[Senate Hearing 111-916]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-916
 
   MANDATORY MEDIATION PROGRAMS: CAN BANKRUPTCY COURTS HELP END THE 
                          FORECLOSURE CRISIS?

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

                                HEARING

                               before the

        SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT AND THE COURTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                            OCTOBER 28, 2010

                               __________

                          Serial No. J-111-113

                               __________

         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
               Matthew S. Miner, Republican Chief Counsel
                                 ------                                

        Subcommittee on Administrative Oversight and the Courts

               SHELDON WHITEHOUSE, Rhode Island, Chairman
DIANNE FEINSTEIN, California         JEFF SESSIONS, Alabama
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         JON KYL, Arizona
BENJAMIN L. CARDIN, Maryland         LINDSEY GRAHAM, South Carolina
EDWARD E. KAUFMAN, Delaware
             Stephen C. N. Lilley, Democratic Chief Counsel
               Matthew S. Miner, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, 
  prepared statement.............................................    71
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode 
  Island.........................................................     1
    prepared statement...........................................   118

                               WITNESSES

Britt, Larry G., Homeowner, Riverside, Rhode Island..............     5
Cardullo, Robert E., Homeowner, Johnston, Rhode Island...........     3
Glenn, Judge Martin, U.S. Bankruptcy Judge, Southern District of 
  New York.......................................................    13
Lefebvre, Christopher M., Attorney, Pawtucket, Rhode Island......    21
Rao, John, Attorney, National Consumer Law Center, Boston, 
  Massachusetts..................................................    17
Reed, Hon. Jack, a U.S. Senator from Rhode Island................     9

                       SUBMISSIONS FOR THE RECORD

American Bankers Association, Washington, DC, statement..........    31
Britt, Larry G., Homeowner, Riverside, Rhode Island, statement...    35
Cardullo, Robert E., Homeowner, Johnston, Rhode Island, statement    39
Glenn, Judge Martin, U.S. Bankruptcy Judge, Southern District of 
  New York, statement............................................    41
Godfrey, Richard, Executive Director, RhodeIsland Housing, 
  Providence, Rhode Island, statement............................    69
Lefebvre, Christopher M., Attorney, Pawtucket, Rhode Island, 
  statement......................................................    73
Morris, Cecilia G., Judge, U.S. Bankruptcy Court, Southern 
  District of New York, statement................................    75
Rao, John, Attorney, National Consumer Law Center, Boston, 
  Massachusetts, statement.......................................    83
Weatherford, Laurie K., Chapter 13 Standing Trustee, U.S. 
  Bankruptcy Court, Middle District of Florida, Orlando Division, 
  Winter Park, Florida...........................................   103

 
   MANDATORY MEDIATION PROGRAMS: CAN BANKRUPTCY COURTS HELP END THE 
                          FORECLOSURE CRISIS?

                              ----------                              


                       THURSDAY, OCTOBER 28, 2010

                                       U.S. Senate,
                             Subcommittee on Administrative
                                  Oversight and the Courts,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:02 a.m., at 
Rhode Island Housing, 44 Washington Street, Providence, Rhode 
Island, Hon. Sheldon Whitehouse, Chairman of the Subcommittee, 
presiding.
    Present: Senator Whitehouse.
    Also present: Senator Reed.

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

    Chairman Whitehouse. All right. I will call the hearing to 
order. And before we get to it, let me thank Rhode Island 
Housing, Richard Godfrey and his wonderful team, for hosting 
this official field hearing of the U.S. Senate Judiciary 
Subcommittee on Administrative Oversight and the Courts, a 
panel which I have the privilege of chairing. I would also like 
to welcome all the Rhode Island Housing staffers and the other 
housing advocates who have joined us here today. And there are 
two elected officials here who I particularly want to 
recognize: Senator Harold Metts and Councilman Luis Aponte. I 
appreciate very much their interest in this. It is a 
significant issue in their communities, and it is to their 
credit that they have taken the trouble to come and listen to 
this hearing.
    Last summer, I convened a hearing actually in this very 
room to examine the foreclosure crisis in Rhode Island and to 
discuss a proposal to give bankruptcy court judges the power to 
reduce the principal on primary residence mortgages, the way 
they can on essentially every other loan, including loans on 
vacation homes or cars or boats. This has long appeared to be 
the most efficient and least costly way to keep families in 
their homes, but the large banks, of course, have fought 
against it with their full lobbying might, and we have been 
unable to overcome the big-bank-generated filibusters in the 
Senate.
    Over the year since our hearing on bankruptcy 
modifications, the foreclosure crisis has not relented in Rhode 
Island or across the Nation. The administration's Home 
Affordable Modification Program, while well intentioned, has 
not succeeded in producing enough modifications to stem the 
tide of foreclosures. We have known for some time that the 
large loan servicers play all sorts of games to slow down and 
derail the modification process, and earlier this month we 
learned that they are playing fast and loose with the 
foreclosure process and documents themselves.
    A process that may leave a family homeless has been now 
relegated to ``foreclosure mills'' and ``robo-signers.'' Forget 
a modification. Many of these servicers are not even providing 
a human being to confirm that the foreclosure is warranted and 
the documents are in order.
    How did it come to this? As a result of the securitization 
of home mortgages, the relationship between the homeowner and 
the lender was fractured, and the foreclosure process and 
system became dysfunctional. Decisions that make no economic 
sense overall get made because the fracturing has created 
perverse incentives within the system, because it is virtually 
impossible for a homeowner to find a human with authority to 
resolve their problem, and from sheer remorseless bureaucratic 
inertia.
    Ann Sabbagh is here, a realtor who has shared the suffering 
of numerous clients, and when she came to visit me about this 
problem, she memorably put the question that she hears so often 
this way: ``Why is it that the bank wants to foreclose on my 
home, throw me out, and sell it to someone who will pay less 
than I am willing and able to pay right now? '' Until we answer 
that question, we have a continuing problem ahead of us.
    I have called on Fannie Mae, Freddie Mac, and the Federal 
Reserve to use their powers to institute a national foreclosure 
moratorium. I believe we should freeze foreclosures until the 
loan servicers can demonstrate that they have new systems in 
place to properly evaluate homeowners for modifications and, if 
modification is not financially possible, to provide homeowners 
with an orderly, humane, and logical foreclosure process. That 
would seem to be a minimum standard. I hope that my colleagues 
in Washington will consider this when we return after the 
midterm elections.
    This Subcommittee has jurisdiction over the courts, and 
today we will examine whether the court-supervised mediations 
add common sense to an out-of-control foreclosure process and 
perhaps help families stay in their homes. The bankruptcy court 
here in Rhode Island under Judge Votolato is one of only a 
handful of bankruptcy courts nationwide that offer pre-trial 
foreclosure mediation. Today we will hear from Judge Martin 
Glenn of the bankruptcy court in the Southern District of New 
York, one of the creators of the first such mediation program, 
and John Rao and Chris Lefebvre, two attorneys familiar with 
the Rhode Island program.
    For families in Rhode Island and across the country snarled 
in the foreclosure nightmare, it is vital that we find a way to 
address this growing crisis. Today's hearing will help us 
determine whether bankruptcy mediation programs can serve that 
purpose and whether Federal legislation might be useful in 
replicating the Rhode Island and New York programs nationwide.
    Before I conclude 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 to work alongside such a 
champion of accessible housing and fair mortgage practices--
something everyone here at Rhode Island Housing knows very 
well. Senator Reed plans to make a statement later in the 
hearing, and when he arrives, with the indulgence of the 
witnesses, I will stop their testimony and allow the Senator to 
make his statement.
    I am now privileged to introduce our distinguished panel of 
witnesses.
    Robert Cardullo is the father of three young children and a 
homeowner from Johnston, Rhode Island. Mr. Cardullo will tell 
the story of his efforts to receive a mortgage modification, an 
ongoing process which began in February of 2009.
    Larry Britt is a teacher and homeowner from Riverside, 
Rhode Island. He will discuss his struggles over the past 19 
months in getting a mortgage modification from his loan 
servicer.
    Judge Martin Glenn has been a bankruptcy judge in the 
Southern District of New York since 2006. Prior to his 
appointment to the bench, Judge Glenn practiced law at the 
national firm of O'Melveny & Myers in Los Angles and New York. 
He has a Bachelor of Science from Cornell University and a 
Juris Doctor from Rutgers Law School.
    John Rao of Newport is an attorney with the National 
Consumer Law Center in Boston, where he 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.
    Chris Lefebvre practices family, bankruptcy, and consumer 
protection law in Pawtucket, Rhode Island, and is a member of 
the debtor/creditor Committee of the Rhode Island Bar 
Association. Mr. Lefebvre has a B.S. from Boston College and a 
Juris Doctor from Suffolk University Law School.
    I am delighted to have this panel with us, and I turn the 
hearing over to you, Mr. Cardullo. Please proceed.

  STATEMENT OF ROBERT E. CARDULLO, HOMEOWNER, JOHNSTON, RHODE 
                             ISLAND

    Mr. Cardullo. Good morning. Senator Whitehouse, thank you 
for inviting me here today to tell my story.
    My name is Rob Cardullo, and I have three young children. 
Sophie is 8 years, Georgiana is 5 years, and Andrew is two-and-
a-half. I have been employed by Taco Bell for the last 12 
years, and I am currently running their Johnston restaurant.
    In December of 2008, I discovered that my wife of 9-1/2 
years was no longer interested in being married to me, and 
because of that fact and other details that have come up, I 
decided to bring a divorce action against my wife. The 
circumstances surrounding the divorce are such that the judge 
ruled in my favor, giving me the right to retain my home and 
the residence for my children.
    However, in order for me to continue to meet my mortgage 
payments on my salary alone, it was necessary for me to ask for 
a loan modification through my bank, which is Chase. Since 
February of 2009, I have been negotiating with Chase, sending 
them updates on my financial situation monthly. Rhode Island 
Housing also assisted me in this endeavor, for which I am very 
grateful.
    In September of 2009, after being put on hold when I tried 
to reach the individuals handling my application and after 
repeated submissions of documents, Chase informed me that they 
were denying my request based on the fact that I had too much 
liquid assets. The liquid assets they were referring to were 
the savings account of $2,200 and my 401(k) plan of $14,000. 
Evidently they expected me to apply my $2,200 to pay my 
mortgage, leaving me with nothing--leaving me with nothing at 
all in case of any kind of emergency. Evidently they expected 
me to borrow against my 401(k) to pay my mortgage. This, 
however, would have been impossible for me to do--even if I 
wanted to--as the terms of my 401(k) stipulate that I must be 
in a state of foreclosure in order to borrow against my 
retirement funds. And if that was possible and I did have to 
borrow it, once the money ran out, would I still have my house? 
And then I have a loan to pay against my 401(k) plan after 
that.
    On the advice of Rhode Island Housing and my attorney, I 
resubmitted all of my materials and began the process all over 
again. Following several months of frustrating negotiations 
with Chase, going through reams of paper, and shedding many 
tears, they finally in May 2010 approved me for a loan 
modification with a reduction of my mortgage payment from 
$3,000 a month to $1,986 a month. The agreement was that I pay 
the reduced amount for 4 months, and after the fourth payment, 
the loan modification became permanent.
    But this is just the beginning of my story.
    In August of 2010, 1 week before my fourth payment, I 
received a letter from Lenders Business Process Servicers, 
saying that Chase had sold my mortgage to them and that they 
were going to foreclose on my house because I was behind in my 
payments. When I explained to them that I was in a loan 
modification agreement with Chase, LBPS told me that they would 
not honor the loan modification, that they had bought over 
9,000 loans, and they could not focus on just one. I should 
point here that the loan modification was government-backed by 
Fannie Mae and that these banks are not honoring them. LBPS 
said that if I wanted to be considered for a loan modification, 
I would have to begin the process all over again with them.
    I, therefore, have gone ahead and re-filed all of my 
documents with LBPS again. Yet they still continue to harass me 
and, as recently as last week, threatened to foreclose on me 
and bring legal action against me. I have contacted my lawyer, 
and again I am contemplating whether to bring legal action 
against LBPS.
    The recent financial crisis has had an impact on my own 
finances, and many individuals, too. Yet in the 4 years I have 
owned my house, I have never missed or been late with a 
mortgage payment. The divorce has added a further strain on my 
finances, making it absolutely necessary for me to have a loan 
modification in order for me to meet my mortgage payments and 
any other bills in a timely manner.
    I do not want to end up in foreclosure or go bankrupt. Is 
this what I am facing? I have heard all this reassurance for 
more than a year that I am going to get stimulus money to help 
me get my loan modification in place. I am not asking for a 
handout--just a loan modification to enable me to keep my 
house.
    I am going to continue with my quest for a loan 
modification, but based on my experience with Chase and now a 
repeat of the same frustration with LBPS, my hopes are 
diminished, and I am not optimistic about the outcome.
    If LBPS denies my application for a loan modification, I 
will have no option but to foreclose or short-sell my house or 
face bankruptcy, all of which I would like to avoid. I cannot 
understand why Chase--I am sorry--or LBPS would not want to 
help someone out who has never missed a mortgage payment. It 
seems that they would rather take the house than work out a 
reasonable payment plan with me. I would like to point out that 
through all of this I have complied with everything, every 
requirement on schedule, time after time again, and yet the 
documents are never-ending.
    I have turned to Senator Whitehouse from the beginning of 
this loan modification nightmare for his assistance, and if it 
was not for the support from his office, I would be fighting 
this battle alone.
    Thank you very much for listening, and I am happy to answer 
any questions.
    [The prepared statement of Mr. Cardullo appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you very much, Mr. Cardullo.
    I think what we might do is allow Mr. Britt to testify and 
then maybe ask a few questions of the two of you as consumers, 
and then move on to the other witnesses who are in different 
parts of the process.
    So, Mr. Britt, would you proceed with your testimony?

STATEMENT OF LARRY G. BRITT, HOMEOWNER, RIVERSIDE, RHODE ISLAND

    Mr. Britt. Sure. Thank you, Senator Whitehouse, for 
initiating this important hearing. I would also like to thank 
Rhode Island Housing as well for hosting the hearing and 
providing support through my 19-month ordeal with Bank of 
America's mortgage modification process.
    My name is Larry Britt, and I have owned my home in 
Riverside, Rhode Island, since 2003. I bought my home as a 
permanent residence in which to spend my final working and 
future retirement years. My home purchase was not an attempt to 
get in on the crazy real estate boom of the times. I work here 
in metro Providence as an adult educator, as the Senator said.
    Ironically, my saga began 19 months ago in this building 
with Linda Tavares, a very helpful Rhode Island Housing 
counselor.
    When I started the process in March of 2009, I had never 
been late paying any bills to any creditors--including Bank of 
America--and my credit score was near perfect. Since entering 
into a modification process with BofA, the bank has ruined my 
credit rating and has been a major contributor to the 
uncertainty about my future. My credit score has dropped 160 
points as a consequence of improper credit reporting by BofA. 
My credit score monitoring service sends me weekly e-mail 
notifications of continuing negative impacts to my credit 
score. So far, two creditors have closed my accounts, and three 
have lowered my credit limits. BofA tells me that I was told my 
credit score would be adversely impacted, but they cannot 
provide me with any documentation that proves I was told of 
this consequence.
    As I have said, I am not a deadbeat. I have always paid all 
of my bills on time. But because of legitimate financial 
hardships that I have documented, I entered into BofA's 
mortgage modification program hoping I could avoid prospective 
financial problems. For the past 19 months, I have immediately 
replied to any of Bank of America's inquires and requests for 
documentation. Before entering into the BofA process, I was 
considered a good credit risk. Now, simply by having applied 
for a program that I am well qualified for, my history as 
someone who pays their bills has been permanently damaged. 
Equally, I am concerned about rescinded and denied credit that 
my elderly mother and other family members have suffered as a 
consequence of their financial relationships with me.
    I have a detailed chronology that you will be happy that I 
am going to summarize.
    [Laughter.]
    Mr. Britt. Because it is the same thing over and over 
again. There are four events that happen over and over again. 
The bank contacts you. You provide documentation. They say they 
do not have the documentation. You provide it again. You are 
approved, you are denied. It is just the same script over and 
over again.
    But the summary is it is about my interactions that I have 
had with Bank of America in the Treasury Department's home 
modification center, known as HAMP.
    Chairman Whitehouse. Mr. Britt, feel free to go through in 
the detail that you provide in your testimony because, frankly, 
the impact of this I think is----
    Mr. Britt. OK. I am happy to do that, but I intentionally 
took it out.
    Chairman Whitehouse. The way your wrote it, your testimony 
is worth going through. It is really pretty shocking.
    Mr. Britt. OK. In March 2009, as advised by news reports, I 
went to Rhode Island Housing and submitted an application for 
mortgage modification. This allowed Rhode Island Housing to act 
as my agent for mortgage modification with Bank of America. At 
this time I was not behind on my mortgage or other debt 
obligations. I have already told you that I was anticipating 
financial problems.
    Next, in March 2009, as required, I met with Money 
Management International, an approved credit-counseling agency. 
This organization determined that I was managing all of my 
finances correctly and that my only issue was my large monthly 
mortgage payment and underwater mortgage.
    In March 2009, I provided copies of all the required 
documentation to Rhode Island Housing for forwarding to Bank of 
America.
    From March 2009 to October 2009, I called Rhode Island 
Housing biweekly to check the status of my modification. Each 
time I called, I was told that there was a backlog and I should 
wait to hear something.
    In October 2009, I was informed by Rhode Island Housing 
that Bank of America did not accept me into the loan 
modification program because I was not late or behind on my 
mortgage payments. Rhode Island Housing informed me to visit a 
Bank of America branch so that I could apply for a refinance of 
my mortgage.
    So a few days later, I went to a Bank of America branch and 
formally applied to refinance my loan. The refinance was denied 
that day on the phone in the branch. As I found out, the 
refinance step was a formality I needed to go through before I 
could apply for yet another mortgage modification with BofA.
    About a week later, I received a notice that I had been 
accepted into BofA's trial modification program, and I was a 
given a new monthly payment amount for the trial period.
    A few days after that, I mailed all the requested 
documentation to Bank of America.
    Then from November 2009 to May 2010, I paid Bank of America 
my new monthly payment on or before the due date.
    From October 24, 2009, to February 2010, I checked the 
status of my modification on a weekly basis to be sure the 
company had received my documentation. I was repeatedly assured 
that Bank of America had received all information that had been 
requested of me.
    In February 2010, I received a letter from Bank of America 
requesting that I mail them all of the documentation that I had 
already provided twice before.
    On that day, I FedEx'd all the required documentation 
again.
    Then from February 2010 to May 2010, I called Bank of 
America weekly to check the status of my modification and to be 
sure that the bank had all of my required documentation. Each 
time I was assured that all the requested documents had been 
received by Bank of America and that the modification was 
``being reviewed.''
    In April of 2010, I received a ``Notification of Default 
and Mortgagees Right of Foreclosure'' from Bank of America.
    The next day I called Bank of America, and the customer 
service representative told me to ignore the letter, continue 
paying my modified payments, and that I will continue to 
receive these default notices during the modification process.
    In May of 2010, I received a letter from Bank of America 
stating that I had been denied a mortgage modification because 
all requested documentation had not been received by the bank.
    The next day, I called Bank of America, and I was told to 
disregard that letter. The customer service representative said 
that, according to Bank of America, ``all documentation was 
complete and received as of March 29, 2010.'' So this is May 
2010. They are saying as of March everything was good.
    So last month, I started to work on filing forms with all 
three credit report agencies in an attempt to get my modified 
payments to Bank of America classified, as they appropriately 
should be, as modified payments rather than delinquent 
payments. That has been the hit to my credit report. It is 
these delinquent payments that brought my credit score way 
down.
    So the credit report forms encourage you to contact the 
creditor before you file any complaint. So I called Bank of 
America, and the following occurred: The representative, I 
asked him to review my account and confirm that I had made all 
the modified payments that I had agreed to.
    The representative told me that my mortgage was in default 
as of May 7, 2010, and that I had been sent a letter saying I 
was not eligible for the modification program because I did not 
provide BofA with requested documentation. He also said that I 
had been sent a letter requesting the documentation. I never 
received this letter. So I explained the past chronology that 
you have all had to listen to to this representative.
    Finally, after really getting nowhere with this 
representative, I asked to speak to his supervisor, and she 
told me that I lied, that the conversations that I told her I 
had had with Bank of America never occurred and that she had 
the phone records to prove it. However, my personal phone 
records would prove her wrong.
    Finally, the supervisor told me that she did not have time 
to waste on me and hung up on me. And this was not the first 
hang-up from Bank of America.
    So that is the chronology. Even more has happened, but, 
Senator, you asked for it.
    [Laughter.]
    Mr. Britt. Okay. Shall I continue?
    Chairman Whitehouse. Please.
    Mr. Britt. Let's see. Finally, in May 2010, I have already 
told you I got a denial letter from Bank of America. At that 
time, I contacted your office and gratefully got an immediate 
response from Karen Bradbury, a caseworker in the Senators 
Providence office. Karen's efforts resulted in a connection for 
me with the HAMP Solution Center. At first, my HAMP caseworker 
sounded like the answer to my ongoing problem. The HAMP 
representative told me that he would be an advocate for me with 
Bank of America. He told that he had learned from Bank of 
America that I was ``under review for the Making Home 
Affordable Second Look'' program. Throughout July and August 
2010, I contacted the HAMP Solution Center seven times. Each 
time, the representative there told me that his updates 
directly from Bank of America said that my modification was 
still under review and that I had complied with all requests 
for documentation as well as honored my agreement to make on-
time modified monthly payments.
    Honestly, after a few months with HAMP, I felt like they 
were reading from the same script as the banks. When I checked 
in with them, there were never any updates; there were never 
any outstanding bank requests for documentation from me. Yet 
once a month or so over this same period, I received additional 
requests from the bank for more documentation, a repeat of what 
I had sent three or four times before.
    So last month, as I told you, I started to work on my 
credit reporting, again in the chronology, and when I found out 
that I was in default, as I told you in the chronology, I 
panicked at the prospect of losing my home. So I reconnected 
with Linda here at Rhode Island Housing, and on October 18th, 
this month, Linda determined from Bank of America that I was 
not eligible for any modifications. On the same day, when I 
went home, I received a mail notification from Bank of America 
saying, as I understood it, that late fees, penalties, and 
interest were accumulating on my mortgage balance and that, 
regardless of my outcome with the modification program, I would 
be liable for these charges.
    On the next day, I received a modification approval from 
Bank of America. So I guess I should be happy, and I really am 
grateful to the Senator's office and to Rhode Island Housing 
and even the HAMP Solution Center for what I hope is a final 
resolution. However, given the last 19 months of 
misinformation, can I be sure that Bank of America's 
``approval'' is for real? Does another Bank of America division 
have me slated for foreclosure? I cannot be sure, and the 19-
month process has forced me into deeper financial trouble and a 
lot of emotional distress, just like my co-witness here.
    So I know this story is hard to follow. It is all in the 
written record. The bottom line is that although I have worked 
with Bank of America since March 2009 and the HAMP Solution 
Center since June 2010, I am still not really sure I will be 
OK. Last week, within a 2-day period, Bank of America has told 
me that I am both ineligible and approved for a mortgage 
modification.
    So, last, I just want to say that despite all of this, I 
want you to know that I have continued to pay all of my bills 
in full on time, and as my financial history shows, I am a guy 
who figures out what sacrifices I need to make in order to meet 
my financial obligations. I always have.
    So if needed, I can document anything that I have spoken 
about--activities, phone calls, documents. And I thank you for 
your time and am open to any questions that you might have.
    [The prepared statement of Mr. Britt appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you, Mr. Britt.
    I said that we would break into the hearing after the 
homeowners had their chance to testify, and Senator Reed's 
timing is pretty well perfect. He came in just at this moment, 
so I would now like to call on him to add a few words. And then 
I think we may both have a few questions for Mr. Britt and Mr. 
Cardullo.

 OPENING STATEMENT OF HON. JACK REED, A U.S. SENATOR FROM THE 
                     STATE OF RHODE ISLAND

    Senator Reed. Well, first let me thank Senator Whitehouse 
for convening this hearing. The foreclosure issue is not only a 
drag on the economy, but as Mr. Britt indicated, and Mr. 
Cardullo also in his testimony, it is a source of exasperation, 
anxiety, anger, frustration, and much more for families trying 
to deal with it. And so we have an obligation, I think, not 
only at the national level to get the economy moving, but at 
the homeowner level to give people a chance to get their lives 
in order and move forward again.
    I particularly want to thank Mr. Cardullo and Mr. Britt. 
Listening to your testimony, Mr. Britt, and reading yours, Mr. 
Cardullo, no one should be forced to go through the 
permutations and other operations that you have had to go 
through.
    Senator Whitehouse has really been at the forefront not 
just in helping our constituents, but also nationally. We both 
have joined together supporting legislation to try to find a 
solution in the bankruptcy courts. I think that is an issue 
that we will consider again today. Just as importantly, 
together we have brought about $105 million here through the 
Neighborhood Stabilization Program and the Hardest-Hit fund. 
Rhode Island Housing has done a remarkable job trying to help 
people. But we have to do much, much more. Unless we 
successfully deal with this issue of foreclosure, the economy 
will not expand as it should, and people's lives will not 
return to at least close to normal. So that is our challenge.
    We have to think creatively. Obviously, one major benefit 
of this hearing, and, again, another tribute to Senator 
Whitehouse's insights, is to listen to people who deal with 
these issues on a daily basis and get the advice we need to 
make sound policy in Washington. I just find it--``ironic'' is 
too mild a term. You know, 5 years ago, you could get a 
mortgage in 24 hours without any paperwork, no problem finding 
the files, no problem getting you signed up, no problem doing 
anything. And now, to get it correct it is a saga of years and 
pain. You know, if these companies--no company in particular, 
but if they are that efficient in giving mortgages, I would 
like to see them be that efficient in making modifications when 
they are appropriately required by the financial situation.
    Thank you.
    Chairman Whitehouse. Thank you, Jack.
    One of recurring themes in your testimony and one of the 
recurring themes that comes out of all of our constituent work, 
working with those who are trapped in this bureaucratic 
nightmare, is the repeated requests for the same documentation. 
Both of you have alluded to it. Could you flesh out a little 
bit how many times various things have had to be produced by 
each of you? It is not just once or twice or three times any 
longer, is it?
    Mr. Cardullo. I was told by Chase that my bank accounts and 
my check stubs are only good for 30 days, and then at the 30 
days, you need to start sending all your information back in 
again. So I have a ream, I have a stack--it is about 40 pages 
that I faxed in every month to Chase when I was going through 
the loan modification with them.
    Chairman Whitehouse. So you have been faxing in information 
10, 12 times at this point.
    Mr. Cardullo. Yes, and now I am doing the same thing with 
LBPS all over again.
    Chairman Whitehouse. And are they telling you that they 
have lost it? Did you hear that?
    Mr. Cardullo. Yes. They have a 405--I think it is a 405T, 
which is basically all our debts that we have. They never get 
that. They are always missing that. That is one of the big 
things. And so I fax it in again, and, ``Nope, we never got 
it.'' I say, ``I have the records of faxing.'' ``Nope, never 
got it.''
    Chairman Whitehouse. What are the penalties to you for 
failing to provide----
    Mr. Cardullo. They can drop me----
    Chairman Whitehouse.--the requested information?
    Mr. Cardullo. They can drop me from the loan modification 
program.
    Chairman Whitehouse. So as best you understand it, if you 
are the bank, if you are demanding unreasonable, constant, 
repetitive amounts of information asking for the same thing 
over and over again, pretending that you never received it, 
there is a benefit for you in doing that because if you fail at 
any time in providing that stuff, even if all they are doing 
when they get it is--if their fax machine is attached to their 
shredder, as Mr. Lefebvre said in his testimony, and they are 
just shredding it right through and not even looking at it as 
it comes, you make one mistake and you are out of the program.
    Mr. Cardullo. Correct.
    Chairman Whitehouse. And that is a burden of their backs 
from your point of view.
    Mr. Cardullo. Correct.
    Chairman Whitehouse. Did you get the feeling that they are 
kind of testing your resolve to see if----
    Mr. Cardullo. Oh, they have tested me.
    [Laughter.]
    Mr. Cardullo. They definitely tested me.
    Chairman Whitehouse. Mr. Britt.
    Mr. Britt. I feel the same. You know, it is this--some of 
it is just making the issue confusing and kind of making us 
jump through hoops. But also, with each of--as I understand 
it--and I am not clear about it. I was in four different 
programs. Each time the new representative wanted all new 
documentation. And as my co-witness said, every time you start 
the process over, they want new--they want current 
documentation.
    The other thing about faxing is it does not fax into a 
shredder. At least at Bank of America, I finally found out--
because I have a home fax, and a woman claimed that--one of the 
reps claimed that I did not fax something. And I had a record 
of that day faxing from my home exactly what she wanted and of 
asking her, ``Are you in the office? I will fax it 
immediately.'' And she said, ``Yes, I am here.''
    Well, when I finally confronted her with this, she told me, 
``Oh, that is not the way faxes work. They go into an 
electronic system, and then another department electronically 
distributes the documents.'' Which I understand. I am all in 
favor of electronic documents. But, again, it is a lie and, you 
know, yet another delay and a way to--I do not know--just keep 
me jumping through hoops.
    Chairman Whitehouse. In the hopes that perhaps you will 
miss one.
    Mr. Britt. Yes.
    Chairman Whitehouse. Let me turn to Senator Reed, but let 
me ask you one last question. During the time that you 
indicated that you had your credit rating ruined by the bank, 
you were meeting all of the terms that they had demanded of 
you, not the original terms but the modification terms.
    Mr. Britt. Absolutely.
    Chairman Whitehouse. But you were in full compliance with 
their program, and yet it ruined your credit rating.
    Mr. Britt. Yes. And they were the only ones reporting 
negatively about me. However, other creditors, on receiving 
this information about me being a bad risk, immediately lowered 
all credit lines to whatever my balance was, and several 
canceled my accounts.
    Chairman Whitehouse. Jack.
    Senator Reed. Just to follow up, to both Mr. Cardullo and 
Mr. Britt, in the course of these numerous conversations, at 
any point did representatives of the banks or the servicers 
kind of go offline, if you will, and just sort of tell you what 
was really going on? Or was this--I mean, I am trying to get a 
sense of whether these are just colossally inefficient 
organizations or, as Senator Whitehouse suggests, there are 
somehow implicit incentives for these people to just make it so 
hard that you either go away or you fail.
    You have been at the receiving end of this, and so just any 
sort of sense you have in these dealings, whether it is one or 
the other or both.
    Mr. Cardullo. I just think it is more the fact that they 
are not organized. You start by talking to a representative. 
Then they send you over to loss mitigation. And then they just 
keep on bouncing you back and forth, and the one hand does not 
know what the other hand is doing. And that is just one of the 
biggest issues. If I had a representative who was dealing with 
my file and I talked to that person and that was the way it was 
working, I am sure that--I am being positive with this saying 
that there probably would not have been a different income or, 
you know, 8 or 10 months of not dealing with this, you know, if 
I was talking to a person versus a mega bank.
    Senator Reed. Right, a better system, yes.
    Mr. Britt. I would echo what Mr. Cardullo said. I would 
also add the reps that I worked with sounded really overworked. 
And I do not want to judge them. It is their tone of voice on 
the phone. But they certainly did not seem to care.
    Senator Reed. Yes.
    Mr. Cardullo. I would add that I have told the rep that I 
have gone through the loan mod, and they have said, ``That is 
not my problem. You owe my company money, and we will take your 
house.'' I said, ``OK, go ahead. I will contact my lawyer.''
    Senator Reed. Yes. I mean, one of the things that we have 
been trying to do is to incentivize, one way to describe it, a 
much more proactive, much more focused can-do attitude on the 
service of the banks to get it done. And we have received 
publicly at hearings assurances that that is what they are 
going to do, that they are going to take charge. In fact, I 
would think financially in many cases--and you might reflect on 
this--by modifying a loan, the bank salvages something more 
than they would in a messy foreclosure and loss of your home. 
Certainly you would be able to stabilize your life. So it seems 
to be a win-win by modifying, yet it is just still this big 
machine that is rolling along and is indifferent to their own 
well-being as well as the customer's. I do not want to put 
words in your mouth, but is that something you are----
    Mr. Cardullo. Yes. It is very frustrating. I mean, I do 
not--I want to keep my house. I want to make the payments. It 
is just I do not understand why they would rather have a house 
sitting there for whatever it is and not collecting any money 
on it at all and so it goes into foreclosure or a short sale or 
bankruptcy. It does not make any sense. But they think it is 
rather those are my terms, we are not taking care of the loan 
mod, and you signed it, get done.
    Mr. Britt. I feel the same way. I am willing to pay off a 
mortgage on a house that is valued at significantly less than 
my mortgage balance. I do not understand why the bank will not 
go for that deal. It is a win for them. If they take my house, 
they are going to lose significantly on the asset.
    Chairman Whitehouse. Well, Mr. Britt, that is a perfect 
segue to Judge Glenn's testimony because the program that he 
initiated does the simplest of all possible things, and that 
is, require the homeowner and the lender to sit down and look 
each other in the face with an authorized person for the lender 
and the homeowner right there and actually have a human 
discussion about the problem. And that I think, first of all, 
solves the problem that you all have experienced that you 
cannot find anybody with authority. You are always grasping at 
people who will not give you their last name, who do not have 
the authority, who do not have the information, that you are 
speaking to for the first time. And it is a nightmare, and I 
understand that. And then you have got the problem that very 
often the servicing company has an incentive, a financial 
incentive to foreclose, even if there is a better deal for the 
bank, for you the homeowner, and for the public at large. Their 
incentive is mismatched. It is a market failure. And the 
bankruptcy court has the ability to say, ``Wait a minute, that 
is a stupid notion,'' and push back against really dumb ideas 
that are propagated through the system.
    So, without further ado, and with much appreciation for 
taking the trouble to come here, Judge Glenn.

STATEMENT OF HON. MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE, 
                 SOUTHERN DISTRICT OF NEW YORK

    Judge Glenn. Chairman Whitehouse, Senator Reed, thank you 
for inviting me to speak before the Subcommittee on the role 
that bankruptcy courts can play in helping to alleviate the 
mortgage foreclosure crisis. I am one of 11 bankruptcy judges 
in the Southern District of New York. We have nine judges in 
Manhattan, one in Poughkeepsie, and one in White Plains. And I 
will discuss the program that became effective in our court in 
January 2009. And I have attached to my written testimony 
copies of the program documents that are currently in use, and 
they are all available on the court's public website. I will 
also provide some data on the use and results of the program 
from its inception in January 2009. The last date we have 
collected information is October 21, 2010.
    Let me first give you some background on how the program 
was developed. As the national foreclosure crisis unfolded, 
bankruptcy courts across the country have faced substantially 
increased consumer bankruptcy filings, many of those filings on 
the eve of foreclosure sale after a borrower had seemingly 
exhausted consensual or State court efforts to avoid 
foreclosure.
    During 2008, after speaking with a few lawyers representing 
creditors--those are the lenders and loan servicers--my 
colleague Judge Cecilia Morris and I began exploring whether 
the bankruptcy court could develop a program to better address 
the problems of both debtors and lenders. And in adopting our 
loss mitigation program, we think we were the first bankruptcy 
court in the country to do that with a formal program to help 
alleviate the mortgage foreclosure crisis. And our adoption of 
the Loss Mitigation Program roughly coincided with U.S. 
Treasury's creation of the HAMP program. Changes in HAMP since 
it was first created have also made it easier for bankruptcy 
debtors to make use of HAMP.
    HAMP eligibility requirements still exclude many debtors 
from obtaining a HAMP loan modification, but increasingly, we 
are seeing that lenders and loan servicers are willing to 
consider non-HAMP modifications as well. And in our program at 
least, bankruptcy debtors have experienced far fewer problems 
with HAMP of the type experienced by Mr. Cardullo and Mr. Britt 
probably because of the judicial supervision that we are able 
to provide.
    After additional meetings with groups of lawyers, we 
drafted the program. The court then published documents for 
public comment. And after the comments were received, we made a 
few changes, and our board of judges adopted the Loss 
Mitigation Program, effective in January 2009. And the program 
applies to any individual debtor in a case filed under chapters 
7, 11, 12, or 13 of the Bankruptcy Code, and it applies to any 
real property or cooperative apartment--we have a lot of co-ops 
in Manhattan--that are used as a principal residence in which 
the debtor holds an interest.
    While loan modification is one of the goals of our Loss 
Mitigation Program, our procedures make clear, and let me quote 
from it: ``Loss mitigation commonly consists of the following 
general types of agreements, or a combination of them: loan 
modification, loan refinance, forbearance, short sale, or 
surrender of the property in full satisfaction.'' I will end 
the quote there.
    Debtors and their lawyers have often recognized, after they 
finally have someone they can really negotiate with with 
authority, that it is unrealistic for the debtor to keep the 
home in their circumstances. There can still be benefits to the 
debtor and the lender to agree upon a short sale or surrender 
of the property in full satisfaction with the debt. The longer 
a debtor keeps an unaffordable home, the more liability the 
debtor continues to face for property taxes, insurance 
premiums, homeowner assessments, zoning violations and other 
things of that type.
    Our results to date have been modest but, nevertheless, 
helpful in allowing homeowners to remain in their homes and 
lenders to avoid additional foreclosures. Chapter 13 of the 
Bankruptcy Code is designed for debtors with regular income. If 
a debtor is unemployed and has no other source of regular 
income, chapter 13 is unlikely to help. And a loan modification 
is unlikely if a debtor has no income to make mortgage 
payments.
    Now, what are some of the results? Since the inception of 
the program in January of 2009, our court has received 
approximately 1,450 requests for loan modification. And of 
these, about 1,000 were filed in chapter 13 cases, 25 in 
chapter 11 cases, and 425 in chapter 7 cases. And approximately 
1,250 orders have been entered that start the loss mitigation 
period when these negotiations and discussions take place. 
There have only 55 orders denying loss mitigation requests 
after the court heard and sustained objections by the lender or 
loan servicers. These numbers are a good indication how 
infrequently a loan servicer or lender objects to going into 
the loss mitigation period. And the objections have usually 
been filed in cases of serial or abusive bankruptcy filers, 
with little or no income and no prospects of a successful 
outcome.
    The best data we have on outcomes is for our court in 
Poughkeepsie. That is where Judge Morris sits. Loss mitigation 
requests were made in approximately 900 cases in Poughkeepsie 
during the period I have spoken about, and loan modifications 
have been approved so far in 220 cases; another 450 loan 
modification requests are still pending; and approximately 230 
requests have been denied or withdrawn.
    To put that in context, in Poughkeepsie, loss mitigation 
was requested in about 40 percent of the chapter 13 cases that 
were filed in that court. Successful loan modifications have 
resulted in reductions in monthly mortgage payments in the 
range of $100 a month to $1,000 a month. I have heard of some 
larger amounts than that. And in a few cases, substantial 
principal reductions resulted. Judge Morris recently had one 
with a $120,000 principal reduction. You know, for a debtor 
living at the edge of financial collapse, reductions in monthly 
mortgage payments in this range can mean the difference between 
remaining in a family home, with children enrolled in local 
schools and neighborhood stability maintained, or having your 
life totally disrupted in searching for new housing and 
schools, assuming they can be found with the money available to 
a debtor.
    Anecdotally, over the last 6 months, my colleagues and I 
have seen increased willingness by lenders and loan servicers 
favorably to consider loan modifications. I think they are 
beginning to understand that there is a benefit for the lender 
economically if they modify the loan and keep somebody in their 
house.
    Now, let me emphasize a few other points. Each loss 
mitigation party must have a person with full settlement 
authority present during the mitigation session. This has been 
one of the keys to the success of our program. And while our 
procedures also provide that a debtor creditor or the 
bankruptcy court can order an independent mediator, that has 
only come up a few times. What we hear from lawyers is: Once we 
have somebody to negotiate who has authority, must have 
authority, we do not need a mediator; we just need somebody to 
sit down and talk with with authority to make a modification.
    Generally speaking, the granting of a loss mitigation 
request does slow down case administration. And in chapter 13 
cases, confirmation of cases is usually delayed until after 
loss mitigation and any trial period has been concluded. And a 
debtor's ability to confirm a chapter 13 plan often depends on 
the ability to negotiate a loan modification. But I think an 
important point is a successful loan modification will also 
affect the amount of disposable income that a debtor has 
available to pay other creditors. So unsecured creditors 
benefit as well when a loan modification is reached. So the 
time it takes to do that really can benefit everybody.
    The judges of our court have concluded that the delays in 
administering cases in which loss mitigation has been ordered 
are justified by the clarity that loss mitigation can bring, 
whether the result is a modification, a short sale, a 
surrender, or no change at all. And while cases remain open and 
active on the court's docket for a longer time, that usually 
does not expand the work of the judge.
    Finally, I am aware that a very similar loss mitigation 
program was adopted by the bankruptcy court in Rhode Island. In 
fact, Judge Votolato came to one of our meetings with lawyers 
in Poughkeepsie when we were reviewing results of our own 
program. The issues raised in the challenge will have to be 
decided by the Federal courts in Rhode Island.
    However, I want to emphasize that our judges considered our 
authority to adopt our loss mitigation program before it became 
effective in January 2009. It was the view of our judges then 
and now that our unquestioned authority to adopt mediation 
programs and procedures--that have long been in place in our 
court and courts all across the country--applies equally to our 
loss mitigation program which is modeled on our district's 
mediation program. We do require that the parties negotiate 
loss mitigation in good faith, as we do in any mediation. But 
that does not compel a procedure or result contrary to any 
provision of the Bankruptcy Code.
    Chairman Whitehouse, Senator Reed, I would be happy to 
answer any questions you have. Thank you for the opportunity to 
appear before the Subcommittee.
    [The prepared statement of Judge Glenn appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you very much, Judge Glenn.
    I think what I would like to do is actually ask a question 
or two now before we go on to the attorneys.
    This business of securitizing mortgages had a cascade of 
foreseeable effects that were not really planned for. One of 
them is a lot of outside interests in the loan between the 
servicing company and the homeowner. So even though you have 
the servicing company in the room with authority and the 
homeowner, there is still sort of a shadow over that proceeding 
that is cast by investors who could be in foreign countries, 
who could be anywhere, who may feel that they have a claim as a 
result of the inadequate effort by the servicer to defend their 
financial interests.
    It strikes me that there is a pretty powerful value to 
finality at that point. Could you just describe briefly what 
happened when all this is concluded? Do we end up with an order 
that is final and binding on everybody, including other 
investors, so that everybody's affairs are settled and the 
servicer can go forward knowing that they are not going to face 
a lawsuit in the future over having settled the case?
    Judge Glenn. The conclusion of a successful loan 
modification in our court usually results in two documents: one 
is a written agreement generally between the loan servicer and 
the borrower, and then an order of the court approving it.
    When we first were designing the program, we heard from 
many lawyers that, because of securitization, the loan 
servicers argued that they did not have the authority to enter 
into a loan modification. One of the things we have discovered 
since then is that typically the loan servicers take the 
position that they do have the authority to negotiate a loan 
modification if it is in the context of a court process. Those 
who say they cannot do it outside of a court process 
voluntarily say, yes, if we are in a court process, as in 
bankruptcy, we can do it. So as the program has evolved, we 
really have not had a lot of pushback where loan servicers say, 
``We cannot do this because there are investors whom we cannot 
identify.''
    Chairman Whitehouse. Thank you.
    Senator Reed.
    Senator Reed. Just a quick question, Your Honor. In this 
workout, I would presume that on a future sale of the property 
the mortgage lender could benefit. That is one of the terms you 
can write into the agreement; i.e., if there is a reduction of 
principal and then 5 years from now it is sold and there is a 
profit, is that something you do?
    Judge Glenn. We have not seen any agreements where in a 
loan modification the lender or loan servicer has provided for 
shared appreciation. Certainly in discussions we have heard 
that, in discussions about the issues about cramdown, whether a 
legislative solution should include some provision that if 
there is a reduction in principal, there can be a recapture of 
some of it in the future.
    So the loan modifications we have been seeing, there have 
only been a handful that have included reductions in principal. 
But so far those have not included shared appreciation.
    Senator Reed. Thank you, Your Honor.
    Thank you, Mr. Chairman.
    Chairman Whitehouse. Mr. Rao, we will have you and Mr. 
Lefebvre now give your testimony, and we will ask you questions 
as a pair and as a panel.

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

    Mr. Rao. Chairman Whitehouse, thank you for holding this 
hearing and for inviting me, and, Senator Reed, thank you for 
participating in the hearing.
    When I was asked to testify last year at a hearing held by 
you, Senator Whitehouse, I began my testimony by saying that 
the Nation is in the worst foreclosure crisis since the Great 
Depression. Sadly, very little has changed over the past year.
    The recordkeeping that has been going on in terms of the 
numbers of loans in this Nation and homeowners who are in 
foreclosure or seriously delinquent that are recorded by the 
Mortgage Bankers Association continues to be record numbers. 
They have never had numbers like this since they began 
recording them.
    There are very credible estimates that as many as 13 
million homeowners will be in a foreclosure by the end of the 
year 2014 from the beginning of the crisis. The problem is even 
worse here in Rhode Island than in many other states. Close to 
10 percent of Rhode Island homeowners are seriously delinquent, 
which puts Rhode Island at the highest level of the New England 
States, an unfortunate recognition we have received, but 
helpful, nonetheless, is that Rhode Island is one of the 10 
States in the Nation that is receiving the hardest-hit funds 
which Rhode Island Housing is administering.
    So how has the Federal Government responded to date to this 
crisis? The primary program which has been initiated is the 
HAMP program. This is a program whose primary goal is to 
provide loan modifications to homeowners who are in default or 
are in threat of being in default. And the record so far has 
been not substantial enough to meet the need.
    So far, as of the report from last month, less than 500,000 
homeowners have received permanent modifications. Treasury had 
projected by this time that it would have been over a million, 
so it is lagging far behind. And the most recent report is 
interesting because the number of modifications started in 
September is actually declining, which is not a good sign.
    The other most recent development, and a very sad 
development, is what I like to refer to as the ``HAMP 
aftermath,'' which is an even larger number of homeowners, 
close to 700,000 homeowners nationwide, have been put on trial 
modifications, like Mr. Britt, where they start a trial 
program, and then they have been canceled from that trial 
program and not put on permanent modifications. Essentially 
they are worse off. They now have this huge arrearage on their 
mortgage that they need to catch up on. Their credit reports 
have been seriously dinged, like Mr. Britt, making it very 
difficult for them to refinance if they could. And then 
foreclosure begins again. And that situation is likely to get 
worse.
    The other real sort of problem is that there has not been 
an enforcement mechanism that Treasury has put in place to try 
to get the servicers to administer the program in a way that it 
should, and all the problems we have heard about. The HAMP 
Solution Center has really--Mr. Britt's experience is not 
unusual. It has been ineffective in providing that enforcement 
mechanism that is so needed.
    So our discussion today is whether the bankruptcy courts 
can have a role in this to try to actually provide in some ways 
an enforcement mechanism for these loss mitigation programs to 
work. So I would like to briefly talk about a few ways in which 
I think the bankruptcy court mediation programs can be ideally 
suited to address that concern.
    The first issue--and we have heard so much of it today--is 
sort of breaking through this bureaucratic barrier. There is 
the nightmare of the homeowner, as both Mr. Britt and Mr. 
Cardullo have experienced, of submitting documents repeatedly 
and getting nowhere. The advantage of a formal court mediation 
program or loss mitigation program is, as Judge Glenn 
mentioned, that the servicer needs to designate someone who 
will be there to have--a designated person for the exchange of 
documents. And, most importantly, there is an order that is 
entered that sets time deadlines for that exchange of 
information to occur, and really critical, if it does not 
happen, there is someone to go to to try to enforce it. There 
is the ability for the homeowner, through counsel especially, 
to approach a judge with a motion and say, Listen, the order 
has not been complied with, the exchange of information has not 
occurred.
    The second item is the issue of just negotiating in good 
faith. An essential element of any program like this is that 
both parties have to negotiate in good faith. Judge Glenn 
mentioned that the servicer needs to designate someone with 
full settlement authority and the possibility that a mediator 
can be important.
    I have to say that this is critically important for the 
majority of States in this country like Rhode Island which are 
non-judicial foreclosure States. In Rhode Island, like over 30 
or more States in this country, there is no judge overseeing 
the foreclosure process. So there really is no one to turn to 
if the modification program or process breaks down. If it is 
incorporated into a court system, there is that ability to be 
in front of a judge and try to get some compliance.
    The other issue that is of a benefit for these programs is 
what I would like to basically say is just providing due 
process. One of the huge problems with the HAMP program is that 
homeowners are denied permanent modifications and they are not 
told why. Even though Treasury has now imposed requirements 
that they provide more information for the reason for denial, 
still many homeowners are given a simple denial letter with 
basically no information. And the formal programs within a 
court system have that ability to both require, as both Rhode 
Island and the New York programs do, an exchange of information 
about the reasons why there would be a denial and, importantly, 
to be able to see a judge if that is not provided.
    Another issue is that these programs, especially in 
bankruptcy, can provide protection from foreclosure while the 
process is going on. Mr. Britt's example is a perfect example 
of one unit within the servicing shop not talking to the other 
unit. The loss mitigation folks are processing the 
applications, and the foreclosure department is processing the 
foreclosure, and they often do not talk to each other. And so 
the homeowner gets a letter saying they have been approved for 
a temporary modification, and the foreclosure department is 
sending a letter saying there is going to be a foreclosure sale 
in a month. And one is saying ignore that letter.
    There have been a number of cases nationwide where while 
this process is going on, the home actually has been sold at a 
foreclosure sale. There have been cases where homeowners have 
had their homes sold on 1 day, and then the next day or a week 
later, they get a letter saying they have been approved for a 
modification.
    The advantage of a program within a bankruptcy court system 
is that the automatic stay that is issued as soon as the case 
begins protects the homeowner and no foreclosure proceedings 
proceed at that point. Everything grinds to a halt. And that is 
a very helpful provision.
    Three other quick things. We are hearing a lot in the press 
today--and Senator Whitehouse mentioned the issue of the false 
affidavits being filed in these foreclosure processes, robo-
signers. Bankruptcy courts have been dealing with this for 
years. They have been imposing sanctions where these kinds of 
things have been discovered in these cases. They know how to 
deal with it. And they also--and part of this issue of the 
false affidavits is trying to find out, for example, who the 
real owner of the mortgage is. And Senator Whitehouse asked the 
question about, you know, who has authority really to enter 
into a binding modification. Again, the bankruptcy court would 
be well suited to be able to root out and to determine that 
issue through the court proceedings as to who the true mortgage 
holder is.
    Two final points. Second mortgages continue to be a huge 
problem. Treasury indicates that at least as many as 50 percent 
of homeowners who are at risk of foreclosure have more than one 
mortgage. They have a second mortgage on the property. These 
modification programs--the HAMP program has been hampered by 
that problem. You know, there is a reluctance of one servicer 
who is dealing with the first mortgage to enter into a mortgage 
modification if the second mortgage holder will not agree to do 
something with their mortgage. Bankruptcy is perfectly suited 
for this. It is a process that deals with all of the mortgages 
on the property. And, in fact, in a chapter 13 proceeding, if 
that mortgage, like many of them are in Rhode Island, is 
completely under-secured, completely underwater, that can be 
treated differently and more favorably for the consumer and 
helpful to avoid foreclosure.
    The final point is so many homeowners who are in 
foreclosure right now get modifications, even by Treasury's own 
statistics; that many who get permanent modifications, when you 
look at their total debt picture, all of their other debts--
their credit card debts, their medical bills, that back-end 
debt-to-income ratio, as it is referred to--they still after 
entering into a permanent modification have a 63-percent back-
end DTI. This means that it is going to be very hard for them 
to succeed with that modification because they have got this 
other debt burden that they are dealing with. Bankruptcy, 
again, is perfectly suited for dealing with that. It deals with 
the whole picture for the homeowner, and they can resolve all 
of their debts at one time.
    The recommendations, Senator Whitehouse, that I would like 
to make are two. One is that the Executive Office of the United 
States Trustee's Office which administers the bankruptcy court 
system really ought to be playing a more active role in 
promoting these programs like that in New York and Rhode 
Island, and we would hope that they would do that. There are a 
lot of steps that they could take to try to----
    Chairman Whitehouse. We are pursuing that discussion.
    Mr. Rao. Thank you, Senator Whitehouse.
    The second and final point is, while I agree with Judge 
Glenn that the authority for the bankruptcy courts to set up 
these programs is very clear--at least I think the authority 
exists currently in the law--nevertheless, there is reluctance, 
I think, on the part of some judges in other courts who may not 
feel that that authority is rock solid. And one possibility 
would be a clarifying amendment to Section 105 of the 
Bankruptcy Code that would just explicitly say that these kind 
of loss mitigation programs are within the court's authority.
    Chairman Whitehouse. It is our hope that we could generate 
such a provision on a bipartisan basis. In the Judiciary 
Committee we are exploring that.
    Mr. Rao. Thank you, Senator Whitehouse. That concludes my 
remarks.
    [The prepared statement of Mr. Rao appears as a submission 
for the record.]
    Chairman Whitehouse. Thank you.
    Attorney Lefebvre.

  STATEMENT OF CHRISTOPHER M. LEFEBVRE, ATTORNEY, PAWTUCKET, 
                          RHODE ISLAND

    Mr. Lefebvre. Good morning. Thank you, Senator Whitehouse 
and Senator Reed, for inviting me.
    I am not really the academic. I am the practitioner. I have 
been practicing consumer law for 23 years. I can tell you, if I 
had to describe what it is like in the trenches, it can be best 
described as a ``circus'' as it pertains to loan modifications. 
The system is not working. When I listened to these two 
gentlemen tell their story, for a moment I had to look closely. 
I thought they were the clients that I saw Monday, Tuesday, 
last month, and for the last 2 years. Their stories are typical 
of Rhode Islanders, this merry-go-round of--you know, I think I 
was quoted as suggesting that there was a fax to the shredder. 
Maybe it is not really a shredder. Maybe it is to the bucket 
next to the shredder. I am not quite sure. But the whole 
process is broken. It is not working. And it is very 
frustrating.
    The good news, though, the positive thing is that 
thankfully the Rhode Island bankruptcy court adopted a program 
similar to the program in New York, and I can tell you that it 
is working. There are homeowners in the State of Rhode Island 
who would be homeless today, no doubt in my mind, if it was not 
for the program that has been in effect for the past year in 
the Rhode Island bankruptcy court. The program is practical, it 
brings parties together, and it is effective. And I think the 
main reason we eliminate all of these problems is because we 
have judicial oversight.
    It is amazing. I often chuckle when I am in court when a 
lender will say, ``Well, we did not get this package,'' and the 
debtor's lawyer will say, ``We did send it.'' It is amazing 
when the judge says, ``Gee, we will have a hearing next 
Tuesday. Why don't you have someone from Bank of America come 
to 380 Westminster Street, and we will have a hearing and find 
out what is going on.'' Within an hour, the package has been 
found. A half-hour thereafter, the modification has been 
approved.
    So judicial oversight is the key. It works. It does work. 
It is not a perfect system. There are many people who simply 
cannot qualify. But it is amazing when a Federal judge sets 
deadlines, you know, the recalcitrance of one or two parties--
the borrower and the lender--it disappears. And scheduling 
hearings and requiring parties--servicers, investors, the 
person with authority--to have to travel to Rhode Island 
stimulates and moves the loan modification process. We have had 
excellent results in the program. We have had many interest 
rate reductions. We have had terms extended, payments lowered. 
In many of these chapter 13 cases, as a result of the lower 
mortgage payment, unsecured creditors are getting a better 
dividend. So I would think the unsecured creditor body--Visa, 
MasterCard--should be supportive of all of these programs. It 
would put more money in their pocket in the chapter 13 arena.
    The one thing the program does not do--does not do--is we 
are not seeing any principal reduction, and I know, Senator 
Whitehouse, trying to get that bill introduced about giving the 
bankruptcy courts the ability to cram down mortgages, I think 
if that ever did happen, those bankruptcy courts that have loss 
mitigation would see their success rates just grow 
exponentially because, still, people are emerging--as John Rao 
mentioned, they are getting a loan mod, but still many of them 
have homes that are grossly underwater, and that burden is 
sometimes counterproductive, and I think emotionally may affect 
the long-term success. You know, yes, you get a loan 
modification. Yes, the payment is lower. But you also know that 
you have a house that is worth $120,000 that you owe $350,000 
on. I think based on experience and meeting with people that 
can have a negative effect on the long-term success.
    But the program is great in Rhode Island. It is working and 
we are seeing real positive results.
    Thank you.
    [The prepared statement of Mr. Lefebvre appears as a 
submission for the record.]
    Chairman Whitehouse. Thank you very much.
    First of all, Senator Reed during his comments mentioned 
the hardest-hit program, and I am hoping that that will be 
helpful for some folks. I know that Richard Godfrey and the 
Rhode Island Housing team is working very hard to get that up 
and operating and helping. I just want to point out that when 
the first five States were designated for that program and 
Rhode Island was not on them, what I can only politely describe 
as a very high and energetic level of activity was generated 
out of Senator Reed's office and mine that was heard throughout 
Washington--Treasury, White House, everywhere. And very shortly 
a second tranche was allowed, and Rhode Island was in that; and 
then a second back-up on that was allowed, and more money is 
now coming to Rhode Island. And although, I think, we were 
equally vociferous, Senator Reed's status as the senior 
Senator, Senator Reed's status on the Banking Committee, which 
has a lot to do with housing, made us a particularly convincing 
team on that subject. So I want to give Jack great credit for 
the success of that.
    Let me ask Mr. Cardullo and Mr. Britt a question. Mr. 
Cardullo, you have been going through this process for a little 
over a year at this point. In the course of that year, how many 
times do you believe you were talking to a person who had some 
authority to negotiate with you and conclude an agreement?
    Mr. Cardullo. I will let you know when I get one.
    [Laughter.]
    Chairman Whitehouse. Zero so far.
    Mr. Cardullo. Yes.
    Chairman Whitehouse. Mr. Britt, it has been 19 months plus 
for you now. During that time period how often do you believe 
you were dealing with a human being who had any authority to 
enter into any kind of an agreement with you?
    Mr. Britt. Never.
    Chairman Whitehouse. Not once?
    Mr. Britt. Not once, no. When I tried to move my way up the 
ladder within the organization, generally I was discouraged 
from doing that. I was hung up on. So I do feel the people I 
spoke to were not able to make decisions and were preventing me 
from going forward.
    Chairman Whitehouse. And sometimes they would not even give 
you their last names.
    Mr. Britt. Exactly.
    Chairman Whitehouse. You did not know who you were talking 
to.
    Mr. Britt. Yes. I have lots of first names.
    Chairman Whitehouse. Judge Glenn, to me one of the most 
compelling features of your testimony, you are here providing 
testimony to Congress. You are a sitting United States Federal 
bankruptcy judge, and you say just as plain as day that lenders 
increasingly recognize that they are better off economically by 
agreeing to a loan modification than by foreclosing on 
property. Why do you think it is that that fact so rarely is 
able to work itself through the process, outside of your court 
process, before they get to your court, to a loan modification? 
If it is in the bank's interest and if it is in Mr. Britt's and 
Mr. Cardullo's interest, why are those two parties of common 
interest not able to bring home and propose a reasonable deal?
    Judge Glenn. In many cases, there is the third important 
party, which is the loan servicer, and the economic interests 
of the loan servicer are not necessarily aligned with that of 
the owner of the loan, if you can figure out who the owner of 
the loan is. So that is certainly a problem.
    Chairman Whitehouse. And could you be a little bit more 
specific about that?
    Judge Glenn. Sure. Because of securitization of loans, 
typically there is a loan servicer designated early--once the 
loan is sold into a securitization trust, a loan servicer is 
designated. Frequently what happens when a debtor goes into 
default, most loan servicers, they are perfectly happy to take 
the monthly payments as long as they are regular monthly 
payments. But when the borrower defaults, frequently the loan 
servicing rights are transferred.
    I think whether the situation is improving or not remains 
to be seen, but I think at the outset, the loan servicers just 
were not equipped with staffing and computer systems to deal 
with the number of distressed loans there were. And the other 
major problem is the economic interests.
    HAMP, the Treasury program, tried to incentivize loan 
servicers with some payments for approving loan modifications. 
I am not sure that that has done it, but----
    Chairman Whitehouse. It does not appear to have.
    Mr. Rao, what is your thought on whether that worked?
    Mr. Rao. I think, you know, the major problem with HAMP is 
that it is a voluntary program, and so Treasury, therefore, has 
had to structure it in a way which there are carrots provided 
to the servicer and no sticks. The incentives, it appears at 
this point, have not been sufficient enough, and I think as 
Judge Glenn mentions, it is not so--I do not know that the 
servicer itself, since they are just handling essentially the 
collection and payments, can really appreciate the value that 
the owner of the mortgage might have in modifying it, having to 
ensure that there is a stream of payments that are coming on 
the loan versus foreclosure. The servicer does not have that 
direct recognition of that benefit. And, in fact, it might be 
even actually a counter-benefit because under the agreements 
that they have with the owners of the mortgage, they are 
required to advance payments to the owners of the mortgage, to 
make the payments for the homeowner if the homeowner does not 
make them. And that is something that they do not like to do. 
And in some cases, it is easier for them to resolve the problem 
by foreclosing and to not have to incur the cost of advancing 
the payments to the owner of the mortgage during this period 
when there is a payment problem.
    Chairman Whitehouse. And the fee arrangements that 
compensate them for their servicing are often structured in a 
way that favors foreclosure from the point of view of just the 
pure fee structure that they are looking at, in addition to any 
obligation to pay they might have.
    Mr. Rao. I would not say, though, that that is true in all 
cases, but certainly under at least a lot of these so-called 
pooling and servicing agreements and the fee structures that 
servicers have themselves, in some cases it does appear that it 
can be more profitable through the servicer to just proceed 
with foreclosure.
    Chairman Whitehouse. And, Mr. Lefebvre, you see this 
happening. As you said, you are the practitioner; you see this 
day to day; you see the nightmare; you see that it does not 
even make sense for the lender to have this going on. And yet 
it goes on and on and on until finally they get to the 
bankruptcy court and things begin to settle out, begin to make 
sense. Finally there is somebody in the room, and finally there 
is some judicial oversight to kind of sort through some of the 
fabrications and some of the stonewalling.
    What is your practical sense of why the program in Rhode 
Island is being legally challenged? I believe it is being 
challenged by Deutsche Bank, correct?
    Mr. Lefebvre. Right. Probably it is being challenged by one 
of the servicers that is not always the most cooperative and 
consumer-friendly. So I am not surprised that they might want 
to challenge the ability of a Federal judge to interfere with 
their exclusive domain. In Rhode Island especially, we are a 
non-judicial foreclosure State, so I think for the cost of 
certified mail, $4.85, you can take someone's home, even if 
they do not even sign the letter. I mean, they have to 
advertise. It is a very informal process.
    I do not know why they are challenging it. Statistically, 
there are not many objections to the loss mitigation in Rhode 
Island. Fortunately, today there is a group from the Rhode 
Island bankruptcy court here who, you know, I am sure has many 
of the statistics. But I was looking at some of the statistics 
provided on the website. I think 80 percent plus of the loss 
mitigation requests go through unopposed. Perhaps there----
    Chairman Whitehouse. And your experience, if I could just 
interrupt for a second.
    Mr. Lefebvre. Yes.
    Chairman Whitehouse. Your experience is similar with Judge 
Glenn's whose testimony was that out of 1,250 orders that have 
been entered, there were only 55 objections, or less than--what 
is that?--5 percent. For 95 percent, the banks are fine with 
it, they go ahead. In most cases, parties have negotiated 
directly without mediators. The banks do not even need a 
mediator once they have got somebody, a human being in the room 
who can break through the bureaucracy. So not only are there 
not objections; they do not even need mediators once they sit 
down with two human beings and can have a chance to make some 
sense.
    Mr. Lefebvre. And in Rhode Island, what is happening 
practically is there very few law firms that probably deal with 
99 percent of the foreclosures. So there are five or six law 
firms that deal with all of the foreclosures, so what ends up 
happening in the bankruptcy system, they have to--the servicer 
has to provide a contact person. But a lot of times it is the 
lawyers together with the servicer, the contact, and they were 
able to quickly resolve the issues.
    I can tell you in the last year--I collect the data for my 
clients; the HAMP programs compile it. I scan it once, and I 
have never been asked to scan it again. I can tell you my 
clients outside of bankruptcy have proof that they have scanned 
it one, two, three, four, five, six, and seven times. So all 
that game playing stops once we get into the bankruptcy 
process. It is really a great, great, great program.
    Chairman Whitehouse. One last question, and then I will 
turn to Senator Reed. Have you seen in, again, your practical 
experience clients who have failed to jump through those hoops, 
to provide those documents the fifth, sixth, or seventh time, 
and then suffered an adverse consequence in the foreclosure 
process as a result of doing that when they get to you?
    Mr. Lefebvre. Well, absolutely. I had a gentleman last 
evening, Bank of America, had brought the documentation very 
organized with his paperwork, and he received a letter about 9 
months ago telling him he had been eligible for a loan 
modification. And he brought in--and I personally looked at his 
checks and his bank statements, and he had been making every 
single payment for the modified payment through September. Then 
in the middle of September he gets a letter saying, oh, your 
loan modification is not going to be approved. The next day he 
gets a foreclosure notice. And the reason why his loan 
modification was denied is because he did not make the payments 
which I had right in front of me. That is what we deal with in 
the trenches. That is the frustration of this homeowner who 
happens to have a job, who could afford the home, and you have 
got the bank giving him documentation for a loan mod, telling 
him to make his payments, accepting his payments for 10 months. 
Then you have the Boston law firm sending out notices to 
foreclose, and the consumer comes in totally confused, has no 
idea what to do. Then I take over. And there are some ways 
outside of bankruptcy, but the most effective way to deal with 
competing interests is to bring it into the bankruptcy arena, a 
judicially supervised process, and I think it very effectively 
balances the rights of homeowners, consumers, and the rights of 
lenders to protect their collateral and get non-performing 
loans to be performing and keep people in their homes and keep 
neighborhoods still alive and vibrant.
    Chairman Whitehouse. Senator Reed.
    Senator Reed. Well, thank you.
    Just to the attorneys at the table, Rhode Island is a 
State, as you all point out, where simply you have to send a 
certified letter and notify the paper and then the sale, et 
cetera. There is no judicial intervention. Do we have any 
experience--and perhaps, Judge Glenn, you might--in judicially 
supervised foreclosure States, whether they have a better 
record of modifications? Or is that data that we just do not 
have? Or perhaps John.
    Mr. Rao. It is a good question, Senator Reed, and it is 
something that I do not think has been looked at yet. I know I 
actually have recently been trying to parse through the 
Treasury reports to see the number of permanent modifications 
that have been granted in States to see whether there is a 
correlation between a higher amount in judicial foreclosure 
States. Just quickly looking at them, I thought that that was 
the case, but I actually have not started to go through that 
process, and I do not know that anyone has done that.
    There are a number of judicial foreclosure States that have 
mediation programs similar to the bankruptcy programs in Rhode 
Island and New York. And depending upon how they are 
structured, they also have very good results. But not all of 
them are equal, as you might guess, and the ones that actually 
have had the best records that we have been observing at my 
office have been ones that have that requirement of appointing 
someone with full settlement authority, and Vermont, Maine, 
and--actually, the one example of a program in a non-judicial 
foreclosure State has been Nevada, and that has actually had 
some success. And it is a non-judicial foreclosure State. The 
court system in that State created a mediation program even 
though it is not a judicial foreclosure State. It is actually 
quite interesting.
    Senator Reed. Just a comment more than anything else. And, 
again, let me, before I do that, commend Senator Whitehouse 
because this is such an issue that is central to the families 
of Rhode Island and to devote the focus, and a very technical 
focus, that you need is something that is extraordinarily 
commendable. So thank you for leading this effort, Sheldon.
    Chairman Whitehouse. Thank you.
    Senator Reed. But it strikes me, stepping back, that 
because of national policies, Federal Reserve policies, we have 
lowered the effective interest rates for banks dramatically, 
and it is reflected in current mortgage rates now. But you have 
borrowers who signed up 2, 3, or 4 years ago, and unless we 
have a corrective mechanism, one side is getting the benefit of 
extraordinarily low interest rates, and the other side is 
paying the high interest rates, relatively high interest rates 
of 5, 6 years ago. That strikes me as not only unfair but 
terribly inefficient, because the point of a lot of the 
macroeconomic policy has been to lower interest rates, get 
everybody going again, let business go out and refinance at 2 
percent, not at 7 percent. And I think, again, if we can get a 
program like you have suggested--and I concur with the notion 
there has to be a referee with authority, and there have to be 
people participating who are empowered to cut a deal. And if 
you have that--and fortunately in the country we do not have to 
re-create this system, it exists in the bankruptcy courts--it 
is an efficient, effective way to do a lot of things.
    So, again, I think this was an extraordinarily useful 
hearing, and I thank Senator Whitehouse for leading the charge, 
not only here but, more importantly, in Washington, because 
when he goes back, he is going to go to the Judiciary Committee 
and see if we can pull together an effective response.
    Let me thank you also. I notice that my colleagues Harold 
Metts and Luis Aponte are here, who are just superbly gifted 
public servants. Thank you, gentlemen.
    Thank you, Senator Whitehouse.
    Chairman Whitehouse. Thank you, Senator Reed.
    This has been, I think, a very helpful hearing, and I want 
to say some particular thank you's, first to Mr. Cardullo and 
Mr. Britt. I think a great number of Americans have experienced 
the frustration of being on the phone with people who will not 
give you their name, will not connect you with their 
supervisor, do not make any sense, forward you to a different 
number or a new person who will not give you their last name 
and will not connect you with their supervisor and will not 
make any sense. That annoys you some more until they refer you 
to another person who will not give you their name and will not 
let you talk to their supervisor and will not make any sense. 
And it is just a particularly acute and painful type of 
frustration when it is your home that is at stake.
    In America, our home is our castle. We think of homeowners 
as--it is the value that we protect by making mortgages 
deductible against our income. You know, home is home. And the 
notion that that is at risk, particularly for people with 
children, because there is no harder discussion than the one 
you have with your younger children talking about packing up 
their bedrooms and clearing out. And the idea that that is what 
is at stake, that a father is going to have to tell his 
daughter, ``Sweetheart, you are not going to have your bedroom 
any longer. We are going to have to move. I do not know what 
the problem. The bank is going to take our home away.'' And 
then on the other end, you have got people who will not even 
give you somebody who has authority to negotiate with you like 
a grown-up human being, and instead you are dealing with, you 
know, Brynita, I think was the name you mentioned. Again, it is 
no last name, no responsibility, will not let you talk to their 
supervisor, hang up on you if you get frustrated, and move you 
to somebody else who also does not know anything. The contrast 
between that stake and that harm that you are at the edge of 
and the irresponsible, cavalier way, bureaucratic way in which 
it is being handled is something that is just--the fact that 
you have been able to come in here and testify about it as 
effectively as you did and as calmly as you did and as 
thoughtfully as you did, the fact that you were able to marshal 
all of this history into--you know, it took some time to sit 
down and sort your way through this and get it all done for us. 
And I just cannot tell you how much I appreciate it. It gives 
Senator Reed and me real leverage in Washington to be able to 
do this.
    One of the interesting things about the Senate, which is a 
relatively small body, is that we can come in with statistics 
and talk to each other until we are blue in the face. But when 
you sit down with a colleague and say, Look, I had a 
constituent who came in and this is what is happening to him, 
that comes through in a very, very real way. So the effort that 
you have undertaken to come in here and to do that is really 
valuable for us, and I just want you to know how very, very 
much I appreciate it.
    Judge Glenn, what you have done in your court, your 
leadership on this, is really remarkable. I want to commend 
Judge Votolato for following that lead. I am sure that he would 
have wanted to be here, but because Deutsche Bank decided that 
the best use of their resources was not to try to help 
homeowners but to try to sabotage this program by challenging 
it in court, and because it is pending in litigation, he is in 
a difficult position to come in and testify. So it is not for 
lack of interest in his program. It is not for lack of concern 
about Rhode Island. It is not for any other reason other than 
that he is on the receiving end of Deutsche Bank's lawsuit that 
he is not a suitable witness. And your taking the trouble to 
come from New York to explain it is really commendable, and I 
think the simple, clear message that you bring us, which is 
that it is actually usually in the bank's interest to get this 
settled, and it is as easy as getting two human beings in a 
room together as long as the bank's person has authority and 
there is a little watchfulness to make sure they are not up to 
nonsense, which is something that judges do every minute in 
every courtroom in the land, is enough, that that is basically 
enough. And that is a very important message because people try 
to complicate all of this in a lot of ways, and certainly you 
have seen how the banks complicate it for you. But that was a 
very significant message, and you delivered it very clearly and 
effectively, and I appreciate it.
    John and Chris, thank you both so much for what you do. 
John, you are like a laser for focusing passion through 
expertise at this problem, and it really is--you have been a 
great resource to my office, and you continue to fight very 
hard to try to unsnarl this mess. And you see it, as does 
Chris, every day in your daily practices. I do not know how you 
put up with it. I get upset hearing about it, and I do not do 
it all day every day. You do it all day every day, and it must 
just drive you nuts, what this is doing to your clients. So I 
thank you very much for your work, and I thank you very much 
for coming in and sharing your experience today.
    I will give everybody the chance to make a closing remark 
or observation, if they feel there is anything we have not 
covered. And I want to put into the record of this proceeding a 
statement by Chairman Leahy, the Chairman of the Senate 
Judiciary Committee, which I will not read the entire thing but 
it thanks us for holding this hearing, thanks the witnesses for 
being here and sharing their testimony, expresses his grave 
concern about the document subversion in the foreclosure 
process, and expresses a keen interest in pursuing real law 
enforcement consequences for this.
    Certainly if the banks were getting papers from a private 
homeowner that were as poorly prepared, perhaps even 
fraudulent, as the papers the banks themselves, or at least 
their robo-signers and their affidavit signers appear to be 
filing, they would be turning around in a heartbeat to say, 
``You are a malefactor, you are a criminal, we cannot deal with 
you.'' And I think it is time that an equally bright spotlight 
was cast on them, and if law enforcement is appropriate and 
prosecution is appropriate, Chairman Leahy wishes very much to 
see that that takes place.
    He points out that he has written to Attorney General to 
ask him if he needs more help from Congress to investigate and 
prosecute fraud and misconduct in the foreclosure process.
    He also commends bankruptcy courts in several districts, 
including your Southern District of New York, Judge Glenn, for 
the loss mitigation programs that have been put in place so far 
and commends the work of State legislators who are beginning to 
try to work through this as well.
    So I appreciate very much the Chairman's interest. We have 
been in touch with him about this hearing. Because he is 
actually on the ballot in Vermont--very safely, I happily add--
on November 2nd, he cannot be with us today. But he is very 
interested in pursuing this issue in Washington with a full 
Judiciary Committee hearing, and we look forward to that, and I 
want to thank him very much for his support, and without 
objection, his statement will be made a part of the record.
    [The prepared statement of Chairman Leahy appears as a 
submission for the record.]
    Chairman Whitehouse. I will give each one of you a chance 
to make any last observation you may care to make, and then we 
will conclude the hearing. Anything to add, Mr. Cardullo?
    Mr. Cardullo. No. Just thank you very much for your time 
today.
    Chairman Whitehouse. Thank you very much.
    Mr. Britt. Thank you as well, and I just want to add that I 
think it is important to bring to the forefront homeowners like 
myself and Mr. Cardullo, because there is a perception out 
there that people are trying to beat the system or trying to 
get something for nothing. That is not our objective. You know, 
we are not flipping real estate and playing the system. You 
know, we are involved in legitimate financial hardship. We have 
applied for a program that seems suited for us. And yet I think 
the public perception is that we are looking for a handout or 
something. I think hearings like this help to bring people like 
Mr. Cardullo and myself to the forefront.
    Chairman Whitehouse. You are not trying to beat the system. 
You are getting beaten by the system.
    Mr. Britt. Thank you. Yes.
    Chairman Whitehouse. Judge Glenn.
    Judge Glenn. I just appreciate the opportunity to appear 
before the Subcommittee today and explain our program in New 
York.
    Chairman Whitehouse. I very much thank you for coming.
    Mr. Rao. Thank you, Senator, for holding the hearing.
    Mr. Lefebvre. Thank you very much for inviting me to 
participate today.
    Chairman Whitehouse. I appreciate it very much. I want to 
particularly thank Senator Reed for----
    Senator Reed. Well, I am not on the Committee so I am sort 
of sitting in strictly at the courtesy of the Chairman. So 
thank you, Mr. Chairman.
    Chairman Whitehouse. All right. Under the rules of the 
Subcommittee, there is an additional week that the record of 
this hearing will remain open, and if anybody wishes to add 
anything to the record, all they have to do is send it to my 
office before that week concludes. Senator Metts was here 
earlier; he had to leave. Councilman Aponte is still here. 
Obviously, we would welcome any thoughts or comments they might 
care to add.
    Again, I open with your question that you raised when you 
came to my office to express the frustration of your clients. 
As you said the question: ``Why is it that the bank wants to 
take away my home and throw me out of it and sell it to someone 
else who will pay the bank less than I am willing and able to 
pay right now? '' And I think anything you would like to add or 
anybody else would like to add would be helpful. It will be 
open for a week.
    And with that, the gavel.
    Senator Reed. Thank you.
    Chairman Whitehouse. Thank you very much, Jack.
    [Whereupon, at 10:43 a.m., the Subcommittee was adjourned.]
    [Submissions for the record follow.]

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