 
you design one that actually is sustainable, re-default rates 
will be lower?
    Mr. Wheeler. Clearly, the better job we do, the lower the 
re-default rates will be.
    Mr. Silvers. And, your program--I believe and I would hope 
you would agree--your program is significantly more helpful to 
borrowers than the voluntary modifications that were going on 
prior to the adoption of your program?
    Mr. Wheeler. There are a number of safe guards that are 
intended to achieve that.
    Mr. Silvers. But, you've got a 31 percent income-to-payment 
number, right?
    Mr. Wheeler. Correct.
    Mr. Silvers. That wasn't common prior to your program, was 
it?
    Mr. Wheeler. Several of what we believe to be improvements 
and it's required that every modification, HAMP modification 
target a 31 percent debt-to-income ratio, payment relative to 
their income, but also a fairly robust documentation to ensure 
that we get that modification at the right level. Again, 
aligning success payments so that servicers and borrowers are 
both incentivized to keep borrowers current. So, we certainly 
expect that our performance will be much better than it 
would've otherwise been. It's still hard to say how much 
better.
    Mr. Silvers. Well, my time has expired. I would like you 
all in writing to respond to the suggestions by a number of our 
witnesses that will succeed you. That is that as part of the 
Federal program we adopt a HEMAP-like program for unemployment, 
that we have compulsory mediation that goes on in Philadelphia 
as a result of the court system and that you look at outreach 
canvassing of the kind that goes on here in Philadelphia to 
actually find people. I would appreciate it in writing. Thank 
you.
    Mr. Neiman. I'd like to thank the panel and before 
dismissing you, I do want to highlight particularly for members 
of the public that though this is our first public setting with 
the three of you, we have been in regular contact certainly 
with the Treasury both at the senior and staff levels. Both of 
you have also offered ongoing commitments to dialogue, both in 
formal and in informal sessions and we certainly will take you 
up on that and look forward to that.
    Again, I thank you for making the trip here and we look 
forward to your continued involvement and response to the 
requests that we made during the panel. Thank you very much.
    Now, we'll do a transit to the next panel of witnesses. 
Thank you very much.
    Our second panel is here to give us the homeowner's, the 
borrower's perspective on foreclosure mitigation and we really 
are privileged for the panel that we have here this morning. 
From your left you have Judge Annette Rizzo, of the 
Philadelphia Court of Common Pleas and the Director of the 
Philadelphia Mortgage Foreclosure Diversion Program; Irwin 
Trauss, Supervising Attorney for the Consumer Housing Unit, 
Philadelphia Legal Assistance; Eileen Fitzgerald, Chief 
Operating Officer for NeighborWorks and Deborah Goldberg, 
Director of the Hurricane Relief Project for the National Fair 
Housing Alliance. And, again I'm going to ask each of you for 
your opening statements. Please, do try to keep them to five 
minutes to leave time for questions and answers. Judge Rizzo.

STATEMENT OF HONORABLE JUDGE ANNETTE M. RIZZO, COURT OF COMMON 
     PLEAS, FIRST JUDICIAL DISTRICT, PHILADELPHIA COUNTY; 
      PHILADELPHIA MORTGAGE FORECLOSURE DIVERSION PROGRAM

    Judge Rizzo. Thank you. Of course, Mr. Neiman, Mr. Silvers 
and Superintendent Atkins great to have you here. ``Build it 
and They Will Come'', such were the words that started my 
testimony approximately one year ago when Senators Casey and 
Specter came to Philadelphia to have a Senate Judictiary 
Hearing on our program. In June, when we pasted the one year 
mark on our program, our motto or logon was, ``We Built It and 
They Came''!
    We welcome you, the Oversight Panel to Philadelphia to 
focus on our a very homegrown local effort to stem the flood of 
foreclosures happening throughout this country and particularly 
in our city. I want to just share with you some obviously 
overarching aspects of our program that we have in place, as 
well as some lessons learned in the year and a half we've been 
in progress, as well as some of the challenges we've faced, 
which have really been introduced by the first panel in terms 
of us implementing the provisions that we now have out of 
Washington regarding HAMP.
    Since our inception, we've been the subject of a multitude 
of media events, locally, nationally and even internationally. 
We've been the subject of conferences both in the legal and 
business communities and the blueprint for the implementation 
of programs across this country, either locally or on the state 
level. We've gotten inquires, from as far as Alaska to Maine 
and even to the paradise island of Hawaii.
    In a judicially driven foreclosure state such as 
Pennsylvania, we really view this program as one of effective 
case management--and this is of course from the judiciary 
perspective--to stem the tide of an increased caseload over the 
last few years where equitable remedies are available. It is 
not perfect. It is ever-evolving in circumstances, which change 
as new relief plans avail themselves. However, programs such as 
ours which are locally based, serve as the staging, really and 
the theater in which direct and timely relief can be crafted 
for homeowners on a micro basis.
    We are in extraordinary times. I don't refer to this as the 
crisis--that's the ``C'' word and we don't use that here--but 
we see this really as an era of new financial challenges the 
likes of which we've never faced in our lifetime and it is in 
need of an extraordinary response.
    I really often talk about this in more lofty terms, but in 
problem-solving, we often look to new ways to deal with 
existing problems and I say let's flip that. Let's really look 
at a new situation in an old way. What I kindly refer to as the 
George Bailey Building and Loan Model. That was a system where 
local bankers really knew those customers who came into the 
bank. The highs and their lows of their finances, and based on 
that strong financial relationship and personal relationship, 
banking was conducted. We are returning to community banking. 
We are really infusing in this system a way to try to cut 
through of all of the complexities of all these new programs. 
To really be that human touch, that connection as you'll see in 
our courtroom as you visit us, hopefully this afternoon.
    Our program is really all about the fact-to-face between 
the lender and the borrower. We have created a forum in which 
lenders and borrowers can dialogue in good faith to bring about 
attainable, and, more importantly, sustainable solutions to 
keep borrowers in their homes. The provisions under the HAMP 
program have provided a useful roadmap for participants in our 
program to achieve such results. This is not to say that we 
have not encountered some bumps in the road; bumps which I 
believe are not insurmountable.
    Just briefly, the Program did begin in June of last year 
and we have passed the one and a half year marker. It is really 
based on a prototype I developed in 2004 when a moratorium was 
declared or at least requested by our Sheriff John Green. The 
moratorium was not given--I really call that the ``M'' word--
but instead we did a prototype of actually stopping the sales, 
looking at these cases on a real micro basis to see if really 
we could do some workouts and we did achieve success in doing 
that.
    In addition, we also convened a group of stakeholders from 
all sides of the issue to come together and meet on a regular 
basis for four years to deal with some of the issues dealing 
with foreclosures in general in our procedures, and that really 
is the genesis of the current program. Because of this Steering 
Committee, we now have lender bar, consumer bar, the City, the 
Sheriff, and also all nonprofit groups involved with the issue 
at the table to try to develop the program. So the Committee is 
the beginning of it all. We dealt with day backward cases where 
we literally did pull cases off of the Sheriff's sale block to 
see if we could actually do workouts and that was the beginning 
of our program. But, now our focus is more on the day forward 
program where all cases filed in Philadelphia after September 
8th of last year are subject to conference, which we schedule 
45 days out. Lenders are required, as they are in any civil 
action to file a civil complaint of foreclosure along with a 
notice to the homeowners that they must immediately call the 
Philly Hotline, the Save Your Home Hotline--which Mr. Trauss of 
course will talk to you in detail about--and as well as to 
attend a conference which we schedule automatically at the 
filing of the complaint. In that window, it's very important 
that then we see a marriage between the courts and non-judicial 
entities, such as community outreach groups, which literally--
with their staff who are experts in this--go out to canvas 
neighborhoods and actually reach people at their doorstep, ring 
the bell and go, ``You're in foreclosure. Did you call the 
hotline? Did you call the hotline!? You didn't? Here is my cell 
phone, call the hotline.''
    Mr. Neiman. If you could start wrapping up. Thank you.
    Judge Rizzo. With that said, we have had success with about 
6,300 conferences coming through our program to date. We have 
about 1,500 in terms of actual homes we've saved from 
foreclosure. Approximately 3000 according to OHCD are actually 
in queue to be resolved, postponement with purpose and we are 
looking forward to more iterations of this as we move forward 
out of the pilot phase into an established program coming 2010.
    I'm sure I have more to come in terms of reaction to some 
of your questions. Thank you for your time.
    [The prepared statement of Judge Rizzo follows:]
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    Mr. Neiman. Thank you. Mr. Trauss.

   STATEMENT OF IRWIN TRAUSS, SUPERVISING ATTORNEY, CONSUMER 
          HOUSING UNIT, PHILADELPHIA LEGAL ASSISTANCE

    Mr. Trauss. To the members of the Panel, I'd like to thank 
you for your invitation to share my perspective on the MHA 
Program and the HAMP Program as they relate to the availability 
of mortgage modifications and folks facing foreclosures in 
Philadelphia.
    I want to start by saying how privileged I am to be on this 
panel with Judge Rizzo. Judge Rizzo really has been the driving 
force behind this Diversion Program and it would not work to 
the extent that it does without her dedication to try to save 
people's homes. This is one of the reasons why I'm worried 
about the replicability of this program because not every 
location is going to have a Judge Rizzo.
    I also want to applaud the efforts of the Treasury in 
creating the Making Home Affordable Program. I think the 
Program, if mandatory, if implemented as designed, could help a 
broad spectrum of people facing foreclosures in a way that 
would have little impact on the Treasury and would have a 
tremendous impact on avoiding foreclosures. However, there are 
areas in which Making Home Affordable as designed could not 
help even if it worked 100 percent and one of those is 
addressing the needs of the unemployed, as Mr. Silvers has 
already indicated. Making Home Affordable was not designed to 
and cannot address the needs of people who can't pay their 
mortgages, fair mortgages, decent mortgages, simply because of 
the--of unemployment crisis. I'm sorry, to use that word, but 
the unprecedented levels of unemployment that we're 
experiencing. To address that, I think some of TARP money, 
which has been recovered from the bank, should be re-purposed 
by this MHA Program. I think an additional program could be 
created along the lines of the HEMAP Program in Pennsylvania, 
which, by the way, over its life has recovered more money than 
it's paid out to homeowners for grants and loans, which could 
be used to enable people to pay arrears and for continued 
assistance to pay mortgage payments or part of mortgage 
payments while people are unemployed.
    I'd also like to comment on a couple of things that were 
said by the previous witnesses. One, about the Hope Now 
Escalation Team, which we just found out about two days ago and 
we called yesterday and they don't know, Hope Now does not know 
that there's a Hope Now Escalation Team, as far as we can tell; 
at least the person we spoke to on the phone. If we run a 
hotline, we need to know these things. We're always trying to 
find out where can you go. We called Hope Now and we said, ``We 
want to talk to somebody in your Escalation Team.'' They had no 
idea what we were talking about and they said that they do not 
do any sort of enforcement and that what they do is help 
consumers and make referrals. So, I don't know if the Treasury 
people are still here or if Fannie Mae is still or Freddie Mac, 
but they need to get the word out to Hope Now that there is an 
Escalation Team.
    Mr. Neiman. We will make sure to convey that to the 
Treasury.
    Mr. Trauss. Also, with respect to the remedies from our 
experience, the servicers would like nothing better than to be 
kicked out of the program, at least some of them. With respect 
to what can you do to a servicer who is not complying, many of 
these servicers seem to be very reluctantly involved in this 
program and really would love for business to go back to normal 
where they hound homeowners and foreclose and take sales to 
Sheriff's sale because that's what they know how to do, they 
can do it, they can do it quickly, they can do it efficiently, 
they can do it cheaply, they make lots of money doing it. So, 
the threat of being bounced from the program, I don't think is 
a significant threat for compliance.
    From my perspective, despite the promise of the program, 
HAMP and MHA have not been particularly helpful in the 
Diversion Program with respect to achieving permanent 
modifications and I think that's reflected in the numbers. It 
has been helpful in the Diversion Program because it's served 
to slowdown the foreclosure process while lenders have been 
acting on HAMP applications. And, it's provided some leverage 
to advocates to press for meaningful resolutions. But, simply 
put, lenders are avoiding making permanent loan modifications 
and as long as homeowners have no leverage to force such 
modifications, they will not happen in great numbers. 
Overwhelmingly, as has been pointed out in my written 
testimony, servicers are not complying with the guidelines and 
they're doing it with impunity. Servicers generally--in my 
limited experience--seek ways to find homeowners ineligible. 
Even when servicers provide trial agreements, they do not 
provide permanent HAMP modifications at the end of them. 
Instead, we have seen them offer arrangements that are less 
favorable than what HAMP requires.
    As I pointed out in my written testimony, there's a slew of 
inadequacies with respect to the enforceability of the program. 
I'd like to make two points which are related to enforceability 
and taking the problems out from the discretion of the 
servicers. One is that in the Housing Economic Recovery Act of 
2008, $30 million was provided for attorneys to help homeowners 
prevent foreclosure. Because of the way the Neighborhood 
Reinvestment Corporation is interpreting that statute, the 
regulations prevent that money from being used by lawyers 
representing people to defend foreclosures, including 
participating in the Diversion Program. That needs to be 
changed.
    Mr. Neiman. I'll give you an opportunity during the 
question and answer. That was my first question, on change. So, 
if you could just wrap up.
    Mr. Trauss. To wrap up, if you want the MHA to work, if you 
want HAMP to work, I think the most important thing is to 
convince the Senate to pass the amendments of the bankruptcy 
code. It would give the bankruptcy court the authority to 
modify mortgages and make them affordable without incentives to 
the homeowners. And if there is a threat, then you're going to 
get lenders doing what we need them to do. Thank you again for 
the invitation.
    [The prepared statement of Mr. Trauss follows:]
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    Mr. Neiman. Thank you. Ms. Fitzgerald.

   STATEMENT OF EILEEN FITZGERALD, CHIEF OPERATING OFFICER, 
                     NEIGHBORWORKS AMERICA

    Ms. Fitzgerald. Thank you, Superintendent Neiman, Mr. 
Atkins, Mr. Silvers. Thanks for the opportunity to talk with 
you today about NeighborWorks' Foreclosure Mitigation work and 
feedback we have received on negotiating modifications under 
the Making Home Affordable Program.
    By way of background, NeighborWorks is a congressionally 
chartered nonprofit. We were established in 1978 with a 
statutory board, which includes the Directors of the Federal 
Financial Regulatory Agencies and the Secretary of HUD, or 
their designees. Our mission is to expand affordable housing 
opportunities, working through a network of more than 235 
community based organizations. NeighborWorks was at the 
forefront of identifying the foreclosure crisis, creating the 
NeighborWorks Center for Foreclosure Solutions five years ago. 
In December 2007, NeighborWorks was named the Administrator of 
the $180 million National Foreclosure Mitigation Counseling 
Program, which was created under the 2008 Appropriations Act. 
Two additional Appropriations have been made since then, $180 
million in July 2008 and then an additional $50 million in 
2009.
    To date, 674,000 homeowners have received counseling 
through NFMC is 1,700 grantees and sub-grantees. During this 
foreclosure crisis, working with servicers has posed challenges 
for counselors across the nation. While many issues are being 
addressed, working with servicers has continued to be a 
challenge since the launch of MHA. Before I discuss the 
challenges, I do want to point out that MHA includes a number 
of really successful components, the trial modifications having 
been extended and initiated. The 31 percent front end DTI 
requirement really improves a borrower's chance of success and 
was a critical element. As was the willingness of both 
servicers and Treasury to get input on the modification 
process, and their commitment to addressing issues identified 
and the addition of the MHA, FHA program.
    Back to challenges, NeighborWorks recently held a series of 
seven feedback sessions with NFMC counselors on MHA 
implementation uncovering three major themes: difficulty 
communicating with servicers; servicers not following MHA 
program guidelines; and frustrations with the system as a 
whole. Given the time constraints I'll just address a few of 
these. So, difficulty trying to communicate with servicers. 
Counselors noted that many servicers will not work with them. 
Some servicers still ask for their social security numbers, 
even though servicers have directed staff not to continue this 
practice. Counselors also told us they spend as much as two 
hours on hold trying to reach a servicer and then frequently 
are transferred to numerous phone lines before getting answers 
for their questions. Some servicers have contracted with third 
party collection agencies who call borrowers demanding payments 
and do not address refinance or modification options.
    Challenge two: Servicers are not following MHA program 
guidelines. Counselors gave many examples of servicers not 
helping homeowners who were current on their payments, but who 
knew they would have trouble making payments in the near 
future. Instead, the servicers advised the borrowers to stop 
making payments and call back when they were 30, 60 or even 90 
days delinquent. Counselors also reported that some servicers 
would not disclose terms of a modification or a payment 
breakdown or put their offers in writing. In one case, a 
servicer made three separate offers to a borrower on the 
telephone and then sent the borrower a letter stating she was 
ineligible for a modification.
    Servicers are giving misinformation about the program, 
stating that only Fannie and Freddie loans are eligible or 
misstating the required front and backend ratios. Other 
servicers are offering other workouts before MHA workouts, 
which clearly is not supposed to happen. MHA modifications are 
supposed to be offered first.
    Counselors also gave examples of a number of servicers not 
halting foreclosures while reviewing files for MHA eligibility. 
In one case a servicer moved forward with foreclosure sales 
when clients were being reviewed for MHA. In California there 
is a 90 day moratorium on foreclosure sales. When asked about 
this practice, that particular servicer said they were exempt 
from State and MHA requirements.
    Challenge number 3: Frustrations with the system as a 
whole. Counselors gave many examples of servicers not giving 
explanation of a denial for HAMP. They also noted it takes too 
long to get a response to the modification request, two to 
three months for a trial modification. In some cases counselors 
are required to resubmit the same packages when servicers lose 
documents or take so long to review them that the data and the 
document is outdated.
    Finally, a few thoughts on program improvements. NFMC 
counselors support the creation of a central portal for 
submitting modification requests, such as Hope Now and Treasury 
portals which are currently under development, we hope. They 
also would like uniform procedures and forms. The efforts 
currently underway to establish uniform servicer guidelines 
would assist counselors immensely if that happens. And finally, 
counselors say they could be more effective if they had access 
to servicers' NPV (not present value) models to understand how 
servicers determine MHA eligibility.
    In sum, government entities, counselors, lender servicers 
and investors have to continue to work together to address this 
crisis and improve the effectiveness of the programs.
    [The prepared statement of Ms. Fitzgerald follows:]
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    Mr. Neiman. Thank you. Ms. Goldberg.

   STATEMENT OF DEBORAH GOLDBERG, DIRECTOR, HURRICANE RELIEF 
            PROJECT, NATIONAL FAIR HOUSING ALLIANCE

    Ms. Goldberg. Thank you. I want to add my thanks to that of 
my co-panelists here for you all hold this hearing and for 
inviting me here to testify. I'm here on behalf of the National 
Fair Housing Alliance, which is the nation's only national 
organization that's exclusively devoted to eradicating 
discrimination in the housing market. As noted, I run the 
Hurricane Relief Project at NFHA and since 2005 our project has 
been working with homeowners in the Gulf to help them recover 
from the storms of that season. What we have found is that many 
of the homeowners that we have helped would be facing 
foreclosure even if Hurricanes Katrina, Rita, etc, had not 
occurred. The reason for that is that they have the same kinds 
of unaffordable and unsustainable mortgages that so many other 
homeowners around the country have and whose failure has really 
launched this current crisis. We do view it as a crisis at the 
National Fair Housing Alliance and we are very mindful of the 
fact that to a large extent the cause of this crisis have been 
born by people of color and the communities in which they live. 
We have decade worth of research that tells us that these 
borrowers in these communities have been targeted for the kinds 
of loans that are not sustainable, that are high cost, that are 
high risk and they have been on the front lines of this crisis. 
It's been estimated that people of color, over the last couple 
of years have lost hundreds of billions of dollars worth of 
equity as a result of foreclosures. That's going to have a 
profound effect on their families' financial security now and 
into the future and it may take us generations to be able to 
recover from that.
    The foreclosure crisis is unraveling several decades worth 
of concerted efforts by a lot of people to promote community 
revitalization and wealth building in our nation's cities. And 
I want to say, I think it's been pointed out that the misery 
now is being shared by a lot of other people. That loans that 
might not be considered unsustainable and unaffordable are 
still going into foreclosure. That's not the kind of sharing I 
think any of us want to see.
    With a crisis of this proportion we think it's been 
imperative for the government to intervene and we applaud the 
Obama Administration for launching the Making Home Affordable 
Program and HAMP. Several people already talked about some of 
the key elements of that program that have had a really 
positive impact on the market within limits and we want to 
support those things, such as the affordable payments and some 
other things that have been mentioned. And I want to say that 
we've been trying to work since the beginning with Treasury and 
other government officials to try and improve the program's 
operations. I think the early numbers indicate that HAMP is on 
target to meet its goal. But as has already been discussed 
extensively, and as we certainly believe, those goals are too 
modest and the number of foreclosure starts that are projected 
far outweigh the number of people that we expect that the 
program will be helping. Our goal needs to be to stop 
foreclosures, not to meet the goals that have been established 
for HAMP.
    My written testimony describes a number of operational 
problems with HAMP and suggests a bunch of changes that we 
think would strengthen the program, would increase its 
transparency and accountability and extend its reach. My 
testimony also makes a number of proposals for steps outside of 
the context of HAMP that we believe would help us deal with 
this crisis more effectively. Clearly, I don't have time to go 
through those all, so I'm just going to focus on a few. I want 
to point out two that I think have particular fair housing 
implications. One is the data that are collected and made 
public about how servicers are performing under the program. We 
think it's very critical that loan level data, including 
information on the race, gender, and national origin of the 
borrower who is applying for a HAMP modification, be made 
available to the public and that this be done at a geographic 
level that makes it possible for public officials, community 
organizations, individual borrowers, and the public at large to 
understand how the program is working in their communities, to 
be able to identify places where it may not be working 
equitably or effectively and to intervene to change that.
    A second thing is that we think that there needs to be 
better support for borrowers, and particularly for outreach 
into communities where English is not the primary language.
    Third, we think that the NPV model must be made available 
to the public. Borrowers should know what information about 
them and their home (and a particular concern to us is how the 
value of that property is assessed) is put into the model and 
what the model tells them or what comes out of the model about 
whether they succeed or not and by how much they failed. It's 
particularly important to catch folks who just barely failed 
the model's analysis. We also make some suggestions for ways to 
make the model more accurate.
    We believe that it's critical to establish a strong 
effective and neutral appeals process that is borrower 
initiated, where someone outside the system, not in the 
servicer's shop, can review an application to make sure that it 
was handled appropriately. And finally, I would say we think 
it's really important to stop all foreclosure actions. We are 
hearing of far too many borrowers who are either having 
foreclosure initiated or moving along the path towards 
foreclosure even though the final sale may not take place. That 
racks up a lot of costs that undermine the borrower's ability 
to obtain a successful modification.
    And, I will stop there and welcome your questions.
    [The prepared statement of Ms. Goldberg follows:]
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    Mr. Neiman. Thank you. Our intent for this panel was to get 
the borrowers perspective through the views and the eyes of 
advocates and judges like yourselves. You have represented them 
well. The testimony that you all have provided us, in my 
opinion is really the most comprehensive summary of the 
significant issues facing this program and will really serve as 
a terrific basis for us in our work, as well as in our reports 
to the public and interactions with Treasury. My first question 
is designed to expand on your reports as a follow-up to the 
issues that you've identified and give you an opportunity to 
address what is the most important change either in the program 
design of the Making Affordable Home Program or in its 
implementation. If we had to leave here with one critical--and 
I was going to start with three but I know we're pressed for 
time and some of you may overlap--think of the one most 
important change that we really should be looking at 
recommending with respect to the design of the program or the 
way it's being implemented. I'll start with anybody.
    Judge Rizzo. I'm going to start. Again, I hope I can get 
you more when I come a calling and you visit with us because we 
have more to talk about. I obviously have the view from the 
judiciary so I'm sort of level on all sides. Parties come to 
the court by due process equally. I have to say in terms of 
actually on the ground running, I go to my colleagues on this 
panel to discuss it. The bottom line is, I don't know about 
tweaking it anymore other than just reducing it down to fine 
points and getting the word out where it's easy to read 
language and that we have direct, what I would call batphone 
hotlines to really get clarity on points. Through association 
I've had being on panels in Washington, etc. I've had outreach 
to individuals who I personally called to get clarity on. 
That's all well and good, but what we need is something where 
there is actually somewhere to go where we can get a clear, 
quick answer. And that's why programs such as ours, I believe, 
really work because we can react to that change very rapidly on 
this micro basis in a case. But, any delay brings more 
arrearage, more issues with the property, more hopelessness, as 
I refer to it. So, when we wait and wait to get clarity the 
numbers are rising and that's going to factor into the 
numerical formula to actually see if this person can really 
get----
    Mr. Neiman. And getting clarity, you mean from the 
servicer?
    Judge Rizzo. Well, the point is the clarity, I would think 
from the program itself to those who are the stakeholders in 
it. So, if our servicers don't understand what's going on, how 
can they in good faith negotiate to know all the terms when in 
fact from the consumer side there's a conflict--and I speak 
about this in my comments--there's a disconnect of how it's 
interpreted. Well, that takes time to unravel all of that. That 
is time wasted on getting this deal done and now we have more 
arrears to deal with in terms of the formula we apply.
    Mr. Neiman. Thank you. Counselors or Ms. Fitzgerald?
    Ms. Fitzgerald. I'm going to hope Debbie says transparency 
of NPV so then I'll say the other thing I want to say. There is 
a huge process problem here. At the end, there's a lot of good 
core guts to MHA, but if you dropped from the sky and said how 
could you design a more dysfunctional system, you probably 
couldn't get there. The hours and hours and hours of wasted 
time, whether that's a homeowner, a counselor, or a legal 
structure in trying to get resolutions--every servicer using 
different forms for this, everyone having different 
requirements. While MHA is the same, the paper requirement 
documentation is not the same across all of the servicers.
    Mr. Neiman. How important is the web portal? Is Fannie 
talking or are administrators talking about this?
    Ms. Fitzgerald. The web portal is a really good first step 
because at least we can say some servicers require fax, some 
require email, some require mail. So, that solves that problem. 
What it doesn't solve is what gets pushed up into the web 
portal and that requires some kind of standardization of 
documents. In the loan origination process lots of folks use 
Fannie documents. That's become a consistent process. We're 
saying come up with one set of documents for every counselor, 
every borrower. It makes outreach events go a lot better. So, 
that seems very doable. It's not rocket science. Let's just all 
agree to that and make that happen.
    And then, I think the other piece of the process is really 
trained staff and servicers. We are very appreciative that 
servicers have obviously added a lot of staff, which has been 
required and that's a huge effort to get everybody on the same 
page. But, particularly on the collection side, I think a 
homeowner or a counselor might wind up talking to anyone. And 
while the loan modification groups seem to be maybe a little 
bit more informed it's not clear that that has permeated the 
organizations. So, I think really making sure that everyone 
there knows this is the requirements.
    Mr. Neiman. I give you ten seconds.
    Ms. Goldberg. There isn't just one and I think that reduces 
it too far. I want to completely underscore and echo all the 
comments that Eileen made. I would say two things. One is we 
need transparency across the board. Because there are so many 
issues about the program, because it is a complex program, then 
we need to know. We need to know what's going on within the NPV 
model, with the denials for borrowers and the reasons for 
denial that they're given, with the performance data for the 
servicers. The only way that we can really get a handle on 
where the bottlenecks are, where things are falling out is when 
that kind of transparency is provided.
    The other thing I would say is, I think we need to be 
looking ahead more at how the program guidelines must be 
changed to deal with what we can see coming down the road. We 
are in many ways--for all the good things about HAMP--we are 
kicking the can down the road to the end of the program. We 
don't have really permanent modifications. We have five-year 
modifications and who knows what's going to happen at the end 
of that. We have an economic climate where unemployment is at 
an all time high or a record high and expected to stay there 
for quite some time, but yet we're not allowing for people who 
re-default to get a new modification or to get a forbearance or 
whatever might be appropriate. We're kicking them out of the 
program. So, program changes to deal with circumstances like 
these are needed if we really want to get our arms around the 
foreclosure problem and keep it from overwhelming our economy.
    Mr. Neiman. Thank you. My time has expired.
    Mr. Atkins. I wanted to address first a question to Judge 
Rizzo because it sounds like your program is pretty interesting 
and I look forward to seeing it in action this afternoon. How 
are you staffing and supervising this? Have you taken on more 
folks who are able to delegate this? How does this work, 
actually?
    Judge Rizzo. Well, I always feel like it's the Wizard of 
Oz. If you move the curtain you'll see it's one person working 
all of the gadgets. We really are short staffed in terms of the 
court system. We are really in an all stretch assignment, 
myself and all my staff and wonderful court administrators. So, 
from that perspective the court is working within its budgetary 
bounds. That's not to say it's optimistic and that of course an 
infusion of some funding in that regard to expand it wouldn't 
be welcomed. But, more importantly, we are in true partnership 
with these non-judicial entities, these community outreach 
groups who actually go into the neighborhoods, our wonderful 
housing counselors under the office of Housing and Community 
Development and others, our Philadelphia VIP with our volunteer 
lawyers, Judge Pro Tems--who I appoint and they work without 
fee after being trained. We also try to support our wonderful 
CLS and PLA attorneys who actually are staffed up to handle the 
more complex cases. So, from an infrastructure perspective, the 
money side really goes to the City and Mayor Nutter is in 
complete support in terms of his message to call the hotline. 
We're all in sync. It's really a marriage of judiciary with 
non-judicial entities to get this thing going. So, it's always 
in need of more legal services, more community outreach and 
increasing our ready, wonderful staffed up and well trained 
Housing Counselor Network in partnership with the courts. So, 
we work on a shoestring from the court's internal perspective, 
yet we'll of course welcome funding to be with our other 
partners. So, it's a network and I think maybe Mr. Trauss can 
speak to some of that in terms of the funding demands that are 
placed on it. But, we do thank our mayor for trying to really 
support this initiative.
    Mr. Trauss. The court has managed to--without any increase 
in funding--to create a program in which all this happens. Most 
of the funding--as Judge Rizzo said--comes from the City of 
Philadelphia. A lot of it comes from the Office of Housing and 
Community Development and the cost associated with the program, 
which are somewhat invisible. One of the problems with this is 
that this model has been advocated as a cost free model. It's 
all volunteer and in the court side that's true, the Judge Pro 
Tems (JPTs) are volunteers, there are a lot of volunteer 
lawyers. But, in fact there's probably a million dollars, 
actually several million dollars that goes in--probably a total 
of about three million dollars--that goes into the cost of 
funding the hotline, funding about 32 housing counseling 
agencies, funding outreach--although the amount of funding for 
outreach is actually very small for the bang for the buck. So, 
there is a significant cost and that cost is born by the City 
in creating the structure, the infrastructure, which needs to 
be there to have a meaningful program such as the Diversion 
Program. You have to have housing counselors. You have to have 
some way for them to get to the housing counselors where the 
hotline comes in. The hotline, as I indicated in my testimony, 
serves as something of a coordinating function. There's a 
feedback loop that's created with the hotline. So, you need all 
these things. And also, in a lot of cases, you need the one 
thing that's missing which is beyond the volunteer attorneys 
who get involved on a limited basis as lawyers that actually 
step in and represent people when the lenders--and it is not 
unusual--when the lenders overstep their bounds and ask for 
things that they are simply not entitled to.
    Mr. Atkins. What kind of backlog do you have, caseload 
right now?
    Judge Rizzo. Just very quickly. When we're in session we 
hear approximately 150 cases in the morning and 150 in the 
afternoon, that are called in. We have no backlog in a sense in 
that regard. Philadelphia has seen a bump and increase, of 
course, in foreclosure filings. It's leveled off and we 
anticipate another bump. So, we're at about 10,000 filings per 
year just in foreclosures. That has been a 2,000 jump up from 
the years past. But, in terms of backlog, we're in flow and I 
think we estimate about 140 or 150 filings per--well actually 
that's by one firm so I don't know about how many filings per 
month. We're steady in that regard and there is no backlog 
because on initiation they immediately go into the chute and 
they're scheduled for the 45 day conference. I will also add, 
just to the other point almost a million dollars in pro bono 
services have been generated and given to support this program. 
So, that's daunting, but it is actually dedicated volunteers 
serving.
    Mr. Trauss. One of the unadvertised benefits of this 
program is that to the extent that there are resolutions that 
are reached, it takes cases out of the inventory of foreclosure 
cased needed to be tried by the courts.
    Judge Rizzo. I agree.
    Mr. Trauss. So, that is a benefit the court experiences. 
For these to be taken out of the system early, that's a benefit 
to the court and that saves time and money.
    Mr. Neiman. Mr. Silvers.
    Mr. Silvers. Like my fellow panelists, I'm pleased to have 
you all here. Particularly pleased to have Judge Rizzo here and 
it's an honor to be with you and we're certainly coming to 
visit. Let me just make sure I heard the testimony right. Judge 
Rizzo, you said that you've had 6,300 conferences and 1,500 
homes saved roughly from foreclosure?
    Judge Rizzo. Yes, that's right. We can go on and on and 
debate how you describe success because from the Court's 
perspective when it's out of the system, those are the 1,500 
because the case has been closed, we're judicial.
    Mr. Silvers. How many of those 1,500 have come back?
    Judge Rizzo. Well, that's the point and that's where the 
data has been. How do you measure success? So, time has to pass 
in effect for us to go back and revisit that. We're very 
grateful that a national foundation has come calling to really 
breakdown our data and give us that kind of critical 
information.
    Mr. Silvers. So, at this time you don't know?
    Judge Rizzo. No, we do not. We're dinosaurs, we aren't very 
good at collecting our data.
    Mr. Silvers. I would note that the kind of cost figures 
that you're talking about in the prior exchange, $3 million, 
1,500 homes saved is comparable to the servicer fee that is 
being paid under the MHA program per mortgage, which is only a 
small portion of the total cost in the MHA program.
    Moving forward from that, Mr. Trauss, when you say that MHA 
should be mandatory, what do you mean? MHA is mandatory in a 
sense of participating in the program is mandatory for TARP 
recipients, more or less. Tell me what you mean by mandatory.
    Mr. Trauss. Before I answer that question. Can I answer Mr. 
Neiman's questions about the one thing that should be done?
    Mr. Silvers. Please.
    Mr. Trauss. And that is, the Administration needs to get 
behind passing the amendments to the bankruptcy code to allow 
for mandatory modifications. If that happened, if that was 
real, then bankruptcy could modify these loans and make them 
affordable, everything else would fall into line because the 
creditors would want to avoid that and they would be looking to 
what program would have incentives for them to make the changes 
that benefited everybody.
    With respect to mandatory, yes participation if you sign 
the participation agreement then you're supposed to follow the 
rules, but there're no teeth. So, I guess by mandatory I mean 
some system where there are immediate consequences for failing 
to do what you're supposed to do.
    Mr. Silvers. Maybe I'm not following. Laws being 
complicated, maybe I'm not following this, but it seems to me 
that a firm that signs that agreement, receives TARP funds, has 
entered into an arrangement with the Federal Government where 
they're receiving money for making commitments and adhering to 
them and in our law there are real penalties, including 
criminal penalties for intentionally not following such an 
agreement, isn't that right?
    Mr. Trauss. Well, I haven't looked into it. I assume that 
you're correct about that. What I know is that on the ground 
day-to-day--and you maybe right that five years from now they 
will----
    Mr. Silvers. My point is just that maybe we have an 
enforcement problem here and not a lack of penalties problem.
    Mr. Trauss. Well, we have an enforcement problem, but 
that's exactly my point. I mean, it's not a question of 
penalties because penalties down the line do not help the 
hundreds, thousands and millions of people who lose their 
homes. For example, Bank of America--I don't know if they're 
here yet--Bank of America until, I think August in Philadelphia 
at least, were telling our hotline people that they signed the 
SPA, but they were only doing GSE loans. They were not offering 
MHA or HAMP on any non-GSE loans. There were thousands, 
millions possibly, but thousands, tens of thousands perhaps 
hundreds of thousands of people were not being put into the 
system, their houses were going to foreclosure, they were 
losing their homes because Bank of America was blatantly, as 
far as we could tell, violating their obligations. We contacted 
Fannie Mae, we contacted Freddie Mac and the response we got 
from Freddie Mac was, ``Yes, we know.''
    Mr. Silvers. You may have noticed Mr. Trauss, I don't know 
if you were here earlier, but I asked the Treasury Department 
to review your testimony in relation to allegations, plausible 
allegations of misconduct and to report back to our committee 
as to what they found. Can I ask Judge Rizzo--and Mr. Trauss 
you may know the answer--when your outreach people go knock on 
a door, they knock on the door and the person says ``Who is 
it?'' what do they answer?
    Mr. Trauss. Well, I am not directly involved in the 
outreach. I don't know if anybody from the agencies is here. 
So, I can't answer exactly what they say. We do get the calls 
when the outreach workers--we try to coordinate with the 
outreach workers so that we are there even when we're not.
    Mr. Silvers. I assume they don't answer, ``It's your bank 
calling''.
    Mr. Trauss. No.
    Mr. Saber. They identify themselves from the organization 
they're with.
    Mr. Silvers. I hope that the record taker here could hear 
that response from the audience.
    Judge Rizzo. That's Lance Saber from the City.
    Mr. Saber. They identify themselves from the organization 
that they are with. There are different organizations that are 
out there.
    Mr. Silvers. Thank you. My time has expired.
    Mr. Neiman. We're going to try to do one more round. We're 
running a little behind so we'll really try to keep these 
within our time limits. I'd like to go back to my first line of 
questions to the Treasury panel regarding their metrics of 
success because it is currently focused on trial modifications. 
As you all know, some trial modifications are offered and 
started before verification of income based on verbal 
information while other servicers do wait to verify that 
documentation before offering a trial modification. Do you all 
have any views as to whether either of those approaches is 
preferable?
    Mr. Trauss. I have no problem with the oral implementation 
and what I find happening is that anything that reduces the 
excuse that a servicer can give for not immediately saying, yes 
we will consider you, we are stopping foreclosure, start 
sending us money.
    Mr. Neiman. So, the earliest you can to get people into it?
    Mr. Trauss. Right, that is the best thing because it 
doesn't take long. The paperwork that is required by HAMP is 
very minimal. Now, the servicers add to that paperwork, but the 
HAMP paperwork is pretty minimal and that's pretty easy to get 
through. What we find is that the paperwork requirement is used 
as an excuse to frustrate the ability of people to participate.
    Mr. Neiman. How about from the counselor's standpoint.
    Ms. Fitzgerald. I think it would be important to track 
those two numbers differently. So, we don't disagree that you 
should give the borrower the modification as soon as possible, 
but when someone is going back to look at success, I guess I'd 
want to know, was there a difference in those, because I 
wouldn't want folks to say this program didn't work because of 
stated income. So, I think it's really important if we're going 
to do that to track separately.
    Ms. Goldberg. I would also add a second and related but 
important question is the servicers' ability to handle the 
paperwork and review it in the timeframe that's provided by the 
program. In my testimony I cited an example of a client we had 
recently in Mississippi who got one of the early trial 
modifications. She got it based on verbal information provided 
to the servicer. She made her first payment under the trial 
modification in April, the beginning of April, and at that time 
she sent in all of her documentation. Unfortunately, she did it 
without consulting with our counselors so she got some of it 
wrong, like she didn't sign the tax return that she had 
submitted electronically originally to the IRS. Five months 
later, she's made five payments now. That's two payments beyond 
the trial period and the servicer--who was Chase--contacted her 
and said, the paperwork that we have for you is either missing 
or it's invalid and if you can't get it to us within 60 days 
you'll lose your shot at a modification. The servicer had this 
paperwork for nearly five months and couldn't get through it in 
a timely fashion to give the borrower the opportunity to 
correct the errors before the trial period ends.
    Mr. Neiman. So, how big is it? We keep hearing 
documentation, we hear it from the servicers because they're 
saying the individuals are not providing back signed documents. 
We hear it from the counseling agencies that the documents are 
either lost or not being presented in a timely fashion. How big 
on a one to ten scale is documentation?
    Ms. Fitzgerald. Big, but again it's the system: They 
haven't sent any efficient system for collecting and making 
standardized documentation. That is, to me the bigger problem.
    Ms. Goldberg. I think earlier testimony alluded to one of 
the things counselors struggle with, which is that the 
servicers are consistently changing the system that does exist. 
So, you're getting a new phone number, a new fax number, a new 
email address to send stuff to all the time. So, you thought 
you knew how to do it efficiently until you get the new policy 
tomorrow.
    Mr. Neiman. You may have been here when I asked the 
Government Panel to assess the performance of the servicers 
using a score grade of A to F, recognizing that this is a first 
semester as opposed to a year end review. I'd be very 
interested in your assessment of how you would grade servicers 
as a whole.
    Ms. Fitzgerald. My solution, when I heard that question was 
incomplete.
    Mr. Neiman. Incomplete, well that's fair.
    Ms. Goldberg. Well, with some qualifications, I think I 
would have to say a ``D'' and that's for two reasons. One is 
that I don't think we're in the first semester. This problem 
has been going on since long before HAMP, and servicers for 
quite some time have been saying that they've been ramping up 
and they're not there yet. So, I don't think we're in the first 
semester.
    The second thing is, my kid's teacher sends home a little 
rubric to grade them by. It says these are the things we're 
going to judge and effort doesn't count towards your grade. 
It's what you actually have mastered and can demonstrate that 
you mastered and the servicers just are not there yet. They 
maybe making a great effort, but they don't have it mastered.
    Mr. Neiman. Judge Rizzo or Mr. Trauss, care to weigh in?
    Mr. Trauss. I concur.
    Judge Rizzo. I'm going to refrain from any grading, but I 
just want to say with all parties at the table, we really need 
simplification and a way to make it an easy read for everyone. 
That's also going to benefit our borrowers. Sometimes part of 
the delay is caused by them even coming up to get it all 
together. So, I have to, as a Court, balance that. The 
simplification as easy read will help those wonderful housing 
counselors and those who assist in the process, get it in the 
chute so that it can be evaluated for the servicers. Hopefully, 
we're all on the same page.
    Mr. Neiman. Thank you. I'm out of time.
    Mr. Atkins. I want to ask the Panel, especially here in 
Philadelphia, what you all estimate the percentage of 
nonstandard loans might be as part of this problem--and 
subprime and no doc loans--such things as that. What's really 
driving this or do you see this throughout all parts of the 
population?
    Judge Rizzo. I'll just start. What I've seen coming into 
the program consistently is not necessarily the subprime. 
Obviously, it exists to some degree, but that's not where we 
are. We're an old historic city, made up of Philadelphia row 
homes, individuals who've been in their homes for many, many 
years. Our demographics show that our program really assisted 
the elderly and single parents, moms that were looking into 
that and we actually have special protocols to deal with their 
very special needs. It's the situation you read about in law 
school where someone wants to put aluminum siding on your 
house, they get into some loan situation, nonpayment or they 
run, it gets converted into some mortgage document, here we 
have a lien and now here is someone who was in a home 35 years 
and are about to lose it. So, I see some of these anecdotal 
stories, not necessarily of the mass of subprime. We're not the 
city with these people buying these mansions and being 
underwater immediately. That's not what we're seeing. So, this 
consistency of need that I'm seeing coming into the room is not 
that.
    Mr. Trauss. I would just have to disagree with Judge Rizzo 
to some extent.
    Judge Rizzo. And he always does.
    Mr. Trauss. There's a combination and it's been a moving 
target. To some extent in Philadelphia, I think the subprime 
crisis, which was directed much more to low income homeowners, 
kind of peaked in 2004. Subprimes did increase their 
foreclosures to a level of 6,000 a year to close to 9,000 or 
10,000 a year, perhaps last year. At this point we are seeing 
unemployment as a huge component. Unemployment, under 
employment, people lose their jobs, get their jobs back, lose 
their jobs again, get another job. So, there's a shifting face 
in what we're seeing. Now, remember this is a case, this is a 
program which looks at cases in which complaints of 
foreclosures have been filed. And, also in Pennsylvania the 
time to get to foreclosure is somewhat long, relatively on a 
case. So, the foreclosure rush that's resulting from the 
unemployment increase, I don't think has yet hit the Diversion 
Program to the extent that it might have hit other places 
because there's a lag of probably about five months before a 
case actually gets to a complaint of foreclosure. So, we're 
seeing a change in the composition of the majority of what's 
causing the foreclosures and it's moving more towards 
unemployment.
    Ms. Fitzgerald. In general across the country I can't find 
the percentage, but our counselors serve a higher percentage of 
folks with ARM than are in the general population. So, I think 
it's probably 35 to 40 percent. With that said, there are a lot 
of prime loans in this mix and a lot of families in particular. 
We see each time that the percentage increases and problems 
with income increase. I do think that we have a really big 
challenge with the Option ARMS coming, particularly in 
California. They are very concentrated, but they only peak in 
2010 and 2011 and they're going to present a totally different 
problem. I do know that Treasury seems to be aware of that and 
is thinking of different strategies.
    Ms. Goldberg. I can't speak at all to the numbers in 
Philadelphia. I can tell you that in Louisiana it's a different 
situation. We still see a mix of different loan types. And, 
thinking of what I've heard from NFHA's members around the 
country, I think it varies a lot depending on the particular 
local market. In the Midwest it's a little bit different than 
in some of the sand states. I think everybody is seeing 
unemployment as an increasing factor regardless of the loan 
type. But, we're also still seeing the troubling loan types.
    Mr. Trauss. I was going to talk about the troubling loan 
types. Philadelphia has historically had a high percentage of 
its low-income population owning homes and that is what was 
going up for a while. One of the problems is it's not always 
obvious what the loans are. In some of these loans, you look at 
them look like first mortgages, traditional first mortgages. 
But, if you look closely at them, you find out that they are 
predatory or unfair, they have high interest rates, they might 
be part of a 80/20 loan where a person bought a house with a 
first mortgage and there's a second mortgage they don't really 
understand for 20 percent that's a high interest rate mortgage, 
which makes the total package unaffordable. Unlike normal 
loans, escrow is not included so that when they start getting 
the payments there's a shock that happens as rates go up and 
they didn't realize that it wasn't a traditional loan. So, from 
the Court's point of view it would not necessarily be obvious 
that the particular loan involved is the kind that they're 
trying to breakout. There's a lot, of I guess I would call them 
unfair loans that are in there along with traditional, prime, 
credit and also these exotic loans with adjustable rates.
    Mr. Atkins. My time is up. Thank you.
    Mr. Neiman. Mr. Silvers.
    Mr. Silvers. Thank you. When my last time expired I was 
asking about how the outreach is conducted. Is it your view 
that having outreach conducted by parties other than the banks 
has contributed to the success of the program, either Judge 
Rizzo or Mr. Trauss?
    Judge Rizzo. I can tell you, I believe it's been a 
significant benefit to have this type of canvassing done by 
neighborhood groups who are known in the community, who have 
the way to engage and actually have a level of trust infused in 
the dialogue. When they knock and it's not someone serving 
papers, it's someone saying, ``Listen, I know who you are. 
You're in foreclosure. Did you get your papers? Did you look? 
Did you see your date? Did you make the call?'' If there were 
issues with language, we even have abilities through our 
hotline to deal with those types of issues. So, that outreach, 
that one-to-one human touch by people in the community, I think 
that really started it. Actually, some studies were done where 
we took some batches of our cases coming in subject to canvas 
or not and we saw that the failure to appear rate was higher in 
those which were not contacted through canvas. So, we really 
have some experience with this to know that it really does make 
a difference and I think it really is a key in terms of our 
local program.
    Mr. Silvers.  Thank you. I want to shift to a much broader 
question. There is a certain amount of dissatisfaction on this 
panel and I think on the last one, to somewhat of a more 
moderate degree, with the servicers. Any of you, what is 
happening here, is this disorganization? Is this 
intentionality? Do the servicers wish not to participate and if 
so, why?
    Ms. Fitzgerald. I think its really hard to aggregate a 
group of organizations so, we have to be careful at that.
    Mr. Silvers. Well, then let me help you. I mean, I'm just 
interested in volume. If you look at the Treasury reports, 
monthly reports, there's a half dozen, I think that constitutes 
almost all of the volume. I mean, not just the volume of the 
modifications, but the volume of the underlying loans. Lets 
talk about them.
    Ms. Fitzgerald. I do think that the mergers have created 
maybe even unanticipated consequences because they have many 
servicing systems. They have different procedures so I think 
we've certainly seen probably a decline in responsiveness and 
just our ability to solve escalated problems due to the 
consolidation, than maybe we did three years ago about 
awareness of the problem across senior leadership. Obviously, 
there's a challenge in execution.
    Ms. Goldberg. One thing I would just add to that, I can't 
speak to intent but I think we should be mindful of the 
incentives that are built in for servicers to move towards 
foreclosure and how those compare to loss mitigation. Attorneys 
on the Panel can probably speak to this better than I, but the 
feedback that I get from the lawyers that I work with is that 
servicers get paid more, they get paid faster, and they get 
paid more reliably for all the steps that they take to move 
somebody towards foreclosure than they do for loss mitigation.
    Mr. Silvers. Ms. Goldberg, stop right there. Is that still 
true today with the MHA Program being in place?
    Ms. Goldberg. I believe it is.
    Mr. Silvers. What could be done to the MHA Program--and I 
invite any of you to comment--that would alter that fundamental 
calculus? And, not giving in to the deeper questions of the 
fundamental economics of the loan, but this questioning of 
servicing and where those incentives are.
    Mr. Trauss. There's a big problem with the incentives. 
There's four problems mainly, which relate to your question. I 
think there's a problem with culture, which is very hard to 
overcome. There's been a way of doing things since the 
servicers were created, which is now about 10 or 15 years ago 
when it became big. They have a way of doing things, they have 
a mindset that it's our way or the highway and they're not used 
to changing that mindset and that's a big problem and that 
relates to habit. And then there's the incentive problem. To 
answer your question, we can't answer your question, at least I 
can't without further study about the nature of the incentives. 
My suspicion is, my gut is that the amounts of money involved, 
even at this level are not big enough to overcome the cultural 
problems, the habit problems, the disorganization problems, and 
the existing incentives to foreclose.
    Mr. Silvers. Can I stop you there for a second? You and I 
have both stated that we think that restructurings and 
bankruptcy would help here. From what you just said, might 
another different approach be to--and this is more like a 
business approach as opposed to a legal approach--to 
essentially to get subcontractors who do nothing but this that 
specialize in reformatting loans, if we've got profound 
cultural problems with businesses that have been built to do 
something different?
    Mr. Trauss. The problem with using subcontractors, as 
evidenced by the last opinion of Judge Sigmund, the bankruptcy 
judge. One of her last opinions, talks about how theoretically 
it could work depending on how you select the subcontractor. 
Sometimes if you select somebody to do a narrow thing, they 
don't do it with the right understanding.
    Mr. Silvers. Well, they might not have the broader capacity 
that the large banks and their servicing facilities have. Is 
that what you're suggesting?
    Mr. Trauss. Well, what I'm suggesting is the incentive that 
loss mitigation has been farmed out, which it has by these 
servicers already, even before Making Homes Affordable. It has 
not enhanced the process and I don't know why that is. But, 
doing exactly what you do hiring a subcontractor to do 
something repeatedly and efficiently has not made it better, 
it's made things worse.
    Mr. Silvers. Thank you. My time has expired.
    Mr. Neiman. Thank you. I want to thank you all for being 
here this morning, but even more importantly I want to thank 
you for what you do everyday and I look forward to the 
afternoon with Judge Rizzo. I will look forward to staying in 
communication with you. Please keep us advised as you update 
your data and look at us as a resource, as well. Thank you very 
much.
    Let's try to change panels as quickly as possible because 
we are running a little behind.
    The witnesses--and this is our largest panel so we really 
do have to be conscious of the time--the witnesses in our third 
and final panel include three servicers and an economist from 
the Boston Fed. From the left we have Dr. Paul Willen, Senior 
Economist and Policy Advisor, Research Department at the 
Federal Reserve Bank of Boston who has been writing and 
researching this for many years and well known to many of us; 
Allen Jones, Senior Vice President of Default Management with 
Bank of America Home Loans; Larry Litton, President and CEO of 
Litton Loan Servicing and Joe Ohayon, Vice President in 
Community and Client Relations for Wells Fargo. I very much 
appreciate you all being here. I know these are tough 
environments for you all. I know you all travel and have come a 
great distance, but I think this is very important. I am glad 
that if we couldn't get Treasury to sit to the end and listen, 
I think it's even all the more important that we have the 
servicers sitting and hearing those prior panels. So, I look 
forward to your opening statements and to the questions and 
answers. And please do try to limit those to within five 
minutes. Thank you. Dr. Willen.

   STATEMENT OF DR. PAUL WILLEN, SENIOR ECONOMIST AND POLICY 
  ADVISOR, RESEARCH DEPARTMENT, FEDERAL RESERVE BANK OF BOSTON

    Dr. Willen. Thank you. Mr. Atkins, Mr. Neiman, Mr. Silvers, 
thank you for your invitation to testify. My name is Paul 
Willen and I am a Senior Economist and Policy Advisor at the 
Federal Reserve Bank of Boston. I come to you today, however, 
as a researcher and as a concerned citizen and not as a 
representative of the Boston Fed, the other reserve banks, or 
of the Board of Governors. Over the last two years we have 
searched for policies to help troubled borrowers avoid 
foreclosure. In New England, we at the Boston Fed have worked 
with banks to setup a lending facility to help subprime 
borrowers refinance into prime mortgages. We brought borrowers 
and servicers together in large scale foreclosure prevention 
events that have served as a national model. In the research 
department we have gathered and analyzed detailed loan level 
data to help us evaluate policies to ameliorate the effects of 
this crisis on our communities and on the country.
    In my remarks today, I would like to focus on three aspects 
of the foreclosure crisis relevant to foreclosure prevention 
plans. The first is that an effective plan must address the 
problems of unemployed borrowers. Long term loan modifications 
that yield affordable payments for borrowers, but also provide 
attractive payment streams to lenders will help some, but they 
cannot help unemployed borrowers. 31 percent of an unemployed 
person's income is often 31 percent of nothing and a payment of 
zero will never be attractive to a lender. This is important 
because our research shows that, contrary to poplar belief, 
unemployment and other life events like illness and divorce, 
much more than problematic mortgages, have been at the heart of 
this crisis all along, even before the collapse of the labor 
market in the fall of 2008. This may seem counter-intuitive. 
Life events could not explain the surge in defaults in 2007 
because there was no underlying surge in unemployment or 
illness that year. But that view reflects a misunderstanding of 
the interaction of house price depreciation and life events in 
causing default. When prices are rising and borrowers have 
positive equity, detrimental life events lead to profitable 
sales. But when prices are falling and borrowers cannot pay off 
their mortgages with the proceeds of a sale those life events 
lead to foreclosure. Thus, we did not need to see a surge in 
life events to get a surge in foreclosures, but rather a fall 
in house prices, which is exactly and unfortunately what we 
saw.
    The second policy-related finding from our research is that 
it is unlikely that a modest financial nudge to servicers will 
lead to millions of modification that will help millions of 
worthy borrowers. In a recent paper we show that in the period 
of 2005 to 2008 lenders gave payment reducing modifications to 
only 3 percent of seriously delinquent borrowers. In addition, 
we show that this did not result from contractual issues 
related to securitization. Lenders were just as reluctant to 
modify loans when they owned them as when they serviced them 
for a securitization trust. We argue that the main reason we 
see so few modifications is that it simply isn't profitable for 
lenders. Modifications benefit lenders because it helps to 
avoid the high cost associated with foreclosure, but re-default 
risk, the possibility the borrower who receives the 
modification will default again, and self-cure risk, the 
possibility that the borrower would have repaid the loan 
without any assistance from the lender can wipe out these 
benefits. The role of self-cure here is key. About a third of 
the borrowers in our large sample are current on their 
mortgages or prepay a year after they become 60 day delinquent. 
An investor would view assistance given to such borrowers as 
wasted money.
    The third result from our research is that policy makers 
need to exercise care in designing foreclosure prevention 
policies to provide the right incentive to borrowers and 
servicers. A program that offers monetary incentives to do as 
many modifications as possible and to minimize the probability 
that modified loans re-default, may not in fact prevent many 
foreclosures. To see why, one must realize that the easiest way 
to ensure that a borrower doesn't re-default is to choose a 
borrower who is unlikely to default in the first place. Thus, a 
servicer could make minor modifications to millions of loans to 
perfectly creditworthy borrowers, collect large sums from the 
government and then collect even more as a borrower continues 
to repay the loan. Taking these research results into account, 
we believe the most effective use of government money for 
foreclosure prevention would involve direct assistance to 
borrowers rather than to servicers. Two recent proposals, one 
offered by a group of Federal Reserve Economists--including 
me--and the other by researchers at the University of Wisconsin 
target the unemployed to help them cover their housing expenses 
until they get their feet back on the ground. Either plan would 
prevent large numbers of foreclosures and would be a good 
starting point for an effective foreclosure relief plan. We 
hope these findings add perhaps unexpected insights to your 
work as policy makers and thank you again for the opportunity 
to appear before you today and of course I'm happy to answer 
any questions.
    [The prepared statement of Dr. Willen follows:]
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    Mr. Neiman. Thank you. Mr. Jones.

  STATEMENT OF ALLEN JONES, SENIOR VICE PRESIDENT FOR DEFAULT 
             MANAGEMENT, BANK OF AMERICA HOME LOANS

    Mr. Jones. Superintendent Neiman, Mr. Silvers, Commissioner 
Atkins, my name is Allen Jones, Bank of America's Default 
Management Executive. I appreciate the opportunity to appear 
before you today and provide you an update on Bank of America's 
efforts to keep our borrowers in their homes. As the country's 
largest mortgage servicer, we are a major partner in the 
Administration's Making Home Affordable Program and we 
understand the responsibilities that are associated with that 
leadership role. We are committed to helping the Administration 
achieve its goal of 500,000 trial modifications by November 
1st. Bank of America is working to transition 125,000 at risk 
loans into trial modifications as part of its goal. As a 
demonstration of our growing momentum, in August we doubled the 
number of trial modifications we started. And based on the most 
recent reporting I can tell you that we now have 81,000 
borrowers in trial modification. Throughout this historic 
downturn Bank of America has extended credit to drive economic 
growth and worked to develop financial solutions for our 
customers. For example, we were one of the first lenders to 
leverage the Administration's MHA refinance program and to date 
have completed refinancing under the program for more than 
74,000 borrowers. Earlier this year, Bank of America began 
reporting on how it continues to lend and invest in the 
communities we serve. In our second quarter report we stated 
that the first half of this year, we've extended more than $394 
billion in total credit, more than $196 billion in first 
mortgages $40 billion in loan moderate income mortgages, 
provided more than $8 billion in small businesses and $149 
billion in commercial non-real estate loans. We will continue 
to provide transparency into our lending and investing efforts 
and we anticipate our next report on third quarter activity 
will show continued leadership.
    We understand the decisions we make have broad implications 
even beyond our customer base. Recently Bank of America 
announced we have created a new position, Consumer Policy 
Executive, a role which will work directly with our core 
consumer lines of business to ensure that view points from key 
external stake holders, including community groups and consumer 
advocates are taken into account as we address policy issues 
critical to our customers. We're leveraging lessons learned 
from this economic crisis as well as input from customers to 
improve and strengthen our products to better meet consumer 
needs. At the center of that work is our commitment to 
simplicity and clarity, developing straight forward products 
that are easy to use and have clear terms. As described in my 
written testimony, my teammates on the credit card and deposit 
teams have also recently announced exciting new innovations. 
The focus of today's hearing is on what we are doing in the 
market to keep Americans in their homes. Before MHA we were one 
of the first lenders to implement a national home retention 
program. Through that program and other efforts Bank of America 
completed loan modifications for approximately 190,000 
customers from January through mid-September of this year. 
That's in addition to more than 230,000 for all of 2008. We are 
now working hard to help ensure MHA's success and have 
established a sizeable infrastructure to handle customer demand 
and program details. Significant resources have been devoted to 
this effort, including expanding our default management 
staffing to more than 11,000, a 55 percent increase since the 
beginning of the year. Our recent results reflect our 
conversion to MHA as the centerpiece of our home retention 
efforts. As a result, we have significantly increased our trial 
modifications from approximately 28,000 in July to more than 
81,000 through mid-September. In that same period, we have also 
increased the number of offers extended under MHA to more than 
141,000. Importantly, as we have ramped up, we've placed on 
hold any foreclosure sale. With that said, we continue to look 
critically at our loan modification process. Three areas of 
particular focus right now are how we can make the process more 
customer friendly and responsive, how we can more efficiently 
handle customer documentation, and how we can keep customers 
better informed throughout the process.
    In addition, there are other challenges we continue to 
confront in our efforts to help as many borrowers as possible 
realize the benefits of MHA. In an effort to improve our 
outreach and close these gaps, we've ramped up activity through 
traditional avenues, such as mail, telephone and we've 
escalated our participation in community and outreach events. 
Since January we've participated in more than 167 community 
outreach events and we'll be here in two weeks in Philadelphia. 
We also have partnered with three national nonprofits. I've 
heard earlier in the panel the importance of a trusted advisor. 
So, we partnered with three national nonprofits in the creation 
of the alliance for stabilizing communities. There are limits 
to what the current programs can achieve. Unemployment and lack 
of interest in maintaining a property, those are issues that we 
have to consider. And as I wrap up my written oral statement, 
I'd like to focus on the fact that we really understand the 
urgency here. The strong focus from the Administration has 
added substantially to our collective efforts to assist 
homeowners. Yet, we understand we have a long way to go in very 
challenging circumstances. We look forward to working with the 
Administration and the Congress and I appreciate the chance to 
be here. Thank you.
    [The prepared statement of Mr. Jones follows:]
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    Mr. Neiman. Mr. Litton.

   STATEMENT OF LARRY LITTON, PRESIDENT AND CEO, LITTON LOAN 
                           SERVICING

    Mr. Litton. First of all, I would just like to thank you 
for the opportunity to be here and if many of you can't tell, 
I'm from Texas. I'm the funny sounding guy up here. So, I am 
very excited to have this opportunity to kind of share some 
insights with you. I am responsible for running a mortgage 
portfolio for about 365,000 loans and about $58 billion worth 
of mortgage products. We're in all 50 states. It's 
predominately subprime as well as ALT-A products. At Litton 
we've been a leader in providing workout solutions to 
homeowners for more than 20 years. We have been and we continue 
to be a proponent of thoughtful as well as practical loan 
modifications that provide affordable opportunities to 
struggling homeowners and that is very consistent with our 
obligations to the owners of those loans. We are very proud 
that many of our early strategies served as a basis for many of 
the loss mitigation methods that the industry deploys up to 
this day.
    Over the past twelve months or in the twelve months prior 
to the announcement of the HAMP Program in February, we had 
modified more than 44,000 loans over that twelve month period 
of time. That represented about 30 percent of our service to 
first lien mortgage portfolio that were 60 day or more past 
due. On average, these modifications lowered the homeowner's 
monthly principle and interest payment by about 20 percent 
based off of how those loan modifications had been structured.
    Since March 2009, when the initial HAMP guidelines were 
published up through August 2009 when Litton had signed up for 
HAMP, we had extended trial modifications to approximately 
40,000 additional homeowners. These trial modifications were 
offered in accordance with the broad principles of the HAMP 
guidelines. Since signing onto the program in early August we 
have offered another 10,000 HAMP loan modifications. So, when 
you add all that up you get 44,000 loan modifications that we 
had done in the twelve months leading up to February, 40,000 
trial modifications over that timeframe from February up until 
we signed on the HAMP and then 10,000 additional loans that we 
modified under HAMP, makes up a total of about 25 percent of 
our total portfolio that we service has been modified over the 
past 18 months.
    So having said that, I'm here today to kind of offer a 
couple of suggestions as it relates to the HAMP guidelines. 
HAMP has very successfully created substantial momentum in the 
mortgage servicing industry by providing more loan modification 
opportunities to struggling homeowners. But as with any 
government program, there are some lessons that I think that 
we've learned and there are four suggestions I'd like to make 
here today.
    The first suggestion has to do with debt-to-income ratio. 
So, the 31 percent debt-to-income standard is a very reasonable 
basis to calculate a modified mortgage payment. However, I'm 
going to give you an example. There are homeowners who have 
substantial arrearage that has built up and that arrearage was 
built up because a borrower may have had a prior unemployment 
situation or other life event that may have created an instance 
where the borrower got past due. Today they may have a front 
end debt-to-income ratio that's less than 31 percent and then 
after capitalizing arrearage or forbearing the arrearage, you 
may create a situation where the DTI payment may be greater 
than 31 percent, but those borrowers would be excluded from 
HAMP. So, expanding HAMP to include situations where borrowers 
have less than 31 percent debt-to-income ratios in those 
instances where arrearage have been created, might be a 
worthwhile way for policy makers to consider expanding the 
program to be more effective. From an income documentation 
prospective, it's completely understandable for a program that 
relies on taxpayer funds to require lots of income 
documentation. However, I would say that there are delays that 
are created by requiring some of the documentation that HAMP 
requires. The earlier panel made reference that in many 
instances there is not a lot of documentation. I would agree 
with that. However, I would state that it is a problem in many 
instances getting that information from some of these 
consumers. So, I think a way to streamline that might make the 
program more effective, as well.
    As it relates to the NPV model that the GSEs rolled out, 
the NPV model was based on state averages of home price 
depreciation and is not often granular enough to take into 
account home price appreciation or declines within specific 
communities and neighborhoods. This will cause some loans to 
fail or some loans to pass the NPV test when they potentially 
should not. Our experience has found that more loans fail than 
what should actually fail in this situation because it's not 
granular enough. So, being a little bit more specific as it 
relates to the NPV models might also be something for 
policymakers to consider, as well.
    The last point I'll make has to do with option ARMS. Your 
prior panelists made reference to a point--I think they are 
exactly on point--that there's a coming wave as it relates to 
option ARMS loans and many of those loans will not fit within 
this program. So, policymakers considering ways to expand the 
program to make it more focused on option ARMS product might be 
something very worthwhile, as well. Thank you very much, I'm 
happy to answer any questions that you might have.
    [The prepared statement of Mr. Litton follows:]
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    Mr. Neiman. Mr. Ohayon.

   STATEMENT OF JOE OHAYON, VICE PRESIDENT FOR COMMUNITY AND 
          CLIENT RELATIONS, WELLS FARGO HOME MORTGAGE

    Mr. Ohayon. Thank you. Members of the Congressional 
Oversight Panel, I'm Joe Ohayon, Senior Vice President of 
Community and Client Relations of Wells Fargo Home Mortgage 
Servicing. Thank you for the opportunity to speak before the 
Oversight Panel today. We take seriously the responsibility 
that comes with Treasury's investment in Wells Fargo through 
the Capital Purchase Program and we are committed to do 
everything we can to assist struggling homeowners as part of 
that responsibility. Wells Fargo may be a big corporation, but 
we operate within the conscience of a company determined to do 
what is right for our customers, our investors and all American 
taxpayers.
    Of course, this year much has changed and evolved in our 
economy and in our efforts to assist struggling borrowers. 
First, we worked hard to implement the very detailed and 
evolving Home Affordable Modification Programs, which include 
different guidelines and requirements for Fannie, Freddie, non-
GSE, and most recently FHA borrowers.
    To handle the greater than 200 percent increase in 
borrowers requesting assistance--including the 35 to 40 percent 
who are current on their mortgages--we have hired and trained 
an additional 4,600 U.S.-based home retention staff for a total 
of more than 12,000. As of September 3rd, we have qualified 
more than 304,000 customers for trial and completed 
modifications this year alone. As it pertains specifically to 
HAMP, we have offered 78,000 customers a trial modification and 
we have received at least the first payment for about 44,000 of 
those trial modifications.
    We have further enhanced our support systems, our training 
and our retraining to aide our service representatives in 
appropriately communicating modification programs and 
guidelines as they continue to change and expand to help more 
borrowers.
    In addition, we have improved the ways to obtain from 
borrowers the extensive documentation the government requires 
for its programs and we continue to work to ensure all 
documents are processed in a timely manner. And most 
importantly, in this dynamic environment we continue to conduct 
final review to ensure every option is exhausted before a 
property moves to foreclosure sale because when a foreclosure 
occurs everyone loses.
    Despite widespread decreases in home values, more than 92 
percent of our customers in our entire servicing portfolio 
remain current on their mortgage payments. This is the direct 
result of our customers' efforts and our commitment to 
responsibly servicing all of the loans in our portfolio, 
including those formerly owned by Wachovia and loans we 
service, but did not originate.
    In addition, our delinquency and foreclosure rates continue 
to be significantly lower than the industry average and the 
lowest of the nation's largest mortgage lenders. And for all of 
2008 and 2009 year-to-date, less than 2 percent of the owner-
occupied properties in our servicing portfolio have actually 
proceeded to foreclosure sales. These results would not have 
been achievable without the continued collaborative public and 
private sector efforts to inform customers of their options and 
the introduction of the new Home Affordable Modification 
Programs.
    While we're proud to be part of the HAMP development, it's 
important to acknowledge that HAMP will not help all borrowers 
in need of payment relief. For the customers who are ineligible 
for HAMP and where we can reach affordability, we offer 
customized solutions.
    You've also asked for our feedback on Philadelphia's 
Residential Mortgage Foreclosure Diversion Pilot Program and 
I'm happy to provide you with a few comments based on our 
experience. In general, we found that intervention programs 
like Philadelphia's can be helpful when they allow a servicer 
to engage in the discussion of alternatives to foreclosure with 
borrowers that have not yet had such discussions with us. 
Anytime we have the opportunity to work with a borrower that we 
have been unable to reach or to have a deeper discussion with a 
borrower, we open up the possibility that we can find a way to 
avoid a foreclosure that otherwise would have occurred.
    From our perspective, Philadelphia's Diversion Program is 
one of the most streamlined and cost effective programs of this 
kind and provides intervention in a way that can be helpful to 
the borrower without being overly burdensome on the servicer. 
Conferences are scheduled in a relatively short time, servicers 
can participate by telephone, key steps in the foreclosure 
process can proceed in parallel with the conciliation process 
and the standards for evaluating whether or not the foreclosure 
can be avoided are relatively clear. The city also has done a 
good job of adapting its program and making adjustments as 
lessons are learned.
    In terms of ways to improve the program, we find that some 
homeowners for whom a conference is scheduled fail to attend 
the conference and a limited number of borrowers come out of a 
conciliation conference with the potential for a workout 
solution. If the city could provide some means of limiting the 
conference to only those borrowers who have not been fully 
evaluated for a possible alternative to foreclosure and those 
who are actively engaged in the process, the resources required 
on behalf of the city and servicers could be significantly 
reduced and the customers who can truly benefit could still be 
served. As servicers, we sit between the customer and investors 
and we are responsible for doing modifications the right way. 
We also have the responsibility to execute these programs well 
for all American taxpayers by ensuring that customers given 
modifications are truly facing hardships and that they can 
afford and sustain their home payments after a modification is 
completed.
    Thank you and I look forward to your questions.
    [The prepared statement of Mr. Ohayon follows:]
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    Mr. Neiman. I started off my questioning of the Treasury 
and GSEs by pointing to the success metrics that the Treasury 
has been using to evaluate the success of the program and also 
to establish performance among the various servicers. As you 
all know, there is great disparity between performance, with 
some down at zero percent with others up in the high double 
digits. Recognizing that some of these disparities maybe due to 
the timing when some servicers entered the program or based on 
the type of trial modification. Is it based on verbal 
information or have they waited for full documentation? I'd 
like your views on what is the best way to analyze this 
information and should there be changes in how we implement or 
look at trial modifications? I'm open up to whomever. Larry, 
you seem to be nodding.
    Mr. Litton. As it relates to whether we start with the 
verbal or a written, I 100 percent concur with the statement 
that was made earlier that the most important thing is to get 
moving whenever we have a customer on the telephone. So, we're 
of the view that proceeding with verbal information is critical 
so that we can stop the foreclosure and so that we can begin 
the process of the loan modification. So, we're very supportive 
of that. However, that does bring up challenges later in terms 
of making sure that you follow-up with getting the income 
documentation that we have to have. But I do think that that's 
one area that could be driving substantial disparity, the fact 
that some may be waiting for the written information to come in 
before they start the trial.
    Mr. Ohayon. I would agree with Larry. We've done it both 
ways at Wells Fargo. A program has evolved over time now since 
February and certainly has gotten better and more refined as 
the months have gone on. Things like the roll out of FHA in 
late July--which went live in the middle of August--certainly 
help a servicer like Wells Fargo because we have a strong 
concentration of FHA loans. But we started with fully 
underwriting, requiring proof of income and documentation 
upfront. It has since moved to a verbal approach. It provides 
immediate relief to the customer because we can grant a trial 
payment and reduce payments immediately. But, as Larry points 
out, certainly it provides the opportunity that once we get 
supporting documentation it may exceed that level or beyond the 
level of income that we actually got from the customer.
    Mr. Neiman. Thank you. You know, I'm also interested to the 
extent that the program has restricted your ability to offer 
loan modifications outside of the program. And, I would 
particularly like to start off with Mr. Litton because he, to 
my understanding, was one of the few servicers that had been 
utilizing principle reduction as a favored loan modification 
and the fact that HAMP does not prohibit it, but it doesn't 
require it--permits it, but doesn't require it. Do you have a 
view on whether this is making it more difficult for principle 
reduction and is that something that the program should be 
reconsidering?
    Mr. Litton. You know, I testified back in November in front 
of Congress on this issue. We adopted a policy in November 
2008, ran that policy up through March 2009 that did support a 
principal reduction strategy. That was based off the fact that 
our analysis at that time concluded that using principal 
reductions is a way to reduce payments, create lower loan-to-
value ratios, provide more exit opportunities for consumers 
later on down the road and might provide more motivation. 
Obviously, under the HAMP program, constructed as the way it 
is, it is an option. However, the industry standard now--most 
servicers are not using the principal reduction component of 
that, they're using the principal forbearance part of that. The 
ASF as well as several other entities have, I think been 
comfortable with that and you'll see most servicers executing 
it within those broad parameters.
    Mr. Neiman. Any of the bank servicers care to?
    Mr. Jones. Sure, I'd be happy to address that. Bank of 
America's perspective is that in certain circumstances 
principal reduction makes sense. I mentioned earlier that we've 
done 190,000 modifications outside of MHA this year. Under MHA 
the centerpiece of our activity today--81,000 loans in trial--
what we have found, it's not really the exit strategy as much 
as keeping our borrowers in their homes. And we've found that 
rate reductions, we've found that forbearance, we've found that 
extension of term, those are the ways that we can keep 
borrowers in their homes and that's what is important in 
communities.
    Mr. Neiman. So, even though the affordability may be the 
same, I think it's your rationale that the motivation to 
sustain that and when we look at re-default rates down the road 
that may have a difference?
    Mr. Litton. Absolutely. That's what led us down that road. 
When I said exit, what I meant there is that the borrower then 
has an opportunity if he needs to sell the house in two years 
or three years or if he gets transferred, you're not carrying a 
balance that is unsustainable at that point in time. That's 
what led to that conclusion back at that point in time.
    Mr. Neiman. Appreciate that. Mr. Atkins.
    Mr. Atkins. I wanted to refocus on the re-default aspect 
here, especially with unemployment statistics as they are. OCC 
and OTS had a study that they also released earlier this year, 
which pretty much--which we were talking about, Dr. Willen. So, 
I was wondering is this principal reduction really the only 
type of ultimate tool or what are the other types of things 
that make sense in this context?
    Dr. Willen. On the issue of principle reduction it's 
exactly right. What I said before is the problem with negative 
equity is basically the borrowers can't respond to life events 
and I think--I don't know if it's quite the right way to put 
it--it's sort of like they don't have an immune system. So, 
there are shocks that happen to people with positive equity 
that never show up in the data as foreclosures. They just show 
up as sales. So, for example in Massachusetts in 2001 we had a 
big increase in unemployment. We had a recession. The number of 
delinquent borrowers went up, doubled. But, then you actually 
saw a reduction in the number of foreclosures. It was a record 
low for foreclosures. So, when people have positive equity 
there are lots of different ways they can refinance, they can 
sell, they can get out of the transaction. So, in the long run 
I think one of the things we've been emphasizing is that it's 
not just the re-defaults, it's the fact that there are a lot of 
borrowers out there who are okay right now, who are fine right 
now, and who may be fine a year from now. But, until they build 
up some equity in their house, those are at-risk homeowners. 
So, in that sense dealing with the principle reduction has its 
virtues and the problem is most homeowners with negative equity 
continue making their mortgage payments. So, you run this risk 
when you start reducing principal that you're inviting all 
kinds of people who can make their mortgage payments, and who 
do make their mortgage payments, to look for relief.
    Mr. Atkins. Right and I guess basically, that's for the 
rest of you. I think that once we go down that road, rather it 
be cram down or whatever, we're basically changing the whole 
risk or ratio of this entire industry and I was wondering what 
you might--how you would expect that to affect interest rates 
for everybody in the whole way that industrialists look at this 
industry?
    Mr. Jones. I certainly will agree with much of what Dr. 
Willen said and would cite as an example, negative equity 
around payment option ARMS. That certainly is an area product 
based whereon principal reduction makes a lot of sense. A 
program like that existed a couple of years ago, but we 
eliminated that program. So, payment option ARMS prospectively, 
we will not offer. As it relates to improvements to MHA around 
these same types of issues--keeping borrowers in their homes--
we've made suggestions and have had a good dialogue around what 
can we do for those who are temporarily unemployed and how can 
we help borrowers--our borrowers--stay in their homes as they 
go through a gap in unemployment. But, we predict that they 
will gain reemployment. So, there are opportunities there for 
us to keep working with our borrowers and keep them in homes.
    Mr. Ohayon. Regarding the principal curtailments we do at 
Wells Fargo, depending on a product type that pay option ARMS, 
certainly it may make sense to actually utilize curtailment, 
just to get the dynamics of the product itself. But, when 
you're looking at a background of what we're trying to 
accomplish and one is addressing a hardship a customer is 
facing and trying to create affordability. To get to 
affordability, you can get there quicker and deeper through 
rate reduction, term extension, and really the top of the 
waterfall for HAMP and that's really the approach we've been 
taking given the government's plan.
    Mr. Atkins. Quickly, part of the bubble produced a lot of 
questions regarding documentation and now we see that come up 
in some courts as ownership issues, who owns the mortgage. Have 
you all experienced that as a problem?
    Mr. Litton. No. From a practical prospective, day-to-day, 
I'm not saying that there's never documentation issues, but in 
terms of being able to demonstrate who the owner of the 
mortgage is, that has not been an issue.
    Mr. Ohayon. Yes, I would agree.
    Mr. Silvers. I would agree, as well. Like my fellow 
panelists, I want to express my appreciation to all of you for 
coming and being with us today. A person might wonder whether 
this would be a pleasant experience and I want to commend you 
for being here. Dr. Willen, his testimony stated that we really 
needed to do something directly to deal with the consequences 
of unemployment and I think it's been the theme today that 
that's not in the design of the original MHA Program. Do the 
rest of you agree that that would be a good idea for the 
Administration to address that problem directly in the MHA?
    Mr. Ohayon. We do at Wells Fargo. We've had a number of 
conversations with the Administration around a short-term 
solution to specifically address unemployment and even under 
employment when you can't create affordability based on that 
underemployment status, so we do.
    Mr. Silvers. Is Pennsylvania a good model for how to do 
this? The long-standing Pennsylvania program has been in effect 
for about 20 years.
    Mr. Litton. With regards to the ACT 6 and the ACT 91?
    Mr. Silvers. I forgot the acronym. Is that program a good 
model for the Treasury to consider in your view?
    Dr. Jones. I think we will continue to look for innovations 
and that is one that ought to be considered. I go back to the 
earlier comments, Mr. Silvers, that we need to continue to 
refine the program and work very strongly with the 
Administration to keep our borrowers in their homes.
    Mr. Silvers. Dr. Willen, you said a moment ago that in 
relation to principal reductions that there was a problem of--
everyone would like a principal reduction, not everyone needs 
one. Why is that not kind of a slam dunk argument given the 
fact that principal reductions--and I think everyone has said 
that there are circumstances in which principal reductions are 
the only solution? Principal reductions in commerce are 
typical. Meaning, in other lending relations principal 
reductions happen all the time when people get in trouble in 
various ways. Dr. Willen, is it the point that there needs to 
be some sort of activity here, not just a slam dunk argument 
for putting this in the bankruptcy courts?
    Dr. Willen. You know, the bankruptcy claims I don't know. 
That may well be. Let me say, I'm no expert on this, but I do 
question how appealing it will be for the borrower.
    Mr. Silvers. It's not an appealing place, is it?
    Dr. Willen. No, it doesn't seem at this point that telling 
a borrower, I got good news for you, you can file for 
bankruptcy, that that's the kind of solution that we're looking 
for right now.
    Mr. Silvers. But isn't that a good thing in a way if we 
want people who really want to stay in their homes to pay a 
price?
    Dr. Willen. Let me say, I think another alternative to this 
is an enhanced short sale program because in a sense a short 
sale is a principal reduction. So, I would guess in this sense 
I would direct questions to Larry in a way about what's 
happening.
    Mr. Silvers. But that doesn't keep anybody in their homes, 
a short sale program.
    Dr. Willen. It doesn't keep anyone in their homes, but it's 
an exit strategy for borrowers. And I think in some cases what 
borrowers are looking for is closure. And I think one thing to 
keep in mind, one of the problems borrowers face is that 
they're unemployed and they have a job opportunity and they 
need to move.
    Mr. Silvers. That's a different issue.
    Mr. Litton. But these are the kinds of problems. When you 
talk to people these are the kinds of problems they're facing.
    Mr. Silvers. I think that this seems to me to be the 
argument for having this option available. It's that you have--
as I think your testimony quite compellingly states--certain 
types of life problems, such as needing to move for a job. 
Being underwater is very problematic and this helps. If you 
don't want to move, short sales aren't a big help and short 
sales put a lot of inventory on the market and that may not be 
what we want to do right now. But in any case, I just wanted to 
get that clear on the bankruptcy court issue. Mr. Litton, we 
heard from Dr. Willen that his financial model is driven, I 
think, by two numbers, re-default rates and self-cure rates 
suggest that it may not be profitable for people in your 
position to restructure loans. You've just finished telling us 
that even before MHA you had restructured something, I think 
something like 80,000 loans in total when you add all the 
numbers up?
    Mr. Litton. Yes, sir.
    Mr. Silvers. You seem like a bottom line focused type of 
person. Explain to me why Dr. Willen is wrong?
    Mr. Litton. Well, I wouldn't say it that way, that he's 
wrong. The way I would phrase it is this, at Litton Loan 
Servicing, and taking into account our prior ownership, we were 
aligned with the holder of the credit risk. So, as loans 
defaulted and as losses mounted it was in our best interest for 
those guys, in order to modify the loans and keep in their 
homes because the losses would be lower, that's number one.
    The number two, what I would argue is that it's clearly 
stated in the pooling and servicing agreements that we are all 
kind of responsible for servicing loans in that that we have a 
contractual responsibility to represent investors and make 
losses as low as we can make them. And, loan modification, in 
our judgment, has been one of the ways to fulfill those 
contractual responsibilities. And then there are economic 
incentives way above and beyond what the HAMP program calls 
for. So, for example, advances. Anytime a borrower doesn't pay 
me, our company has to write the check and fund those advances 
to the investors. And in this kind of climate those advances 
add up to a lot of money at the end of the day. So, all of 
those things combined is what I would argue is what led us down 
this road.
    Mr. Neiman. During the prior panel a statement was made 
that the incentives under the HAMP program were not enough to 
overcome the culture, systems, and other incentives that are 
provided to servicers. Do you agree with that statement and 
would you like to comment on it?
    Mr. Ohayon. As Larry mentioned we've been doing loan 
modifications for a long time, even pre-HAMP, because of 
judiciary responsibilities to our investors. We also do it 
because we think it's the right thing to do for our customers. 
So, regardless of the incentives structure, we think it's the 
right thing to do. Certainly, I want to get back to Larry's 
point around the cost of foreclosure. The advances made are 
significant. The reimbursement from investors doesn't happen 
until a foreclosure action is taken or the loan reinstates 
through modifications. So, actually we were recovering monies 
sooner by doing a modification. So, you would think the 
incentive structure is probably a reverse of that.
    Mr. Ohayon. We don't have incentive to foreclose.
    Mr. Neiman. Mr. Jones.
    Mr. Jones. I agree with much of the remarks.
    Mr. Neiman. Okay. Mr. Litton, do you?
    Mr. Litton. Yes, sir.
    Mr. Neiman. Do you think that was overstated?
    Mr. Litton. Well, what I would say is the following. Most 
servicers, well some servicers--and the reason that that 
argument comes up is that some servicers have historically 
owned REO outsourcing firms or foreclosure trustee firms, 
things like that. And most of us don't. so, it is not a profit 
center I can tell you in any way, shape or form in our company 
and for most of the guys in the industry today.
    Mr. Neiman. I'd also like to understand--and I've asked the 
other panelists--about recommendations for changes in the 
program design or in the implementation that would improve the 
process under which you comply with this program. Are there any 
that you would like to highlight for our panel in our work?
    Mr. Jones. What I'd like to offer is number one, a thought 
around the value of uniformity for all of us here. MHA offers 
that uniformity. As far as, improvements we certainly have----
    Mr. Neiman. Meaning web portal documentation?
    Mr. Jones. We're a strong supporter of that and have been 
engaged in dialogues around that. That is very helpful. 
Documentation is one thing, but again there is a segment of 
borrowers that MHA is not able to help today and so our efforts 
in discussing the unemployment issue is something that we'll 
see definite value in and update. But, I'd like to look at MHA 
as one part of Bank of America's overall approach to keeping 
borrowers in their homes. We support the Administration going 
forward and want to continue the dialogue that has been very, 
very positive. We'll see things coming around second liens, 
around short sales, around deeds and--as much as we can make 
those uniform, the better for the industry, the better for the 
borrower.
    Mr. Neiman. Thank you. Mr. Litton.
    Mr. Litton. Yes, sir. I had one other thing that wasn't in 
my written testimony, which is I think more clarity around 
imminent default would be a great, great thing. We have lots of 
customers that are current that call us that need a loan 
modification and you're right it is absolutely silly to wait 
for the loan to go delinquent. I think HAMP does allow you to 
modify, but you have to have an imminent default standard. 
Having a little bit more clarity around that, I think would 
make servicers more comfortable doing more loan modifications.
    Mr. Neiman. Good practical suggestion. With my last sixty 
seconds I also asked the other panelists to grade the 
servicers' performance recognizing where we may be in this 
school year using a grade of A to F. Since I am used to self-
grading and I often feel that we are probably toughest on 
ourselves in grading performance, I'd be interested if you 
would grade--you don't have to necessarily grade your own firm, 
grade each other or grade the man next to you. No, grade all 
the servicers as to an A to F, I'd be curious.
    Mr. Jones. Certainly. Thank you for the question. I think 
this has been an evolutionary process to get to where we are 
today. In the beginning of the year to summer, I think we were 
really challenged. I think all of the servicers would say, ``We 
could do better. We could do more.'' Today where we are, I 
would give Bank of America a B.
    Mr. Neiman. Mr. Litton.
    Mr. Litton. I would comment on more from an industry 
prospective. I deal with a lot of people whether it be up from 
the regulatory side, the advocacy side, or customers, etc., I 
would say our industry given an honest self-grade right now, is 
at a C versus where we need to be.
    Mr. Neiman. Mr. Ohayon.
    Mr. Ohayon. I'll look at it from an industry prospective as 
well and including the Administration and everyone else putting 
this together. It's come a long way in six months.
    Mr. Neiman. And the grade is?
    Mr. Ohayon. I think the ability to get where we are is 
pretty good. So, I would say a B.
    Mr. Neiman. Dr. Willen, you want to weigh in?
    Dr. Willen. Just to weigh in, I think that if we're giving 
them a grade we should take into account that I think what we 
were trying to say, just to clarify a little is, I think this 
is an extremely hard problem. So, this is like a grade in a CAL 
Tech astrophysics lab. So, I think they're doing well given 
what an exceedingly difficult challenge they have.
    Mr. Neiman. Thank you very much.
    Mr. Atkins. Some of the stories we've heard today and 
elsewhere sounded like a lot of it has to do with training and 
internal processes and it sounds like you all have increased 
the number of people. It sounded like they had 11,0000 people 
and Wells Fargo 12,000 and so I was just wondering what your 
efforts are to recruit, train and--internal quality control is 
my question.
    Mr. Ohayon. We had to adjust quickly given the volume that 
came in pre-HAMP and post-HAMP. So, as I mentioned earlier, we 
increased to about 46,000 team members in home retention just 
this year. The training program is really comprehensive. Its 
traditional training types, which is more classroom based, but 
also a very practical experience in working with our most 
seasoned representatives. We'll actually rotate our 
representatives so that they're working with the skills that 
they have. So, less complex tasks are given to new staff. And 
then as they become more seasoned we kind of rotate them into a 
more seasoned position. So, I think between traditional and 
practical experience is what we've been doing with our staff. 
We have an internal QC operation, which listens to phone calls. 
So, everyone of our calls are actually voice recorded and we 
sample that to make sure that what the customer is hearing is 
consistent with what we're actually putting forth. It's been a 
difficult environment, I can tell you that. Just look at the 
HAMP program over the past six months. Things have evolved 
significantly and it's been really important for us to make 
sure that are baseline employees understand what those changes 
are. So, that's sort of how we've been doing it.
    Mr. Jones. Mr. Atkins, I agree with a lot of what has been 
said around training. I would add that from Bank of America's 
prospective the way we look at it really is top down. So, we 
have our executives all focused on home retention. They are all 
focused on how we train. The mention of call listening, we do 
that as a practice. We listen to calls, we connect them and 
then we give them to the line and we grade. Here it is, here is 
where we need to make improvements. It has been a process of 
bringing that 11,000 folks onboard. It's not easy as in 
astrophysics as Dr. Willen said, but it is something that we 
have gotten better at each month. And with the commitment of 
our leadership across the board, I think the focus and the 
urgency around making these programs successful ultimately will 
win.
    Mr. Atkins. And then as far as incentives for 
representatives for themselves to show personal success, what 
sort of motivation is there internally as far as benchmarks? 
How are they themselves graded?
    Mr. Jones. We have a standard package for our staff that 
are working and we do not compensate on an incentive basis by x 
number of calls, this number of outcomes. So, we have a base 
salary that we offer to our staff and we have across the board 
for all employees at Bank of America a paid performance 
rewarded depending on how the company does.
    Mr. Ohayon. I would agree. There is team member kind of 
report cards. There are group goals that we meet and there's 
investors score cards that we have that are directly tied to 
their status. So, I think a combination of those report cards 
is telling how really great we're doing.
    Mr. Litton. And then, what I would add is, Mr. Atkins, is 
that since HAMP has come out we've really enhanced our quality 
control focus as it relates to that. I listen to phone calls. I 
talk to customers. I deal with the advocacy groups. I do 
understand that there's frustration around customers as it 
relates to making sure that we have a consistent theme and 
message coming out from our employee base. That is 
fundamentally critical so we want to make sure incentives are 
aligned to accomplish that objective.
    Mr. Atkins. Mr. Silvers this will be our last around of 
questions.
    Mr. Silvers. Just, I want to get a couple of things about 
data straight. Mr. Jones and Mr. Ohayon, you both gave totals 
for temporary modifications offered, temporary modifications 
entered into. Are these totals at the holding company level or 
are these for your primary banking subsidiary?
    Mr. Jones. The trial modification number that I gave you of 
81,000 is for Bank of America.
    Mr. Silvers. Bank of America the national bank, not for all 
subsidiaries of the holding company?
    Mr. Jones. This is for all of the operations of Bank of 
America, which for all intensive purposes is the legacy 
Countrywide company and Bank of America that rolls up to Bank 
of America National Association.
    Mr. Silvers. I was told that Bank of America, the parent 
owns a firm called Home Loan Services. Is that correct?
    Mr. Jones. That is correct.
    Mr. Silvers. Can you explain to me why it is that Home Loan 
Services has zeros on the Treasury Department charts?
    Mr. Jones. Sure, I'd be happy to do that.
    Mr. Silvers. Let me also say that there have been some 
other statements made about Bank of America by prior witnesses. 
I would invite you to respond to those, as well if you wish 
either now or in writing.
    Mr. Jones. Sure. I'd rather go to----
    Mr. Silvers. Answer this.
    Mr. Jones. Okay. As we have acquired entities, as Bank of 
America has had the opportunity to acquire firms, Wilshire Home 
Loan Services, the transition and the technology and the 
platforms associated with those companies have come into our 
system. So, the number that I gave you is 81,000. I saw the 
zero for HLS. Certainly understand and would expect that you 
would ask that question. We are working with our most at-risk 
borrowers and doing everything that we can to get trial 
modifications started. So, I think when you look at going from 
28,000 to 81,000 today, the trajectory is very good and that 
will continue for all of Bank of America.
    Mr. Silvers. I would invite you Mr. Jones--I don't want to 
spend all of the time we have on these matters--I would invite 
you in writing to comment to the panel on prior testimony 
relating to Bank of America. Frankly, I don't understand zeros. 
I understand differentials, I don't understand zeros. If you 
want to expand more in writing on that, I'd appreciate it.
    Mr. Jones. Sure.
    Mr. Silvers. Mr. Ohayon, a similar question to you. Are 
there subs of Wells Fargo parent that I need to know about 
behaving differently than the numbers that you just described?
    Mr. Ohayon. The numbers I described are part of Wells Fargo 
Home Mortgage, which includes loans that we originated directly 
or those that we acquired the servicing. It's that umbrella 
itself. It doesn't include like corporate trusts or things with 
trustees.
    Mr. Silvers. It includes Wachovia mortgages that you know; 
the Wachovia servicing?
    Mr. Ohayon. I don't think so.
    Mr. Silvers. Because again, I think we have an issue here 
where the Wachovia numbers are really not so good. Again, if 
you could just explain why that's so since that would 
apparently be a pool of mortgages that really needs help.
    Mr. Ohayon. I certainly will. A big part of the Wachovia 
portfolio that we service is the pay option ARMS portfolio. As 
I mentioned would be for a solution on the pay option ARMS 
portfolio for HAMP.
    Mr. Silvers. We heard you on that and that was very helpful 
testimony to educate us on that subject. I want to come back to 
you Mr. Ohayon, one more time. Wells has a large, I believe, 
portfolio of second mortgages held in-house. Is that right, not 
laid off on the securitized markets?
    Mr. Ohayon. We do.
    Mr. Silvers. Can you just give me a dollar value of that in 
number of loans?
    Mr. Ohayon. I believe its $129 billion portfolio size 
between junior liens as well as the equity lines that we have 
out there. I can't give you a loan count.
    Mr. Silvers. That's alright because it gives us some 
dimensions. What are the circumstances in that portfolio in 
terms of 60-day no payments foreclosures arising out of that, 
do you know?
    Mr. Ohayon. I don't and I apologize. I don't directly 
manage the home equity group.
    Mr. Silvers. I would appreciate it if you could respond in 
writing giving us that data on that book and also the face 
value of that book and also what it's current at.
    Mr. Ohayon. Absolutely.
    Mr. Silvers. Thank you very much.
    Mr. Neiman. I very much like again to thank this panel. As 
I said for our earlier panels, this is not a one time. We hope 
that you can continue to have this level of dialogue with us. I 
know we've been in contact with you previously to this public 
hearing and I look forward to continuing this level of 
cooperation with your organization. So, thank you again and you 
may leave. Thank you very much. Now, we're going to try to take 
as many questions or comments--not questions--this is an 
opportunity for members of the public who would like to share 
any comments with us that we can take away with us. We would 
not like to engage in and it wouldn't be appropriate for us to 
engage in a dialogue of answering any questions, but it is an 
opportunity for anybody to make a statement. We would like you 
to try to keep that to a minute.
    Mr. Haver. My name is Lance Haver. I will encourage you, as 
you do your analysis to think about people like me. I pay my 
mortgage, but my house becomes worthless as mortgage companies 
who I support through my tax dollars refuse to do the workouts. 
And I encourage you to explain to other homeowners why it's so 
important that you force these mortgage companies or you come 
up with the money necessary to help unemployed people pay their 
mortgages. That you help other homeowners understand that every 
time a house is foreclosed, their neighbor's house is 
foreclosed, the house across the street is foreclosed, the 
value of their house goes down. And frankly, living in 
Philadelphia with two houses on my block that are vacant, it 
would be almost impossible for me to sell my house now at the 
price that I think I would've gotten two years ago. If the 
mortgage company would've helped those families out and those 
houses were occupied, I would be able to sell my house for what 
it was worth. Thank you.
    Mr. Neiman. Thank you. Any other comments? Well, thank you 
all. We very much appreciated being here. I think this was a 
very constructive hearing for the panel and for those who are 
listening or who will read about this in the future. So, I 
thank everybody who participated here. I also want to thank 
members of the public who were here for their time and 
patience. Again, appreciate the efforts of the staff that 
helped put this together as well as the hospitality of the City 
of Philadelphia and others who contributed to this event. Thank 
you very much. Meeting is adjourned.
    [Whereupon, at 1:01 p.m., the hearing was adjourned.]
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