[Senate Hearing 111-269]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-269
 
          MORTGAGE MODIFICATIONS DURING THE FORECLOSURE CRISIS

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



                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            AUGUST 20, 2009

                               __________

                        PROVIDENCE, RHODE ISLAND

                               __________

                          Serial No. J-111-42

                               __________

         Printed for the use of the Committee on the Judiciary




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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         JON KYL, Arizona
RICHARD J. DURBIN, Illinois          LINDSEY GRAHAM, South Carolina
BENJAMIN L. CARDIN, Maryland         JOHN CORNYN, Texas
SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
AL FRANKEN, Minnesota
            Bruce A. Cohen, Chief Counsel and Staff Director
                  Matt Miner, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Whitehouse, Sheldon, a U.S. Senator from the State of Rhode 
  Island.........................................................     1

                               WITNESSES

Bodington, Susan, Deputy Director for Planning, Rhode Island 
  Housing, Providence, Rhode Island..............................    10
Burlingame, Jeffrey, Firefighter, Woonsocket, Rhode Island.......     5
Pollock, David, Homeowner, Cranston, Rhode Island................     7
Rao, John, National Consumer Law Center, Boston, Massachusetts...    13
Verdelotti, Joseph, Jr., Licensed Electrician, West Warwick, 
  Rhode Island...................................................     3

                       SUBMISSIONS FOR THE RECORD

Bodington, Susan, Deputy Director for Planning, Rhode Island 
  Housing, Providence, Rhode Island, statement...................    25
Burlingame, Jeffrey, Firefighter, Woonsocket, Rhode Island, 
  statement......................................................    31
Pollock, David, Homeowner, Cranston, Rhode Island, statement.....    34
Rao, John, National Consumer Law Center, Boston, Massachusetts, 
  statement......................................................    37
Verdelotti, Joseph, Jr., Licensed Electrician, West Warwick, 
  Rhode Island, statement........................................    61


          MORTGAGE MODIFICATIONS DURING THE FORECLOSURE CRISIS

                              ----------                              


                       THURSDAY, AUGUST 20, 2009

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                     Washington, DC
    The Committee met, Pursuant to notice, at 10 a.m., U.S. 
Senate, Committee on the Judiciary, Rhode Island Housing, 
Providence, Rhode Island, Hon. Sheldon Whitehouse presiding.

 OPENING STATEMENT OF HON. SHELDON WHITEHOUSE, A U.S. SENATOR 
                 FROM THE STATE OF RHODE ISLAND

    Senator Whitehouse. Well, good morning everyone. This is an 
official field hearing of the U.S. Senate Subcommittee on 
Administrative Oversight and the Courts of the Senate Judiciary 
Committee.
    I want to open by thanking Susan and everybody else at 
Rhode Island Housing for hosting us here this morning.
    Nearly 10 months ago, we enacted a $700 billion bailout 
package to rescue the economy from the subprime mortgage 
meltdown. This hearing will look at whether the foreclosure 
situation is worsening in Rhode Island and what can be done for 
the millions of families in our state and across the Nation who 
are at risk of losing their homes.
    We tried in October to include in the troubled asset relief 
program measures that would help homeowners on Main Street, in 
addition to the banks on Wall Street. Unfortunately, these 
efforts proved fruitless.
    As you recall, we included in the bailout legislation a 
requirement that the Treasury work to modify the mortgages it 
purchased as part of the TARP, but then the administration 
decided not to purchase toxic assets as they had initially 
proposed. The money instead went directly to banks, and since 
the Treasury held no mortgage-related assets to modify, Wall 
Street won and Main Street lost.
    Democrats in Congress led by Senator Durbin of Illinois 
tried unsuccessfully to include in the TARP legislation a 
provision that could have kept millions of families in their 
homes at zero cost to taxpayers. This proposal would have 
corrected an anomaly in the bankruptcy code that prohibits 
judges from modifying primary residents' mortgages, the way 
they can modify every other type of contract from mortgages to 
vacation homes to car and jewelry and corporate loans. Even 
though bankruptcy modification would spare the community, the 
terrible cost of foreclosure, the mortgage banking industry 
invented hundreds of millions of dollars to lobby against its 
reform and has so far been able to prevent its passage.
    As subprime mortgage teaser periods began to expire last 
year, and with the credit market dried up so folks could not 
refinance, millions of homeowners faced higher monthly payments 
that they could not afford.
    In the final quarter of 2008, there were over 200,000 
residential foreclosures. These homeowners faced this 
foreclosure wave with minimal assistance from their government.
    The new administration has tried to address the foreclosure 
crisis. Through the Treasury's Making Home Affordable programs, 
President Obama encouraged loan services to start modifying 
mortgages. While these programs so far have kept 230,000 
families in their homes through trial modifications, it is 
becoming increasingly clear that Congress must do more to 
address what is a worsening crisis.
    As you will hear from one of the witnesses today, there is 
evidence that the worst of the foreclosure crises is not behind 
us. Just as the wave of foreclosures from subprime mortgages 
begins to subside, a new wave of potential foreclosures tied to 
rate resets on other mortgage instruments is lurking just 
around the corner.
    The Center for Responsible Lending estimates 9 million 
families may lose their homes to foreclosure from 2009, this 
year, through 2012. At their current rates, the Treasury's 
voluntary programs will only assist 2 million or fewer families 
during that period.
    It is clear to me that Congress must do more to help 
struggling homeowners and specifically that we need to take 
another serious look at the Durbin proposal to allow bankruptcy 
judges to modify the terms of mortgages on principal residences 
the way they can on every other loan.
    If we fail to break the vicious cycle of foreclosures, 
falling home values and declining tax revenues, we may end up 
mired in recession for years to come.
    Before concluding my opening remarks, I want to acknowledge 
the hard work of my senior senator, Jack Reed in preserving and 
creating affordable housing in Rhode Island and across the 
country. It is a privilege for me as a new senator to work 
alongside such a champion of accessible housing and fair 
mortgage practices.
    I look forward to hearing the views of today's panel on 
this proposal and others. Joseph Verdelotti, Jr. of West 
Warwick will share his experience struggling with two mortgages 
during a period of rising costs and falling home prices.
    Mr. Verdelotti, a licensed electrician, and his wife April, 
a hospital worker, have been unable to obtain mortgage 
modifications and may soon be forced to leave their home. I 
would add that he gave extremely powerful testimony in 
Washington recently and we are privileged to have him come down 
to Washington to share his views.
    Jeffrey Burlingame and his wife Rachel purchased their home 
in Woonsocket in 2006 and have also struggled to keep up with 
payments. Mr. Burlingame, a firefighter, will discuss his 
difficulties in obtaining more reasonable mortgage terms from 
his loan servicer. I can't see Jeffrey without thinking of his 
mother, Barbara, who was a great leader in the state and a 
great friend to many of us.
    David Pollock of Cranston is a homeowner who also invests 
in rental properties. Mr. Pollock has a Bachelors Degree in 
Business Administration from the University of Massachusetts at 
Amherst and an MBA from Boston University. Mr. Pollock has 
already received a foreclosure notice on his residence and is 
working hard to save it.
    Susan Bodington is Deputy Director for Programs at Rhode 
Island Housing. Ms. Bodington joined Rhode Island Housing in 
1991 and has served as Director of Housing Policy. She holds a 
BA in Economics from Smith College.
    Finally, John Rao of Newport is an attorney with the 
National Consumer Law Center in Boston who focuses on consumer 
credit and bankruptcy issues. The National Consumer Law Center 
performs research and trains attorneys who serve low income 
consumers.
    Mr. Rao was appointed by Chief Justice Roberts to serve on 
the Federal Judicial Conference Advisory Committee on 
Bankruptcy Rules. Mr. Rao earned his degrees from Boston 
University and the University of California Hastings College of 
Law.
    So without further ado, why don't we begin with Mr. 
Verdelotti, and why don't you proceed. Thank you very much 
again for being here and sharing your experience with us.

  STATEMENT OF JOSEPH VERDELOTTI, LICENSED ELECTRICIAN, WEST 
                     WARWICK, RHODE ISLAND

    Mr. Verdelotti. Chairman Whitehouse, thank you for the 
opportunity to testify here today. This is the second time this 
summer that you have invited me to tell my story before the 
Senate Judiciary Committee. I am grateful for your attention to 
my case.
    My name is Joe Verdelotti, Jr., and I am a licensed 
electrician from West Warwick, Rhode Island. My wife, April, 
works at the Rajoines Medical Center in Providence, Rhode 
Island. We have been married for nine and a half years and have 
known each other for nearly 20 years.
    We have one daughter, Brooke, who is nine and two sons. 
Lorenzo who is six, and Gianna just celebrated his first 
birthday a few months ago.
    Needless to say, we have quite an active household. On 
January 26, 2006, we purchased an 1,100 square foot home in 
West Warwick, Rhode Island for $225,000. Since we like many 
other homeowners did not have savings for a down payment, we 
took out two mortgages. The first mortgage which covered 80 
percent of the purchase price is an adjustable rate mortgage 
that is currently at 6.5 percent, but will adjust in the fifth 
year.
    The second mortgage which covered the other 20 percent of 
the purchase price has a fixed interest of 9.25 percent. Both 
mortgages were originally through Aurora Loan Services, but 
Citimortgage subsequently purchased the second mortgage.
    At the time we purchased our home, I was a fourth year 
electrician's apprentice making $18 an hour. The construction 
industry was booming and times were good in Rhode Island. The 
good times did not last, however. Not long after we purchased 
our home, the recession began and work became scarce.
    My company has had to lay off workers and make cutbacks 
just to stay afloat. As of today, we still have a wage freeze 
in effect and hour health care premiums have increased.
    In addition, we just learned that we will lose the Columbus 
Day holiday and will not be paid for days at the end of 
December unless we use our vacation time.
    My wife too has felt the effects of the recession at work 
and is also under a pay freeze. Despite our income freeze, the 
cost of living has not slowed and we are feeling the squeeze.
    Our utility bills such as electric and water have 
increased, as have our property taxes, and we may see further 
increases in the future. Our budget is stretched as tight as we 
can get it.
    Like many of our neighbors, our home is under water. It is 
just not worth what we paid for it at the height of the housing 
bubble in 2006. We received a glimmer of hope last fall when 
the HUD for Homeowners Program took effect, but that proved to 
be a disappointment. The day the program started, my wife 
called the number listed on HUD's website and spent hours 
waiting and talking to someone at the debt service about our 
situation.
    In the end, their only advice to her was to consider a 
roommate, get a part-time job, contacted the United Way to 
locate food banks in our area, reduce spending and contact 
Legal Aid for a consultation with a bankruptcy attorney. The 
person on the phone even recommended we consider walking away 
and letting the bank foreclose.
    We called for help in saving our home and we were told to 
consider food banks and foreclosure.
    I later contacted Aurora Loan Service directly and spoke 
with a customer service agent to see if they would be willing 
to work with us under the Help for Homeowners Program.
    After giving the necessary information to the agent over 
the phone, I was met with another disappointment blow. The 
agent informed me that we did not make enough money for them to 
help us and that we should consider a short sale.
    Next we decided to apply for a financial hardship package 
through Citimortgage. On February 26th, 2009 we sent 
Citimortgage the necessary documents through certified mail. 
The documents were received on March 2nd. On March 20th, my 
wife contacted Citimortgage at approximately 1 p.m. to try and 
find out the status of our hardship application. But all she 
got was the run around.
    Each person she spoke to said she had the wrong department 
and that they would transfer her to the right one. But this 
never happened. This went on until I came home from work and I 
took over. Each person was clearly reading from the same 
talking points. We always had the wrong department and they 
would transfer us to the correct department.
    After listening to elevator music on hold for over an hour, 
I too gave up. We had been on the phone with Citimortgage for 
over 5 hours and accomplished nothing.
    On April 8, 2009, my wife contacted Citimortgage again and 
after several attempts to get a straight answer, she was 
informed that our case was closed since they never received our 
packet. She informed them that it was sent on February 26th and 
that we had delivery confirmation that they received it on 
March 2nd.
    After hearing this, they changed their story to it must 
have gotten lost and that we would need to resubmit the 
application. This was quite unsettling to hear, because the 
package contained all of our personal and financial 
information.
    Since we have two mortgages, we also sent a hardship 
package to our first lien holder, Aurora Loan Service. In a 
letter dated March 11, 2009, just 2 days after receiving the 
package, Aurora denied our request.
    In May I once again requested a mortgage modification from 
Citimortgage. This time we were rejected because according to 
them, we made sufficient income to support our current mortgage 
payment. They also suggested that we consider a short sale.
    Citimortgage apparently believes that we make enough to 
cover our mortgage but that we should consider a short sale. 
This seems pretty contradictory to me.
    Now, even though we are current on our financial 
obligations, we are hardly living comfortably. We have had to 
make even more adjustments in order to make ends meet, and it 
gets increasingly difficult.
    We are not sure how much longer we can survive like this. 
My health care premiums rose at the same time the Make Work Pay 
tax credit took effect. So now I take home $2 less a week than 
I used to.
    How can my family and others help stimulate the economy if 
Congress doesn't do something fast to help curb this 
foreclosure problem? All we are asking for is a little help, a 
little consideration and a little professionalism on the part 
of our mortgage holders.
    If we are able to negotiate a more manageable payment plan 
to keep our home, it becomes a win/win solution for everyone. 
We keep our home, the banks avoid the cost of foreclosure and 
the community avoids a hit to property values and tax 
collections.
    Senator, please do something to help struggling homeowners 
like my wife and I. Thank you again for the opportunity to tell 
my story.
    Chairman Whitehouse. Thank you, Mr. Verdelotti. I 
appreciate it very, very much.
    Mr. Burlingame.

STATEMENT OF JEFFREY BURLINGAME, FIREFIGHTER, WOONSOCKET, RHODE 
                             ISLAND

    Mr. Burlingame. Senator. Good morning, Senator Whitehouse 
and thank you for the opportunity to be here today. My wife 
wanted to join us but she was unable to attend due to work. She 
works as a freelance technician for a TV station in Boston.
    My wife and I bought our home on May 24, 2006 for $319,000. 
The house was appraised at approximately $350,000. We believe 
this was around the peak of the real estate bubble.
    Since we did not have money for a down payment, we took out 
two mortgages, a so-called 80/20, the 80 percent mortgage 
carried a 7 percent fixed interest rate for 3 years. After June 
1st, 2009 that interest rate could change once per calendar 
year with a minimum rate of 7 percent and a maximum rate of 13 
percent.
    The 20 percent mortgage was a 9.25 percent fixed rate with 
a balloon payment. This means that the entire remaining balance 
would be due on June 1st, 2036.
    According to the city of Woonsocket's tax reevaluation, our 
home is worth $247,100. This means we have lost nearly 30 
percent of our home's value in 3 years.
    On March 31, 2008, my wife and 30 of her colleagues were 
given layoff notices from their employer, the Boston TV 
station. Two months later she began working as a freelance 
broadcast technician at another Boston television station. 
While we had hopes she might be able to get hired full time 
somewhere, the television market nationwide suffered major job 
losses and cutbacks. This has made her chances of securing a 
full-time job in her field virtually impossible.
    Fortunately, my career is secure. I'm a firefighter with 
the city of Woonsocket. I will complete my 12th year of service 
on February 23rd, 2010.
    On September 25th, 2008, my wife and I were able to 
refinance our 80/20 mortgage with Wells Fargo into one 6 
percent fixed rate 30-year mortgage. In October of 2008, my 
wife experienced a lack of hours at her freelance job. She was 
forced to collect unemployment while working only 1 to 2 days 
per week. Our take home pay dropped by about $300 per week.
    On December 11, 2008, we suffered another financial blow. 
My wife seriously injured her wrist while riding on a shuttle 
bus. Her only choices were to either live with the pain for the 
rest of her life or undergo a partial or possibly full wrist 
fusion. We decided to go with the surgery which she had on 
March 12, 2009.
    Due to the nature of her job, my wife was unable to work 
for 2.5 months. During that period we lost close to $10,000 in 
pay. On April 17, 2009, we requested a loan modification with 
Wells Fargo. We hired an attorney to help us through this 
process.
    On April 23, 2009, we submitted our financial information 
and all necessary paperwork. On May 11th, 2009, we received a 
letter from Wells Fargo stating that our account was in review.
    One week later my wife logged onto Wells Fargo's website to 
submit our June mortgage payment as she has done several times 
prior. She quickly realized that our online privileges were 
suspended. She called Wells Fargo and stressed to them her 
concerns about not being notified in the change of our online 
status. After all, we were still getting email notifications of 
new statements to view, but we were now blocked from viewing 
them. We were never notified of this change. They didn't send 
us anything.
    Wells Fargo issued a verbal apology and told her to mail 
the check to them. Against her better judgment, she sent the 
payment that day via the U.S. mail without certification or 
return receipt. She called Wells Fargo on June 1st and she was 
told there was no record of her payment and to call the post 
office.
    My wife told them she was going to call every day until she 
had confirmation that a payment was received. They told her 
that wasn't necessary, to call at most once a week. They told 
her we had until the 15th of June to submit the payment or a 
late fee would be assessed.
    On June 8th, we decided to put a stop payment on the check 
and to pay the bill over the phone. On June 16th, Wells Fargo 
attempted to cash our canceled check. According to our records, 
we would have been 1 day late. Fortunately we paid by phone.
    For the July and August payments, we sent our mortgage 
check via certified mail. Even though it took several days for 
Wells Fargo to clear the check, at least we had proof and peace 
of mind that it was there.
    While our account was in review, we received mail 
correspondence and phone calls from Wells Fargo asking us for 
more information. We received approximately four phone calls on 
different days of the week asking us for more information. Each 
and every time we told the person who was calling us that we 
had retained a lawyer and all questions and requests for 
additional information should go through that office.
    Each and every person said they were unaware we had a 
lawyer, but none of them asked for our lawyer's contact 
information. They repeated their request for information, and 
when we refused to speak with them, they hung up.
    On July 4, 2009, our loan modification from Wells Fargo was 
denied. They cited this request would be outside of your 
investor guidelines. Our lawyer's office told us Wells Fargo 
said we had an $800 a month deficit in income which is why we 
were denied, and we didn't qualify for the next step. On July 
14th we resubmitted our request since my wife's hours at work 
increased. Since then, our lawyer contacted Wells Fargo and 
questioned them about how they generated our financial 
information and the accuracy of it.
    Our lawyer discovered that they were looking at an old 
credit report, ignoring our financial worksheet and said we had 
a second mortgage and we owed almost $2,000 a month on car 
payments. We do not have a second mortgage and our car payments 
total well under $2,000 a month. As of today, our file is still 
under review.
    My wife and I are working hard to retain our home. It seems 
to us that Wells Fargo would rather foreclose upon our house 
than follow the law and renegotiate our mortgage terms.
    In closing, we can only hope that President Obama's Making 
Homes Affordable Act is followed by all lenders as it was 
intended to be. My wife and I thank you for the opportunity to 
tell our story here today. We urge you to consider bankruptcy 
reform among other ways to make sure loan companies work to 
keep people in their homes. Thank you, Senator Whitehouse and 
God bless America.
    Chairman Whitehouse. Thank you, Mr. Burlingame.
    Mr. Pollock.

             STATEMENT OF DAVID POLLOCK, HOMEOWNER

    Mr. Pollock. Chairman Whitehouse, thank you for inviting me 
to testify this morning. I am here to present my personal 
experience attempting to get a loan modification on my home 
mortgage service by Wells Fargo.
    In 2008, I had a dramatic decline in earned income from 
real estate commissions as a real estate broker and the 
misfortune of owning real estate investments that were under 
water.
    Although I have extensive real estate finance experience, 
navigating the Wells Fargo process was extremely time consuming 
and continuously full of conflicting and incorrect information.
    Since 2002, I have been in my own business to purchase, 
renovate and sell multi-family real estate in the Providence 
area and have also worked as a real estate sales person.
    In 2005, I purchased two multi-family buildings in 
Cranston. The mortgages on both buildings are serviced by Wells 
Fargo. Fannie Mae is the investor. In 2007, I sold my then 
residence in Lexington, Massachusetts and moved into a unit in 
one of the Cranston properties located on Armington Street.
    In December, 2008, my Armington Wells Fargo mortgage 
payment of $3,500 had become unaffordable. With a high 7 
percent interest rate that had been established when the 
property was non-owner occupied and the property value having 
declined by 50 percent, I thought the bank would modify the 
loan.
    With excellent credit and being current on all debts, I 
contacted Wells Fargo with the goal of avoiding any bankruptcy. 
I submitted detailed financial statements with a hardship 
letter. Wells Fargo arranged a moratorium on the loan with no 
payments required until May.
    I had the understanding that at the end of the moratorium, 
my interest rate could be lowered, the loan term could be 
extended, and principle could be written down to market value.
    During those months, I never received a call from Wells 
Fargo, nor had any account executive working with me to 
determine an acceptable plan. The few times that I did call 
from February through April, I was told my loan was under 
review for modification.
    Since I did not have an answer at the end of the 
moratorium, the Loss Mitigation Department told me to resubmit 
all information to start the process again. I called and spoke 
to a Wells Fargo Loss Mitigation representative who told me 
that the package had been received and was submitted for 
review.
    I was told that I needed to call every week to find out the 
status. I called almost twice a week through June and was told 
every time that my application was under review and there was 
nothing more that I could do than continue to call every week 
and ask about the status.
    It was very frustrating to not know what changes I should 
make that could change my finances such as selling a property 
for a loss or getting a salary job to be able to meet 
qualifications for one of the loan modifications.
    On June 4th, I received a foreclosure letter from Harmon 
Law Offices on my Armington loan. I called both the Harmon 
office and Wells Fargo. Wells Fargo told me that the 
foreclosure process will continue while my loan is being 
reviewed for modification. I was told that if I paid the 
outstanding balance owed of over $17,000, they would cancel the 
foreclosure sale.
    That was not possible for me since I did not have that much 
cash. I later became aware that all the information I submitted 
on May 1st was actually never looked at or entered into the 
Wells Fargo computer system.
    Now, 6 months after this process began, I had little time 
to make more dramatic changes to my financial situation. Nobody 
told me back in January that I needed to meet certain financial 
criteria for a loan modification.
    Since June, I have spent huge amounts of time every couple 
of days calling Wells Fargo. Every time I speak with a new 
person and ultimately get different information. I received 
conflicting information numerous times. I spoke with people in 
the foreclosure, short sale, loss mitigation and customer 
service departments. In all cases, I could not get one person 
who was in charge of my account. I could only speak with 
representatives who would make notes and read something from a 
computer screen.
    On July 9th, a supervisor in Loss Mitigation was the first 
person I ever talked with that seemed helpful. I found out that 
I had been rejected from the review program a week earlier, 
even though no one ever called to tell me or inform me the 
times that I did call.
    I found out that I was rejected because I made too much 
money. All my rental income was mistakenly counted twice. She 
once again corrected errors that had been entered into my 
financial statements and once again requested that I be 
reviewed for a loan modification.
    Two hours later, a negotiator called me for the first time 
ever. She did not have the information for the loan on my 
residence, but rather the loan on the other investment 
property. She said I didn't qualify for any programs because my 
income was too high. I once again told her to correct the 
financial information. They too had counted all my rental 
income twice.
    Then she put me in a program to pay half of my mortgage 
payment for 6 months with the goal of a lower interest rate and 
term extension. I implored her to be in charge of my Armington 
loan, but the best she could do was to email the Armington 
negotiator to call me.
    Two weeks later I spoke with another supervisor who needed 
to correct the same income information on my financial 
statement. I now learned that there were two separate computer 
systems that did not share information.
    If you were under review, they entered information into one 
system, and if you were not under current review, your 
information went to another software program.
    Three days before the foreclosure scheduled on Friday, 
August 14, just a few days ago, the sale was postponed. On 
Friday morning, Fannie Mae called to tell me that they approved 
a loan modification based on 31 percent debt to income in order 
to lower my interest rate to 5 percent in the new payment 
starting in November.
    Later when I called Wells Fargo, I was told that a payment 
agreement was being sent out for me to make my current payment 
of $3,500 a month for 3 months.
    After the 3 months, I would need to submit new financials 
for a loan modification to be reviewed. The Wells Fargo 
customer service representative did not know anything about the 
information that Fannie Mae had told me just that morning.
    Since the Fannie Mae modification was solely based on my 
income and expenses, I asked Wells Fargo to tell me what was in 
their system. I could not understand how they had come up with 
a surplus of almost $650 when a couple of weeks before I had a 
monthly loss of almost $1,000.
    After I did a detailed review, I discovered that the Wells 
Fargo numbers did not include any cost for the investment 
property mortgage payment which Wells Fargo also services.
    At the moment, I do not think that the Fannie Mae 
modification with a decrease in my mortgage payment by $600 is 
affordable. With an outstanding balance on my Armington loan 
close to $430,000 and a market value near $200,000, I need to 
consider all alternatives.
    If my loan servicer won't agree to write down the loan 
closer to the market value, I might have to do a short sale, 
move out and the new owner can happily afford to live in my 
home with only a $200,000 mortgage.
    Like thousands of homeowners in Rhode Island, I continue to 
be penalized for having bought property at the peak of the 
housing bubble. Senator, please help us stay in our homes.
    Chairman Whitehouse. Thank you, Mr. Pollock.
    Ms. Bodington.

  STATEMENT OF SUSAN BODINGTON, DEPUTY DIRECTOR FOR PLANNING, 
                      RHODE ISLAND HOUSING

    Ms. Bodington. Thank you. On behalf of Rhode Island Housing 
and our partners, we'd like to thank you, Senator Whitehouse, 
for the opportunity to present this testimony.
    I'd like to provide a synopsis of the impact of the 
foreclosure crises in Rhode Island, the impact it has on Rhode 
Islanders. My goal is to outline what we are doing and what can 
be done to help those at risk of losing their homes during this 
confluence of financial, housing and unemployment crisis which 
has been called the Perfect Storm.
    Rhode Island ranks 10th in the Nation for foreclosures and 
the numbers continue to climb as lenders act on a backlog of 
recent defaults. In addition, the unemployment rate in Rhode 
Island is over 12 percent. It is much higher than the national 
average and is continuing to go up. It has been projected to 
reach 13 percent and it is also projected that it might take 
another 5 years for that unemployment rate to go back down to 
normal rates.
    Third, there is a decline in property values as a result of 
this housing crisis which has exacerbated the situation for 
many homeowners. In several Providence neighborhoods, we've 
seen depreciation by as much as 60 percent of the appraised 
value and depreciation in urban communities surrounding 
Providence on an average of 35 percent. So these three factors 
are severely impacting the housing market in Rhode Island.
    The past 6 months have been particularly difficult for 
Rhode Islanders from a housing perspective. Foreclosure 
initiations increased by almost 44 percent during the first 6 
months of 2009 compared with 2008. That's an estimated 5,600 
plus Rhode Islanders who received notification that foreclosure 
proceedings were initiated on their homes. We know that over 
1,000 Rhode Islanders actually lost their homes to foreclosure 
in the first 6 months of 2009 alone.
    More than 7 percent of Rhode Island mortgage holders are 
severely delinquent according to the most recent data that is 
from the Mortgage Banker's Association. It is noteworthy to see 
that Rhode Island Housing's mortgage delinquency rate using the 
same statistics is only at 1.96 percent. There is a significant 
difference there which is attributed to conservative lending 
practices that we've always practiced, a mission based strategy 
to help Rhode Islanders make safe and informed decisions to buy 
and keep a safe and healthy home that meets their needs.
    While the rate of homeowners losing their homes is indeed 
very troubling, we also need to be aware that that is only part 
of the story. For every homeowner that loses their home, there 
are a number of other families who had been renting in these 
multi-family properties who have also lost their homes, some of 
them multiple times, and have had to move.
    Up until very recently, these renters received no advanced 
notification at all, as is done for homeowners. We'd like to 
thank Congress for legislation that was recently passed that at 
least allows and requires that tenants have at least 90 day 
notice before they are asked to move. The problem will still 
exist. We still have many tenants having to move out of their 
property.
    Finding a new affordable home to rent is not easy after a 
foreclosure or for those tenants. Although we are seeing a 
dramatic decline in values in some areas, it is still 
difficult. When you compare wages in Rhode Island to housing 
prices, we are second only to Hawaii in the size of that gap. 
It is very difficult for renters and for former homeowners to 
be able to afford rents.
    In addition, during the first 6 months of 2009, 41 percent 
of the sales in Rhode Island were for distressed properties, 
either foreclosures or short sales. When you take those out of 
the mix and look at the actual price of homes sold that were 
not distressed sales, the average price was still at $235,000 
throughout the state, and that is not affordable to most Rhode 
Islanders.
    What are we doing to help? Rhode Island Housing's Help 
Center is assisting more Rhode Islanders than ever since 
opening our doors in 2007. We have assisted more than 5,000 
Rhode Islanders, 3,226 in the past 12 months alone.
    We have a whole team of counselors who are experienced 
lenders and mortgage servicers and they are dedicating their 
time to helping any Rhode Islander who comes to our door.
    On average they are spending 8 to 10 hours working with 
each client. Each one has their financial situation assessed to 
help them understand their options and to develop a plan of 
action. Each situation is unique.
    Our counselors help homeowners through foreclosures, 
whenever possible to avoid foreclosures or to look at their 
options if that's not possible.
    Many times we are helping homeowners and renters recover 
from the loss of a home and looking for other housing 
opportunities and linking them up with services in the 
community.
    To date, the Help Center has had outcomes for 1,900 
customers who have completed going through counseling, and 
there are a whole variety of outcomes that are possible. 
Anything from mitigation to bringing their mortgage current to 
refinancing. As I said, every situation is unique and it has 
its own solution.
    We currently have 808 client files that are being reviewed 
for workout with service and 125 modification plans that have 
been processed through the Home Affordable Modification 
Program, HAMP, and are currently in a 3-month trial period.
    Due to the high volume in that program since last winter, 
the largest lenders that we're dealing with have very slow 
response time and have continued delays in communication and in 
responding to our counselors. Even where they appear to really 
be trying to work with our lenders, it is still taking 60 to 
120 days to get a response and work out any kind of 
modification.
    Although the program was introduced in March, we are just 
beginning to see some modification plans being approved. We are 
hopeful that that is a sign that approval of those will 
accelerate, but we are still seeing a lot of problems in 
communicating with financial institutions. It is a very long 
process, it is very frustrating for homeowners and our staff is 
very experienced in working with servicers, but it is still a 
long process.
    More than ever it is important for homeowners to contact a 
HUD-approved counseling center like Rhode Island Housing within 
the state for assistance, whether they are looking for a 
modification or looking for help with their mortgage.
    We have a couple of examples. I will give you just one. It 
was a single woman struggling to pay her adjustable rate 
mortgage that came to our help center. She was ten payments 
behind. She negotiated with her lender who had offered her a 
fixed rate loan at 10.6 percent plus $5,000 down payment to 
modify her loan and it would have increased her payments by 
$400 a month. Clearly she already couldn't pay the mortgage 
that she had.
    Having come to our Help Center, we were able to negotiate 
with the servicer and after 3 months of negotiating, we were 
able to get her a fixed rate of 7.5 percent and we were able to 
extend her payments and reduce her monthly payment from what 
she currently was trying, struggling to pay by $450. So those 
negotiations although they are long and they are complicated, 
they have been successful in many cases.
    What more can we do? Despite our tireless efforts and the 
efforts of our partner agencies in the community, there remains 
much work to be done to recover from the ongoing foreclosure 
crisis.
    It is more crucial than ever that the Federal Government 
continue to fund housing counseling services in the community 
which have played a vital role in helping Rhode Islanders keep 
their home or find alternatives.
    In addition, we need to seek out new opportunities to 
provide gap funding for homeowners who can't make their 
mortgage payments but need additional support to qualify for a 
loan modification.
    As we work to keep Rhode Islanders in their homes, we need 
access to a wide variety of mortgage restructuring options, 
providing flexibility to increase loan terms to 40 years, 
provide short-term interest only payment periods for FHA 
insured loans would give us more tools with which to work.
    As we continue to focus on recovery from the crisis, our 
ability to work collaboratively and cooperatively with banks, 
mortgage lenders and servicers in modifying loans in a manner 
that truly helps homeowners address the situation while we 
still protect the interest of the lenders is critical.
    As I mentioned earlier, the current workout process is very 
arduous. It takes months when working with lenders. In short, 
it simply does not work in the majority of cases and cannot 
work for the volume that's in the pipeline.
    One solution to address the process delays would be for 
Congress to implement reasonable modification plan time limits 
for authorization and assignment to a negotiator and a maximum 
of 60 days to complete approval of a modification.
    Bankruptcy reform could provide the incentive or pressure 
to expedite workouts and collaborate more effectively, but it 
should be structured in a way that does not penalize 
responsible lenders who have made fair loans that were in the 
best interest of the customers when the loan was made and who 
have worked with their customers compassionately to keep them 
in their homes.
    While some lenders, especially locally based financial 
institutions are working diligently and efficiently with 
borrowers to modify loans and keep families in their homes, our 
Help Center's experience with some large national lending 
institutions has been for less productive.
    Significant delays in communication and slow processing 
times can result in a negative outcome for the homeowner along 
with additional hardship and stress for the homeowner and the 
entire family.
    We appreciate your commitment, Senator, to this issue and 
we thank you for giving us the opportunity to share our 
experiences with you and we look forward to continuing to work 
with you to address this crisis.
    Senator Whitehouse. Thank you very much. Finally
    Mr. Rao.

 STATEMENT OF JOHN RAO, NATIONAL CONSUMER LAW CENTER, BOSTON, 
                         MASSACHUSETTS

    Mr. Rao. Senator Whitehouse, thank you for holding this 
hearing and for inviting me to testify about the voluntary loan 
modification programs and the potential role for bankruptcy 
courts in solving foreclosure crisis.
    Senator Whitehouse. Just one technical matter. As you know, 
your full statement will be entered into the record of the 
proceeding. I understand you'll make a shorter statement than 
the full statement you provided.
    Mr. Rao. We are now 3 years into the foreclosure crisis, 
and sadly there have been no signs of improvement. The 
statistics are grim and Ms. Bodington has told us about what is 
happening in Rhode Island. Nationally approximately 300,000 
homes are going into foreclosure every month.
    The first quarter of this year we saw that there were 2 
million homes in the foreclosure process and an incredible 25 
percent of subprime mortgages are seriously delinquent.
    All of these statistics are record breaking and suggest 
that we are facing the greatest foreclosure crisis since the 
great depression.
    Senator Whitehouse mentioned that the projections are for 
there to be 9 million foreclosures in the next 4 years. This 
may well underestimate the problem as recent reports indicate 
that there may even be greater problems or a new wave of 
foreclosures that will take place concerning what are called 
Alt A mortgages.
    These are mortgages that were generally given to buyers 
with higher credit scores than subprime borrowers but were made 
with nontraditional underwriting standards. Often they were 
just stated income loans.
    One rating agency, Standard--last month downgraded the 
ratings for the mortgage backed securities for these Alt A 
mortgages that were made in 2005 to 2007 based on the higher 
unemployment rates and the continuing problems in the housing 
market. So I think that is going to be a serious problem that 
we are absolutely going to need to deal with.
    The administration's HAMP program, the loan modification 
program, has attempted to overcome problems with the earlier 
voluntary programs. While it may be still too early to judge 
the success of hamp, so far the results have not been 
impressive.
    In fairness to the administration, there is only so much 
that a voluntary program can do to overcome some of the 
structural barriers that prevent services from modifying loans.
    The first HAMP progress report is now in. During the first 
4 months, again, as Senator Whitehouse mentioned, approximately 
230,000 trial modifications have been made. This is a small 
part of, again, as I mentioned, the number of foreclosures that 
are going into, homes that are going into foreclosure every 
month.
    But what is probably more of concern is that there are some 
mortgage servicers who are just not even putting a dent into 
the number of homeowners eligible for HAMP. Bank of America, 
Wells Fargo, Aquin and Wachovia, while they have an estimated 
according to the Treasury figures, 1.2 million homeowners who 
are 60 days delinquent who would be eligible for the 
modification program, they have only extended modifications or 
trial modifications to 2 to 4 percent of that eligible group.
    There is another servicer with 37,000 potential homes that 
are about to be in foreclosure who has made no modifications at 
all. The Treasury, the major problems with the HAMP program are 
as follows. Large numbers of homeowners have been told that 
they are not eligible for HAMP or are being steered by the 
services to non-HAMP, non-Treasury approved modifications.
    For example, 37 percent of Chase's recent trial 
modifications were not HAMP modifications because they claimed 
that the borrowers were not eligible for the Treasury program. 
This raises many questions. Why are so many homeowners being 
turned down for the Treasury HAMP modification? How many other 
borrowers have applied and were completely denied 
modifications? And what are the terms of these non-HAMP 
modifications that a large number of homeowners are getting.
    This leads to the next problem which is the lack of 
accountability. Like the witnesses have said today, homeowners 
are not told whether they were processed for HAMP modification 
or some other modification. They are not even given 
confirmation that their application is complete. In many cases 
they are not even given an answer at all.
    If they get an answer, they are not told the reasons why 
they were denied a HAMP modification. The HAMP program itself 
does not require servicers to give this essential information.
    Homeowners have encountered many bureaucratic problems, 
again, like the witnesses have said today. Homeowners files are 
routinely lost or shuffled between departments in the servicers 
operation. Homeowners and housing counselors report waits of 
months to hear back for review of a trial modification.
    A recent story in the Providence Journal reported that a 
homeowner had submitted 99 pages of documents to support her 
application for a modification and 4 months later still has not 
heard back as to whether she has been approved.
    Another major problem is with the problem of negative 
equity and the fact that these modifications do not have 
principle reduction. It is not required under the HAMP program 
and it is not happening.
    The recent banking regulatory agencies reports for the 
first quarter show that of the Fannie and Freddie mortgages 
that were modified as well as private securitized mortgages, 
none of them involve principle reduction. The only principle 
reduction occurred in some of the loans that are called 
portfolio loans that some of the smaller banks hold themselves. 
Even that was minuscule, only at about 5 percent.
    Negative equity, as Ms. Bodington has said, is a big issue 
in Rhode Island. There are so many homeowners who owe more on 
their mortgage than the property is worth. The statistics are 
that it is likely that nationally that likely that 48 percent 
of homeowners who have negative equity before the housing 
market begins to improve sometime as projected in 2011.
    The problem of course with negative equity is there are 
things happening all of our lives, we lose a job, we need to 
relocate and you need to sell a property, sell your home. If 
there is negative equity, you just can't do that. You are 
locked, you are basically trapped in your house.
    More seriously, homeowners have no leverage to obtain a 
HAMP modification. Servicers are not even required to stop 
foreclosure proceedings as what happened with Mr. Pollock. They 
continue to process the foreclosures as they are handling the 
modifications and that increases foreclosure expenses, it can 
add thousands of dollars to the amount that the homeowner needs 
if they actually modify.
    What is really lacking in the system is not a carrot. What 
is lacking is a stick. That leads to my final points, Senator 
Whitehouse, which is to discuss very briefly some of the 
advantages of having a bankruptcy option available to amend the 
bankruptcy code.
    Unlike other enforcement mechanisms that the Department of 
Treasury or Congress might consider that would be subject, they 
will be subject to legal challenges and costly government 
administrative costs, bankruptcy court ordered modifications 
have been tested to withstand constitutional and administrative 
challenge.
    There is already a court system in place that would oversee 
these modifications without the use of taxpayer dollars. It 
would also provide homeowners with a legal right to a 
modification even if the servicer claims that their 
securitization documents don't allow modifications.
    As mentioned, HAMP's greatest weakness is ensuring 
sustainable modifications, and that is probably because it 
doesn't involve principle reductions. The availability of the 
cram--right in bankruptcy in Chapter 13 which is to reduce the 
mortgage holder's claim to the value in the property. It is not 
to do it lower than that, but to reduce it to the true value of 
the property.
    That will encourage services to do principle reductions 
outside of bankruptcy. That is certainly the case when Congress 
quite a few years ago allowed this cram down right for family 
farmers, for those who had farms. Many farm banks began to 
voluntarily reduce the principle on modifications without the 
farmer even needing to go to bankruptcy court. So that's a good 
example of how once it is in place, the voluntary efforts will 
improve.
    Cram down would allow homeowners in foreclosure to repay 
their mortgages under fair and reasonable terms and to fully 
protect the mortgage holder, and again they would receive 
adequate protection.
    Finally, a loan modification in Chapter 13 is provided for 
assistance for families who for one of many possible reasons 
are just not able to obtain a HAMP or other modifications. By 
being closely tied to HAMP as was proposed in the Senate bill 
and the bill that has been considered in both the House and the 
Senate in the past, it would allow servicers, it would really 
get servicers to work with homeowners and to make prompt 
decisions on their modification requests.
    Just finally, it also deals with the fact that homeowners, 
many of the homeowners who are facing foreclosure have other 
debt that they are dealing with, maybe credit card debt and so 
forth, and the modification programs currently the Treasury 
program simply says if you have all this other debt, go to 
credit counseling, but doesn't have a way to address it.
    At least for the homeowners who are in the worst financial 
situation, a Chapter 13 bankruptcy would allow them to deal 
with their mortgage plus dealing with their other debts. That 
would be likely to prevent these modifications from re-
defaulting.
    So many good reasons why we ought to consider a bankruptcy 
option. Thank you, Senator Whitehouse, for giving us this 
opportunity to testify today.
    Senator Whitehouse. Thank you very much. I want to turn to 
our personal witnesses first, but I don't want to leave your 
testimony without taking the opportunity to emphasize a point 
that you made at the end. I just want to make sure that you 
confirm it.
    You have heard from these three gentlemen who lived through 
nightmares of bureaucracy and you heard Ms. Bodington describe 
the process is arduous and long and frustrating and a real 
ordeal for folks.
    You indicated that if we were to pass the amendment that 
would allow a primary residence mortgage to have a principle 
reduced in bankruptcy the way every other loan can be, that 
there could be benefit to customers without ever needing to go 
near a bankruptcy court.
    I want to just reemphasize that point with you because I 
think that is one of the key reasons we are trying to do this. 
We are not trying to drive Americans into bankruptcy to get 
this benefit. We are trying to send a market signal so that the 
nonsense that these servicers are engaged in stops and the only 
thing that will make them stop as you said is less carrot and 
little bit more stick. If they know that somebody can go to a 
bankruptcy court and get the relief that they need the way they 
can for any other kind of mortgage, the way the banks 
themselves can if they get in financial trouble and need their 
loan restructured, that it can work for the whole industry and 
the people like Mr. Verdelotti and Mr. Burlingame and Mr. 
Pollock could all be beneficiaries of this without ever having 
to go near bankruptcy court.
    Mr. Rao. It's absolutely the case in my years, many years 
of when I had previously been a litigating attorney and was 
working at Legal Services.
    When you are ever trying to negotiate something, when the 
other side knows that there are options available which may be 
worse for them, it makes them come to the table to negotiate 
it. It always has that effect.
    Right now homeowners don't have that ability to say to the 
bank, well, if you won't modify this, if you won't be serious 
in your negotiations with me, there is another option which I 
can take. That was, again, this has been born out in truth with 
the example of the farmers who were able, the Chapter 12 was 
modified, amended to allow them to modify their mortgages. Once 
that change happened, many more voluntary modifications which 
involved principle reduction occurred.
    Senator Whitehouse. Mr. Verdelotti, you have heard what Mr. 
Rao just said. You have had your own experience.
    Based on, as I recall from your testimony, you and your 
wife basically on a tag team basis handing each other the phone 
as you had to cope with the three kids and your jobs and all 
that sort of stuff, you were on the phone for a single longer 
than 5-hour segment just on one occasion.
    They claimed that you had not mailed in your package until 
you were able to show them a receipt showing that yes in fact 
you had mailed it in. Not only that, they had received it and 
at that point they had changed their story to say oh, well the 
package was evidently lost then.
    There was a 2-day turnaround. Everything else had taken 
forever, but there is a 2-day turnaround between when they get 
one package and when you get a denial.
    Based on all of that, how seriously do you think the 
institution that you are dealing with took negotiating with 
you, how much leverage did you feel you had in those 
negotiations?
    Mr. Verdelotti. None. I didn't have any leverage or 
anything of that nature. I didn't get any sympathy from them. 
Aurora turned around my denial in 2 days. Citimortgage, it took 
forever. It actually went to the Executive Unit and that didn't 
take much longer. It took maybe a week for them to actually 
tell me that I make too much money for them to help me, and 
Aurora tells me the exact opposite which we make not enough.
    Senator Whitehouse. And they're looking at the exact same 
information?
    Mr. Verdelotti. Correct.
    Senator Whitehouse. Mr. Burlingame, you had a couple of 
observations that I wanted to highlight. One that you thought 
you had to send them your materials by certified mail in order 
for proof and peace of mind. That's not a sign of a very 
trusting relationship with your servicer, is that correct?
    Mr. Burlingame. That is correct.
    Senator Whitehouse. I mean, do you feel that they were 
being cooperative and helpful on the other end of this? How 
would you describe the experience you had with your servicer in 
terms of how they treated you and whether you felt that they 
were friend or enemy?
    Mr. Burlingame. When my wife and I started this process, we 
obviously ran into some difficulties quickly. I remember saying 
to my wife, I said Rachel, I said, there is no way you are 
going to tell me that a big company like Wells Fargo, somebody 
is sitting in a room somewhere holding--saying we got them.
    I honestly can't say that I believe that anymore. I truly 
believe that there was some intentions on their part, for lack 
of a better term, play games with us. They had our check, they 
knew they had our check. They chose not to apply it.
    Senator Whitehouse. Now, let me go back to your testimony. 
You said on May 11th you received a letter from Wells Fargo 
stating that your account was in review and then 1 week later, 
Rachel logged onto Wells Fargo's Web site and then you said she 
sent the payment that day via U.S. mail. That is several 
paragraphs later.
    That refers back to the 1 week after May 11th. So you are 
talking about having mailed the check in the week of May 18th, 
correct?
    Mr. Burlingame. Correct. My wife handles a lot of this.
    Senator Whitehouse. But she would have mailed it, what your 
testimony refers to is she would have mailed it approximately 
in the week of May 18th.
    Mr. Burlingame. Correct.
    Senator Whitehouse. And then they said they didn't get it, 
and it is due the 15th of June. So if they cash it on the 16th, 
you are technically in default.
    Mr. Burlingame. It is due June 1st. They give you that 15-
day period.
    Senator Whitehouse. Grace period.
    Mr. Burlingame. A grace period.
    Senator Whitehouse. So you know that, you know two things. 
You mailed it the week of the 18th.
    Mr. Burlingame. Right.
    Senator Whitehouse. They said that they didn't have it, but 
they sure as hell cashed it on June 16th, that 1 day that put 
you outside of the grace period.
    Mr. Burlingame. Right.
    Senator Whitehouse. Or at least tried to if you hadn't 
stopped payment on it.
    Mr. Burlingame. Right. Fortunately she was right on the 
ball with this. We put a stop payment on the check and we paid 
by phone.
    Senator Whitehouse. Between this and between the magically 
missing file that Mr. Verdelotti sent in, it begins, there 
begins to emerge a whiff of gamesmanship and manipulation 
through all of this. What would your feeling be? You are the 
ones who experienced it firsthand.
    Mr. Verdelotti. Yes. It seems like they are doing this, you 
know, to make things harder. I mean, if we are having a hard 
time doing this, what is everybody else doing? Everybody is 
going through the same problems right now.
    We need that step. We need something to make them move 
along most definitely. This seems intentional.
    Senator Whitehouse. And why would it make sense, John, why 
would it make sense for a servicer to want to discourage 
participation in the process with all these different games and 
I assume that what happens at that point is if you give up, you 
mail in the keys, you go to foreclosure and, you know, that is 
the outcome that they force you toward.
    Whose interest is it, in whose interest is it to have the 
property go to foreclosure?
    Mr. Rao. Well, Senator Whitehouse, it's a great question 
and I don't know what the real answer is. It doesn't really 
make any logical sense for this to be happening, but there are 
so many different ways in which servicers have financial 
incentives that are counter to what homeowners and especially 
modifications are that----
    Senator Whitehouse. So the servicer might be looking at 
financial outcomes for the servicer that are better if the 
homeowner goes into foreclosure than they are if they continue 
to work with the homeowner and put them back onto a salvageable 
footing?
    Mr. Rao. There certainly seems to be that. I mean, they are 
recovering all of their costs, you know, interestingly from the 
investors of the mortgagees if it goes to foreclosure. They do 
recover those.
    The cost of processing these modifications, the Treasury 
program for the first time does give them some money, but it's 
not clear that they see that as being enough of an incentive. 
And there are admittedly a lot of administrative costs that the 
Department of Treasury has imposed upon them.
    Quite frankly, I think they may see this as it is just 
better to have the house go to foreclosure and we'll get our 
costs back and it might hurt this investor, but at least we are 
OK. We are not going to get reimbursed for our cost to make 
sure that the modifications are processed properly.
    Senator Whitehouse. Mr. Pollock, you are an obviously 
experienced investor in the real estate market and a 
professional in this field. Your experience doesn't seem to 
have been any better.
    No account executive was ever assigned to work with your 
account as I understand it until very, very late when finally 
somebody in Loss Mitigation appeared willing to take a little 
bit of responsibility.
    At one point you were advised that you had to resubmit all 
the information and start the process all over again even 
though presumably they already had all the information and you 
found it extremely time consuming and continuously full of 
conflicting or incorrect information.
    Ultimately you discovered that all the information you had 
submitted was actually never looked at or entered into the 
Wells Fargo computer system. Again, how would you categorize 
the manner in which you were treated by the servicer through 
this process?
    Mr. Pollock. I think it's extremely unfair and it is 
possibly because of two reasons. One, I guess I could imagine 
somebody is massively disorganized because when I was in the 
banking industry, everybody had their own clients. So if I had 
just one asset manager who was in charge of my account, then 
that person would make sure they had all the information on me.
    In the Wells Fargo procedure, it is as extreme opposite as 
you can get because you could never speak to this person who is 
actually in charge of your account.
    Senator Whitehouse. Ms. Bodington, you make a very 
interesting point in your testimony. You say that the current 
workout process is very arduous and takes months. You say that 
it simply does not work in the majority of cases. Then you say 
something more interesting. You say that it cannot work for the 
volume of cases in the pipeline.
    So something is going to have to change if this is going to 
be effective, correct?
    Ms. Bodington. Yes. I think it is a guess on our part, but 
I think we are seeing, I think our counselors have the same 
frustration with the amount of time it takes, getting 
responses, getting to talk to someone who actually has 
responsibility for a loan and can take some action.
    But some of that problem I think with the larger banks, 
we're making an assumption that some of it is confusion based 
on there is so much in the pipeline, there are so many loans 
nationally that need to be modified that even a very large 
institution even with the best intentions we are seeing 
conflicts between departments having different information as 
you've heard from some of the homeowners.
    I think our staffers are seeing all of the same problems 
with the system. We are getting modifications through. We are 
seeing homeowners with modifications that we think that they 
can afford and they will be able to keep their home, but it's a 
very, very difficult process.
    Senator Whitehouse. And that's even with your experienced 
staff here at Rhode Island Housing assisting them. This is not 
them out on their own accomplishing this. This is with your 
expert assistance.
    Ms. Bodington. Yes.
    Senator Whitehouse. And even then it is long and 
frustrating and arduous.
    Ms. Bodington. Yes. Any homeowner on their own trying to 
work their way through the system, it would be very difficult 
without some help from an experienced counselor, and even then 
it's a very difficult process.
    Senator Whitehouse. So for Mr. Burlingame to have turned to 
the advice of a lawyer makes perfect sense in terms of the, 
assuming the lawyer has some expertise in this area in terms of 
it not be just him and his wife trying to sort it out against 
the bank.
    Ms. Bodington. Yes. I think homeowners really do need help 
with it, and there are a number of counseling agencies in Rhode 
Island where homeowners can get that kind of help and they can 
actually get it for free.
    Fortunately there is some good funding coming out of 
Washington through Neighbor Works for counselors in the 
community. But this is a very complicated process and 
homeowners really do need help with it.
    Senator Whitehouse. And without your help, in the example 
that you gave, the so-called help that the servicer offered 
would actually have increased the woman's mortgage payment by 
nearly $400 a month.
    Ms. Bodington. That's correct.
    Senator Whitehouse. That's a very interesting kind of help 
when a person is struggling with a mortgage payment, isn't it?
    Ms. Bodington. Yes. But fortunately there was a solution 
for that woman there. A number of, I think each case needs to 
be individualized and take a look at what they can actually 
afford. I don't know whether the financial institutions have 
adequate staffing to take the time to really look at that or 
not.
    In that particular instance, fortunately we were able to 
offer an alternative plan that did work.
    Senator Whitehouse. You did note in your testimony another 
point that I'd like to emphasize, you have perceived a distinct 
difference between the local banks and the big national banks 
in terms of the quality of the interaction between your clients 
and customers and them.
    Do you think that is just a question of sort of local 
community sentiment? Or does it also relate to the portfolio 
issue that Mr. Rao referred to that if they actually have held 
the mortgage, they are in a better position to consider 
reducing its principle and adjusting its terms than if they are 
a servicer for a bunch of investors all over the world who they 
don't even know who have bought that mortgage up in strips?
    Ms. Bodington. Yes, I think that's an important 
distinction. I think its local financial institutions that 
service some of their own loans, and Rhode Island Housing, we 
service all of our own loans, who are able to meet with our 
customers and work out modifications.
    So part of it is volume and part of it is just having that 
local presence and being responsive to residents when they do 
need help.
    Senator Whitehouse. And that's why you have less than 1/3 
of the delinquency rate of statewide.
    Ms. Bodington. Yes, correct.
    Senator Whitehouse. It is a point worth making in this 
hearing and in our community that to the extent local banks are 
involved and to the extent that loans have been held by those 
banks in the portfolios, you see a far, far, far smaller 
problem and the kind of mistreatment that Mr. Verdelotti, Mr. 
Burlingame and Mr. Pollock have been treated to appears to be 
associated with and was in each of their cases associated with 
national banks that don't have that local touch.
    Ms. Bodington. I think the local smaller institutions have 
much lower foreclosure rates, have far fewer issues, and when 
they do have issues, they are better equipped to be able to 
work with homeowners and keep them in their homes.
    Senator Whitehouse. Mr. Rao, let's try to put ourselves for 
a moment in the shoes of the servicer and assume that they are 
in some way trying to do the right thing here. All evidence at 
this hearing to the contrary.

    But if they are servicers and somebody's mortgage has been 
turned around and resold and has been carved up into all these 
strips that we've read about and then each of those strips have 
been sold to investors in different funds all over the country 
and all over the world, if you are the servicer and you are on 
the phone and you have got Mr. Verdelotti or Mr. Burlingame or 
their spouses on the phone, you have got two parties to the 
equation there who in theory could work it out except that 
somebody actually owns that mortgage.

    What happens when that group can never be assembled and the 
servicer can never get a decision out of the investors? Does 
that affect this problem?

    Mr. Rao. Yes, it absolutely does affect the problem. The 
services do have some general guidelines that are provided in 
the agreements which set up these trusts, and they vary from 
trust to trust.

    Generally they are given some guidelines with regard to 
some minor modifications. But certainly when it comes to things 
like the modifications that many homeowners need, and 
especially involving the possibility of principle reduction, 
they are reluctant to do anything like that without getting 
authority from investors.

    The problem is that there is no one to turn to. The way 
these were structured for a lot of the tax reasons and so forth 
is that they are supposed to be passively administered. There 
is not supposed to be the trust, the actual owners of the 
mortgage aren't really supposed to have involvement with the 
day to day activities of these loans.

    Senator Whitehouse. It was never really set up to be that 
way.

    Mr. Rao. It's a system that is set up not to deal with the 
problem that we are facing today.
    Just one other minor point. The other big issue is that we 
are now asking these mortgage servicers, these are the 
companies that were generally hired to collect payments and so 
forth to, as part of this modification process, to effectively 
underwrite these modifications.

    They are asking for all this income documentation and 
stuff. They never did that before. What is even more ironic is 
that when many of these loans were made, the originating 
lenders never asked for any of this information. So they are 
actually asking for more information now to modify a mortgage 
than they did when they originally made the loans.

    Senator Whitehouse. I hear a lot of knowledgeable laughter 
from the audience on that point. Rather wry laughter it sounds 
like.

    That is what you are referring to in your testimony. You 
talk about the dynamic that leads servicers to refuse even loan 
modifications that would be in the investor's best interest.

    Mr. Rao. That's right.

    Senator Whitehouse. Well, I think I will call this hearing 
to a conclusion. I want to thank all of the witnesses for their 
testimony and for their expertise and for their commitment.

    I particularly want to thank Mr. Verdelotti, Mr. Burlingame 
and Mr. Pollock for sharing their stories. It really makes it 
real when people like you are willing to come in and walk us 
through what you have been through.

    As Ms. Bodington said, these are tough times in Rhode 
Island and a lot of families are struggling. There are a lot of 
those late night conversations when the kids are in bed and mom 
and dad have to sit around the kitchen table and figure out if 
they can make it another month.

    That's a lot of stress, and losing a home is about as 
stressful as you can get. Particularly if it's a home with 
children in it. So for this industry to add into that equation 
what every single person, both you from your personal 
experience and you both from your more general expertise have 
described as a true nightmare of bureaucracy, that's a lot to 
add into it as a very already difficult mix.

    As a lawyer and somebody who has seen workouts in various 
forms, in the business community people don't treat each other 
this way. If you really need to get into the court, and I see 
some heads nodding. If you really need to get into the court to 
get it done, then you have a judge and ultimately the decision 
gets made and there is no more nonsense and everybody knows 
about it.

    That is one of the benefits that judges provide. They 
provide a decision and it is over and the long ordeal is 
finished. People who aren't present and don't want to show up 
for a voluntary negotiation, it doesn't matter. If they don't 
show up, they lose. You force the process. There is some real 
value to that. Knowing that that is coming, businesses make 
deals and they negotiate their way through and they get out.

    When these banks were in trouble, they were eager to 
renegotiate all of their loans. So it seems to me that this 
would be fair to look further at this.

    I take Ms. Bodington's statement that we have to be careful 
in looking at the principle reduction aspect of the bankruptcy 
loan modification to not target, for instance, the small local 
banks who are in fact granting these modifications, who are in 
fact working with people who did in fact make responsible loans 
in the first instance. Organizations like yours whose default 
rate shows that you made responsible loans from the get go and 
that the statewide rate is multiple times higher than yours, 
the delinquency rate. But it confirms for me the importance of 
trying to fight our way forward for this.

    Leaving it to bureaucracy and leaving it to the 
unsupervised private sector simply doesn't seem to be making 
the difference.

    So you have all been very patient. If anybody has any final 
closing words, I'd be happy to entertain them. But if not, 
we'll consider this hearing of the subcommittee adjourned with 
my gratitude to you for your testimony and my assurance that it 
will be in a meeting when we get back to Washington and pursue 
this issue.

    Clearly if, as Mr. Rao has suggested, there is a second 
wave of foreclosures coming, it will continue to be an 
important issue. As Ms. Bodington has suggested, we are still 
in our wave of foreclosures here, so this is not something that 
is just in the past. We really need to cope with this and I 
thank you for your help to us.

    The hearing is adjourned.

    [Whereupon, at 11:18 a.m. the hearing was adjourned.]

    [Submissions for the record follow.]
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