[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]







                         THE FORECLOSURE CRISIS

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

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 8, 2011

                               __________

                           Serial No. 112-44

                               __________

Printed for the use of the Committee on Oversight and Government Reform











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                      http://www.house.gov/reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director










                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 8, 2011....................................     1
Statement of:
    Kaufman, Mark A., commissioner of financial regulation, 
      Maryland Department of Labor, Licensing and Regulation; 
      Kevin Jerron Matthews, homeowner; and Jane Wilson, Chair of 
      the Board, St. Ambrose Housing Aid Center..................    44
        Kaufman, Mark A..........................................    44
        Matthews, Kevin Jerron...................................    58
        Wilson, Jane.............................................    67
    O'Malley, Martin, Governor of Maryland; and Stephanie 
      Rawlings-Blake, mayor of Baltimore.........................    17
        O'Malley, Martin.........................................    17
        Rawlings-Blake, Stephanie................................    27
Letters, statements, etc., submitted for the record by:
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland:
        Article entitled, ``The Impact of Foreclosure Waves on 
          the City of Baltimore''................................     3
        Prepared statement of Mr. Bernard C. ``Jack'' Young, 
          president, Baltimore City Council......................    86
        Prepared statement of the National Community Reinvestment 
          Coalition..............................................    91
    Kaufman, Mark A., commissioner of financial regulation, 
      Maryland Department of Labor, Licensing and Regulation, 
      prepared statement of......................................    47
    Matthews, Kevin Jerron, homeowner, prepared statement of.....    61
    O'Malley, Martin, Governor of Maryland, prepared statement of    20
    Rawlings-Blake, Stephanie, mayor of Baltimore, prepared 
      statement of...............................................    29
    Wilson, Jane, Chair of the Board, St. Ambrose Housing Aid 
      Center, prepared statement of..............................    69

 
                         THE FORECLOSURE CRISIS

                              ----------                              


                         TUESDAY, MARCH 8, 2011

                          House of Representatives,
              Committee on Oversight and Government Reform,
                                                     Baltimore, MD.
    The committee met, pursuant to notice, at 9 a.m. at the 
Nathan Patz Law Center at the University of Maryland, 500 West 
Baltimore Street, Baltimore, MD, Hon. Darrell E. Issa (chairman 
of the committee) presiding.
    Present: Representatives Issa, Walberg, Amash, Cummings, 
Tierney and Welch.
    Staff present: Ali Ahmad, deputy press secretary; Molly 
Boyl, parliamentarian; Katelyn E. Christ, research analyst; 
John Cuaderes, deputy staff director; Linda Good, chief clerk; 
Christopher Hixon, deputy chief counsel, oversight; Hudson T. 
Hollister, counsel; Justin LoFranco, press assistant; Lisa 
Cody, minority investigator; Carla Hultberg, minority chief 
clerk; Lucinda Lessley, minority policy director; and Davida 
Walsh, minority counsel.
    Chairman Issa. This hearing for the Committee on Oversight 
and Government Reform will come to order.
    Today's hearing concerns the ongoing foreclosure crisis 
that has left tens of millions of American homeowners without 
an important piece of the American dream.
    Today's hearing is but another hearing in a continuation 
that this committee has looked into since 2007. Long before the 
economic meltdown, Americans were finding the American dream 
escaping them. Back in 2007, this committee went to Cleveland, 
Ohio where for a number of years home prices had stopped going 
up and were beginning to go down at a frightening rate. As a 
result, homeowners who had purchases with little or no money 
down and/or been laid off found themselves losing their home. 
As a result, communities were beginning to be boarded up. As 
communities were boarded up, the cycle began to escalate with 
home values going down.
    All of this began without an economic world meltdown, but 
it foretold many things that we now see here today. The fact is 
the American home mortgage was designed based on an assumption 
that homes would never go down in value. All of us know better 
today that you can't have a national deflation among homes that 
ultimately if you lose your job, you will not be able to keep a 
home that was highly leveraged.
    So as we hear from witnesses, beginning with the State's 
Governor, we want this committee to realize that the Government 
plays a part in it but there are other factors that always will 
supersede even Government's best intentions.
    This committee has begun and continues to look at HAMP's 
success or failure and the various Government agencies, 
including Freddie and Fannie, that failed to secure the dollars 
that they were supposed to in order to be prepared for down 
times.
    This committee came to Baltimore today at the request of 
the ranking member. He has worked diligently on the issue of 
home foreclosures and continues to be a voice on the committee 
for further investigation.
    With that, I recognize the ranking member for his opening 
statement.
    Mr. Cummings. Thank you very much, Mr. Chairman. Thank you 
very much.
    Chairman Issa, I want to thank you for convening today's 
hearing, and I welcome you and the other members of the 
committee to my hometown of Baltimore. And I want to welcome 
Governor O'Malley and Mayor Rawlings-Blake when she arrives.
    And I want to thank you, Mr. Governor, for your leadership 
and you, Mr. Issa, for yours.
    Thanks also to the University of Maryland School of Law, my 
alma mater, for hosting us all here today and to Associate Dean 
LaMaster and Ed Fischel and certainly to Dean Phoebe Haddon.
    Mr. Chairman, we are in the grips of a nationwide 
foreclosure crises. In 2009, there were about 2.8 million 
foreclosures across the country. Last year there were 2.9 
million. And this year there may be more than 3 million.
    This week researchers at Johns Hopkins University here in 
Baltimore prepared a report for the committee called ``The 
Impact of Foreclosure Waves On the city of Baltimore.'' I ask 
that this report be made a part of the official hearing report.
    Chairman Issa. Without objection, so ordered.
    [The article entitled, ``The Impact of Foreclosure Waves on 
the City of Baltimore,'' follows:]





    Mr. Cummings. The report finds that between 2008 and 2010 
there were more than 11,000 foreclosures in the city of 
Baltimore alone, and cost families more than $1.5 billion.
    The foreclosure crisis is a wrecking ball smashing through 
communities across the Nation, and Baltimore is one example of 
that destruction.
    This crisis not only threatens our Nation's economic 
recovery, making it harder to reduce unemployment and spur 
economic growth, it also drains State and local budgets that 
rely on property tax revenues for schools, police and emergency 
services. It destroys neighborhoods and devastates families. 
And it harms individuals. It is a national crisis with very 
local consequences.
    What is so frustrating is that this crisis is being 
aggravated by actions of the mortgage servicing companies that 
conduct foreclosures. There are no national standards for these 
companies and they have engaged in systematic abuses across the 
country.
    In our committee's first hearing this year the Inspector 
General for TARP testified that the performance of mortgage 
servicing companies has been, ``abysmal.'' He also said this, 
``From the repeated loss of borrower paperwork, to blatant 
failure to follow program standards, to unnecessary delays that 
severely harmed borrowers while benefiting servers themselves, 
stories of servicer negligence and misconduct are legend.''
    These companies have signed false affidavits by the tens of 
thousands, inflated fees, performed illegal actions against 
military service members and veterans and aggressively pursued 
foreclosures when modifications made more sense and were 
already underway. This system does not work for homeowners, and 
it does not work for State and local governments. It does not 
even work for mortgage investors who want to salvage their 
investments through loan modifications rather than 
foreclosures.
    The Association of Mortgage Investors, which represents 
private investors, pension funds, universities and endowments 
reports that investors have suffered material losses as a 
result of faulty and inefficient and at times improper 
servicing of mortgage loans. It seems that the only ones who 
support this flawed system are the ones with their hands on the 
lever of the wrecking ball--the mortgage servicing companies. 
They are swinging it more recklessly each year, and we cannot 
stem this damage unless we hold them accountable.
    Mr. Chairman, our committee is taking a great first step 
today by hearing about the State and local impact of 
foreclosure crisis. When we return to Washington, I hope we 
will be able to hear directly from the mortgage servicing 
companies themselves.
    I want to thank you and, again, I want to welcome the 
mayor, and it is good to have you here, Madam Mayor.
    With that, I yield back.
    Chairman Issa. I thank the gentleman.
    All members will have 5 legislative days in which to 
include opening statements and any other remarks.
    Do either of you want to make an abbreviated opening 
statement?
    Mr. Amash. No. Thank you.
    Chairman Issa. Okay. Thank you.
    With that, as is the policy of the committee, we will begin 
reading the mission statement. I know every city and State have 
their mission statements, here's ours:
    ``The Oversight Committee, we exist to secure two 
fundamental principles:
    First, Americans have the right to know that the money 
Washington takes from them is well spent. And, second, 
Americans deserve an efficient, effective government that works 
for them. Our duty on the Oversight And Government Reform 
Committee is to protect these rights. Our solemn responsibility 
is to hold government accountable to taxpayers because 
taxpayers have a right to know what they get from their 
government.
    We will work tirelessly in partnership with citizen 
watchdogs to deliver the facts to the American people and bring 
genuine reform to the Federal bureaucracy.''
    This is the mission of the Oversight and Government Reform 
Committee.
    And with that, we go to our first two witnesses.
    Governor O'Malley. I am sure that we could all do a lot of 
introductions, but quite frankly I think you are better known 
than we are here.
    And Mayor Rawlings-Blake.
    It is the rule of the committee that all witness be sworn 
in. Would you please rise to take the oath?
    [Witnesses sworn.]
    Chairman Issa. Let the record reflect both answered in the 
affirmative.
    It is also tradition on Capitol Hill that witnesses speak 
for 5 minutes and then be endlessly asked questions from the 
dais. We will change that considering your input. We would ask 
you remember that your official opening statements are in the 
record, however, we recognize you for such time as you may 
consume, Governor.

   STATEMENTS OF MARTIN O'MALLEY, GOVERNOR OF MARYLAND; AND 
          STEPHANIE RAWLINGS-BLAKE, MAYOR OF BALTIMORE

                  STATEMENT OF MARTIN O'MALLEY

    Governor O'Malley. Mr. Chairman, Chairman Issa, thank you 
very, very much, and Ranking Member Cummings and all of the 
members of the committee.
    Well, I should leave that to the mayor, right, to say 
welcome to Baltimore. I can say welcome to Maryland, the rich 
and the land of the free, home of the brave.
    It is a honor to be with you and to be able to address on 
this important, important issue along with Mayor Stephanie 
Rawlings-Blake.
    As we make this turn out of the recession and into a new 
economy, I firmly believe, as you do, that the building block 
for our stronger growing middle class is a family's home. It is 
the building block. And there is no more powerful place in our 
State than a family's home. And the loss of even one home 
impacts not just entire families, but entire neighborhoods, 
entire communities, entire cities, entire counties. Home 
ownership is critically important to our ability to make it in 
America.
    And while we are by no means out of this crisis, we still 
have a lot of people looking for jobs, we do believe that we 
have been able to do some things that have helped to protect 
family homes, protect home ownership and allow many of our moms 
and dads to be able to get to the other side of this recession.
    Our foreclosure rate is now significantly lower than the 
national rate. Last month RealtyTrac reported that we have 
driven foreclosures down 70 percent compared to a year ago. It 
is the sharpest decline that any State in the country has been 
able to achieve over the course of this last year. And yet too 
many of our fellow citizens continue to lose their homes. And 
as mortgage companies and the post-robo signing moratoriums, we 
are very cognizant of the fact that those foreclosures once 
again will start to go up.
    With reforms we passed last year mortgage giants in America 
are now required to meet with homeowners at the negotiating 
table before they can throw them out on the street. They must 
prove that they've made a full review of mitigation options. 
This was legislation that we enacted, as I say, just last year. 
Prior to that, when this crisis hit, we enacted other 
legislation. In fact, at the time, the Washington Post 
characterized it as one of the most sweeping legislative 
packages in America to slow down the fast track to foreclosure. 
It might have been sweeping, but it was not as effective as we 
would have liked. So that is why we had to go back again and 
give every homeowner the right to a mandatory mediation before 
they can be thrown out of their home.
    We have now reached agreements with multiple mortgage 
services to create a streamlined and transparent loss 
mitigation process. We've assembled a pro bono network of a 
thousand attorneys called forth by the Chief Judge of our Court 
of Appeals, Judge Robert Bell. And we've teamed with nonprofit 
housing counselors to assist more than 54,000 Marylanders.
    When the robo-signing incident came to light, we partnered 
with Congressman Cummings and our Attorney General for our 
State to demand that servicers halt foreclosure proceedings 
until they reworked their practices. And we partnered with our 
court system which adopted emergency rules to protect 
homeowners. We are part of that multi-State effort that, I 
believe, was joined by all 50 Attorneys General. I hope I put 
the right plural in the right place there.
    Many servicers still do not have the basic systems in place 
to keep track of paperwork to provide timely responses to loan 
modification applications. Maryland's housing counselors tell 
us that obtaining even a trial loan modification typically 
takes 6 months.
    We have taken action at the State level to protect 
homeowners and hold the national mortgage giants accountable. 
But we cannot go it alone and we need your help. And to that 
end I ask that you number one, hold mortgage giants 
accountable. We favor the creation of clear and specific 
national servicing standards. Each one of these modifications 
should not be some grand mystery started from scratch every 
time a homeowner is looking for a little relief.
    Number two, housing counseling empowers our most vulnerable 
homeowners with the tools and the know-how to save their homes. 
I want to understand how critically important the dollars have 
been from, I believe, the Federal Government and also our State 
that we put into the nonprofit housing counselors. They have 
acted as mitigation originators, if you will. And they are 
critically important. Now is not the time to slash those 
dollars.
    Number three, rather than dismantling the imperfect and yet 
critically important Home Affordable Modification Program, the 
HAMP Program, we believe that it can and should be retooled for 
greater efficiency, greater transparency and higher 
performance. The simple truth is that without access to 
affordable and sustainable loan modifications, more Americans 
will lose their homes, slowing our recovery.
    Number four, HUD's Emergency Homeowner Loan Program is 
projected to help more than a 1,000 unemployed Marylanders who 
are struggling to make mortgage payments while looking for 
work. I believe that this is another tool that has to be 
preserved and has to be employed.
    Number five, community development block grants and the 
Neighborhood Stabilization Program can be the difference 
between saving or losing a neighborhood in the course of these 
difficult times.
    So, I urge you to continue your oversight, continue to 
drive performance. These are programs that should work more 
effectively than they have worked. We do believe that we have 
found the right alchemy of several steps, one of them being the 
mandatory right to mediation, that has greatly reduced the 
number of homes we are losing to foreclosure.
    I thank you again for your attention to this important 
matter.
    [The prepared statement of Governor O'Malley follows:]




    
    Chairman Issa. Thank you, Governor.
    Mayor.

             STATEMENT OF STEPHANIE RAWLINGS-BLAKE

    Mayor Rawlings-Blake. Thank you very much, and good 
morning.
    I want to thank Chairman Issa and Ranking Member Cummings, 
and the members of the committee for allowing me to speak to 
you this morning. The matters being considered by your 
committee are of vital importance in addressing the foreclosure 
crises facing Baltimore and our Nation.
    I applaud Congressman Cummings and the committee members on 
holding this hearing to gather testimony on the abuses in the 
mortgage service industry that greatly compound this crisis.
    Let me very briefly outline the scale of foreclosures in 
Baltimore. Since 2007, some 18,000 properties in Baltimore City 
have had foreclosures filed against them. All but a handful of 
neighborhoods in the city have been impacted by foreclosures. 
Many of our neighborhoods have been impacted severely. Well 
over one-third of our neighborhoods have had more than 5 
percent of their properties foreclosed against. Many of these 
neighborhoods that I'm talking about are the bedrocks of our 
city.
    Our community is comprised of both rowhomes and detached 
structures with high occupancy rates and majority homeowners. 
The foreclosure crisis has imperiled many of these areas.
    It is not only Baltimore homeowners that have been impacted 
by foreclosures. Over 40 percent of all properties that have 
been foreclosed against in the past 4 years are rentals. This 
had led to the extremely unfortunate situation where residents 
who have paid their rent are at risk of losing their housing.
    The city's foreclosure rate would undoubtedly be 
significantly higher had Governor O'Malley's administration not 
taken legislative action that slowed the foreclosure process 
and improved opportunities for mediation with mortgage holders. 
As foreclosures began to dramatically increase in 2007, city 
government in concert with State and Federal agencies and the 
foundation community began to increase financial and 
organizational support to nonprofit entities providing 
foreclosure counseling. It was through the network of 
counselors that we became increasingly aware of the abysmal 
performance of the mortgage service industry in constructively 
addressing this crisis. Among the many troubling aspects of 
this performance is the almost systematic loss of supporting 
documentation for loan modifications that particularly stands 
out as an error that needs to be corrected.
    The dedication and professionalism of so many of the 
housing counselors in the city is to be commended. This is 
difficult, exhausting work carried out under daunting 
circumstances. Their perseverance and their unwavering support 
of homeowners in crisis have helped many Baltimore homeowners 
avoid foreclosure. Unfortunately, the insufficient efforts on 
the part of the mortgage service industry has in many cases 
lessened the effectiveness of these counselors.
    As concerns the abuses being examined by this committee let 
me note the following: Baltimore households have suffered from 
virtually all of the abuses; predatory loans, robo-signing, 
wrongful foreclosure, failure to properly maintain and file 
mortgage documents and false affidavits, all being invested by 
this committee.
    Often services have profited handsomely from these abuses. 
Despite this, they have not employed enough staff to locate and 
properly process the loan documentation but routinely file lost 
note affidavits. Some lenders have steered buyers into loans 
they could not afford, and then profiting through initiating 
fees and points, bundling the loans into mortgage-backed 
securities and sold them off to secondary markets, thus selling 
off their risk.
    These predatory lending and services practices caused 
equity stripping, home loss and blighting vacancies. These 
practices not only devastate families, they cost the city 
millions of tax dollars lost in property tax and transfer tax 
revenue.
    As concerns regulatory solutions, the committee may 
examine, and I hope consider the following:
    The real party and interest should be the named plaintiff 
in any foreclosure action. Currently only the trustee or 
substitute trustee must be named, usually the attorney hired by 
the servicer.
    The lack of transparency makes it difficult to understand 
and document trends in lending and foreclosure practices in our 
city, thus handicapping our ability to protect our residents.
    The Home Mortgage Disclosure Act should be amended to 
require that borrowers' credit scores be reported as publicly 
available data in addition to the race and other data currently 
being reported. This will enable Federal, State and local law 
enforcement agencies to discover and document predatory 
practices without the burdensome need for instituting suit or 
obtaining discovery.
    Every document that a foreclosure plaintiff files should be 
served on the homeowner who is at risk. For example, the Report 
of Sale is not served on the homeowner and is not uncommon for 
a homeowner to answer their door and just have a stranger tell 
them ``I just bought your house and you need to leave.''
    Increased transparency will enable distressed homeowners to 
better defend their homes and better plan for their future.
    Increased Federal oversight and enforcement is also needed. 
Much of the subprime predatory lending that helped trigger this 
crisis could have been avoided had there not been lax 
enforcement of the Fair Housing Act and banking regulations.
    Again, I want to thank you for being here in Baltimore, a 
city that has been tremendously impacted by abuses in the 
mortgage industry. I hope that this committee hearing serves to 
be fruitful in your efforts to correct the wrongs.
    [The prepared statement of Mayor Rawlings-Blake follows:]




    
    Chairman Issa. Thank you, Mayor.
    I want to particularly thank the city of Baltimore for 
having us here.
    And Governor, I'll start with you. The committee has, and 
somewhat to the mayor's statement, been working to try to 
create transparency in Government. On a bipartisan basis we 
tried to interject open standards into the Dodd-Frank bill that 
passed last year, and failed. Congressman Frank and others have 
offered to help us to get it through this Congress, and we 
intend to get through data standards that would allow for 
anyone who wants to give an access either individually or for 
statistical purposes to be able to very transparently get all 
of that information.
    One of the things that our earlier hearings showed us was 
that in fact there is no standard for submission so that you 
have to go bank-by-bank. And unless somebody wants to pay the 
bill to consolidate all these divergent standards and get, if 
you will, the credit score lined up between different loan 
organizations, you're not going to get there.
    But, Governor, you mentioned HAMP in your opening 
statement. As you know, the HAMP program is highly flawed. By 
its own testimony it's not getting to its goals and the 
servicers make it very clear that the only people that are 
getting permanent loan modification are people that would get 
it without HAMP program, even though it's cost $30 billion. 
And, yes, we have that under oath.
    So, my question to you is as Congress looks at how to spend 
the next $40 billion of a $70 billion program, shouldn't we 
consider making the HAMP the loan modification of last resort 
and not first? Cause all people to go through and be refused 
loan modification and then only if they're unable to get it 
through ordinary means at the bank's own expense, the bank's 
servicers' benefit, should they be able to come to the 
Government? Have you considered that in order to try to narrow 
the basis down to those who would not otherwise get a loan 
modification?
    Governor O'Malley. I know there are probably other people 
on the panel who can speak with greater situational awareness 
on the ground. It's my understanding that in the absence of any 
sort of lender responsibilities or penalties for lender 
deviation from the HAMP guidelines, that it's not being 
maximized to its greatest degree.
    I think one of the recommendations that our staff has is 
that there be a one-step modification rather than a two-step 
modification. I take it the chairman's talking about maybe a 
third step?
    Chairman Issa. No, Governor. Currently the servicer gets no 
money for doing a trial loan modification. It's all on their 
back. So as they go through the process to decide whether or 
not somebody could be eligible for loan modification, they get 
no funding, nothing comes out of HAMP. Once they do a permanent 
loan modification, then that $30 billion that we've obligated 
comes into play.
    So, in our case what we're finding is is that's what most 
criticized is the portion that HAMP doesn't pay for, which is 
the trial modification. Initially the trial modifications 
modified everybody, everybody got in. Later on they decided 
that a lighter loan, coming back to be a lighter loan 
application wasn't a good idea. Then you should have to before 
you get into the first step, have some substantiation that you 
have real tangible income on which you might be able to have a 
loan modification. So they've made changes, but it still comes 
down to HAMP as the first step; everybody goes and says ``Am I 
eligible for it?'' and makes the application. And 6 months, as 
you said, or more goes by before they find out yes they are or 
no they're not. In the meantime, the system is essentially 
stalled.
    So, I won't belabor the point, but for both of you as 
Congress considers changing or canceling HAMP, one of our 
questions is clearly going to be: Should HAMP exist, and if so, 
should it only apply to those who otherwise would not get a 
modification versus paying the banks who shift through about a 
3-to-1 ratio or so, about three don't get it for every one that 
does. And then we find that the ones who get it are the ones 
who would have gotten it anyway. They didn't need a Government 
bailout to get it.
    Mayor, you mentioned the 40 percent of homes which were 
basically income properties that have been put through 
foreclosure. From your knowledge do you have a program or can 
the Government have a program that causes those renters' money 
to go to the actual mortgage company? Because I assume that the 
renters' money is being diverted by the mortgage holder, or 
mortgagee.
    Mayor Rawlings-Blake. Mr. Chairman, that is something that 
we have been looking into. Prior to being mayor, I was the 
President of the City Council and this issue we've been working 
on since that time. So over a year to try and protect the money 
that the renters are paying with no protection.
    As you can expect, we met significant opposition from the 
banking industry, you know who has control over that money.
    Chairman Issa. But I assume the banks would love nothing 
more than for the renters' money not to be diverted so they 
could at least be getting something for the home, where in most 
cases the actual borrower once they know they're going into 
foreclosure, simply keeps collecting the rent and not paying 
it. This is something we ran into in our Cleveland 
investigation 4 years ago.
    Mayor Rawlings-Blake. Yes. One of the problems that seemed 
to come up was that the banks felt like then they were dealing 
with two mortgage holders; one with no real responsibility to 
the mortgage. That while they were dealing with one mortgage 
holder that was in default, another one was attempting to pay 
and the efforts weren't connected. That there was no way for 
the--you know if there was money that originally the landlord 
didn't submit, that there could have been a gap and then the 
bank wouldn't be able to close that gap if there was some 
lapse. So I would love to hear more about what happened in 
Cleveland to fix that problem because it is a significant issue 
in Baltimore City. So if there is a way to make sure that the 
banks are on board, it would be helpful.
    Chairman Issa. I appreciate that.
    And I don't want to monopolize your knowledge, so with that 
I recognize the ranking member for his questions.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    I just want to go back to some of things that you talked 
about.
    The chairman talked about the HAMP program. And one of the 
things that we on the Democratic side are most concerned about 
in Congress is that if that program is eliminated as opposed 
to, as you said, I guess to borrow an old expression ``mending-
and-not-ending,'' what recourse do people have? That is our 
problem.
    In other words, I think that all of us agree that, as you 
said, the program needs be retooled. But you would not, I'm 
sure that you are not an advocate for having nothing there?
    Governor O'Malley. No, not at all. I mean, it would be a 
miraculously occurrence if a Government program were operating 
at 100 percent proficiency and performance less than a year or 
two after its creation. I mean, there are some programs that 
have been around for many, many decades and I think we can all 
agree that they can be improved.
    But there are approximately 22,000 modifications that have 
been made, 4,500 I'm told are active trial modifications, 
17,000 are permanent modifications. So that's 22,000 households 
in our State that have been helped by this in Maryland, and 
that's for over the course of this I think just this last year. 
I think we're only now starting to get on top of this wave that 
had the mortgage companies so utterly underwater themselves in 
terms of servicing this problem that I think it would be a real 
mistake to back away right now.
    I think HAMP probably can be improved. I think monthly 
reporting and maybe some sort of standardization so that we 
know which servicers are getting on top of this and which are 
not. And maybe there's a way that you can put some incentives 
in there for those servicers that are actually doing the better 
job on their modifications.
    Mr. Cummings. You know this robo-signing issue, Mr. 
Governor, I think here we are sitting in a law school I think 
that the mayor, you and I graduated from this school.
    Governor O'Malley. Me, too.
    Mr. Cummings. And the Governor.
    Chairman Issa. I'm the odd man out I'm afraid.
    Mr. Cummings. And the question is, you know last fall the 
Nation's largest mortgage servicing companies admitted to robo-
signing; tens of thousands of affidavits in foreclosure cases 
falsely swearing to the accuracy of information that they never 
actually reviewed.
    Governor, you and I took immediate action to protect 
Maryland homeowners of this abuse. We wrote to these companies 
and asked them to suspend foreclosures here in Maryland.
    Even though they halted foreclosures in 23 other States 
they refused to stop faulting them in Maryland, is that right?
    Governor O'Malley. Pardon. This Mark Kaufman, who is our--
--
    Mr. Cummings. Yes, I know Mark Kaufman will be here in a 
minute. But what impact do you think that had?
    Governor O'Malley. I believe it's had a tremendous impact. 
I think the two things--and it's hard to separate out which one 
was most responsible, but roughly at the same time our 
mandatory mediation requirement kicked in and shortly 
thereafter the robo-signing problems arose and many of the 
large servicers halted their foreclosure proceedings in 
Maryland.
    It's resulted in a 60 percent reduction since last year of 
foreclosure actions in our State. As I said, it's hard to 
separate out the two.
    Mr. Cummings. Yes.
    Governor O'Malley. But I do think putting families on an 
equal footing with the mortgage servicers and forcing them to 
come to the table in front of the judge or judicial officer 
before they can go forward with the foreclosure is really, 
really important. How tragic that this apparatus, this sort of 
meat grinder of home ownership destruction continued to go 
unchecked and even accelerate in the course of this recession. 
If anything, it should have been slowed down, and I think we 
have found a way to do that now. But the modifications are 
still very much a work in progress and we need the Federal 
Government at the table in order to force the mortgage 
servicers to stay at the table.
    Mr. Cummings. Madam Mayor, in Baltimore we have a fragile 
situation where we're trying to make sure that the city 
neighborhoods are strong. You talked about the number of 
foreclosures. A lot of people don't realize how much 
foreclosures bring down property values and affect a city's 
ability to function. Can you just talk about that for a moment?
    Mayor Rawlings-Blake. It's significant. I mean, there are 
things that we can measure, like the amount of property tax 
loss in 2010. We lost almost $14 million due to the foreclosure 
crisis in Baltimore City, and that's what we can measure.
    There's also intangibles. You know, the impact, the 
continued impact of blight in the vacant properties when these 
homes go vacant, what that means to a community, how that drags 
down property values and creates unsafe neighborhoods.
    We're struggling in Baltimore with a significant amount of 
vacant properties, investors that come in, purchase properties 
and are sitting on them. We're tackling that, and added to that 
is the issue of the foreclosure crisis and the vacancy that's 
creating. So, you know it's layering on intractable problems.
    Mr. Cummings. I see my time expired. I yield back.
    Chairman Issa. I thank the gentleman.
    We now recognize the gentleman from Michigan, Mr. Walberg 
for 5 minutes.
    Mr. Walberg. Thank you, Mr. Chairman.
    And Mr. Governor and Madam Mayor, thank you so much for 
your hospitality and having us here. I've always enjoyed my 
time spent in Maryland or Baltimore, and it's good to come back 
this morning early enough to miss the traffic jams as well.
    Coming from Michigan, we understand foreclosure well and 
economic hard times.
    Mr. Governor, you mentioned in your statement several times 
this morning your support for HAMP and realistically a 
Government program that isn't perfect. But in looking at some 
of the figures that I've had in front of me, nationwide HAMP 
has resulted in just over 539 permanent modifications as of 
January of this year, but has also resulted in 8,800 
cancellations. Homeowners whose HAMP modifications, and I think 
this is a significant problem, are canceled often end up worse 
than if they had never been part of the program in the first 
place.
    In your testimony you mentioned the creation through HAMP 
of 22,000 permanent modifications in Maryland. How many 
temporary modifications have been canceled in Maryland and how 
many permanent modifications, if you have those records, have 
been canceled in Maryland?
    Governor O'Malley. Congressman, the numbers I had in front 
of me and as I look over my shoulder here at my able staff who 
are looking over their shoulders----
    Mr. Walberg. I'm not looking over mine.
    Governor O'Malley. The numbers I had in front of me was by 
the end of January, I had 4,000--I don't have the 
cancellations. I have 4,545 active trial modifications and 
17,483 permanent modifications for a total of 22,000. I do not 
have numbers in front of me on cancellation.
    Mr. Walberg. It's similar to the rest of the country, if 
those figures hold. But we do not know the cancellations.
    Governor O'Malley. Well, we might be able to find that if 
someone would consult the State satellite.
    Mr. Walberg. Well, the concern is what happens to those 
people whose temporary and permanent modifications are 
canceled. Because, indeed, if it's like the rest of the Nation, 
it appears that as a result of being given the hope and yet for 
one reason or another not following through they end up in a 
worse situation than before having spent money in the process, 
continued on mortgage payments as opposed to the foreclosure 
completing and go on with life. So, it would be interesting to 
have those numbers, but if they're not available to you at this 
time, let me move on and turn to the mayor. Again, appreciate 
you taking the time to be here.
    It has been stated several times during the course of 
testimony this morning that the recent robo-signing scandal is 
a symptom of an industry crises. Simply put, the scandal 
illustrates another symptom of an industry that needs 
accountability and transparency. The Governor stated that very 
clearly as well in his testimony.
    Nevertheless, in looking at this situation Treasury's own 
reviews suggest that even if servicers' performance was 
perfect, which it won't be, HAMP's results would not improve 
significantly. Under Treasury's Second Look Program, Treasury's 
compliance agent reviews a statistical sample of homeowner loan 
files that were not chosen for HAMP modifications. For the 
second quarter of 2010, the most recent period for which 
results are available, Treasury's agent only disagreed with 
servicer actions 2.4 percent of the time.
    And so my question is do you believe that HAMP's results 
would improve significantly if servicers' compliance was 
better, and how so?
    Mayor Rawlings-Blake. Yes. I am not an expert on the fix. I 
am an expert in the impact of the problem.
    I anecdotally have heard so many times in community 
meetings that I go to all throughout the city where people feel 
that they have been working on a modification, but in essence 
it is being dual tracked. So they are thinking that they are 
working on a modification but at the same time aggressive 
foreclosure is being pursued at the same time.
    I mentioned about the lost documentation and people really 
being strung along. These are the things that I know about.
    As far as the regulatory fix, I am sure that they are 
coming to testify much more seasoned people that give you 
recommendations on the fix. I can speak about the problems I 
hear from my constituents.
    And people are being lied to. They are being given false 
hope. And they are depending on the word of these financial 
institutions to the detriment of themselves and their families, 
and as a result to our communities and our city. So that's what 
I know the problem is. And my hope is we can get to a solution.
    Mr. Walberg. Thank you.
    I yield back.
    Chairman Issa. I thank the gentleman.
    We now recognize the gentleman from Massachusetts, Mr. 
Tierney for 5 minutes.
    Mr. Tierney. Thank you, Mr. Chairman. Thank you for having 
these hearings.
    And thanks to Mr. Cummings for having these hearings and 
doing the work that he's doing on this subject as well.
    Governor and Mayor, thank you for the work that you all do. 
I think Maryland and Baltimore has done quite well in 
comparison to other parts of the country on this very 
perplexing issue.
    This is an industry that didn't cover itself in glory when 
it led us into the financial crisis that we're in today, and it 
is certainly not covering itself with glory as we try to get 
out of it.
    And I understand the HAMP program is not perfect. I am as 
frustrated or more frustrated than anybody with its 
imperfections. The question for us pretty soon, this week in 
fact, is going to be whether we leave the banks on their own 
and we have pretty much seen where that's led to, or whether we 
try to get a system in there that works to help the homeowners. 
Because, Mayor, like you Mr. Cummings' office staff and through 
all my colleagues' staffs, my staff are pulling their hair out 
trying to help people who come in desperate. We have a holdover 
from a previous administration in the head of the Office of 
Comptroller of the Currency that seems to be more concerned 
with the banks then he is with homeowners.
    We have the Federal Housing Finance Administration that I 
think is not doing its job in terms of the conservatorship with 
Fannie Mae, Freddie Mac. If they were, they would insist on 
some of the principal on that basis that would better protect 
the taxpayer and investors than letting them go to foreclosure.
    So there is a lot of work to be done in this area, and I 
thank you for your efforts.
    Governor, there are 50 States, and Maryland is one of them 
involved in court action. And there is talk in the newspapers 
of the amount of money that banks, servicers may be forced to 
come to the table with.
    Elizabeth Warren, who is the Consumer Protection Advocate, 
obviously just recently appointed by the President, thinks that 
$20 billion is not enough. Do you have a position on what your 
State will be arguing in those settlement proceedings as to 
what ought to be an appropriate amount of money for the people 
to come to the table on, or do you know?
    Governor O'Malley. I do not, Congressman. I have left that 
to the Attorney General.
    Mr. Tierney. All right. Well, do you have a feeling of what 
standards ought to be put in place? What ought to be placed 
into that lawsuit that these services and banks have to comply 
with to make this system work better?
    Governor O'Malley. I think that there needs to be, and not 
only the openness and transparency with regard to underwriting 
standards, standards for a modification, there needs to be some 
strike zone, if you will, that is easily understood in terms of 
the ratios so that we're not recreating the wheel every time we 
get somebody to answer the phone.
    And second, I also believe that there needs to be some 
enforceable period of time, some timeframe within which a 
person should expect their modification to be reviewed, 
approved or disapproved. And I think those two things are the 
most important things that we can achieve.
    In the suit I suppose you can load up with the penalties 
and the like, but at the end of the day I mean I think there 
really should be some expectations and some enforceable way to 
make these mortgage service companies protect consumers, 
respond to consumers, be able to make the modifications or not 
make the modifications. And that is what's been lacking in all 
of this.
    Mr. Tierney. Mayor, do you have an opinion as to how 
valuable HUD's program for unemployed homeowners would be, the 
opportunity for them as of the Dodd-Frank Act for them to 
receive some stipend to carry them through at least 24 months 
if necessary until they get reemployed and until they can 
handle their mortgage again? Is that a factor here in 
Baltimore?
    Mayor Rawlings-Blake. Any subsidy that we can get to help 
bridge unemployed individuals to employment is helpful in 
Baltimore. Anything. So if it is the Act that you were talking 
about or unemployment insurance, all of those things are 
significant factors in helping people stay in their homes, 
helping people get to a point where they can get reemployed. It 
takes time.
    We have programs that work to retrain individuals. We are 
investing in workforce development, also in emerging 
technology. But you can't walk out of one job and go into 
another that requires specialized training. So these things are 
helpful.
    Mr. Tierney. I should put you on alert. Thank you for your 
answer. Put you on alert that if the budget process that was a 
couple of weeks ago put through, you will not have that work 
force training program to worry about because $3 billion sliced 
out of that is going to shut them down. One stop shots on that. 
So, we have----
    Mayor Rawlings-Blake. Our employment development----
    Mr. Tierney [continuing]. Got some work to do on that part 
as well to help out cities and towns on that.
    Mayor Rawlings-Blake. Yes.
    Mr. Tierney. Let me just say, I think I am still an 
advocate and always have been of a clamp down process on this. 
Until the banks have some incentive to write down some of the 
principal and treat this thing honestly, we are all going to be 
in a lot of trouble on this situation. My contention is that if 
a bankruptcy judge had the authority to do that, it would never 
get to that point. That these banks would finally wake up and 
go to the table and negotiate with these people. But they are 
not going to do anything voluntarily. I think they have shown 
that quite clearly.
    Thank you.
    Chairman Issa. Thank you. I thank the gentleman.
    Recognize the gentleman from Vermont, Mr. Welch for 5 
minutes.
    Mr. Welch. Thank you very much, Mr. Chairman. I want to 
thank you for having the hearing. Thank our witnesses.
    Representative Cummings has been the leader in Congress in 
focusing attention on what the impacts are in neighborhoods 
when we lose that base of homeowners. And both of you have 
spoken quite eloquently about it.
    But I also actually think, Mr. Issa, you have a point about 
the HAMP program. If it is not working, the question is why.
    And I was interested, Governor, when you testified that you 
have had success in reducing the foreclosure rate by 70 
percent. So you seem to be doing something right that the HAMP 
program isn't.
    And when I think about how practically to deal with this, 
which you all are on the front line of. The bottom line seems 
to be somehow, some way there has to be the mortgage servicer 
with authority to say yes or no. And this is where I think 
Congressman Tierney has a point. One of the reasons I have 
supported the bankruptcy provision is that it is the only way 
to force a decision. And it seems that one of the biggest 
problems in getting to a practical resolution is that these 
mortgages have been issued, then they have been bundled, then 
they have been sold to investors and they have been sliced and 
diced. So some investors who are in the front of the line 
before prepayment are going to do Okay, some at the end of the 
line won't. The servicer is caught between its obligation to 
these various owners of the packages of securities that they 
are mentioning. So they literally do not even have the ability 
to say yes to a reasonable deal. And unless, in my view, we 
deal with that so there is a party in the room who can say yes 
to a good deal, however much counseling we provide people it is 
not really going to work. So the only way I know that would 
work is with bankruptcy, and that is a contentious debate 
within Congress because it does raise some policy questions. 
But I have always supported it because it is the only practical 
way to get from here to there with an answer. And I just wanted 
to ask each of you whether that would help you in your efforts 
to try to stabilize and revive these neighborhoods where you've 
got your citizens doing their best to hang on.
    Governor?
    Governor O'Malley. That is on the bankruptcy, Congressman?
    Mr. Welch. That is right, just as a tool to help you?
    Governor O'Malley. Well, I think it would be very helpful. 
In fact, had that tool been in place we would not have had to 
put into place a mandatory right for mediation with those who 
now handle it at the Office of Administrative Hearings in our 
State, and the same entity that provides administrative law 
judges that preside over traffic matters and other sorts of 
regulatory things.
    Mr. Welch. Right.
    Governor O'Malley. But I think I had been of the belief 
that because of the slicing and dicing it was nearly impossible 
to get people with authority in a huge percentage of these. And 
that has not been our experience, and perhaps our banking 
commissioner or other people that follow in the subsequent 
panels.
    I think the bigger problem is not the lack of authority, it 
is the lack of them being present. It is the efficiency with 
which the court system kind of grinds through this foreclosure 
process versus the thought and the staff work required to send 
someone to actually make a decision. I think they actually had 
the authority, I think they are choosing not to exercise the 
authority.
    Mr. Welch. Yes.
    Governor O'Malley. And I think so long as they are able to 
make money simply by churning and postponing any sort of 
reckoning, whether to write down in the principal or some other 
modification, I think they are going to do that.
    Mr. Welch. So do you have some suggestions of some steps we 
could take at the Federal level to help that happen? Because, 
again, I think there is some fair criticism of the HAMP 
program. If you just can't get to a resolution, then that is a 
fair criticism. Because the goal here is not just to have 
another Government program. The goal is to help folks stay in 
their homes. So do you have some concrete suggestions on what 
we could do that might help you be successful?
    Governor O'Malley. I think the bankruptcy suggestion that 
both of you have talked about and giving the courts the 
authority to pull them in, I think that would be a step in the 
right direction. I think in the meantime, otherwise you are 
going to see a different circumstance in every State and they 
are just going to kick the ball down the road hoping that it is 
better when they wake up another year from now.
    Mr. Welch. Okay. Thank you.
    Mayor?
    Mayor Rawlings-Blake. I agree. I mean I think in your 
opening you made it clear, I mean you made the point. There 
needs to be someone in the room that has the authority to make 
the decision and they are not doing it on their own. I think it 
would be helpful. I agree with the Governor.
    Mr. Welch. Would we have to give some help to the mortgage 
services if they are caught between competing interests of the 
various mortgage holders that if they make a prudent decision 
in the interest of the overall resolution, that they would have 
some protection against liability by one tranche of the 
security? I don't know if they've been clear on that.
    Governor O'Malley. No, I----
    Mr. Welch. You got a mortgage servicer and there might be 
six of us up here who each own one tranche. And Congressman 
Tierney's tranche might be more jeopardized than Congressman's 
Cummings if the mortgage servicer settles. So the mortgage 
servicer is not so much worried about the judge or anyone else, 
he's worried about getting sued by one of the security holders. 
And my question is: Would it make sense to give some legal 
protection to the mortgage servicer so that if they made a 
prudent financial decision in the overall interest of that 
security, they would not have to fear retaliation or suit?
    Mayor Rawlings-Blake. I think if you do not, you are not 
really giving the authority.
    Mr. Welch. Yes.
    Mayor Rawlings-Blake. If they are acting or not acting on a 
fear that they are going to be sued, we are not really given 
the tool.
    Mr. Welch. Right. Okay. Thank you.
    I yield back.
    Chairman Issa. Thank you.
    Mayor, Governor, you have been very generous with your 
time. Would you mind one or two follow-up questions.
    Governor O'Malley. Sure.
    Chairman Issa. One of them is for the record. Our committee 
cannot find one criminal prosecution that we can say this 
servicer, this mortgage company as a result of this meltdown 
after the fact, if you will, has been prosecuted.
    You know, in the savings and loan we had bank presidents, 
all kinds of people, who went to jail.
    If you don't mind, particularly Governor, if you can 
enlighten us for the record on any prosecutions for the 
misconduct leading to these loans. Because we are not finding 
them and it is one of the questions for the committee is: If so 
many bad things happened on the way and if so many people were 
misled and so on leading to them having a mortgage that now is 
ruining their lives, we would like to know about any of those 
prosecutions. We figured if there are going to be prosecutions, 
it probably would have happened by now.
    The second one, Governor, since you are a graduate of this 
law school----
    Governor O'Malley. Ah-oh.
    Chairman Issa [continuing]. Mortgage law is completely 
State, right?
    Governor O'Malley. Mortgage law is completely State.
    Chairman Issa. In other words, bankruptcy law is completely 
Federal. We reserve that in the Constitution. But cramdowns 
within mortgage law, recourse, nonrecourse; those parts of 
contractual law are within the purview of your State. And the 
reason I ask that is you would have the ability to effectively 
create, for example, a right of a homeowner to match the lowest 
price at the time of the sale. You would have that right within 
the State.
    So we often--inaction is one of the things we do well in 
Congress. The other is overreact. So, assuming we are going to 
do the former, inaction in on bankruptcy reform, do you not 
have the right to create a mortgage law that would allow the 
homeowner to effectively get the equivalent of cramdown, 
meaning getting the actual value of the property at the time 
that it is going to be liquidated, put them first in line so 
that they, as long as they can go find a new lender, a new 
source they would have that ability. Because the theory of 
joint venture that used to be in cramdown was eliminated, and 
it is not likely to come back. Meaning that when I was in 
private life we often had contractors, people building massive 
real estate structures, they had the theory that if it won they 
got the profit and if it lost, the bank shared in the loss. And 
that was what bankruptcy reform fixed in the early 2000's.
    Getting back the idea that you are in a joint venture; that 
heads you get the appreciation in your house and tails you lose 
is unlikely, even if we did bankruptcy reform. So my real 
question, and it is kind of an open-ended question, is don't 
you have the authority to do more at the State level someplace 
in which you have shown a willingness to do it quicker than the 
Congress?
    Governor O'Malley. Well, we are certainly open to doing 
everything at the State level. I mean if we see these start 
ticking up, we will be back to the drawing board right away.
    And I believe that in a crisis like this unprecedented 
maybe only one other time in our country's history, that if our 
Government cannot get off its haunches and put on the gloves 
and get into the ring to protect home ownership when it is 
under threat like this, then I mean none of us really have any 
business being in public service if we cannot get into the ring 
to fight for homeowners in this crisis.
    Chairman Issa. I agree with you, Governor.
    Anyone else have a followup question?
    Mr. Cummings. I want to just go back to my colleagues, Mr. 
Tierney and Mr. Welch. You know, it is interesting, Mr. Welch 
talked about in questioning you, Governor, with regard to 
getting people together, in other words getting the banks 
together with the borrowers, the servicers together with the 
borrowers.
    And for the record what we do in our office, we have a 
person who spends her entire day 5 days a week, sometimes 6, 
just bringing together--I think we all do--bringing together 
the servicer together with the borrower. And a lot of the 
problems you have already stated, and I know Mr. Kaufman in his 
excellent testimony that I have read will talk about it even 
more. But we have a situation where people are being, as you 
said, Madam Mayor. I know you hear about it. We experience it 
in our office. We see it everyday. People being lied to. 
Borrowers are placed in a situation where they call the 
mortgage company and they get one person one day--well, first 
of all, they get nobody. And then eventually finally get 
somebody on the phone and they're transferred to somebody else, 
somebody else, their paperwork is lost. We have even had 
instances, Mr. Chairman, and Debbie Perry who is sitting over 
here in my office deals with this everyday.
    We have had situations where paperwork has been sent to 
servicers four and five times and they claim they never got it. 
And then they turn around, Mr. Governor, and we send them from 
our office and they claim they never got it.
    So, you know there is a phenomenal abuse. And you are 
right, Mr. Governor, I thank you for saying what you said. We 
can do better. We can do better as a Nation. We have to protect 
home buyers. And this is the greatest transfer of wealth that I 
have ever seen in my life. And the middle class, we claim we 
are fighting for the middle class. If the middle class loses 
their homes, which is their number one investment, then we are 
in great trouble in this country if we plan to have a middle 
class.
    And so, I just wanted to add on that to what the Chairman 
said.
    Thank you, Mr. Chairman.
    Chairman Issa. Thank you.
    Mr. Tierney.
    Mr. Tierney. Well, I am going to ask all the witnesses here 
to contact the White House, contact Secretary Geithner, 
Secretary Donovan on that and talk to them a little bit about 
the situation.
    The Federal Housing Finance Agency now has oversight 
authority over Fannie Mae and Freddie Mac. Fannie Mae and 
Freddie Mac hold a very high percent of all the paper of loans 
that are resold in this country. As oversight authority, the 
Federal Housing Finance Agency is charged with taking actions 
necessary to put the regulated entity, that would be Fannie Mae 
and Freddie Mac, in a sound and solvent condition and to 
preserve and conserve the assets and property of the regulated 
entity. They have refused, FHFA has refused to allow Fannie Mae 
and Freddie Mac to engage in principal reduction. All they 
basically have to do is turn around to these recalcitrant banks 
and servicers and say ``We are not going to buy your paper 
until you take care of those homeowners that are in trouble.'' 
And they would in fact then be better servicing Fannie Mae and 
Freddie Mac who represent the investor in this case, the 
taxpayers, because you would get more out of a modified loan in 
most cases than you would on a foreclosure.
    So, I invite you to add your voice to the White House and 
to the administration, particularly to the individual that is 
heading up FHFA right now, who I thought the President probably 
ought to show the exit to and find somebody to replace them 
until they start getting aggressive and start dealing with it.
    I just add that to the record. Thank you, Mr. Chairman.
    Chairman Issa. Thank you.
    The gentleman from Michigan, Mr. Amash.
    Mr. Amash. No. Thank you.
    Chairman Issa. Okay. Thank you.
    Mr. Amash. Thank you, Mr. Chair.
    And thank you for your testimony today.
    Mr. Governor, the question I have is HAMP was designed to 
assist homeowners whose payments are increased but who still 
have an income and are able to make payments. You testified 
today that the face of foreclosures has changed due to 
joblessness. What solutions to the foreclosure crises, if any, 
are possible without a broad-based economic recovery?
    Governor O'Malley. None. Everything we hope to do as a 
Nation depends on our recovery.
    Mr. Amash. And what solutions are you suggesting for a 
broad-based recovery?
    Governor O'Malley. Broad-based recovery? I believe that we 
need to balance and move forward at the same time. We cannot be 
the first generation of Americans that responsibly refuses to 
invest in our own time in our infrastructure, not only our 
highway, our transportation infrastructure including high speed 
rail, but also cyber infrastructure and broadband to connect 
all of our smaller communities and our small business with this 
new economy.
    I believe we need to invest in the education of our 
children.
    And I believe that rather than slashing and cutting 
research and development at places like NIH, which truly makes 
us a moral leader of this world, we should be increasing those 
investments because in a knowledge-based economy those are the 
things that education, the innovation, the rebuilding of our 
infrastructure which creates a strong and great economy.
    How sad, how very, very sad that China invests a larger 
percentage of its GDP in its infrastructure than we are able to 
in the United States of America. What a national shame that as 
fewer of our people are receiving a college education that we 
would be slashing Pell grants and putting college further out 
of the reach of hardworking middle class families. I think we 
are better than this. I think we have better days in front of 
us, but not if we continue to try to hack and cut and slash our 
way to a better future. It does not work like that.
    If you have ever tried to stay up on a bicycle very long 
simply by balancing, you are going to fall over. You have to 
pedal forward. And that is what we need to as a country. We 
need to balance but we also need to pedal forward.
    Mr. Amash. And what would you suggest regarding our current 
debt crises that we face in this country?
    Governor O'Malley. Fifty-five percent of deficit by 2019 
will have been caused by Bush-era tax cuts that 
disproportionately benefited the wealthy 1 percent of 
Americans. That 1 percent now claims a greater amount of our 
Nation's wealth than it ever has since, say, 1929, I do 
believe. So that is 55 percent of that deficit.
    Another 13 percent of the driver is a series of desert wars 
which, for whatever reasons, we have chosen to finance on debt 
rather than paying as we go.
    So an economy that comes back is an important part of 
attacking that deficit. The other important part of attacking 
that deficit is to bring into light the spending curves. Not 
slamming on the brakes of the recovery and causing us to plunge 
back through another double dip, but bringing the cost curves 
into line.
    It is amazing to me with all the debates that go on in 
Washington, we act like tax cuts for the wealthiest 1 percent 
do not cost money. They do. Let's get a handle on that, shall 
we?
    Social Security is not out of whack. Everybody rattles 
their sword about Social Security and if we all need to go back 
to the days of Coolidge and Hoover, let's go back to the days 
of rational fiscally responsible budgeting where we do not act 
like tax cuts for the wealthiest 1 percent do not cost all of 
our Nation a lot in terms of our economic competitiveness, our 
infrastructure and our ability to move forward as a people. I 
think we need to be a lot more forthright and honest about the 
costs of all of these things and wake ourselves up out of this 
wonderland world where we pretend that tax cuts for the 
wealthiest 1 percent of Americans do not cost the Nation money.
    Mr. Amash. So to summarize, your solution would be to raise 
taxes?
    Governor O'Malley. No, that is not my solution. And that is 
not what I said. Although sometimes it does require a 
combination of those things.
    I mean, in our State we are one of eight States that still 
has a AAA bond rating. And you know what Congressman? We also 
have the best schools in America 3 years in a row. Everyone in 
our State was willing to pay another penny on their sales tax 
in order to be the only State over these last 4 years that went 
4 years in a row without a penny's increase to college tuition 
for people.
    You get what you pay for in this world. It is true in the 
America of our grandparents, it is true in our America. And we 
owe to our kids to not be the last great generation of 
Americans.
    I think this country is not only worth fighting for, I 
think it is worth investing in. And I think a majority of the 
people of this country still believe that.
    Chairman Issa. Thank you very much.
    You know, it is fitting that we should end on you get what 
you pay for. Others paid for you to be here today. I want to 
thank both the Governor and the mayor for kindly giving us far 
more time than we originally scheduled.
    And with that, we are going to take a 5-minute recess.
    [Recess.]
    Chairman Issa. We're joined now by three additional 
witnesses. Mr. Mark Kaufman is Maryland's commissioner of 
financial regulation. Mr. Kevin Jerron Matthews is an Air Force 
veteran and Maryland homeowner who has experienced mortgage 
lender abuse.
    And we're being joined by Ms. Jane Wilson, she's the Chair 
of the Board of St. Ambrose Housing Aid Center here in 
Baltimore. St. Ambrose is a housing counseling agency founded 
in 1968. And I might note for the record that we have now 
received your opening testimony, so that will complete the 
record. And I want to personally thank you, Ms. Wilson, for 
coming in. You were a last minute inclusion, and I appreciate 
your coming here today.
    Pursuant to the rules of the committee, if you could please 
rise to take the oath?
    [Witnesses sworn.]
    Chairman Issa. The record will reflect that all witnesses 
answered in the affirmative.
    Now I am going to announce because you were all here 
patiently on the previous two dignitaries, that the rules of 
the committee are that opening statements will be for 5 
minutes. Your entire written statements will be placed in the 
record. And as my predecessor Chair said, everywhere in America 
the green light means keep talking and the yellow light means 
wrap up and the red light means stop. So, if you could observe 
that, it would be very much appreciated. I know there will be a 
lot of followup questions and, again, your full statement will 
be placed in the record.
    With that, we will first go to Mr. Kaufman.

   STATEMENTS OF MARK A. KAUFMAN, COMMISSIONER OF FINANCIAL 
    REGULATION, MARYLAND DEPARTMENT OF LABOR, LICENSING AND 
REGULATION; KEVIN JERRON MATTHEWS, HOMEOWNER; AND JANE WILSON, 
       CHAIR OF THE BOARD, ST. AMBROSE HOUSING AID CENTER

                  STATEMENT OF MARK A. KAUFMAN

    Mr. Kaufman. Thank you. Chairman Issa, Ranking Member 
Cummings, members of the committee, thank you for the 
opportunity to testify today.
    My name is Mark Kaufman and again, I'm the State's 
commissioner of financial regulation.
    As the Governor has described, foreclosure issues have been 
a focus for those of us at the State level for years. They are 
more than numbers or percentages, they are phone calls, letters 
and emails from constituents with desperation revolving around 
their situation and scams that evolve within the crevices of 
the law. With the Governor's leadership the State has taken 
significant steps to address the problem reforming the entire 
foreclosure process and more recently implementing a mediation 
program.
    As commissioner my office has also played an active role.
    We have used delinquency data that we received to send over 
a quarter of a million outreach packages to severely delinquent 
borrowers.
    We have launched an examination program that has resulted 
in hundreds of thousands of dollars of refunds to consumers.
    And we have also implemented a reporting requirement, at 
the time the first of its kind at the State level, for licensed 
mortgager servicers.
    When we required servicers to report not only data, we 
required them not only the number of modifications that they 
were achieving but the impacts of those modifications on the 
borrower's monthly payment. Shockingly, the early results 
documented that for most of the borrowers who successfully ran 
the gauntlet of modification they wound up paying more when 
they were finished then when they started. These modifications 
seemed doomed from the start.
    When the Federal regulators began to collect data we urged 
them to also collect data on the impact on payment. It took 
more than 8 months and several requests from our congressional 
delegation, including from Congressman Cummings, before the OCC 
agreed to collect data on payment terms.
    Our office is also targeted with other States. Together 
with four other banking commissioners we joined 12 State 
Attorneys General in 2007 in the State Foreclosure Prevention 
Working Group led by Iowa's Attorney General Tom Miller. The 
group published five reports between 2008 and 2010 and forms 
the foundation for the robo-signing investigation which I will 
describe in a moment.
    Many of the problems that we face today are a function of 
changes in the mortgage market. Today, as you know, most 
mortgages are originated, secure tied, sold and serviced by 
different parties. This unbundling process may reduce costs and 
increase efficiency, but it has also fragmented roles, 
distorted incentives and severely complicated the effort to 
avoid preventable foreclosures.
    In theory, servicing is a scale business. This is certainly 
true when things are going well as automation created profits 
while driving down costs. When the mortgages began to default, 
however, the situation flipped leaving servicers without the 
expertise, the resources and the incentives to meet the new 
need.
    To make matters worse, the same economies of scale drove 
consolidation. The percentage of the market in servicing 
handled by the top five servicers in this country has doubled 
over the last 10 years to over 60 percent. Beyond the increased 
management challenge of operating these behemoths in a crises, 
they're virtually all owned by the major banks, the same banks 
which are too big to fail. I believe this results in a market 
that is particularly ill suited to reprice in order to meet 
elevated needs. After all, the current provider never goes 
bankrupt and the process of restoring reasonable returns for a 
well run and operated business is impaired, in large part at 
the expense of the homeowner who has no choice in who his 
servicer is. The invisible hand is essentially broken.
    These issues were thrust into the public eye with the 
recent robo-signing scandal. As the Governor's described, the 
response in Maryland was swift. Our elected officials, 
including the Governor and Congressman Cummings, called on the 
servicers to halt foreclosures until their processes cold be 
validated. Our courts implemented new rules on an emergency 
basis. My office, through the working group that we were part 
of, joined the 50 State AG investigation along with 37 bank 
regulatory agencies. I am proud to serve on the Executive 
Committee of that investigation.
    Without going into the details, let me make the following 
observations:
    First, this is not just a technical issue. As our courts 
have noted, due process and the rule of law are not to be 
trivialized. More broadly the problems are symptomatic of the 
broken process that has been described today. We have seen 
incomplete files, shady record keeping and in certain instances 
inaccurate loan data. Third party oversight is weak, as 
evidence by the improper affidavits that we've see here in 
Maryland. And we continue to see borrowers getting mixed 
signals believing they are on the road to a modification only 
to find themselves deeply down the road to foreclosure.
    And these are not only our findings, by the way. The FDIC, 
the Fed, the OCC have also publicly acknowledged similar 
issues.
    The public senses the same problem, that is why the term 
``robo-signing'' has caught fire. It embodies everyone's sense 
that while servicers and borrowers are struggling along, the 
foreclosure is operating in the next room unincumbered.
    As we look to the future, let me quickly talk about the 
things we see as necessary.
    Ultimately we believe that borrowers need a single point of 
contact in order to move through this process. We also need to 
have servicers, these single points of process, need to be 
backed by adequate staffing and training and support 
infrastructure.
    As I've noted, I question the profitability of the entire 
model, so I believe those issues will have to be addressed by 
demands rather then by requests.
    And I also believe we need to increase accountability from 
third party oversight.
    None of this will be easy and none of it will be free. But 
as I have mentioned, I believe that the invisible hand of the 
market will not fix it, at least not in any near term and not 
without a lot of continued human cost and economic costs.
    I thank you for the opportunity to testify. We will be 
pleased to answer any questions.
    [The prepared statement of Mr. Kaufman follows:]




    
    Chairman Issa. Thank you.
    Mr. Matthews? Could you pull the mic just a little closer?

               STATEMENT OF KEVIN JERRON MATTHEWS

    Mr. Matthews. Mr. Chairman and members of the committee, my 
name is Kevin Jerron Matthews. I am here to talk to you about 
the mortgage foreclosure that happened to me.
    By the way of brief background, I'm a former high school 
JROTC cadet, member of the U.S. Air Force and Maryland Army 
National Guard and served with the 243rd Engineering Co. in 
Iraq.
    In 2008 with the help of the VA Guaranty Loan Program I 
purchased my home on 3216 East Northern Parkway. When I 
purchased my property I had a good income. I was a contractor 
at Fort Meade in the field of wastewater. I also made all my 
mortgage payments on time and everything was going Okay. But in 
December 2008 I was in a horrific car accident that made my 
previous injuries worse than war.
    In February 2009 as a result of my injuries and resulting 
in continued absences from work, I was laid off from my job 
while I was in the hospital. Realizing the difficulty to my 
situation, in an effort to be proactive I contacted by mortgage 
servicer, USAA, to inform them of my hospitalization, 
disability and anticipated financial hardship.
    I continued to contact USAA after my release from the 
hospital and during my rehabilitation, and I continually 
thereafter keep them informed of my situation and to see if I 
could secure any help from them while I had no income, 
including the possibility of a forbearance or modification.
    I made every effort to keep up my mortgage payment 
including draining all of my 401(k), using my tax returns and 
short-term disability benefits. I also did not pay any other 
bills in an effort to keep my mortgage current and depleted all 
of my savings.
    In July 2009, I ran out of money and in August I officially 
went 30 days late. I continued to contact USAA in an effort to 
find a resolution to the delinquent payments on my home. I 
wanted desperately to save my home or find any other 
alternative to foreclosure. After contacting USAA more than 50 
times over the course of 12 months or more and retaining one of 
the best housing counsels in the State, USAA proceeded to sale 
on May 21, 2010 with USAA not even looking at the mitigation 
package. On the phone I was told they did not care and it was 
not their problem.
    After the sale I obtained legal counsel with Civil Justice, 
Inc. and the University of Maryland Law School Consumer 
Protection Clinic and my lawyers filed a formal exception to 
the foreclosure sale with the court.
    While the exceptions were pending consideration of the 
court and before the lender had the legal right to acquire 
possession of the property, I was required to go out of town 
for an internship related to my studies. I returned home to 
learn that my house had been taken over by the lender without 
permission of the court and that a lockbox had been placed on 
my front door and that all my personal belongings as well as 
that of my son's had been taken from the house by the lender's 
agents who secured the house. In addition, as a result of the 
illegal lockout, I had to go find an apartment and buy all new 
furniture and clothing for not only myself, but my son. To this 
date I have never received my property back.
    After I obtained legal counsel with Civil Justice and the 
University of Maryland Law School Consumer Protection I also 
learned that GMAC and not USAA owned my mortgage. Apparently to 
what USAA had told the media, it permits GMAC to use its name 
for customers like me so we don't know the loan has been 
transferred.
    I have also learned since the foreclosure my loan was a VA 
guarantee loan. The VA requires my lender to undertake loss 
mitigation efforts prior to foreclosing on the loan, including 
a face-to-face meeting, review of my loan and circumstances for 
modification. The possibility of temporarily modifying my loan 
to allow my conditions to improve, the exploration of the 
possibility of a deed in lieu as an alternative to foreclosure 
and as a last resort only. None of these things were done.
    In the fall of 2010 when the national and State robo-
signing scandals came to light we learned that an individual by 
the name of Jeffry Stephan had admitted under oath in a 
deposition that he had signed tons of thousands of bogus 
affidavits used to initiate foreclosure proceedings on behalf 
of GMAC and other lenders including my own foreclosure. 
Apparently Mr. Stephen never reviewed the required 
documentation and affidavits were falsely notarized without Mr. 
Stephen being present as required by law.
    After the hearing we had attempted to secure the key to the 
lock GMAC had illegally placed on the door of my home. However, 
they never gave my counsel the keys and as a result, I had to 
break into my own house. Unfortunately, the neighbors who did 
not know me called the police and I had to explain this entire 
situation to them. Luckily, I was not arrested.
    Upon entering the house I found that the house had not been 
properly winterized by the company hired by GMAC to discontinue 
with the utilities. As a result, my sewage pipe and hot water 
heater cracked from the water expansion in the cold weather 
requiring me to fix both in order to move back into the house.
    Mr. Chairman, and members of this honorable committee, as a 
member of the Armed Service I took an oath where I rose my 
right hand and stated that I solemnly swore to support and 
defend the Constitution of the United States against all 
enemies, foreign and domestic; that I will bear true faith and 
allegiance to the same, and that I will obey the orders of the 
President of the United States and orders of officers appointed 
over me according to regulation and the Uniform Code of 
Military Justice, so help me God. I did all that was asked of 
me proudly and unreservedly. Today I am here not to tell you my 
story, but to ask each of you that you will assist not only me, 
but the tens of thousands of homeowners throughout this country 
to receive the equal protections of the laws and rights to due 
process that are guaranteed to each of us by that very same 
Constitution that I was asked to defend.
    I am an example of everything that can go wrong when 
lenders abuse the system and not held accountability. Hopefully 
through your actions, other homeowners trying to be proactive 
and do the right thing that they will not have to endure what I 
suffered and continue to suffer through each day.
    Thank you for your time and efforts to work together to 
find a common sense solution.
    [The prepared statement of Mr. Matthews follows:]




    
    Chairman Issa. Thank you, sir.
    Ms. Wilson.

                  STATEMENT OF JANE A. WILSON

    Ms. Wilson. Chairman Issa, Ranking Member Cummings and 
members of the committee, thank you for allowing me to appear.
    Chairman Issa. You might want to pull the mic just a little 
closer.
    Ms. Wilson. Thank you for the opportunity to allow me to be 
here today to share with you the experiences of the Maryland 
homeowners facing foreclosure.
    Chairman Issa. I guess a lot closer might be better.
    Ms. Wilson. Okay.
    Chairman Issa. They try to compensate, but that's what 
causes the feedback.
    Ms. Wilson. Okay.
    And also the steps that St. Ambrose is taking to try to try 
to preserve sustainable home ownership and neighborhood 
stabilization.
    By way of background, St. Ambrose Housing Aid Center is a 
non-denominational 501(c)(3) nonprofit located here in 
Baltimore. We are a HUD certified counseling agency and a 
chartered member of NeighborWorks America. Since our founding 
in 1968, we have provided direct housing services to over 
100,000 low and moderate income families through our several 
interrelated housing programs.
    In particular, our Foreclosure Prevention Division provides 
default counseling services and direct legal representation and 
legal counsel to homeowners and nonprofit housing agencies 
across Maryland.
    St. Ambrose has been involved with foreclosure prevention 
for over 30 years. During that span we have witnessed a 
dramatic change in the face of foreclosure. In particular, over 
the last few years our attorneys and housing counselors have 
found and continue to find that homeowners eligible for certain 
types of loss mitigation relief including relief available 
under HAMP, faced impending foreclosure sales of their homes 
despite having submitted applications for review under the 
applicable State, Federal and investor specific loss mitigation 
guidelines.
    We have never before witnessed such systemic and deliberate 
dysfunction at the large mortgage loan services that has 
resulted in the sizable loss of wealth to homeowners and 
communities across Maryland. We recognize that not every home 
can be or must be saved in the process. But the losses are not 
limited to the homeowners. We also see the sizable losses to 
investors, taxpayers and the Government as a result of the 
systemic failings within the servicing industry.
    Time does not permit me to recount each example of servicer 
failings that I've provided in my prepared testimony, but I 
would like to highlight one example. I wish I could say this 
one example is an isolated case, it is not. I also wish I could 
say that the described events that occurred in 2008 or 2009 
would not occur today, but I cannot.
    We had a client who came to us in late 2008 with her 
mortgage payments 2 months in arrears. Between December 2008 
and February 2010 our housing counselor helped her submit the 
necessary loss mitigation information to her servicer on 10 
separate occasions, only to be told more than 30 days after 
each submission that the modification package was incomplete. 
Our client finally received a HAMP trial period plan in 
February 2010 and made her first payment. Only a few days later 
she was notified that the servicing rights had been transferred 
to another servicer who claimed that they had no record of the 
HAMP trial plan and that if she wanted assistance, she'd have 
to start over again.
    Most recently, the current servicer offered our client an 
unaffordable repayment plan, not a modification but a repayment 
plan that required a payment of approximately $800 a month more 
than her pre-hardship payment. As you might anticipate, this 
was not a viable option for the client. One of our attorneys 
continues to advocate for a modification for this client.
    I might note that the servicer failures in this case are 
particularly frustrating because the loan is owned by Fannie 
Mae. Efforts by St. Ambrose staff to discuss the case directly 
with Fannie Mae have produced no results.
    The servicing industry must be repaired. The problems 
within the industry from our perspective are deeply rooted and 
systemic. We at St. Ambrose are committed to doing our part to 
ensure that every homeowner whom we can assist receives our 
assistance. But our efforts are too often frustrated by the 
failure or inability of the servicers to respond to legitimate 
requests from loss mitigation.
    The Board and staff of St. Ambrose are grateful to 
Congressman Cummings and to all of you for supporting this area 
and we thank you for taking the time to come to Baltimore and 
to discuss this critically important topic with us today.
    [The prepared statement of Ms. Wilson follows:]




    
    Chairman Issa. Thank you. And thank you for being exactly 5 
minutes. Uncanny. I am glad we got you instead of the earlier 
proposed witness.
    With that, I'll recognize myself for 5 minutes.
    Mr. Matthews, having had 35 years with USAA, I was relieved 
when you got to the fact that GMAC was behind, if you will, the 
servicing company and ultimately GMAC held it. But it still 
does not excuse USAA for any portion of their involvement or 
any of the other entities involved. And I sincerely feel for, I 
guess, what is now a corrected loss but not fully correct and 
probably won't be fully corrected for a long time.
    Ms. Wilson, I'd particularly note that when we look at 
Freddie and Fannie, they do hold $7 trillion worth of these 
notes, the largest holders by far. So as we talk about 
servicers, obviously we're really talking about services on 
behalf of GMAC in some cases, Freddie and Fannie, entities that 
were bailed out and continue to be bailed out by the U.S. 
Government.
    So, Mr. Kaufman, I'll go to you. First of all, there was 
some talk about modifying bankruptcy. From your past experience 
before you came into your current job if we were to open up the 
door of cramdown broadly, the way they were in the 1980s and 
1990s, what effect would that have on commercial construction 
and all the other entities that used to avail themselves of 
cramdown briefly?
    Mr. Kaufman. I am not sure I am exactly----
    Chairman Issa. Well, another way to put it is what would it 
cost if bank consortiums that we are funding, shopping malls 
and large home development plans, suddenly had to look and say 
``If anything goes wrong, we are not even going to have the 
right to take back the property. We are going to be forced into 
a cramdown,'' maybe as many as three cramdowns as we found 
under the old bankruptcy law.
    Mr. Kaufman. Well, I am not sure that it is sort of 
statistically possible to make an estimate. I guess I would 
make two points, at least one from previous experience working 
as an investment banker, which is the leverage to hand back the 
keys to that is how workouts get done.
    You know, we hear a lot about borrowers who are not holding 
up their end of responsibilities, who are acting immorally, 
etc., who I would observe act a lot like corporations or 
investors that I worked with and nobody questioned their 
morals. That was really just how business was done.
    I also think it is difficult to estimate. I mean, at some 
levels costs would go up, but I am still frankly looking for 
the study that even shows you that the cost of an elongated 
timeline for foreclosure or for some of the foreclosure reforms 
that we put in place raise the cost of credit for consumers. 
So, for example, when we talked about changing the foreclosure 
process one of the issues was if you do this, this, or this 
everyone will pay for it. The person will get a benefit but 
every borrower will pay for it in terms of increased rates. We 
have a 50 petri dish of experimentation with different 
foreclosure timelines, and I am not aware of massively 
different interest rates in States which have extremely rapid 
foreclosure timelines versus States that don't. It is a natural 
market and so if that was a huge impact, I would think we would 
see it. But at this point we still do not.
    Chairman Issa. Okay. Following up on that, you know home 
mortgages are almost non-recourse. So, basically the only asset 
you have is the property itself. Maryland is no different. You 
are a non-recourse State, is that correct?
    Mr. Kaufman. I believe that's correct.
    Chairman Issa. Okay. So knowing that you can't go after 
other assets, earlier testimony by the mayor of 40 percent of 
all the properties in foreclosures that she dealt with were 
rental properties. Basically you had somebody who was 
collecting the rent, not paying the mortgage.
    Mr. Kaufman. Right.
    Chairman Issa. And you could not go after their other homes 
or property. Realistically the question about being able to go 
after other property, recourse versus non-recourse and all the 
other mortgage questions that I asked your Governor, aren't 
these all things which the petri dish, as you said it so well, 
could be dealing with? In other words, before you come to the 
Federal Government for bankruptcy change and others, are there 
not some others in which States could and should begin making 
those changes so that they protect constituents from an 
unreasonable foreclosure?
    Mr. Kaufman. I guess yes in the general sense, and I think 
we have been trying everything that we can throw at this 
problem. At a high level, I think the Governor's response was 
we are open to any suggestions that people we have. We have 
elongated timelines, we have gone after servicers, we have 
undertaken examinations; we have tried everything we can.
    Chairman Issa. Mr. Matthews' case, for example, he was not 
given a mandatory mediation where he could have shown how 
absurd the foreclosure process had become and how there had 
been no attempt to legitimately look at his willingness to pay, 
his willingness to liquidate his 401 and all the other things 
that they did. In a sense, your State fix should have, if 
available for Mr. Matthews, would have helped him, is that 
correct?
    Mr. Kaufman. Well, our State fix is an opt-in program so he 
would have had to opt-in. My guess, and without getting into 
the timing, is the program just went into effect in July, the 
law just passed. I am not sure that there would----
    Chairman Issa. Well that is what I said, if it had been 
available.
    Mr. Kaufman. The intent is to address that.
    Chairman Issa. Okay. So you have some fixes which in the 
future might protect Mr. Matthews and other are possible?
    Mr. Kaufman. After a lot of damage is done.
    Chairman Issa. A lot.
    Mr. Kaufman. But we are trying, yes.
    Chairman Issa. I thank you.
    Recognize the ranking member for 5 minutes.
    Mr. Cummings. Yes. Just following up on Jim's question, in 
reading your testimony which is excellent, by the way, 
throughout that testimony you seem to express some frustration 
with regard to the limitations of the State. In other words, 
you only can go but so far. Can you comment on that and why it 
is so important that we act on the Federal level?
    Mr. Kaufman. Well I mean on a couple of levels. In very 
real terms, you know the vast preponderance of mortgages in our 
State and every other State are serviced by institutions which 
are primarily federally supervised. And I supervise 50 
community banks on the bank side as banking commissioner. We 
get virtually no complaints relative to their mortgage 
practices of any scope. A vast preponderance are coming from 
institutions that I have no jurisdiction over from a 
supervisory standpoint.
    Mr. Cummings. Because they service their loans, is that 
right, basically?
    Mr. Kaufman. Because if it is a national bank I do not have 
any jurisdiction.
    Mr. Cummings. I am talking about the community banks.
    Mr. Kaufman. The community banks, right, own and service 
their own loans.
    Mr. Cummings. Okay.
    Mr. Kaufman. So that's a piece of it.
    You know, the other piece is even where we have 
jurisdiction, quite candidly, these are national operators 
operating out of State where we're trying to run an examination 
program, trying to oversee institutions which are largely 
beyond the physical reach of our employees with very limited 
resources. Where you are able to identify clear violations that 
you can go after, that is one thing. But when you start trying 
to address sort of system-wide practices of an institution, 
there is a limit in the sense that ultimately it gets down to 
are you willing to pull the license? Are you willing to go in 
and tell XYZ servicer they simply cannot operate in your State, 
which is going to impact the vast preponderance of their 
customers who are actually paying? So there is a limit to what 
can be addressed even where you have regulatory authority.
    Mr. Cummings. Now with regards to the robo-signing 
situation, you commented on that. How many people did that 
affect in Maryland, if you know?
    Mr. Kaufman. I do not think we know at this point.
    Mr. Cummings. Okay.
    Mr. Kaufman. And I would point out again, and this is why 
again I think that the term has caught such fire. It is less 
sort of a technical, and there's a lot of oh, this is a 
technical issue, it is a touch valve. It has more, I think, 
just sort of captured everybody's sense of exactly the sort of 
impersonal and methodical nature of what is going on.
    Mr. Cummings. One of your recommendations was that the 
servicers staff up, that they have more staff. And I just want 
you to comment on that. Because I used to wonder whether or not 
they had any staff. I mean, seriously. I mean, it just seems 
like these papers were going in, I mean they were being faxed 
right into a trash can. So I was just wondering. I mean is 
that----
    Mr. Kaufman. I think resources have been an issue from the 
word ``go.'' I mean I think at the end of the day, you know 
they have staffed up, they have added resources, they haven't 
added fast enough.
    And I go back to, you know I know that there's a lot of 
sort of this consistent hand-wringing from regulators and 
constant sort of political pressure, etc., and public pressure 
from Governors and mayors and so forth. But, you know I believe 
at the bottom line is these guys are not profitable. So it is 
very difficult to ask a money losing enterprise to expect that 
they will sort of on their own continue to invest in issues 
that they need. I mean, it is going to have demanded, not 
requested. And I think that is why it has been slow to come.
    Mr. Cummings. So which entities do you say are not 
profitable?
    Mr. Kaufman. My point is the whole business model, my sense 
from the first time I started talking to servicers 3 years ago, 
is that they signed up thinking they were going to take 
payments, you know receive payments and mail statements. Not 
run call centers. Not do massive mediation. Not run their 
business the way a collection agency runs. I used to go see 
collection agencies as an investment banker. And the first 
question you'd ask is: ``What is your turnover in your call 
center?'' It is a 100 percent. If it is under a 100 percent, it 
is a well running collections agency.
    So these are very difficult businesses to operate. And I do 
not think they had any--I mean I know they didn't have any plan 
to get into that business.
    Mr. Cummings. So they never were equipped to even do this? 
So that means that is----
    Mr. Kaufman. I think we, they, everyone has been chasing 
this problem the whole way.
    Mr. Cummings. Now you heard the testimony of Mr. Matthews. 
Could he have been helped through this mitigation process do 
you think?
    Mr. Kaufman. Well, I mean ultimately if we had gotten to 
mediation, we would at least be able to get the right people in 
the right room. I mean, there is sort of a sense of how do you 
know there's a problem that can be fixed. I think all of us 
that have escalation contacts, we have them, I know your office 
has them, when you escalate they get fixed. And, sure, maybe 
some number that get fixed because of the ranking member or the 
chairman would not have gotten fixed solely on their economics. 
I am not that high up the chain.
    When they are getting fixed because of our escalation 
contacts, I believe they are economic and they still get fixed 
when we escalate them.
    Mr. Cummings. Thank you.
    Chairman Issa. Mr. Walberg.
    Mr. Walberg. Thank you, Mr. Chairman.
    And appreciation of each of you as witnesses today and what 
you bring to the table.
    Ms. Wilson, thank you for the work you do.
    Mr. Matthews, thank you for your service to the country. 
Hearing your testimony and on face value of what you've said 
here, you were submitted to the unjustified perfect storm of a 
breakdown that went there. And I just wish the best as it moves 
forward here. And I think these hearings and as we consider 
further, hopefully, we will come to some conclusions that will 
benefit others as a result of what you have gone through.
    Mr. Kaufman, in listening to your testimony you mentioned 
very clearly that mortgage servicers did not have the 
expertise, the financial incentives or resources to engage in 
large scale mortgage modifications when foreclosures began to 
mount. The question I would ask in context of HAMP then if the 
servicers did not have these incentives, resources or 
expertise, did HAMP provide them with expertise that they 
needed?
    Mr. Kaufman. No. I think the intention was to try to 
provide this through an incentive, at least solve the incentive 
part.
    Mr. Walberg. Did HAMP provide the incentives necessary?
    Mr. Kaufman. Necessary I don't know, and it certainly tried 
to provide additional incentives by definition.
    Mr. Walberg. For large scale modifications?
    Mr. Kaufman. For modifications that were done, correct.
    Mr. Walberg. What about the resources, did HAMP provide the 
resources necessary?
    Mr. Kaufman. No, I think--I mean I know there is a lot of 
concern about HAMP. There is a lot of disappointment HAMP, I 
share that disappointment with all of you. It is no secret that 
the program has not lived up to anyone's expectations.
    You know, the program did not provide expertise.
    I will say one of the things it did do was begin to 
standardize a completely unstandardized modification process. 
That, I think you sort of have to grant. It was the wild west 
of modifications. When we started gathering modification data 
pre-HAMP, it was all over the board and again, it was shocking 
to me as a former business person that most people who got a 
modification wound up paying after then before. You know, we 
did not put it in our initial data requests----
    Mr. Walberg. So in some ways it escalated the problem?
    Mr. Kaufman. Yes. You could look at these at scratch your 
head and say ``Well, how is this every going to--how does this 
work?'' I mean, I couldn't see the underlying case, but the 
numbers were big enough that the rational conclusion that if he 
is here looking for a modification, what is the likelihood he 
is going to be able pay more next month than he could pay last 
month was a head scratcher.
    Mr. Walberg. Yes. To say the least.
    Ms. Wilson, thinking of Mr. Matthews' experience here and 
from your experience in working with cases like this, what was 
the first step that was missed and what you have had you worked 
with Mr. Matthews--I assume you didn't work with Mr. Matthews?
    Ms. Wilson. No, our organization did not work with Mr. 
Matthews.
    Mr. Walberg. What would have been the first step that was 
missed and what would you have taken action on immediately to 
deal with that, to give us instruction and how we can move from 
here?
    Ms. Wilson. Well, I believe Mr. Matthews did have and went 
to one of the local counseling agencies and did have 
counseling. I cannot say for sure that things would have been 
any different had he come to us. There are several very good 
peers of ours in terms of counseling. And----
    Mr. Walberg. Yes, I do not want you to dump on any of your 
peers. I am not asking that. But I am just hearing a complete 
breakdown. In this case we are not talking about the 
stereotypical underwater mortgage from the very get-go. We are 
talking about a military service personnel who had set up 
plans, had the finances in place, had a job that stable but for 
the fact of an accident, as I hear the description here. And 
all of a sudden it just escalates. And how would we stop that?
    Ms. Wilson. I think the way we stop it is to get the 
servicers to do what they are supposed to do. Exactly what 
method we have left to use, I do not know the right answer of 
how we get there. But this is yet another situation where we 
have a breakdown with the servicers not matter what kind of 
assistance the homeowner has on his side.
    Mr. Walberg. Yes. I appreciate that. Thank you.
    I would yield back.
    Chairman Issa. Thank the gentleman.
    Mr. Tierney.
    Mr. Tierney. Thank you.
    I think, Ms. Wilson, you are right and what we have here is 
insufficient regulatory work resulting in a mess for a lot of 
people on it. So how do we work ourselves out of that?
    Mr. Kaufman talked about possible incentives. I tell you as 
a taxpayer it is a little offensive to think that this free 
market enterprise that was not regulated properly has caused a 
huge mess and now in order to get them to straighten out we are 
going to pay them, or give them some incentive on that? I think 
I like the demand side a little bit more; we just make them 
step it up and do it right and that is why we talk about 
cramdown, which incidentally was not a broad-based cramdown 
effect every single mortgage in the world going forward and 
backward and all people. And that was very narrowly targeted 
the cramdown authority that we had talked about and put forward 
on that. But, you know, and I think it is going to take that. 
It is going to take somebody demanding or forcing these banks 
to step up and do what they should do. After having put this 
country in the condition that it is in, I should think they 
would find a way to do that. And I mentioned in some of earlier 
comments made to the other panel, and I think we will let that 
stand on the record.
    Let me ask you, Mr. Kaufman, if we were to eliminate HAMP, 
what do you envision the situation to become?
    Mr. Kaufman. It is not going to help, let me put it that 
way. I mean that is my concern at the end of the day. Look, the 
program is not perfect, but I think it is somewhat where you 
first have to put it in context of where it came from.
    You know, when we started at this and prior to HAMP when we 
started gathering data, there was hope now which I think 
essentially an 800 number and some counseling. And we were not 
doing very well, to say the least. So, I think trying to refine 
this program and trying to push it forward and continue to push 
the process forward is important.
    The other thing I would observe based on what we are seeing 
from the robo-signing effort is if we are going to declare 
ultimately just throw out the program or throw out the baby 
with the bath water, we are doing it in the context of very 
poor execution on the part of the primary party in execution, 
which is the servicer. So we are working to try to remedy that.
    Certainly the State AGs contend, we intend through this 
settlement to the extent we can do to try to reform practices.
    Mr. Tierney. Well, you are doing great work, and I thank 
you for it. You are doing essentially the work that our 
constituent representatives are doing in our office, and they 
are pulling their hair out. So I can only imagine what your 
organization is going through on that.
    But you indicated that you are at sort of a loss as to how 
we resolve this problem. So it is not that I won't ask you, it 
is I think you have answered that.
    But, Mr. Kaufman, if you are going to keep HAMP, what do 
you do to make it work in a way that does not get you so angry 
you want to throw it away?
    Mr. Kaufman. Well, I mean, I think we have talked about 
some of the things that we would intend, we think need to be 
fixed more generally and they apply.
    We would like to see better third party and third party 
review and some sort of ombudsman or something within the 
program for appeal.
    I think that the lack of technology for input into this 
process is pretty poor. The fact that there is not sort of a 
single portal which is being talked about on the State AG side 
for people to be able to get data and information into this, 
better visibility for a consumer.
    I mean, I have the sense throughout this that as a current 
borrower that you have relatively good visibility into your 
mortgage as you pay. And as soon as you stop paying, it is a 
completely opaque process that you cannot really exercise on 
behalf of yourself. So we would like to see that.
    We would like to see the timelines upheld, and that applies 
to HAMP and otherwise. I mean, I think a lot of this applies to 
everything and not just HAMP.
    Mr. Tierney. So the question is now who is going to pay for 
this? Who is going to pay for the personnel and who is going to 
pay for the technology? What is your recommendation there?
    Mr. Kaufman. Well the servicing industry is going to--I 
come back to, I sort had this sense, I don't have a scientific 
study, if these were freestanding small businesses, they would 
go under and the next guy that got hired to do it would say ``I 
am not doing that for a dollar. It costs $5.'' And that would 
be painful, but we would have a process where the market would 
provide $5 of service, I would think. We are not getting there. 
We are not going to get there naturally, at least not in the 
short run. I mean, the long run this industry will reprice. 
There may very well be special servicers, for example, who do 
only delinquent loans, which is what happens in commercial 
loans. And that may happen. And that may work fabulously well 
in 2015. But for the people that are in the process now, that 
is not going to get them there.
    Mr. Tierney. I guess I am still at a loss. How are you 
going to force those services that you are telling us are 
tapped right now, don't have the resources, how are you going 
to force them to hire on extra people and get technology?
    Mr. Kaufman. In most cases the institution----
    Mr. Tierney. The people--that started at the bank.
    Mr. Kaufman. In most cases the institutions that they sit 
within are not, by any means, tapped out. I think there is 
someone in many instances go to a quarterly board meeting and 
announces how much money his division just lost and says that 
he needs to lose even more in the next quarter. And my guess is 
that your corporate advancement is not solid if that's your--it 
is not a winning strategy.
    Mr. Tierney. I want to get that a little clearer on the 
record. We are talking about the people with the deep pockets--
--
    Mr. Kaufman. Yes.
    Mr. Tierney [continuing]. Are the ones that got us into 
this mess in the long-term, are the ones that are going to have 
to pay to get us out?
    Mr. Kaufman. Yes.
    Mr. Tierney. Thank you.
    I yield back.
    Chairman Issa. Does the gentleman yield?
    Mr. Tierney. Sure.
    Chairman Issa. Just to put it, and his testimony is very 
clear, what you are talking about is deep pockets at major 
banks are not in fact hurting, but the servicers which are 
either different divisions or different companies are in fact 
uncapitalized to do this and that is part of the reason that 
Mr. Matthews and all these others have run into robo-signing 
and so on is that the compartmenting, we see the large profits 
of B of A, we do not see the servicing entity separately? Is 
that correct?
    Mr. Kaufman. That is my sense. I mean, I do not have 
somebody's balance sheet. It strikes me that it is very 
unlikely that a transaction processing business model that has 
suddenly become a call center, which is what has happened, can 
operate on economics that looked anything like what they were 
designed to.
    Chairman Issa. Thank you. That is one thing that our 
committee can find out for the record from others that we work 
with.
    Mr. Kaufman. I mean, and it was why I tried to look--the 
GSEs are trying to look at incentive, the compensation models 
for that very reason.
    Chairman Issa. Thank you.
    Mr. Welch.
    Mr. Welch. This is helpful. I mean, the servicers will 
never be able to staff up to do the job if the more they staff 
up, the more they lose. It just will not happen. That's more or 
less what you are saying.
    Mr. Kaufman. It will not happen quickly. It will not happen 
without a lot of duress. And I think that is why it has taken 
public pressure, events that have happened in districts, the 
Governors----
    Mr. Welch. But just explain this to me. The big banks, I 
mean most of these loans have been sold, right?
    Mr. Kaufman. Correct.
    Mr. Welch. So----
    Mr. Kaufman. Some of them are sold and serviced by the same 
institutions.
    Mr. Welch. Right. But many of them are owned by like 
pension funds. They are owned by, well pension fund investors 
who had no clue as to what the future would be anymore than the 
servicers did. So it is not just all owned by the big banks, am 
I right?
    Mr. Kaufman. Correct.
    Mr. Welch. So on a practical level it is the owners of the 
loans that ultimately have to be brought to the table to make a 
decision----
    Mr. Kaufman. Correct.
    Mr. Welch [continuing]. About whether that asset which has 
depreciated by 40 percent, there should be a mark down, right?
    Mr. Kaufman. Correct. But it falls to the service provider 
to provide the level of service to even get to the 
decisionmaking process. And that servicer has to provide the 
service.
    Mr. Welch. Right. But if you have this loan, you know is it 
my mortgage or Mr. Matthews' mortgage, let's say, is divided 
into 20 different tranches, so literally there is 20 different 
owners out there somewhere that are making a claim on Mr. 
Matthews and you have a servicer trying to balance the 
competing interest of those 20 different owners, how does that 
possibly get done?
    Mr. Kaufman. The conundrum of the fragmentation of the 
underlying security is sort of a separate issue from the 
problem that I am even getting to.
    Mr. Welch. So that----
    Mr. Kaufman. But that is another layer of questions.
    Mr. Welch. See, two things seem to get in our way. I mean, 
one, often times we get into the argument about who is 
responsible; the big banks, the mortgage originators, the 
individual homeowners who brought the MacMansion when they 
could have for a house.
    Mr. Kaufman. Yes.
    Mr. Welch. And there is plenty of Fannie Mae, Freddie Mac, 
a lot of focus there. And there is plenty of blame to go 
around.
    Mr. Kaufman. Yes.
    Mr. Welch. I think what we're hoping on this committee, it 
is, look--we've got a practical problem. We had the Governor in 
here, we had the mayor in here, and they are dealing with the 
devastating consequences of people getting foreclosed on, 
neighborhoods starting to fall apart. It is really bad. So, I 
see this as a practical problem that is very difficult to 
resolve because there is such fragmentation. So if you had a 
suggestion on something concrete where we just sort of put our 
rhetorical guns back in our holsters for a while and stop 
having the debate about who is at fault because there is plenty 
of fault to go around, what would be a practical way where 
basically you would be able to sooner rather than later make a 
decision on: All right, this loan is hopeless and it will be 
foreclosed; this loan could be saved if we made some 
modification? I mean, what would be the legislative or legal 
things we would have to do in order to allow that to happen?
    Mr. Kaufman. You know, that is what the program has tried 
to do with the NPV calculation, which is a little opaque for 
those of us on the outside. And that is essentially the 
calculation that is trying to be run and then get some better 
clarity as to what's in it and harmonization in that 
calculation.
    Mr. Welch. But at the end of the day nobody has authority. 
You have a servicer who has a bad business model----
    Mr. Kaufman. The servicers, I mean we have talked to--it 
has been a little while, but when we did our initial round at 
the behest of the Governor, I met with servicers. And we said 
``Do you have the authority to do what you need to do?'' They 
generally said yes. I mean, it was not a legal question, 
although we did have, and I would again give HAMP some credit 
for this, we did have people say that we have to defend what we 
do as prudent and ordinary course of business practice. And in 
that regard, I would note that the modification program has at 
least provided some notion of what is routine and ordinary 
course, which presumably gives them better defense. But they 
did not come in, frankly, as aggressively as we expected at all 
with ``Hey, our hands are tied.''
    Mr. Welch. Yes.
    Mr. Kaufman. That is not it.
    Mr. Welch. Well, thank you very much.
    Mr. Cummings. Will the gentleman yield?
    Mr. Welch. Yes, I yield.
    Mr. Cummings. Just one clarification going back to 
something that the chairman said.
    Mr. Kaufman, when we have a situation where--I mean a lot 
of these servicers are owned by the banks, right? I believe it 
was asking about deep pockets, is that right?
    Mr. Kaufman. Yes. Yes.
    Mr. Cummings. Well, do you have a percentage or would you 
guess?
    Mr. Kaufman. Of the top five, all but one is State licensed 
but is a subsidiary. But they virtually all are. I mean, our 
jurisdiction as a license server, because we do not do much of 
that reporting anymore because the number of people who have to 
report to us is below 15 percent of the market. So that gives 
you some approximate for it.
    Mr. Cummings. Thank you.
    Chairman Issa. Could you stay for a few more follow-up 
questions?
    Mr. Kaufman. Sure.
    Chairman Issa. Mr. Kaufman, you actually scared me a little 
bit when you said basically like commercial, we should work to 
workout units. You know, there are all kinds of workout units 
in the commercial market.
    Mr. Kaufman. Right.
    Chairman Issa. And I remember from my own days in business 
that, you know, you would do anything to modify not to go to 
that workout unit. But your point, and I think the ranking 
member hit it very well, there is basically an artificial wall 
between the servicing division and the banks if the bank is 
holding the mortgage. If the bank is not holding the mortgage, 
if Freddie and Fannie were some other entity, some pension plan 
or whatever is holding it, then it really is not artificial 
because that entity's line does not go back to the bank's 
capital base, it goes back to the Federal Government, is that 
correct?
    Mr. Kaufman. If I am following you correctly, yes.
    Chairman Issa. Yes. So as this committee goes through its 
due diligence to try to get through, and the gentleman said, 
you know our guns in the blame game. And he is right, that 
often is part of what the committee does. But also figuring out 
how do we get a reform and where do we get the money for a 
reform from?
    Currently Freddie and Fannie have received over $150 
billion, HAMP has obligated over $30 billion. So it appears as 
though Freddie and Fannie are still losing money and their $7 
trillion portfolio would be well served if this system worked 
better. Would you agree?
    Mr. Kaufman. Sure.
    Chairman Issa. So in your background how often do you see 
any difference in the actions of the servicer based on whether 
the GSEs hold the loans or some other entity? Do you see any 
discernable difference in how the servicers do their job?
    Mr. Kaufman. When the cases come to us, that is not really 
an issue that seems to come up, frankly.
    Chairman Issa. And this is my real question here that I 
sagaciously got to: If we bring Freddie and Fannie in, and 
perhaps the third largest holder of this debt, and we asked 
them what they are going to do to do a better job of 
interfacing with the servicers to get the right outcome to 
minimize foreclosure, to maximize benefit for these values, do 
you believe we would be well served in pushing that end of it? 
Because you mentioned that the servicers only have so much 
money, but the real loss is at the GSEs.
    Mr. Kaufman. I think the GSEs are, I mean my understanding 
and you all are closer to this than I, is that the FHFA and 
GSEs are already looking at compensation practices and trying 
to see what they can do to reform service for compensation in 
order to better align the incentives. So, yes.
    Chairman Issa. Although it has been several years since 
this problem began.
    Mr. Kaufman. I am not here to defend the--but I think they 
do recognize the issue. I mean, that the system needs to be 
addressed.
    Chairman Issa. This is one of the problems we find in 
Government, is everybody's about to reorganize about the time 
we are willing to close down something. And it seems to be 
miraculous how that works.
    Anyone else need to followup?
    Mr. Cummings. Just real quick.
    Chairman Issa. Mr. Cummings.
    Mr. Cummings. Just going back, you know we have a situation 
where Mr. Matthews, I am just curious. Did you ever--you said 
there was quite a bit of damage done to your place. What kind 
of money did you have to spend for that?
    Mr. Matthews. Basically when you start, they call it 
winterizing the house----
    Mr. Cummings. Yes.
    Mr. Matthews. I know specifically now when you put things 
through your pipes, you basically had to winterize the place, 
draining pipes to make sure everything is so when it gets cold, 
basically the pipes do not freeze.
    Mr. Cummings. So what did it cost you to get it?
    Mr. Matthews. It cost me approximately $1,500 to replace 
the hot water heater and any standing pipes in my house.
    Mr. Cummings. And you have not been reimbursed for that?
    Mr. Matthews. No, sir. I have not been reimbursed for that 
either.
    Mr. Cummings. I am sorry you went through all of that. So 
you are still in the process, and you are still in the process 
of going through this?
    Mr. Matthews. Yes, sir. There has been a lot more process, 
basically we are still going through the process as we speak.
    Mr. Cummings. There is just two documents I want to get 
into the record, Mr. Chairman.
    Aforementioned Counselor Bernard Jack Young has submitted a 
statement for the record, and I ask unanimous consent that it 
be included in the record.
    Chairman Issa. Without objection, so ordered.
    [The prepared statement of Mr. Young follows:]




    
    Mr. Cummings. Additionally I ask that a statement from the 
National Community Reinvestment Coalition be also included in 
the record.
    Chairman Issa. Without objection.
    Mr. Cummings. Thank you, sir.
    [The prepared statement of the National Community 
Reinvestment Coalition follows:]





    Chairman Issa. Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Chairman.
    Mr. Kaufman, I agree with you that Fannie Mae and Freddie 
Mac could get into it. What we really need is the Federal 
Housing Finance Agency who is now their overseer to come in.
    Mr. Kaufman. Yes.
    Mr. Tierney. And I would like very much to have them come 
in front of this committee so he could answer of why he is not 
acting aggressively enough to have these other, the big banks 
and the other people who will make the ultimate decision on 
writing down principal, why he is not insisting that they do 
that, particularly where it would save the taxpayer investor in 
this case and Freddie Mac and Fannie Mae money, where actually 
getting a modification would save you more than going through 
the foreclosure procedure, he should come in and he should 
answer that or he should pack up and leave on this basis, and 
the administration get going.
    The head of the OCC, same thing. Why are they not using 
their regulatory authority to get this thing resolved? He is 
making statements on records of different hearings about 
worried about the conditions of the banks. The banks have made 
more money in this past year then they were making before the 
recession. So I am not sure if we should be as worried about 
their financial health right now as we should about these 
homeowners like Mr. Matthews and the people that Ms. Wilson is 
dealing with and get them going. And maybe he should pack his 
bags and leave town if he cannot see a way to do the job on 
that.
    But I hope the chairman has a hearing and brings in the 
head of the Federal Housing Financial Agency, the OCC, the 
large banks and maybe start with the top five or whatever and 
let them tell us why they cannot recognize reality that someday 
they are going to have to acknowledge the point to all of those 
mortgage loans that those properties aren't worth what they 
were. And that in some instances they should and could write 
down the principal, but they all refuse to recognize that and 
take that step because they think somehow mystically it is 
going to come around and their books are going to balance out 
in the future.
    So, Mr. Kaufman, you have been helpful to us and we thank 
you for that.
    Mr. Matthews and Ms. Wilson, thank you for your personal 
stories and the work that you are doing.
    And again, Mr. Matthews, to you I hope that things resolve 
quickly and favorably for you and that you are so emblematic of 
so many people that call my office, and the story that Ms. 
Wilson told us the same. So we need to do something, and we 
will. Thank you all.
    Mr. Matthews. Thank you.
    Chairman Issa. Mr. Walberg.
    Mr. Walberg. Thank you, Mr. Chairman. And thank you for 
holding this field hearing.
    And I thank each of you for sharing your testimony with us, 
your thoughts and ideas.
    And I would agree with my good colleague from Vermont that 
we have a problem here now, and it is not so much the blame 
game, it is how do we deal with it. How we complete the process 
and get ourselves back on track. And I think, Mr. Matthews, you 
illustrate something that puts a pace in front of the problem, 
the key problem.
    But I think we would be remiss, too, on this committee and 
in Congress if we do not look back even further to 2006 or so 
when indicators were very clear that we are going to have a 
meltdown and Congress refused to act at that point. The 
leadership refused to take the necessary steps to say ``Yes, we 
have a problem and it is going to result in human suffering 
that we could deal with right now if we would do it.'' That did 
not take place and now we have the results.
    We can talk about cramdown, we can talk about Government 
getting involved, we can talk about whacking different entities 
in the process, but let us not forget that when the time was 
there, indicators were there that there was a financial crises 
looming that was going to take this country to its knees, to a 
great extent, it was not dealt with. And we would do well to 
remember that for the future.
    Thank you.
    Chairman Issa. The ranking member.
    Mr. Cummings. Thank you very much.
    Just to you, Mr. Kaufman, I know that negotiations are 
going on with regard to this settlement. I mean, when we read 
the newspaper articles about it and whatever, it sounds like it 
is going to be a robust settlement that is going to, hopefully, 
and I know a lot is in dispute and you are trying to figure it 
out. Without disclosing anything you should not be, I am just 
wondering are you hopefully that settlement because it is going 
to resolve a number of these issues? Because just the other day 
some of us met with Secretary Donovan and Secretary Geithner 
and they seemed to have some confidence. I was just wondering, 
do you?
    Mr. Kaufman. Yes, I mean we are hopeful. It is a robust 
group. The States have a lot of expertise in this area from the 
regulatory standpoint and from having managed, tried to deal 
with the fallout of what you have seem by banning together we 
have an opportunity to have a voice that individually we have 
not had. For those of us that have been in the group for going 
on 4 years, this is finally an opportunity to really have a 
more meaningful discussion with teeth then anyone of us can 
have on their own. At the end of the day anyone of us as we 
talk about it falls back ``Am I going to put this guy out of 
business?'' And that is a tough threat in a State where most 
people are still paying and need the services that this 
servicer provides on an ongoing basis.
    So, you know, we are very hopeful.
    Mr. Cummings. And again, I just want to thank all of our 
witnesses and everybody here at the University of Maryland for 
all that you have done to make this happen.
    Mr. Chairman, I do appreciate you coming to Baltimore. As a 
matter of fact, within 2 minutes of my house. Cannot do much 
better than that. Thank you very much.
    And to my colleagues, I thank you all for being here, too.
    Chairman Issa. You know, next time though we've got to 
figure out how to carpool.
    And with that, I too would like to thank all the witnesses 
and all those who attended the entire hearing.
    And with that, the committee stands adjourned.
    [Whereupon, at 11:34 a.m., the committee was adjourned.]

                                 
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