[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
LEGISLATIVE PROPOSALS TO END
TAXPAYER FUNDING FOR INEFFECTIVE
FORECLOSURE MITIGATION PROGRAMS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INSURANCE, HOUSING, AND
COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
MARCH 2, 2011
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-13
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HOUSE COMMITTEE ON FINANCIAL SERVICES
SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
KENNY MARCHANT, Texas BRAD MILLER, North Carolina
THADDEUS G. McCOTTER, Michigan DAVID SCOTT, Georgia
KEVIN McCARTHY, California AL GREEN, Texas
STEVAN PEARCE, New Mexico EMANUEL CLEAVER, Missouri
BILL POSEY, Florida GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK, KEITH ELLISON, Minnesota
Pennsylvania ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia JOE DONNELLY, Indiana
BLAINE LUETKEMEYER, Missouri ANDRE CARSON, Indiana
BILL HUIZENGA, Michigan JAMES A. HIMES, Connecticut
SEAN P. DUFFY, Wisconsin GARY C. PETERS, Michigan
NAN A. S. HAYWORTH, New York JOHN C. CARNEY, Jr., Delaware
JAMES B. RENACCI, Ohio
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
Larry C. Lavender, Chief of Staff
Subcommittee on Insurance, Housing, and Community Opportunity
JUDY BIGGERT, Illinois, Chairman
ROBERT HURT, Virginia, Vice LUIS V. GUTIERREZ, Illinois,
Chairman Ranking Member
GARY G. MILLER, California MAXINE WATERS, California
SHELLEY MOORE CAPITO, West Virginia NYDIA M. VELAZQUEZ, New York
SCOTT GARRETT, New Jersey EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina WM. LACY CLAY, Missouri
LYNN A. WESTMORELAND, Georgia MELVIN L. WATT, North Carolina
SEAN P. DUFFY, Wisconsin BRAD SHERMAN, California
ROBERT J. DOLD, Illinois MICHAEL E. CAPUANO, Massachusetts
STEVE STIVERS, Ohio
C O N T E N T S
----------
Page
Hearing held on:
March 2, 2011................................................ 1
Appendix:
March 2, 2011................................................ 29
WITNESSES
Wednesday, March 2, 2011
Barofsky, Hon. Neil, Special Inspector General, Troubled Asset
Relief Program (SIGTARP)....................................... 2
Jones, Katie, Analyst in Housing Policy, Congressional Research
Service (CRS).................................................. 9
Marquez, Hon. Mercedes M., Assistant Secretary, Community
Planning and Development, U.S. Department of Housing and Urban
Development (HUD).............................................. 6
Scire, Matthew J., Director, Financial Markets and Community
Investment, U.S. Government Accountability Office (GAO)........ 7
Stevens, Hon. David H., Assistant Secretary for Housing and
Commissioner of the Federal Housing Administration, U.S.
Department of Housing and Urban Development (HUD).............. 4
APPENDIX
Prepared statements:
Barofsky, Hon. Neil.......................................... 30
Jones, Katie................................................. 37
Marquez, Hon. Mercedes M..................................... 46
Scire, Matthew J............................................. 59
Stevens, Hon. David H........................................ 78
Additional Material Submitted for the Record
Biggert, Hon. Judy:
Written statement of the American Alliance of Home
Modification Professionals (AAHMP)......................... 88
Written statement of Americans for Tax Reform................ 91
Written statement of Mark A. Calabria, Ph.D., Director,
Financial Regulation Studies, Cato Institute............... 94
Written statement of Satya Thallam, Director, Financial
Markets Working Group, and Anthony Sanders, Senior Scholar,
the Mercatus Center at George Mason University............. 99
Written statment of the U.S. Department of the Treasury, with
attachments................................................ 107
Article from The Wall Street Journal entitled, ``Housing
Market Masochism,'' dated March 2, 2011.................... 121
Article from The Washington Times entitled, ``Obama's helping
hand hoodwinks homeowners,'' dated March 1, 2011........... 123
LEGISLATIVE PROPOSALS TO END
TAXPAYER FUNDING FOR INEFFECTIVE
FORECLOSURE MITIGATION PROGRAMS
----------
Wednesday, March 2, 2011
U.S. House of Representatives,
Subcommittee on Insurance, Housing,
and Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2 p.m., in
room 2220, Rayburn House Office Building, Hon. Judy Biggert
[chairwoman of the subcommittee] presiding.
Members present: Representatives Biggert, Hurt, Miller of
California, McHenry, Dold; Gutierrez, Waters, and Sherman.
Also present: Representative Green.
Chairwoman Biggert. The Subcommittee on Insurance, Housing,
and Community Opportunity will come to order for a hearing
entitled, ``Legislative Proposals to End Taxpayer Funding for
Ineffective Foreclosure Mitigation Programs.''
Thank you all for being here in these tight quarters.
Unfortunately, this hearing was put on the schedule rather
late, so we are in the second hearing room. The reason that I
am starting now, and the ranking member and I waived our
opening statements, is because we are going to have votes. In
fact, we expected them at quarter to one, and then we are
expecting another series of votes, so the more that we can
accomplish right now, the better.
So I am just going to start with the witnesses, and I would
like to welcome them. And members will be always welcome to
submit their statements for the official hearing record, but we
will immediately proceed to our panel of witnesses.
Our first witness is the Special Inspector General for the
Troubled Asset Relief Program, Neil Barofsky.
Inspector General, I understand you are retiring from your
post, so I would like to thank you for your service and wish
you the best in your future endeavors.
Mr. Barofsky. Thank you.
Chairwoman Biggert. And next, we will hear from HUD FHA
Commissioner David Stevens. Welcome back. Also from HUD, our
third witness is the Assistant Secretary for Community Planning
and Development, Ms. Mercedes Marquez.
Our fourth witness is the U.S. Government Accountability
Office Director of Financial Markets and Community Investment,
Matthew Scire. And our final witness is Ms. Katie Jones, who is
an Analyst in housing policy with the Congressional Research
Service of the Library of Congress.
So welcome, all of you.
And, Inspector General, you are recognized for 5 minutes
for your statement.
STATEMENT OF THE HONORABLE NEIL BAROFSKY, SPECIAL INSPECTOR
GENERAL, TROUBLED ASSET RELIEF PROGRAM (SIGTARP)
Mr. Barofsky. Thank you, Madam Chairwoman.
Chairwoman Biggert, Ranking Member Gutierrez, and members
of the subcommittee, it is a privilege to appear before you
today to testify about the HAMP program. HAMP, of course, arose
out of the Emergency Economic Stabilization Act.
Chairwoman Biggert. If you would suspend for a moment--
Please put those posters down; that is against the decorum
in our hearings. Thank you.
I am sorry about that. Please continue, Inspector General.
Mr. Barofsky. Sure.
HAMP, of course, arose out of the Emergency Economic
Stabilization Act's requirement that TARP be used not just to
benefit the Wall Street banks, but also Main Street through a
specific goal of preserving homeownership. Unfortunately, since
HAMP's announcement 2 years ago that it would help up to 3 to 4
million struggling homeowners achieve sustainable permanent
modifications, the numbers have been nowhere close, with fewer
than 540,000 permanent modifications to date.
Five weeks ago, in testifying before the House Oversight
Committee, I was asked the same question that is the subject of
this hearing, whether given the disappointing results of HAMP,
the program should be terminated. At that time, I thought this
conversation was premature and that Treasury should be given an
opportunity to respond to what had become bipartisan criticism
and concern that the program was failing to do two things: one,
set forth its plan on how to revamp the program so it could
meet those important TARP goals of preserving homeownership;
and two, finally answering the question that needs to be
answered for there to be any true discussion about whether to
continue this program or not, which is how many people Treasury
expects to help through this program with sustainable permanent
modifications.
Unfortunately, since that hearing Treasury has done little
to address these concerns. On the one hand, Secretary Geithner
has acknowledged that the program will come nowhere close to
meeting its original expectations and that the program itself
suffers from a major design flaw in that the incentives for the
servicers are insufficient to overcome the conflicts of
interest that are inherent in the program as Treasury designed
it.
But rather than then build on this belated recognition of
failure, Treasury continues to celebrate the status quo. Last
week, to an applauding crowd of mortgage servicers, one
Treasury official confirmed that there would be no meaningful
change or changes in the HAMP program and that all that would
be done is tweaks around the program's edges.
Since then, other Treasury officials, seemingly on a daily
basis, have been issuing defenses of the program, saying that
it has been successful, citing ever-changing goals and
milestones that are meaningless and misguided.
Even more disturbing is Treasury's continued and
inexplicable failure of transparency in identifying how many
people it expects this program will help over the course of its
life span. Steadfastly refusing to do so for more than a year,
this past December, the Congressional Oversight Panel (COP)
tried to fill the void by providing its own estimate of 700,000
to 800,000 modifications over the life of the program.
But since that past hearing, rather than issue its own
numbers, its own estimate of the total number of people who
would be helped, Treasury has done something astonishing. In a
written report to Congress, it suggests both that the COP's
estimate of 700,000 to 800,000 is accurate and also the number
might be twice that amount. Another Treasury official
testifying before the subcommittee only stated that the program
would help as many people as it could. Treasury's refusal to be
transparent about the number of people it expects to help does
it no service, and merely fuels the concerns and suspicions of
those seeking to terminate the program and providing for those
who would otherwise seek to defend it, depriving them of the
necessary tools to respond.
So here we are 2 years later with now basically universal
and bipartisan agreement that the HAMP program is failing to
meet TARP's goal of preserving homeownership, with Treasury
standing alone as the defender of the status quo.
In fact, this past week, one senior Treasury official, in
declaring the program a success, was citing to its otherwise
disappointing rate of conversion from trial modifications to
permanent--this, the conversation rate and tried to defend it
by comparing it to a baseball player and said that if a
baseball player hit for a 330 average, that would be
successful, so therefore the HAMP program has been successful.
Now, to be sure, for those people, proportionately few, who
do receive sustainable permanent modifications, they will
receive a benefit under this program. But these type of flip
statements and comparisons demean the real harm that is
suffered by many of the more than 800,000 families who have
seen their modifications terminated under the HAMP program and
the up to 2.3 to 3.3 million families who might have been
reached by this program if only it had been better designed,
better managed, and better executed by the Treasury Department.
I thank you for this opportunity to testify, and I look
forward to answering any questions you have.
[The prepared statement of Inspector General Barofsky can
be found on page 30 of the appendix.]
Chairwoman Biggert. Thank you very much.
I now recognize Commissioner Stevens for 5 minutes.
STATEMENT OF THE HONORABLE DAVID H. STEVENS, ASSISTANT
SECRETARY FOR HOUSING AND COMMISSIONER OF THE FEDERAL HOUSING
ADMINISTRATION, U.S. DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT (HUD)
Mr. Stevens. Thank you, Chairwoman Biggert, Ranking Member
Gutierrez, and members of the subcommittee. Thank you for the
opportunity to testify here today. I am pleased to discuss the
Administration's programs designed to help families and the
housing market recover from the economic crisis.
First, let me speak briefly about the progress of the
recovery. As you know, when home prices were falling every
month for 30 straight months when President Obama took office,
the Administration had no choice but to take action.
The results are clear. Monthly foreclosure starts are down
more than 30,000 a month from this time a year ago. More than
4.1 million distressed home borrowers have received mortgage
assistance since April of 2009, including HAMP modifications,
FHA loss mitigation activities, and voluntary private efforts
as part of the HOPE NOW Alliance, more than twice the number of
foreclosures completed during that time. Still, the housing
market remains fragile. Where the crisis was initially driven
by defaults created by risky subprime loans, today unemployment
and negative equity are the main drivers of foreclosures. To
respond to these new challenges, the Administration has
unveiled new tools, two of which I would like to talk about
today.
The first is the FHA short refinance program to help some
of the estimated 1.5 million borrowers who owe more on their
mortgages than their homes are worth. Making matters worse,
these borrowers often can't move to find a new job or refinance
their loan into a lower payment, because their house is
underwater.
Through the program, a targeted group of borrowers who are
current on their mortgage payments, will have an opportunity to
have their loans modified or refinanced into a sustainable FHA
fixed-rate mortgage.
To qualify, the existing first lien holder must write down
at least 10 percent of the unpaid principal balance. Then the
borrowers are able to refinance an underwater, non-FHA insured
mortgage into an FHA-insured mortgage at 97.75 percent of the
home's value. As a result, the vast majority of the program's
cost is borne not by the taxpayer, but by the investors and
institutions which own these loans.
While we have faced some initial implementation challenges,
with Wells Fargo, Citi Mortgage, and GMAC Ally having just
announced they will soon begin short refinance pilots and
several other major lenders indicating they will begin
participating this year, we expect to see some progress in the
months ahead.
What first started with the foreclosures from bad loans has
now transitioned into issues with unemployment and negative
equity. As we work to help homeowners who have watched the
value of their homes plummet during this crisis, the
Administration is working to help families who are facing
foreclosure through no fault of their own, because they have
lost their jobs.
In October, we announced the emergency homeowners loan
program, a $1 billion initiative authorized by Congress to
provide a zero interest, forgivable bridge loan of up to
$50,000 to as many as 30,000 distressed borrowers in 32 States
and Puerto Rico. This program is designed to bring the
homeowner current on their mortgage and then provide additional
assistance to reduce the monthly payments to affordable levels.
Assistance terminates when the borrower's income is restored to
85 percent of their pre-crisis levels.
Once assistance is complete, the loan will be secured by a
junior lien against the homeowner's principal residence.
Created by the Dodd-Frank Wall Street Reform bill, this program
complements the Treasury Department's hardest hit fund and will
be administered through two delivery channels: individual State
agencies for States with similar programs in place; and through
a network of intake and housing counseling agencies designed by
NeighborWorks America.
Madam Chairwoman, I would like to be the first to
acknowledge that it is taking longer to implement the program
than we had expected due to challenges that are unique to it.
But I would note that the emergency home loan rule and notice
have been sent to the Federal Register and are now publicly
available on the HUD Web site.
HUD is currently working to sign cooperative agreements
with key program partners including NeighborWorks and those
substantially similar States. And this spring, we hope to
provide information as to when, where, and how borrowers can
apply for the NeighborWorks Program.
These initiatives supplement a variety of programs already
in place to continue our Nation's economic recovery. Mark Zandi
of Moody's Analytics said just recently that not only have the
Administration's collective efforts to date helped to stem the
vicious cycle of steadily declining home prices that was
leading to escalating loan defaults when we took office, but
also stated ``any further price declines could be forestalled
to an additional 500,000 solid modifications over the coming
year'' and that these kind of approaches, particularly
principal write-downs represent a key to getting there.
Of course as President Obama has pointed out, we cannot
prevent every foreclosure, nor would it be responsible to
assist every borrower who bought more than they could afford.
But those aren't the families these efforts assist. Rather,
they are tailored to assist responsible borrowers who are at
risk of foreclosures through no fault of their own, whether
they have lost their jobs due to this recession or because they
have seen their property values collapse.
That is why the Administration is opposed to all four bills
that are the subject of this hearing, and it is why I urge
Congress to instead support our efforts and help us improve
them. Thank you for the opportunity to testify before you
today.
[The prepared statement of Commissioner Stevens can be
found on page 78 of the appendix.]
Chairwoman Biggert. Thank you. We have had a roll call, but
we will try and do one more testimony before we run off like
lemmings to the House Floor.
Next, we have the Honorable Mercedes Marquez.
STATEMENT OF THE HONORABLE MERCEDES M. MARQUEZ, ASSISTANT
SECRETARY, COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT
OF HOUSING AND URBAN DEVELOPMENT (HUD)
Ms. Marquez. Chairwoman Biggert, Ranking Member Gutierrez,
and members of the subcommittee, thank you so much for the
opportunity to testify today in support of the Neighborhood
Stabilization Program.
Let me start by clarifying that the NSP Program is not a
foreclosure prevention program, but rather a tool to help
communities address and mitigate the negative effects that
vacant, abandoned, and blighted properties have on
neighborhoods and property values.
While monthly foreclosure starts are down more than 30,000
per month from the same time 1 year ago, the housing market
remains fragile. Neighborhood stabilization investments are
important because they prevent further decline. Since 2008,
HUD, NSP grantees, and a range of private sector and nonprofit
partners have worked together to craft distinctive, market-
oriented responses that stabilize and improve neighborhoods
while these dollars often turn foreclosed and abandoned
properties into affordable rental housing that families need
and shore up the equity of neighboring homeowners in these
communities.
I am responsible for overseeing all three rounds of
Neighborhood Stabilization Program funds, including: the
initial $4 billion program established by HERA in 2008; $2
billion for NSP2 appropriated by the Recovery Act; and the $1
billion for NSP3 included in Dodd-Frank. All told, we expect
the $7 billion in Neighborhood Stabilization Funds to impact
100,000 properties in the Nation's hardest-hit markets and with
grantees reporting that more than 36,000 of these properties
are under construction, we are more than a third of the way
there.
While 100,000 properties may seem small by comparison to
the millions of foreclosures we have seen in recent years, the
targeted nature of these allocations, and the statutory
requirement that grantees focus their funds on areas with the
greatest need, has enabled NSP to not only impact those homes
and neighborhoods where the funds are invested, but to produce
a multiplier effect that impacts our local, regional, and even
national housing markets.
I am pleased to report that the funds have been well-
managed, both at the Federal and local levels. To date, HUD has
obligated signed grant agreements with States, local
governments, and nonprofits for 100 percent of NSP1 and NSP2
dollars and we expect the NSP3 funds by the end of this month.
Indeed, the 99.6 obligation rate for NSP1 grantees at the
18-month deadline speaks to the commitment and tenacity of
communities across the country, even during a difficult budget
environment and to CPD's NSP technical assistance effort, which
ensured accountability of these funds by helping grantees
assess their markets and retool their efforts to produce the
biggest impact with the minimum taxpayer investment.
Most important of all, Madam Chairwoman, these efforts are
producing results. To date, communities using NSP1 have
produced more than 5,300 rehabilitated or newly constructed
homes, more than 6,000 households have received direct
homeownership assistance to acquire formerly foreclosed or
abandoned properties, and more than 9,700 blighted properties
have been demolished and cleared.
But statistics alone don't capture the impact this program
is actually having. In Cleveland, Ohio, NSP funds have made a
huge difference in helping reduce vacancy rates. Despite an
estimated 18,000 vacant properties, NSP has helped Cleveland
reduce the vacancies in one East Side neighborhood by nearly 40
percent in the last 2 years. At the same time, this helped
responsible homeowners like Millie Davis, who recently earned
her Master's Degree in Urban Planning from Cleveland State
University, buy a home closer to where she works and invite her
mom to live with her.
Or Lee County, Florida, one of the regions hardest hit by
foreclosures with over 2,600 foreclosure filings per month at
one point. Lee County not only used their NSP dollars to help
its communities come back to life, they have also partnered
with the sheriff's department there to create a weed-and-seed
program to reduce crime in these areas.
One hardworking nurse, Priscilla Hardaway, was paying more
than $1,000 in monthly rent when she learned about the NSP
program. Because of NSP, she purchased a home, and now affords
a mortgage of $528 per month, a dramatic savings.
Madam Chairwoman, I believe these two examples illustrate
the impact this investment is having: helping stabilize hard-
hit communities; creating sustainable homeownership
opportunities for responsible homeowners; and stabilizing or
raising property values for families who have lost so much over
these past few years through no fault of their own.
These are the kinds of values we want our housing market to
support in the years ahead: more affordability; more
sustainability; and more transparency and accountability when
it comes to taxpayer dollars. That is the difference this
program is making and, with your partnership, will continue to
make in the coming months. That is why I am here to support
this program and to stand against the four bills.
Thank you again for this opportunity to testify, and I look
forward to answering your questions.
[The prepared statement of Assistant Secretary Marquez can
be found on page 46 of the appendix.]
Chairwoman Biggert. Thank you. I think we have time for one
more, since we have 10 minutes.
Mr. Scire, please proceed for 5 minutes.
STATEMENT OF MATTHEW J. SCIRE, DIRECTOR, FINANCIAL MARKETS AND
COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
(GAO)
Mr. Scire. Thank you. Chairwoman Biggert, Ranking Member
Gutierrez, and members of the subcommittee, thank you for the
opportunity to discuss GAOs assessments of Treasury's Making
Home Affordable Program including its loan modification program
called PAM.
It has been over 2 years since Treasury first announced the
Home Affordable Modification Program with the promise of
helping 3 to 4 million homeowners in danger of losing their
homes. Since then, 1.7 million homeowners have been offered to
file mortgage modifications, and in December there were 522,000
active, permanent modifications.
However, the number of homeowners who face foreclosure
remains high. As of December, about 3.7 million mortgages were
90 or more days delinquent or in the process of foreclosure.
That represents more than a fourfold increase over the number
of such mortgages in 2005. Put another way, over 8 percent of
all mortgages face the prospect of foreclosure.
We reported in July of 2009 and in June of 2010 on the
challenges that Treasury and servicers faced in implementing
the HAMP program, and the challenges that distressed homeowners
faced using it. Later this month, we will report on the
continuing challenges Treasury faces in its efforts to modify
mortgages or otherwise help homeowners through its Making Home
Affordable Program.
We also will report on the outcomes of borrowers who were
either denied or fell out of Treasury loan modifications. At
the outset, I think it is important to note that Treasury's
HAMP program is part of an unprecedented response to a
particularly difficult time in our Nation's mortgage market.
The Emergency Economic Stabilization Act called for Treasury
to, among other things, preserve homeownership and protect home
values, and HAMP continues to be Treasury's cornerstone effort
for doing this.
However, more than a year after Treasury's initial
announcement of HAMP and the goal of bringing consistency to
foreclosure mitigation, we reported last June that servicers
continued to treat borrowers seeking to avoid foreclosure
inconsistently, in part because of a lack of specific guidance
from Treasury.
Servicers used different definitions for determining
whether a homeowner was in imminent danger of default.
Servicers also varied in their message for ensuring compliance
with program requirements. We also found that Treasury had not
specified consequences or remedies if servicers do not comply
with program requirements and has yet to do so.
We recommended that Treasury take a number of steps to
improve program transparency and accountability, but it has not
fully implemented these measures. We also noted that as
Treasury continued to design and implement new HAMP programs,
including the Principal Reduction and Foreclosure Alternatives
Program, it would be important to develop sufficient capacity
to establish meaningful performance measures and make
appropriate risk assessments.
In our ongoing work, we find that these newer efforts,
along with the second lien program, have gotten off to a slow
start with limited activity reported to date. The slow pace was
due to several reasons and Treasury has taken steps to address
many, but the potential effects of these changes remain to be
seen. We believe there is more that Treasury could do. Treasury
could do more to ensure that servicers have capacity to
undertake these added responsibilities. Treasury could also do
more to establish goals and effect the performance measures for
these programs as we recommended last June.
Finally, to better understand the outcome for borrowers
that HAMP was unable to help, we surveyed six large HAMP
servicers. We found that borrowers denied HAMP modifications
most often became current at the time of our survey. Those who
fell out of modification most often were in the process of or
had received a proprietary modification.
And those borrowers who defaulted on permanent
modifications most often were in the process of foreclosure.
Going forward, it will be important to understand what explains
borrower outcomes from foreclosure mitigation efforts. And here
again, we think there is more the Treasury can do to more
clearly understand the final disposition of borrowers who fall
out of the HAMP program.
In summary, Madam Chairwoman, the Treasury's HAMP program
has not lived up to expectations. It has helped fewer persons
than it had initially promised, and more announced programs
have had limited activity. We continue to find that Treasury
could do more to bolster program accountability and
transparency.
Treasury can begin by understanding better the capacity of
services to undertake, additional responsibilities for
delivering recently implemented programs. It could specify what
outcomes it expects of these programs. It could also do more to
hold servicers accountable by establishing clear goals and
performance benchmarks.
This concludes my opening remarks. Thank you again for the
opportunity to appear before you today.
[The prepared statement of Mr. Scire can be found on page
59 of the appendix.]
Chairwoman Biggert. Yes. Thank you very much.
This committee will recess until we return immediately
after Floor votes. I wouldn't give up your seats.
[recess]
Chairwoman Biggert. The hearing will come to order.
We have one more witness, Ms. Katie Jones, professional
analyst. You are recognized for 5 minutes.
STATEMENT OF KATIE JONES, ANALYST IN HOUSING POLICY,
CONGRESSIONAL RESEARCH SERVICE (CRS)
Ms. Jones. Chairwoman Biggert, Ranking Member Gutierrez,
and members of the subcommittee, I am honored to be here today.
My name is Katie Jones and I am an analyst at the Congressional
Research Service. As requested by the subcommittee, my
testimony will provide dot-com information and performance and
funding metrics on the Home Affordable Modification Program, or
HAMP, the FHA Short Refinance Program, the Interagency
Homeowners Own Program, and the Neighborhood Stabilization
Program.
Since CRS does not collect independently collect data, the
numbers provided in my testimony come from data that are made
publicly available by the administering agencies or other
Federal entities.
My testimony today highlights information that is discussed
in two CRS reports, written by myself and my colleagues, both
of which I have included for the record. CRS has not performed
additional analyses specifically for this hearing. As is our
policy, CRS takes no position on these legislative proposals or
on the initiatives themselves.
The first initiative that I will discuss is HAMP, which was
established by the Administration using TARP funds. HAMP became
active in March 2009 and currently has an end date for entering
into new modifications of December 31, 2012. HAMP provides
financial incentives to facilitate mortgage modifications that
lower borrowers' monthly mortgage payments to no more than 31
percent of their monthly income. Borrowers first enter into a
trial modification, which is supposed to become a permanent
modification as borrowers make all of their trial period
payments on time.
The incentive payments provided by the Federal Government
are offered for permanent modifications. Treasury was
designated nearly $30 billion in TARP funds for HAMP and its
related initiatives. As of February 25, 2011, just over $1
billion has been dispersed. In addition to the TARP funds,
Fannie Mae and Freddie Mac will provide up to $25 billion for
the cost of modifying mortgages that they own or guarantee.
Under the HAMP incentive structure, some of the incentives
are designed to be paid based on the future performance of the
modifications. For this reason, Treasury may continue to have a
contractual obligation to pay servicers for their past
performance under, or reliance on, the HAMP program, even if
the program were to be terminated before its currently
scheduled end date.
In public announcements when HAMP began, Treasury estimated
that HAMP could reach between 3 million and 4 million
homeowners. As of Treasury's most recent report, which just
came out today, there were almost 540,000 permanent active HAMP
modifications, and about another 145,000 modifications were in
the trial period, for a total of nearly 685,000 active
modifications.
At the same time, over 800,000 modifications have been
canceled since the start of the program. Most of these were
trial modifications that never converted to permanent status.
Nearly 54 percent of the active modifications are GSE loans, so
the cost of modifying these loans come from the GSEs, rather
than TARP funds.
The next initiative I will discuss is the FHA Short
Refinance Program, which was also established by the
Administration using TARP funds. It allows certain homeowners
who are current on their mortgage payment, but owe more than
their homes are worth, to refinance into new mortgages insured
by FHA if the original mortgage lender agrees to write down the
principal balance by a certain amount. The program was
announced in March 2010 and became effective on September 7,
2010.
Currently, borrowers can refinance through the program
until December 31, 2012. Treasury has designated up to $8
billion in TARP funds for the FHA Short Refinance Program to
cover a portion of expected losses through the program. As of
the January 2011 FHA report, 40 loans have refinanced through
the program.
The next program that I will discuss, the Emergency
Homeowners Loan Program, was established by Congress in the
Dodd-Frank Wall Street Reform and Consumer Protection Act. That
legislation also provided up to $1 billion in mandatory funding
to HUD to administer the program.
Through the program, HUD will provide short-term zero
interest subordinate loans to some homeowners who meet certain
eligibility criteria and who experienced a reduction in income
due to unemployment or underemployment to help cover the cost
of their mortgage payment. HUD will forgive the subordinate
loan entirely after 5 years if the borrowers meet certain
conditions.
HUD has allocated $1 billion in funding under this program
to the 32 States and Puerto Rico that are not eligible to
receive funding under Treasury's hardest-hit funds. The program
is expected to begin taking applications this spring. Since the
program is not yet taking applications, no funds have been
dispersed to borrowers to date. By statute, no new loan
agreements with borrowers can be entered into after September
30, 2011.
Finally, Congress established the Neighborhood
Stabilization Program in the Housing and Economic Recovery Act
of 2008 to provide funds to States and local communities to
purchase and redevelop foreclosed or abandoned properties.
Congress subsequently provided two additional rounds of funding
for the programs. These components of NSP are identified as
NSP1, NSP2, and NSP3, respectively. Unlike the other programs I
have discussed, NSP is not designed to prevent foreclosures,
but rather, to help communities deal with the aftermath of
foreclosures.
NSP1 and NSP3 funds were awarded by formula, while NSP2
funds were awarded competitively. To date, HUD data show that
NSP funds have principally been used for acquisition and
residential rehabilitation activities. As of January 13, 2011,
HUD reported that NSP1's grantees have completed nearly 20,000
units. HUD announced 283 NSP3 grantees on September 8, 2010.
These grantees were required to submit their action plans to
HUD by March 1, 2011, and HUD is expected to award these funds
shortly.
Thank you.
[The prepared statement of Ms. Jones can be found on page
37 of the appendix.]
Chairwoman Biggert. Thank you very much. We will now
proceed to questions. And members are limited to 5 minutes, as
well.
So I will start the questioning, but first I would like to
enter into the record, without objection, a number of written
testimonies and letters: first, the testimony from Kelly
William Cobb on behalf of Americans for Taxpayer Reform;
second, testimony from Mark A. Calabria on behalf of the Cato
Institute; third, the March 1, 2011, letter from the National
Foreclosure Prevention and Neighborhood Stabilization Task
Force; fourth, a March 1, 2011, Washington Times article
entitled, ``Obama's Helping Hand Hoodwinked Homeowners'';
fifth, testimony from Satya Solomon and Anthony Sanders at the
Mercatus Center at George Mason University; sixth, testimony
from the U.S. Treasury Department; and seventh, a March 2,
2011, Wall Street Journal article entitled, ``Housing Market
Masochism.''
My first question is to all the witnesses--the
Administration has noted that 4.1 million distressed homeowners
have received mortgage assistance since April 2009. However,
according to the testimony that this subcommittee received on
February 15th, around 3.5 million of these mortgage
modifications were completed without any government program and
no taxpayer assistance. Meanwhile, about 580,000 programs were
completed through a government program.
So why is the Administration providing help to these
programs when the majority of the modifications were made
through efforts of the private sector?
Would anybody care to address that?
Ms. Jones. Chairwoman Biggert, while HAMP is not directly
under my authority or HUD's authority, I would articulate it in
a couple of fashions.
First of all, by previous testimony before the House
Financial Services Committee, under the previous Congress, the
two heads of the mortgage businesses were Bank of America and
Wells Fargo, as an example, highlighted the fact that HAMP
really created the blueprint for all other modification
programs that have been implemented in this country, that they
had seen, that they implemented in their institutions, being
the largest institutions in the market.
So clearly, the tangible value of creating something in an
environment that we had never experienced before started with
HAMP and allowed the private sector to ultimately model after
the HAMP program.
The interesting variable, however, and difference--and this
comes from the OCC, who has stated that the HAMP program
clearly is more effective than what they have seen in private
modifications.
Just to give a couple of examples, the median savings on a
monthly basis for borrowers from HAMP is $527 a month versus
$337 to the OCC review of private modifications.
And also the other variable is, if you look at redefault
rates, which I think reflects the sustainability of the HAMP
program, the redefault rates for the OCC review is about 19
percent after a borrower is 60 days late after 6 months in the
program.
And HAMP redefault rates are 10.7 percent after 6 months.
So, while the numbers have clearly been smaller and the
total numbers are counted in the scorecard, there is absolutely
unequivocal support, both from the private sector and in--and
results that the HAMP program clearly was the model by which
others followed, and that the HAMP performance of borrowers in
the HAMP program exceeds those in the private sector.
Chairwoman Biggert. But besides the data that we have
gotten from Federal oversight entities, this is something that
my constituents have come in to see me about because they wrote
seeking a mortgage modification under the HAMP program.
And so they were told, just while you are waiting, it is
going to take us 3 months or so to go through this--pay the
lower amount, starting now, and then you will continue when
there is a loan modification.
What happened to them is that then some of them were told
that they weren't qualified to do it. And so please pay us
back, back to the rate that you were paying plus a penalty.
And I think the penalty is what really got these people,
and particularly somebody who is in that place where they
weren't able to make the payments, which is why they sought the
modification.
And so it is--most of them went into foreclosure and lost
their homes. And I think that is kind of a false hope to have
people do that and then they are not able to fulfill--
Mr. Scire. If I could--
Chairwoman Biggert. Yes, Mr. Scire, I know that you have
had some dealings with this. If you would comment on that,
please.
Mr. Scire. For a borrower in that kind of situation, the
servicer is required to first consider them for the HAMP
program. So a servicer should not be telling a borrower and
trying to move them into the proprietary without first full
consideration for the HAMP program.
I would also point out that the proprietary modifications
generally will have different terms, which I think the
Commissioner was hinting at, than the HAMP program.
So you are not going to get as generous a modification on
the proprietary program, generally.
Chairwoman Biggert. Okay.
Could you maybe--what are the characteristics of borrowers
who have redefaulted or were canceled? What did you see as far
as people who thought that they could do this and then couldn't
make the mortgage payments?
Mr. Scire. For those who redefaulted, just like those who
did not, they tended to have higher back-end DTI, for example.
They tended to have lower FICO scores.
So they generally were more risky borrowers, if you will,
those who got through HAMP and then redefaulted.
We did some other analysis where we are looking at what
became of them. And there we also see those who redefault more
often end up in foreclosure.
Chairwoman Biggert. Thank you. My time has expired.
I turn to the ranking member, Mr. Gutierrez--
Mr. Gutierrez. Thank you very much.
First of all, welcome to all of you. I want to express,
first of all, my apologies, because I really feel that this
room and this venue is really inadequate, especially for the
seriousness of the issue.
There are people outside who can't get in. I have had
difficulty listening to people as they have given testimony.
I hope that in the future we would use a venue that is
appropriate to the importance and the substance of the issue
that we are discussing here today.
And because I--just to be quick about something, I don't
think, really gives value to the importance of people losing
their homes and communities being destroyed and stripped apart
across America.
Now as one who voted for TARP reluctantly, for over $700
billion in order to save the financial markets of the United
States of America so that one day we could have some stability
in our economy again, and it just seems to me, Madam
Chairwoman, that in the last 2 years, the markets, the S&P is
up 50 percent.
Pretty good if you are in the market. Goldman Sachs and the
others are handing out bonuses once again to themselves. They
are doing well and prospering.
We see that the money that we invested in our financial
institutions that was largely due to their own greed, to their
own mistakes, that we, the American public and American
taxpayers put in to save them, they are doing well.
And what is the thank you we get? I think most of the
American people, Madam Chairwoman, are saying, once again, they
did well. And we get the short end of the stick because people
aren't getting back into their homes.
Now, I want to thank--I can't say your name, I am sorry.
Mr. Barofsky. ``Barofsky.''
Mr. Gutierrez. Mr. Barofsky--I apologize.
Mr. Barofsky. I think I mispronounced your name at the
beginning as well, so--
Mr. Gutierrez. But I want to thank you for your service. I
want to thank you for your testimony. You will be missed in
this process. And so I want to thank you for coming, and I just
want to kind of part from where you are at. I agree.
They need to set standards and that is our responsibility
and our obligation. I won't do that here in this--
I have other avenues and other opportunities in which to
seek redress on that issue, and I will do that, at that
appropriate--because I don't believe we should be discussing
eliminating this program.
I think we should be discussing how we improve this program
and how we expand the opportunity to Americans. And I say that
on the basis of, God, the other side did really well.
We came at a moment of crisis and we saved them from
themselves and their own mistakes.
And now those who are suffering the most, the homeowners,
given the collapse of this bubble of our real estate, we should
be there, 540,000 is not enough. We put $50 billion into this
program.
It was a key cornerstone to getting Democrats or people on
this side of the aisle to accept and to support a Republican
President and a Republican Secretary of the Treasury. That is
bipartisanship.
And what does a Democrat say and those who want it say?
We want some help for American men and women not to lose
their most precious asset, the thing in which they have most of
their equity and most of their savings and most of their
future, their homes.
And now we are talking about stopping that from happening?
I say shame on us if we give the Goldman Sachs of the world and
we give all the investment bankers on Wall Street--and they are
up 50 percent, ladies and gentlemen.
Some of them are up even more, billions of dollars in their
pockets. And we are going to strip the ability of American
homeowners to obtain and stay in their homes.
I don't think that is the America that I came to represent
in the Congress of the United States, and that is why I will
continue to oppose legislation that stops--
I say let's fix it, but let's not strip the program. It
still has valuable goals, and I think we can reengineer and we
can remodify the modifications so that people can stay in their
homes.
That is certainly something that I am going to continue to
attempt to champion here in the Congress of the United States.
And I thank the chairwoman for the--
Chairwoman Biggert. And I thank the ranking member. This
venue is very inadequate, as we see with everybody sitting here
and standing here.
Be that as it may, we are here. And I would recognize the
gentleman from Illinois, Mr. Dold, for 5 minutes.
Mr. Dold. Thank you, Madam Chairwoman.
I appreciate it and I want to thank you all for taking the
time to come. And I also want to apologize to those who are
here. It is a little warm as well. So we appreciate that.
But I am delighted to know that it is getting picked up and
hopefully many others will have the opportunity to see what we
are talking about here today, because it is very important.
A couple things that I wanted to go over--and, really, the
line of questioning I am going to focus on is going to be on
the refinance program.
I know that, Secretary Marquez, you had talked about
earlier, in your opening statement, that funds have been well-
managed. And certainly, I would like to go into a little bit
about the refinance, in terms of resources that have been spent
on it, versus the number of refinances that have actually
happened.
So would you say that, with regard to the FHA refinance
program, the funds have been well-managed?
Ms. Marquez. On that, I will have to defer to my colleague,
Dave Stevens, the FHA Commissioner.
Mr. Dold. Okay.
Ms. Marquez. I run the NSP program.
Mr. Dold. I understand, but I am just saying, if you--we
are talking about several programs. I will direct it over to
the Secretary in a second, but--so you are not really familiar
with that specific--
Ms. Marquez. That is not in my portfolio.
Mr. Dold. Okay. I will then go over to Secretary Stevens.
Can you tell me if you believe those funds have been well-
managed?
Mr. Stevens. Yes, no funds have been spent, Congressman.
The funds were there for covering potential losses in the event
of ultimate default, and no money has been spent out of those
monies at this point.
Mr. Dold. So is the information that I am receiving with
regard to--I have been told that we have, through TARP,
approximately $50 million that has been disbursed. Is that
incorrect, out of the 8-plus billion?
Mr. Stevens. That is incorrect. Not all of that was for the
FHA short refinance program. But just--if I could clarify
because I think--
Mr. Dold. Please.
Mr. Stevens. --it is an important question. The program,
FHA short refi is part of kind of a mosaic of offerings that
have been created by the Administration. And this was created
later in the process to deal primarily with negative equity.
If you think about HAMP, for example, HAMP was an early
creation to deal with borrowers who have been put into subprime
loans and alternative products that they never should have been
put in, in the first place, and that was meant to modify their
payments downward.
As the recession moved forward over the last couple of
years, those problems transgressed into areas that were
specifically related to negative equity and unemployment.
The short refi program, which was only actually implemented
in the late fall of last year, is still being operationalized
by a number of institutions to get it into the market. In fact,
this week alone it has been reported that Wells Fargo, GMAC/
Ally, Citi, and other major institutions have stated publicly
that they are just in the process of implementing pilots to
roll out the short refinance program.
The monies that were allocated were designed to protect the
fund going out past 2020, in the event of losses that might be
incurred from FHA short refis that would be originated to
protect the taxpayer--protect the fund itself from being at
risk.
So, at this point, no funds have been expended whatsoever.
Mr. Dold. If I can, do you have a response to that, in
terms of funds from TARP that have been allocated?
Mr. Barofsky. There has been a significant obligation
toward the short refi program, but because there have been only
a small handful of actual refinances, none of which have
defaulted yet, there has been no real expenditure of money. The
expenditure will occur if the program is successful.
And if there are refinances and then there are problems
with those refinances, that is when the TARP money kicks in,
either as the guarantee, on one end, for failures, where TARP
has the first loss position. And then secondly, there is an
additional $2.5 billion that is allocated to help extinguish or
modify second liens associated with this program. But to date,
nothing has really happened, from a TARP perspective, on the
short refi program.
Mr. Dold. How long has the program been operational?
Mr. Stevens. Again, Congressman, the program was--this was
a later addition to deal with the economy. It was fully rolled
out in November of last year.
Mr. Dold. And how many--
Mr. Stevens. And institutions were able to offer it from
that, from November. And just to be clear, each of these
institutions had to evaluate their portfolios. It was optional
for investors to decide whether to write down. They had to
create systems and we are just seeing those institutions begin
to operationalize this now as we speak.
Mr. Dold. I appreciate that. And one of the things that, at
least, that--$50 million that has at least been put into the
initial kitty. We have under 40 loans thus far, since September
2010, which may have been its inception, but maybe fully rolled
out in November.
Still, we have seen 39. We have $50 million allocated if it
goes well. And we have, I think--correct me if I am wrong--a
little bit over $8 billion is what is totally allocated in
there?
Mr. Barofsky. Well, yes. For this particular program, it is
really almost a total of $10 billion of TARP funds that are
allocated. The additional funds that you are referring to from
that are dedicated to other TARP modification programs like the
HAMP program.
Mr. Dold. And since my time is really running out, just one
last question. So homeowners can't participate unless the
senior lender will reduce their principal by at least 10
percent?
Mr. Barofsky. That is correct.
Mr. Dold. Is that correct? So principal lenders on
performing loans will have to agree to reduce the principal by
10 percent in the private sector?
Mr. Barofsky. Absolutely, yes.
Mr. Dold. Do you anticipate that there are going to be many
who are going to flee to this program, that this was going to
be a good idea?
Mr. Stevens. We were always very clear from the beginning
to understate the numbers. And while it started off slow, I
will tell you that, in the first few months, we have 245
applications in process. It exceeds what HOPE for Homeowners
did in 3 years.
By no means are we touting success, but these are complex
programs to implement. If you read any of the news this week,
three major national institutions announced that they are going
to be doing pilots with the short refinance program.
I do not expect large numbers. And I think that is an
absolute concern. Because it is voluntary on the part of these
servicers to participate, with the investors that hold those
mortgages.
Mr. Dold. My time has expired. I would like, out of the 240
that you have in process, how many do you anticipate will
actually make it through?
Mr. Stevens. Two hundred and forty loans is a very low
number.
Mr. Dold. I understand.
Mr. Stevens. And I can't estimate exactly what would go
through. I will tell you this, that of the loans that have been
financed already, the average write-down was $77,000. The
average loan-to-value is 90 percent. And the average FICO score
is 711.
So these are--I actually anticipate, if the sample were to
keep like that, and as institutions implement the program, it
will be seeing significant write-downs. And these loans will be
very sustainable, exceeding what we expected from a risk
factor, which would mean that the TARP allocation would be
underutilized in that process.
But it is very early in the stage to be evaluating the
program, since it was just literally implemented over the past
few months.
Mr. Dold. Thank you.
Chairwoman Biggert. The gentleman's time has expired. The
gentleman from North Carolina, Mr. McHenry, is recognized.
Mr. McHenry. I thank the Chair. And thank you for your
leadership on this.
And I am glad everyone is able to get into this little
table together and share this space. But to you, Commissioner
Stevens, thank you for coming back.
I wish that Treasury was here with you. However, we were
informed by Treasury that they would prefer a 2-week
notification. And so I am sorry this burden falls to you, and I
would hope that you would encourage Mr. Massad to come forward,
rather than let you answer these questions that are very
pressing.
Under the HAMP program, under the status quo, how many
permanent modifications do you foresee actually happening?
Mr. Stevens. Congressman, I do apologize that I am not the
HAMP expert here at the table. And I encourage you to
communicate with that office. I think--let me give you some
estimates that I have heard, and I would be glad to share those
with you. So we have 540,000 permanent modifications now. We
have 150,000 families who are in trial modifications. And we
just announced, I think, another 27,000 new permanent
modifications.
The numbers are definitely smaller than what was originally
expected from the HAMP--
Mr. McHenry. Do you have an estimate?
Mr. Stevens. The current expected population that, on a pro
forma basis, looking forward at this point, looks to be about
1.4 million to 1.5 million families--
Mr. McHenry. On the HAMP Web site, it still says 3 million
to 4 million.
Mr. Stevens. And again, I can't answer for the HAMP Web
site. I--
[laughter]
I apologize. That is managed by a different department,
and--
Mr. McHenry. Sure, okay. But in your discussions in the
Administration, you think 1.4 is--okay.
Now, how many permanent modifications do you foresee?
Mr. Stevens. Okay, so the 3 million to 4 million on the Web
site, if I could just clarify, is an estimate of all
modifications that will occur. That includes the HAMP
modifications, FHA's modifications, and the HOPE for Homeowners
modifications.
Mr. McHenry. Wow. This is very different than what was said
in March of 2009 when this program began.
Mr. Barofsky, is the 3 million to 4 million under the HAMP
program--was that the original goal set forward, if you recall?
Mr. Barofsky. Three million to four million was what was
originally intended and announced as the number of sustained
permanent mortgage modifications that would come under that
program, that would be funded by HAMP, provided by HAMP. And
even Secretary Geithner now acknowledges that we are going to
come absolutely nowhere close to that number.
Mr. McHenry. Okay. Do you foresee seeing a sustainable
modification, basically what is also termed a permanent
modification?
Mr. Barofsky. It is somewhat shameful that at this point,
here we are in March 2011 and the Treasury Department will, in
one breath, say that we know the number is not going to be
anywhere close to what we originally said it would be, and then
in the second breath, refuse--this is such a basic failure in
transparency, to refuse to tell SIGTARP, to tell GAO, to tell
the Congressional Oversight Panel, to tell you what their
expectation is as to the total numbers that are going to
receive permanent modification.
All we have is an estimate, the best estimate from the
Congressional Oversight Panel, of $700,000 to $800,000, and
Treasury, in its admission to Congress, saying, maybe that
number is right or maybe it is going to be double that number.
And that is the exact opposite of transparency. It evades
accountability. And it is trying to cover up a program that is
clearly a failure.
Mr. McHenry. Failure?
Mr. Barofsky. Failure.
Mr. McHenry. Mr. Stevens, do you contend that is accurate
or inaccurate?
Mr. Stevens. Again, I am just going to--Congressman, I
think it is an important question. I understand the debate.
Without question, the HAMP numbers have not been what was
originally forecast. Again, it is not--I am a member of the
Housing and Urban Development. We are clearly very concerned
about all the programs that are trying to be implemented.
I would say this, and I think it is important. I have been
in this housing finance industry for 3 decades. We have never
been through an environment like this in history. These
programs were developed and created--
Mr. McHenry. Sure, but--
Mr. Stevens. --in an environment that had never been
created before.
Mr. McHenry. --we are 2 years in on this, and I realize--
Mr. Stevens. So we are 2 years in, but I would just say,
Congressman, that--and I refer back to testimony stated by
Barbara Desoer of Bank of America, Mike Heid of Wells Fargo,
the two--the presidents of each of those respective mortgage
institutions. They would have no modification in their
testimony that this program was the blueprint for it.
So while the numbers--
Mr. McHenry. So the blueprint for it--have they done more
or less, in terms of permanent modifications, than HAMP?
Mr. Stevens. They--
Mr. McHenry. More or less?
Mr. Stevens. They have done more.
Mr. McHenry. More? So at lower--
Mr. Stevens. But at lower payments and higher redefault
rates?
Mr. McHenry. Right. But they have helped more people.
Mr. Stevens. Lower payment reduction, excuse me.
Mr. McHenry. They have helped more people? Is that what you
are testifying to?
Mr. Stevens. I hope they--
Mr. McHenry. Because that is the number that I have, as
well.
Mr. Stevens. I would be hopeful that they helped vastly
more people considering it is the servicers and originators in
this country that originated the products that ultimately went
in default. And if they can do it without taxpayer support,
that would be all the better.
Mr. McHenry. What we get down to is this is about people
and the harm that HAMP is giving--the harm that HAMP is doing
to people. And it is their government with their tax dollars
doing active harm, based on the analysis we have had, by
stringing people out, putting them more upside down in their
payment, taking every bit of savings that they can get out of
these people, and still taking their homes.
Chairwoman Biggert. The gentleman's time has expired.
The gentleman from California, Mr. Miller. Oh, I am sorry,
I am so sorry, the gentlelady from California.
Ms. Waters. Oh, thank you very much, Madam Chairwoman. And
I am sorry I was a little bit late coming in.
But let me just say from the onset that I have had a hand
in helping to develop some of the programs that are being
questioned here and are set for ending. I don't want to talk a
lot about the HAMP program because I think we all agree that
there were weaknesses in the HAMP program, that there are ways
by which it could have been strengthened, and it did not do
everything that it should do.
But I am not willing to talk about eliminating the
opportunity for some people to get a loan modification by not
replacing HAMP with something. And for those people who are
talking about getting rid of all these programs and they come
with no programs or proposals to help working people, to help
Americans who are in trouble, to help many Americans who are in
trouble having defaulted or in foreclosure or threatened to be
in foreclosure, not because they are bad citizens.
And I will say it over and over again, millions of
Americans didn't all of a sudden become bad citizens not paying
their debts. Something went wrong.
And we know what went wrong. What went wrong was there were
exotic products that were placed on the market, that were not
regulated. There were products that were placed on the market
such as no-doc loans, and these loans that are resetting, loans
that--teaser loans that got people in for a little amount of
money. So we owe it to the people to try and be of assistance
because we didn't do what we should have done in order to do
the kind of regulation that will protect them from all of these
fraudulent practices that were out there.
Having said that, let us take a look at the NSP program.
Now, to get rid of NSP is going backwards. NSP is the
Neighborhood Stabilization Program that goes into these
communities where you have all of these boarded-up properties
that have been foreclosed on, driving down the value of homes
that are being kept up in the neighborhood, increasing the cost
to the cities for fire, fire departments and police
departments, who now have to take care of the crime that is
going on in these vacant properties, weeds growing up.
And not only is it a good program, to help stabilize the
neighborhoods, and to make sure that we retain the value, it is
a program that creates jobs. It is jobs intensive.
In order to rehab these houses and to put them back on the
markets, we employ a lot of people. We employ the contractors.
We get the Realtors involved. We get the title people involved.
We get subcontractors involved. It goes on and on and on. It is
job producing.
When there are estimates that talk about some of these cuts
and how they are going to cause the loss of jobs, it is true.
You can absolutely see it in something like NSP.
Many of the people who are talking about getting rid of NSP
don't even know what NSP is. They are simply talking about
slash and burn.
And so I helped to create NSP. I believe in it. Communities
want it. It is being implemented well. The HUD took a look from
the very beginning at how it is being implemented and moved
quickly to strengthen it.
And now, cities and towns love it. They are doing a good
job with it.
And I don't have any questions. I just have a lot to say.
Not only is this program good for the city, some people
think, oh, this is just--this is for rural areas, this is for
suburban areas, this is for everybody. So I don't want anybody
to be mistaken to think, oh, this is just something for some of
those cities that got in trouble. No, this is a good American
program. It should not be cut.
And I don't know what else you can say to help educate all
of the Members of Congress about the value of NSP, but ask them
to go back to their cities and talk with their mayors and talk
with people about NSP that they want to cut and see what kind
of response they get.
With that, I yield back the balance of my time.
Chairwoman Biggert. The gentlelady yields back.
Mr. Gutierrez. Madam Chairwoman, may I ask unanimous
consent that Congressman Green, a member of the full
committee--when everyone on the subcommittee has been given an
opportunity, be allowed to ask questions?
Chairwoman Biggert. Without objection, it is so ordered.
Mr. Gutierrez. And I ask unanimous consent that we insert a
letter to both you, Madam Chairwoman, and me about the
Neighborhood Stabilization Program from the National
Association of Counties, National League of Cities, and U.S.
Conference of Mayors in the record.
Chairwoman Biggert. Without objection, it is so ordered.
Mr. Gutierrez. Thank you, Madam Chairwoman.
Chairwoman Biggert. The gentleman from California, Mr.
Miller.
Mr. Miller of California. I have enjoyed a lot of the
comments. I will go back in history to say Ms. Waters remembers
me introducing language on predatory lending versus subprime
probably 6 times. We got it to the Senate, and Senate Democrats
filibustered it every time. We started in 2002. Had we done
that, perhaps Countrywide and others would not have done what
they did and ruined the marketplace.
Also, there were comments on the monies lent to banks in
TARP I that was under a House and Senate controlled by
Democrats. It was a bipartisan bill. The money lent to the
banks was repaid. That also should be stated.
The problem I have today is Freddie and Fannie are in
serious trouble and this Administration is charging them 10
percent interest for funds to keep them going. That is
abhorrent. Ten percent interest.
So if we want to put the facts on the table here, let's put
all the facts on the table.
My good friend Maxine talked about the Neighborhood
Stabilization Program. The problem I have with it is the
equitable allocation I think is absolutely questionable: Los
Angeles County in NSP 1, 2, and 3 got $26.5 million; San
Bernardino County got $33.2 million; and Orange County got $4.3
million.
Neighborhood Lending Partners, Inc., got $50 million. I
don't know who they are. The Community Builders, Inc., got
$78.6 million. Chicanos por la Causa, Inc., got $137 million,
$137 million. I don't know who they are.
The Inspector General of HUD already identified numerous
misuses of NSP money at the State level and the Government
Accountability Office has questioned the information system in
place that HUD used to track the money. There is very little
hard evidence on whether the funds are being used by the
recipients in a cost-efficient manner.
I guess the question I have is, the new proposed budget
deficit is $1.6 trillion. This program is allocated for $7
billion. Is there any mechanism that requires repayment of
these funds to the Federal Government? Can anybody answer that?
Ms. Marquez. These are grant funds.
Mr. Miller of California. They are grant funds to be repaid
to the groups who buy the houses, rehab the houses, and sell
the houses. So what we are saying is, we are giving $7 billion
of taxpayers' money to groups and organizations out here and to
cities and none of it comes back to the Federal Government?
Ms. Marquez. The money is going to homeowners and to
American citizens.
Mr. Miller of California. There is a repayment of the funds
to the group. So you are telling me if a group buys a
foreclosed home and they rehab the home, they just give the
house away?
Ms. Marquez. I would be happy to discuss it.
Mr. Miller of California. Yes.
Ms. Marquez. The NSP program is in three phases. The
formulas you speak about, formula program in NSP1 and in NSP3,
as--spoke about, are done by formula. It takes into account--
Mr. Miller of California. That is not the question. I have
talked about that. Where does the money go when it is repaid?
Is this just a gift?
Ms. Marquez. When the money is repaid, it is calculated the
way other community development programs are done. In fact, it
mirrors the CDBG program, which uses it as program income. So,
for instance--
Mr. Miller of California. But wait a minute. We don't give
CDBG program money to--we didn't give $50 million to
Neighborhood Lending Partners, we did not give $78 million to
Community Builders, we did not give $137 million Chicanos por
la Causa, Inc.
Ms. Marquez. In fact, sir, I guess I would say that we
allocate money through communities, like NSP does with CDBG.
CDBG does the same thing, we allocate to the grantees and the
grantees have the discretion and the flexibility to then grant
funds or lend funds to various sub-recipients.
It is probably true that if I were to check the records, I
am pretty sure the Community Builders actually does receive
money from CDBG from various States. And in fact, Chicanos por
la Causa or these different groups run them through NSP2 and
they are national groups. So they are doing work in multiple
States.
So what they are doing is all throughout the country.
Chicanos por la Causa--
Mr. Miller of California. But there is a big difference
between taking and making sure boarded-up houses are off the
marketplace, rehabbed and sold, putting new people in there,
then just giving $7 billion worth of government funds away.
And that is what we are doing, we are giving $7 billion
worth of taxpayer dollars away to groups and organizations and
there is no requirement for repayment. But in the bill, there
is an opportunity for them to buy the property and sell the
property. And the money goes back to them. It goes back to
them. Mr. Stevens, do you have anything to add to that?
Mr. Stevens. Congressman, I--under my authority, it is
Assistant Secretary Marquez.
Mr. Miller of California. I think it is a huge, enormous
waste of taxpayer dollars to put $7 billion out there, giving
some--they can say nonprofits, whatever you want to call it,
the opportunity to receive the funds. I don't think there is
adequate oversight over those funds, and if they sell the
property to take the funds back and keep those funds.
A program like this should have been used for the purpose
of making sure that foreclosed properties were taken off the
market, if that was the intent, rehab them, sell them, then the
money comes back to the Federal Government. But this government
has to stop giving the taxpayers' monies away like we are
today. We don't have $7 billion to keep throwing out there
today. We just don't have it.
And if we are going to do something like this, it should be
done in the form of a loan basis, not a grant, and especially
when I don't think the grant was equitably distributed to the
different groups out there.
I yield back.
Chairwoman Biggert. The gentleman yields back.
The gentleman from Virginia, Mr. Hurt, is recognized.
Mr. Hurt. Thank you, Madam Chairwoman.
Welcome, to all of the witnesses.
Mr. Barofsky, are you familiar with an article that was
written in The Washington Times this morning that talked about
a survey that was conducted by a group called ProPublica?
Mr. Barofsky. I haven't read The Washington Times article.
I am familiar with ProPublica's survey they did of HAMP
recipients. Is that--
Mr. Hurt. That is the one--that is the subject that I am
talking about.
Mr. Barofsky. Oh, no, absolutely. We actually cited to it
in our--one of our most recent quarterly reports.
Mr. Hurt. Okay. And what was remarkable to me was their
projection that during the progress of the HAMP program, that
recipients were told to fall behind in order to qualify for the
HAMP help.
Based on their calculations, they figured that 500,000 of
those who received the HAMP program assistance actually were
told that.
I wondered if you would comment on that and surmise as to
whether or not you think that estimate is correct.
Mr. Barofsky. I can't speak on whether that estimate is
correct or not. But it doesn't surprise me.
This has been one of the inherent problems of this program,
is that the mortgage servicers entrusted with this program have
done an abysmal job. There is universal agreement on this.
But Treasury has done nothing to punish or penalize these
servicers.
So what you have is a program where these servicers
routinely violate the rules, routinely violate the guidelines
that--they are not supposed to ever tell a homeowner, oh, by
the way, you should stop making payments. That is a direct
violation of the rules.
But we hear anecdotally time after time that this has
happened.
So what is the Treasury Department's role in this? They are
enabling this behavior by not imposing financial penalties, by
not trying to call back funds, by not denying servicer
payments. But they do nothing--one of the reasons why I think--
Mr. Hurt. You could argue that the person they are trying
to help is the one who gets hurt the most because you could
argue that certainly some of these folks might not have gotten
into the modification program if they had not been told to miss
a payment so they could qualify for assistance.
Mr. Barofsky. Which is, again, why, when Treasury cites as
a success of this program the 1.4 or 1.5, now, million
homeowners who have received trial, temporary modifications,
and say that they have all received a benefit, why, that just
is so dead wrong, because there are so many who have suffered
as a result of this program and had the rug pulled out from
under them.
Mr. Hurt. Are there other examples of underhanded or wrong
encouragement that was given by servicers, other than the--that
the proposal that you fail to pay your mortgage so that you can
qualify for the program?
Mr. Barofsky. We have heard and we have reported on, from
our hotline, all sorts of different behavior. Losing
documentation is one of the most common errors.
Whether intentional or not, we have had homeowners who can
document that their paperwork has been lost, 1, 2, 3, 4, 5
times. And then they are pulled out of the program. They are
kicked out of the program, even though they have made every
payment on time.
They are hit, as the Chair said, they are hit not just with
a bill for all of the difference between their trial payments
and the amount original done, but late fees. Homeowners are
being hit with late fees.
And Treasury permits this in their program, late fees, when
they have never actually missed a payment. And all that--
Mr. Hurt. But they are paying the reduced--paying the trial
modification amount?
Mr. Barofsky. But so they--right, right. So they make all
those payments, but not only do they get hit with the
difference but with the late fees.
Mr. Hurt. Right.
Mr. Barofsky. Which Treasury allows. And then the servicer
tacks all of that onto the mortgage balance. And they get that
money first when there is a foreclosure.
Or if it goes into one of these proprietary modifications,
they are vastly inferior.
And I find it puzzling that Treasury continues to cite this
as the success of the HAMP program when they cite these
proprietary modifications so adoringly when they would never
qualify.
They would be rejected--
Mr. Hurt. My time is about to expire. But I would love it
if either Ms. Marquez or Mr. Stevens would like to comment on
what he has stated, in terms of the--what I would say
fraudulent behavior.
Is there anything you want to add to that for those
estimates?
Mr. Stevens. Again, I would encourage you to work with the
Department of the Treasury that manages the HAMP program. I am
not well-versed enough in the details of those comments.
Mr. Scire. If I could add, we reported last year about
concerns on equitable treatment of borrowers. And a borrower
need not be delinquent to be considered for a HAMP
modification.
They could be current, but as a servicer must then consider
whether or not the borrower is in imminent danger of default,
we recommended that Treasury establish criteria for making that
determination.
And Treasury has not done so. We found, of the 10 servicers
we visited, they had 7 different definitions for determining
whether a borrower who was current should be considered for
HAMP.
Mr. Hurt. I thank the witnesses.
Chairwoman Biggert. The gentleman yields back.
The gentleman from Texas, Mr. Green.
Mr. Green. Thank you, Madam Chairwoman.
I thank the witnesses as well.
I suppose I am the only person in the room who is not
surprised that we have a program that is not perfect. Imperfect
program. The question really is, who do you punish if the
program isn't perfect?
Do you punish the people who can benefit from the program
by eliminating it? Or do you try to find a means by which the
imperfect can be perfected? Who do you punish?
Mr. Barofsky, you don't advocate punishing the homebuyers,
do you?
Mr. Barofsky. We have advocated tirelessly that Treasury
should fix the program.
Mr. Green. Fix the program. Thank you, sir. Please, I don't
mean to be rude, crude, and unrefined, but I have much to say
and little time to say it.
Fix the program. Does any one among you advocate punishing
the homeowners by ending the program? Let the record reflect
that not one person advocates ending the program and punishing
the homeowners.
Ms. Jones. I do have to say that CRS doesn't advocate any
position--
Mr. Green. Thank you, but for your edification, there are
persons who will distort what has been said here today, but for
what I am doing right now, I have to do my job. And my job is
to make sure that those who want to be set free by knowing the
truth will be free. If you know it, it will free you. And I
want to free some souls.
The people who are damaged, who are to be helped by these
programs, many of whom were pushed into subprime loans, who
qualified for prime loans by the yield spread premium--for
those who don't know, the yield spread premium said simply, you
qualify a person for a 5 percent loan and if you can get them
to take out an 8 percent loan, you will get a lawful kickback.
That was what took place at the time many of these loans
were being made. And many people were pushed into subprime
loans who qualified for prime loans, 3/27, 2/28, bearable
rates.
Qualified for the bearable rate but didn't qualify for the
adjusted rate. Teaser rates that coincided with prepayment
penalties. If you try to get out of the loan, you have to pay
this huge penalty that they could not afford.
So let's not kid ourselves.
We have a lot of people who were victims of a system that
allowed these kinds of dastardly products to not only manifest
themselves but to become a part of the broader market and be
sold and securitized, credit default swaps, the list can go on
and on of the things that were occurring at the time.
So we have to ask ourselves the question, who do we punish?
Do we punish the people who can benefit from the programs by
terminating them? Or do we do what we do when we have a problem
with a military program, we fix it.
We fix the problem. When we sell $200 toilet seats, we fix
it. When we sell $100 hammers, we fix it. Why not fix this?
When we have a problem in a police department, we don't say
we are going to end the police department. We fix the problem
and continue to have the police on the beat.
Who do we punish? Do we punish the people who can benefit
by terminating the program? Name me one perfect bill that has
ever been passed in Congress, other than the ones that I--of
course.
The point is, my dear friends, let's assume for the record
that all that you have said is true. You don't set the policy.
That is our job. Does everybody agree with that?
If there is a person among you who thinks that you set
policy, raise your hand so that you can be properly terminated.
All right. You don't set policy.
We set policy. And in setting policy, we have to make tough
decisions. The easy decision is to eliminate something that we
don't like. The tough decision is to work together,
bipartisanship, come up with a means by which that which is
unacceptable can work for the American people. This is what the
American people expect of us.
We have helped Wall Street. We have helped Main Street. Now
it is time for us to help Home Street. These are dollars for
homeowners. Let's help Home Street.
And my final question is this, my time has ended, but maybe
I can get a quick answer.
Have any of you done any studies on the impact of this
nationally, ending all of these programs at the same time, at
the time of the crisis we are going through? Anybody? Anybody?
Ms. Marquez. Not of all of them.
Mr. Green. Okay. All right. Thank you very much. I yield
back the balance of my time that I do not have.
Chairwoman Biggert. Thank you very much.
I would like to ask unanimous consent to insert in the
record written testimony of the American Alliance of Home
Modification Professionals.
We have just been called for another vote--timing is
perfect, I guess, here.
Let me note that some members may have--
Mr. Gutierrez. --if you have time, I would like to
continue. I think it is important. And we are not coming back.
Chairwoman Biggert. Yes. We missed the last vote--we were
able to get in--so I would prefer to adjourn. I would just note
that members may have additional questions for these witnesses
which they may wish to submit in writing. Without objection,
the hearing record will remain open for 30 days for members to
submit written questions to the witnesses and to place their
responses in the record.
[Whereupon, at 3:47 p.m., the hearing was adjourned.]
A P P E N D I X
March 2, 2011
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