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

     FAILURE TO RECOVER: THE STATE OF HOUSING MARKETS, MORTGAGE SERVICING
                          PRACTICES, AND FORECLOSURES

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

                                    HEARING

                             COMMITTEE ON OVERSIGHT
                             AND GOVERNMENT REFORM

                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 MARCH 19, 2012

                                   __________

                               Serial No. 112-134

                                   __________

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

             Available via the World Wide Web: http://www.fdsys.gov
                          http://www.house.gov/reform

                                   ----------
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    74-040 PDF                       WASHINGTON : 2012

    For sale by the Superintendent of Documents, U.S. Government Printing
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    Washington, DC 20402-0001

                  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 19, 2012...................................     1
    Statement of:
        Morgan, Morris, Deputy Comptroller for large Bank
          Supervision, Office of the Comptroller of The Currency.....    13
        Killian, Suzanne G., Senior Associate Director for The
          Division of Consumer and Community Affairs, Federal Reserve
          System.....................................................    45
        Pollard, Alfred M., General Counsel, Federal Housing Finance
          Agency;....................................................    58
        Schuppenhauer Eric J., Senior Vice President, Mortgage
          Banking-Core Servicing and Borrower Assistance Executive,
          JP Morgan Chase Bank, NA;..................................    69
        Ohayon, Joe, Senior Vice President, Community Relations,
          Wells Fargo Home Mortgage..................................    81
        Jaffee, Jeff, Chief Regulatory Affairs Officer, Citimortgage.    90
        Sellers, Sheila..............................................    97
        3Schack, Arthur M., Supreme Court Justice, State of New York;   122
        Faux, Meghan, Deputy Director, South Brooklyn Legal Services;   132
        Pinto, Edward, Resident Fellow American Enterprise Institute.   145

     FAILURE TO RECOVER: THE STATE OF HOUSING MARKETS, MORTGAGE SERVICING
                          PRACTICES, AND FORECLOSURES

                                  ----------

                             MONDAY, MARCH 19, 2012

                      House of Representatives,
                  Committee on Oversight and Government Reform,
                                                        Washington, DC.
        The Committee met, pursuant to call at 9:30 a.m., in
    Borough Hall, 209 Joralemon Street, Brooklyn, New York, Hon.
    Darrell Issa (chairman of the committee) presiding.
        Present: Representatives Issa, Platts, Towns, and Cummings.
        Staff present: Linda Good, Chief Clerk; Christopher Hixon,
    Deputy Chief Counsel, Oversight; Justin LoFranco, Deputy
    Director of Digital Strategy; and Rebecca Watkins, Press
    Secretary.
        Chairman Issa. Okay, if we can all start taking our seats
    we are going to start in about 30 seconds. Thank you.
        The committee will come to order.
        The Oversight Committee's mission statement is that we
    exist to secure two fundamental principles: first, Americans
    have a right to know 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.
        [Disturbance in the hearing room.]
        Chairman Issa. Please clear the room of anyone who is
    speaking out of turn. Please remove the protestors.
        [Disturbance in the hearing room.]
        Chairman Issa. Please remove the protestors.
        [Disturbance in the hearing room.]
        Chairman Issa. Please remove that gentleman. Thank you.
        [Disturbance in the hearing room.]
        Chairman Issa. Ladies and gentlemen, as they finish
    clearing, this is democracy at work. This was the first 5-
    minute opening statement. These, of course, were unsworn
    testimonies and we will not have a chance for rebuttal.
        While they are leading, I would like to take a moment to
    thank Mr. Towns because, in fact, this is the second time we
    have been here on this subject. He, in fact, has been steadily
    working for every person who just left and for every person
    that remains. We will now------
        [Disturbance in the hearing room.]
        Chairman Issa. Okay, perhaps there were two opening
    statements.
        Americans deserve an efficient, effective government that
    works for them. Our duty, on a bipartisan basis, 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. Our job is to work
    tirelessly in partnership with citizen watchdogs to deliver the
    facts to the American people and bring genuine reform to the
    American bureaucracy.
        Today's hearing continues the committee's extensive efforts
    to explore the causes and consequences and ongoing problems
    plaguing the housing market. A year ago this month, the
    committee held a similar hearing in Baltimore, Maryland, with
    Ranking Member Cummings, who sits to my right. We did so on
    much the same subject and with a slightly different panel. Two
    years earlier, we were here in Brooklyn, a time in which prices
    were still dropping on homes and the eventual outcome was still
    unclear.
        I am pleased to note that last month we reached a 2-year
    high in national home prices, meaning it is possible the bottom
    is behind us. But as we look at our first and second panels
    today, it is clear that people in and out of this room are, in
    fact, still suffering.
        I might note that this committee 5 years ago, 2007, shortly
    after the Democratic majority was named, went to Cleveland with
    my good friend Dennis Kucinich. There we saw the beginning of a
    problem, one that perhaps Mr. Cummings and Mr. Towns have also
    seen. In 2007, Cleveland was reporting a significant blight.
    Home affordability was still technically there, you could get
    those loans that we talked about and will talk about today.
    But, in fact, the price of homes has stopped rising and
    suddenly there were a mass of people abandoning their homes and
    leaving to eventual foreclosure.
        Since 2009, the Obama administration has launched dozens of
    housing refinancing programs in an attempt to mitigate the
    foreclosure prices. But I believe there is universal agreement
    that these programs like HAMP have failed to help or at least
    have been not sufficiently up to the task of helping the
    hurting homeowner.
        Unfortunately, despite all this government's interventions
    in the marketplace, conditions for homeowners across the
    country have not improved. And in some ways, until recently,
    they have gotten worse. Today, still 28 percent of all
    borrowers in this country are underwater. That is more than in
    2009 when the President took office.
        We continue to examine the causes of foreclosure prices and
    assess the pain experienced by millions of homeowners now
    facing foreclosure. I am committed to find workable solutions
    to getting the government out of the housing market where
    appropriate and into the housing market if necessary.
        More than anything else we know that high unemployment will
    continue to lead to people not being able to afford homes
    regardless of whether they have equity or not. Only a broad-
    based economic recovery will ultimately be a significant cure
    to this wave of private sector foreclosures.
        It is fitting that we convene today here in Brooklyn, the
    district of my good friend and former chairman of the committee
    Ed Towns, and a neighborhood where homeowners are no strangers
    to foreclosure. Doubtlessly a tough economy and consistently
    high unemployment in Brooklyn are linked to the foreclosures.
    Additionally, as America's first suburb, many people in
    Brooklyn worked on Wall Street, and Wall Street earnings are
    certainly not what they were a few years ago.
        Currently about 6,000 homes are in foreclosure in this
    area. Against back drop we examine the causes and effects of
    the continued record foreclosures.
        Reports emerged almost 2 years ago of some mortgage
    servicers committing violations of the law. Clearly we have
    looked into this, the Federal Government has looked into it,
    state governments have looked into it, and we found wrongdoing.
    Most notably, the term ``robo-signing'' is a buzzword for
    wrongdoing on that side. But let us understand, in many cases
    these were infractions after homeowners quit paying. They are,
    in fact, failures by a swamped organization or organizations
    who were unequipped to deal with the quantity of foreclosures
    and perhaps unwilling to make the investments in additional
    personnel and training necessary to do it and do it right.
        The Office of the Comptroller of Currency and the Federal
    Reserve were at the forefront of investigations of these
    allegations and have taken many remedial actions. The Committee
    has worked closely with both agencies throughout the year on
    their efforts, and representatives from both these agencies are
    here today to update the committee on compliance with the
    enforcement actions.
        We will also hear today from the Federal Housing Finance
    Agency, or the FHFA, on the role of Fannie Mae and Freddie Mac
    in the foreclosure crisis and what mitigation efforts are in
    place to deal with the foreclosures of properties owned or
    guaranteed by the American people. We must remember, however,
    that Fannie and Freddie played a large role in getting us into
    this mess. Not an exclusive role, perhaps not even the first to
    lead in that role, but a major role, and up until today have
    cost American taxpayers approximately $180 billion that will
    not be returned.
        The FHFA's primary responsibility is to protect taxpayers
    against additional losses. And I look forward hearing from our
    witness on these efforts.
        Again, the primary responsibility of FHFA is to protect
    taxpayers. If, in fact, making or redoing loans is in the
    protection of those loans, it is their obligation to make those
    modifications. If, in fact, it is not in the best interests of
    the taxpayers and will lead to greater loss, it is their
    fiduciary responsibility not to do so.
        I stress that point because, in fact, we have not changed
    the law on bankruptcy in a major way since 1978 effecting home
    loans. We have not changed the responsibility of this agency
    before, during, or even til today.
        Chairman Issa. We also will hear from the four largest
    mortgage servicing companies in the country. And I want to
    thank them for being here today. These witnesses are not here
    because they want to be here. They are here because they have a
    great obligation. They, in fact, have a history of both success
    and failure. We want to hear about both. We want to know that
    the servicing operations and borrower assistance programs they
    have in place are helping struggling homeowners.
        I want to thank our witnesses for being here. I want you
    all to feel that this is a fair hearing, so I will announce in
    advance we will have a full round. We expect to have a limited
    second round if there is time. And we will invite all of you to
    extend your remarks and answer additional questions if you are
    willing in writing so that all of you will have a full and
    complete opportunity to be heard both today and in follow-up.
        And with that I will now recognize the ranking member, Mr.
    Cummings, for his opening statement.
        Mr. Cummings. Thank you very much, Mr. Chairman. And Mr.
    Chairman, I sincerely thank you for bringing this hearing to
    Brooklyn. And I want to thank Congressman Towns for your
    tremendous hospitality in inviting the committee to your
    district, but I also thank you for all of your hard work on
    behalf of your district and for all Americans who are going
    through this dreadful thing called foreclosure.
        It is a pleasure to be here to examine the Nation's housing
    market and to hear from four of the Nation's largest mortgage
    servicers. According to the Federal Reserve as much as $7
    trillion in household wealth may have been destroyed by the
    collapse of our Nation's housing market, and home prices are
    still falling. The firm realty track is estimated there have
    been nearly 4 million foreclosures since 2007. Today there are
    11 million homeowners who owe more on their mortgages than
    their homes are worth. That is more than 20 percent of all
    households with a mortgage.
        According to Mark Zandi, chief economist of Moody's
    Analytics, the housing is ground zero for the economy's
    problems, high unemployment and loss of jobs. The reason is
    simple: the purchase of a house is the largest, single
    investment most Americans will ever make. Experts agree that we
    cannot fully renew our Nation's economic growth until families
    see these investments stabilized and eventually recover their
    value.
        In my opinion, stabilizing the housing market requires two
    key actions.
        First, the mortgage servicing industry has to stop abusing
    borrowers. The banks testifying today recently settled
    allegations by the Department of Justice and 49 state attorneys
    general--by the way, both Republican and Democrat--that they
    engaged in, and I quote, ``Unfair and deceptive consumer
    practices,'' end of quote, with respect to loan origination,
    loan servicing, and foreclosure management as well as
    violations of the False Claims Act and the Financial
    Institutions Reform and Enforcement Act and the Serviceman's
    Civil Relief Act. I did not say that, the attorney general said
    that.
        The national mortgage settlement is the largest Federal/
    state settlement in history and requires services to provide
    $25 billion in relief and restitution to homeowners, states,
    and the Federal Government.
        The banks testifying today also owe monetary penalties in
    more than $1 billion to their Federal regulators, the Federal
    Reserve, and the OCC for their, and I quote, ``Unsafe and
    unsound practices and violations of applicable Federal and
    state law and requirements,'' end of quote.
        As a result of the settlement and these enforcement
    actions, we will, hopefully, have a mortgage servicing industry
    that complies with the law, simply complies with the law, that
    services mortgages effectively and efficiently, and that
    immediately halts the widespread systemic abuses against
    homeowners.
        I applaud the steps that have finally been taken by the
    Obama administration, the independent regulators, and the
    states to resolve the abuses, but we must have a full
    accounting of the scope of these abuses to ensure that everyone
    who has been harmed receives relief.
        The second action I believe that is necessary to stabilize
    the housing market is to provide meaningful aid to borrowers
    who are underwater. Under the national mortgage settlement, the
    banks will provide at least $17 billion to borrowers who have
    the intent and ability to stay in their homes, 60 percent of
    which goes to the reducing principal balances for borrowers in
    default or at risk of default.
        This aid will help hundreds of thousands of borrowers, but
    the reality is that many families that call their servicers
    seeking aid may be disappointed. They will discover that their
    loans are not eligible because they are guaranteed by Fannie
    Mae for Freddie Mac. Their regulator, the Federal Housing
    Finance Agency, has forbidden them from offering loan
    modifications that include principal reduction. These families
    will discover that they are ineligible for principal reductions
    regardless of how strong their credit is.
        FHFA's refusal to allow Fannie Mae and Freddie Mac to
    participate in this settlement is inexplicable. I have joined
    with Representative Tierney, who has been a tireless advocate
    for homeowners, in asking the acting director of FHFA, Mr. Ed
    DeMarco, to explain his blanket opposition to principal
    reduction. In response, Mr. DeMarco has asserted that principal
    reduction is not going to be the least cost approach for the
    taxpayer. By the terms of his own data, which he finally
    provided the committee in January, it appears that just the
    opposite is true. Principal reductions save more money than any
    other type of modification, including principal forbearance,
    particularly for Fannie Mae. For that reason FHFA should
    authorize Fannie Mae to offer principal reductions as soon as
    possible.
        Because of his ideological objections to providing the most
    effective aid available to underwater borrowers, Ed DeMarco may
    be the biggest hurdle standing between our Nation and the
    recovery of our housing market. It is time for him to become
    part of the solution or step aside.
        And with that, Mr. Chairman, I yield back.
        Chairman Issa. I thank the gentleman.
        Chairman Issa. And it is now with great pleasure that I
    recognize my good friend the former chairman of this committee,
    the man who brought us here today, Mr. Towns, for his opening
    statement.
        Mr. Towns. Thank you very much, Mr. Chairman. I want you to
    know that we are delighted to have you in Brooklyn. In spite of
    the reception that you received, we are delighted to have you,
    no doubt about it.
        Chairman Issa. Those people are from Manhattan, I am sure.
    [Laughter.]
        Mr. Towns. I am sure. I am sure.
        [Disturbance in the hearing room.]
        Mr. Towns. We are delighted to have you here.
        Let me just say that it is my pleasure to welcome the
    members of the Oversight and Government Reform Committee to the
    great borough of Brooklyn to discuss solutions to the national
    foreclosure crises. This is an issue that is critical to the
    economic stability of Brooklyn, the State of New York, and the
    Nation. Mr. Chairman, I thank you and Ranking Member Cummings
    and Congressman Platts for traveling to Brooklyn for this
    hearing.
        In 2011, the Federal Reserve Board of New York reported
    that one in eight Brooklyn home mortgages was either in
    foreclosure or in danger of being in foreclosure. In some
    neighborhoods, like Bedford-Stuyvesant, Crown Heights, Cypress
    Hills, East New York, and Canarsie, the foreclosure rate is one
    of every four homes. Families and homeowners in these
    communities were the subject of excessive subprime lending in
    2003 and through 2007. This problem, coupled with high
    unemployment rates and loss of business income, has exacerbated
    the rate of foreclosure in these communities. As the number of
    foreclosures filed in Brooklyn rose from 3,000 in 2006 to 7,000
    in 2012, our witness, Judge Schack, has shown that he refuses
    to provide a rubber stamp on a deeply flawed process, and we
    salute him for that.
        As former chair of this committee, one of the causes I
    championed was ensuring that legal professionals would be
    available to provide foreclosure prevention and legal services
    in our neighborhoods across the country. Today in Brooklyn, we
    have a model that is being duplicated across the country. To
    that end I thank Legal Services of New York City for working
    with my staff to confirm that resources will continue to be
    available to keep Bedford-Stuyvesant Legal Services and
    Brooklyn Legal Service Corporation, Inc., operating in the
    heart of Bedford-Stuyvesant, Bushwick, Cypress Hills, East New
    York, and Canarsie.
        I also thank the Honorable Betty Staton and Catherine
    Asobie for Bedford-Stuyvesant Community Legal Services and
    all--and, of course, Mr. Bryan of Brooklyn Legal Services
    Corporation A for their outstanding work on foreclosure
    assistance to the community.
        I would be remiss if I do not encourage the growth of the
    newly formed New York State Foreclosure Defense Bar headed by
    Attorney Yolande Nicholson to ensure that legal services are
    available to all homeowners facing foreclosure no matter what
    their income bracket is.
        We are fortunate to have with us today Bank of America,
    CitiMortgage, JPMorgan Chase, Wells Fargo. It is my hope that
    the banks will explain what they have been doing to address the
    foreclosure crisis here in Brooklyn and nationally. The courts,
    the legal service providers, and most importantly Brooklynites
    are eager to hear from you.
        We will also hear from the Federal Reserve and the Office
    of Comptroller of the Currency, who are the government
    regulators enforcing actions against servicers to address
    patterns of misconduct and negligence. The Federal Housing
    Finance Agency will also be with us to share their initiatives
    on how to help the 60 percent of borrowers nationwide whose
    mortgage they own.
        This hearing will address a serious problem that has great,
    great, great impact on the economic recovery of this country. I
    look forward to getting solid, workable answers from our
    witnesses.
        Again, let me thank you for coming to Brooklyn. And, of
    course, I think it is so important that we are able to listen
    to people right in the area where there is the epicenter, and
    Brooklyn is definitely the epicenter. And I am happy to have
    you hear and hope that as a result of our being here that we
    will be able to ascertain some information that we can go back
    to Washington to begin to work on the problem. Because in many
    cases a person's home is the only thing that they have and we
    should make certain that they do not lose it.
        Thank you very much, Mr. Chairman. And thank you again for
    coming.
        [The information follows.]

        [GRAPHIC(S) NOT AVAILABLE TIFF FORMAT]

        Chairman Issa. Thank you. And thank you for your leadership
    on this issue.
        At this time I would ask unanimous consent that the article
    in the January of this year verdict by Yolande Nicholson be
    placed in the record entitled ``The Elusive Plaintiff Problem
    in Foreclosure Actions.'' Without objection, so ordered.
        We now go to our first panel of witnesses. I would like to
    recognize Mr. Morris Morgan, who is deputy comptroller for
    large bank supervision at the Office of the Comptroller of the
    Currency. Ms. Suzanne G. Killian is senior associate director
    for the Division of Consumer and Community Affairs at the
    Federal Reserve. Mr. Alfred Pollard is general counsel of the
    Federal Housing Finance Agency. Mr. Eric--and it is
    Schuppenhauer? Close enough, okay. Is senior vice president of
    mortgage banking at JPMorgan Chase Bank. Mr. Joe Ohayon--oh, my
    goodness you just had a heck of a holiday. I have got to get
    the O right. [Laughter.] Ohayon is senior vice president for
    community relations at Wells Fargo Home Mortgage. Mr. Jeff
    Jaffee is Chief Regulatory Affairs Office of CitiMortgage. And
    Ms. Sheila Sellers, is national mortgage outreach executive for
    Bank of America.

                        STATEMENTS OF WITNESSES

        Chairman Issa. I would like to welcome you all here and I
    would like to ask that you please rise to take the oath
    pursuant to our committee regulations.
        [Witnesses sworn.]
        Chairman Issa. Let the record reflect that all witnesses
    answered in the affirmative. Please take seats.
        Field hearings are exactly the same as hearings in
    Washington except we get more local color. So just as in
    Washington, for those who have seen it, ladies and gentlemen
    who remain, this is a hearing not run by Republicans or
    Democrats. This is a hearing in which the people of Brooklyn
    have a unique opportunity because of their member to
    participate in a respectful way. These individuals were brought
    here not because they necessarily wanted to be here, but
    because Mr. Towns and Mr. Cummings asked to have these
    witnesses. They represent regulators and banks. Many of the
    people who have left the room dislike the regulators because
    they have not done enough and the banks because they did not do
    it right. This is your chance to hear them being asked
    questions.
        They will, in fact, be held accountable. That is what we do
    here. I will ask that, please, from here on, understand that
    exactly the protestors' sentiment is why we are here today.
    This is something that has been asked for and asked for by the
    very groups that left here after being disrespectful.
        So if you want to remain, please remain. Please limit your
    talk, whether you are a protestor or simply not as interested
    as you should be, please limit it to whispers at most. If we
    have disruptions, I will ask people to leave and they will have
    to leave. This is too important to the people of Brooklyn, the
    people of America not to get it right.
        Mr. Cummings. Mr. Chairman? May I just------
        Chairman Issa. Yes, of course.
        Mr. Cummings. Thank you very much for yielding, Mr.
    Chairman. I would ask the same thing of the witnesses. This is
    a hearing that we had asked for and Mr. Towns has been very
    instrumental in that. And it is important, I agree with you,
    Mr. Chairman. There are people who have come out here to hear
    this. It is a very unique and special hearing. And I would ask
    those who may have disagreement that you keep those to
    yourselves and let us get through this, and we really would
    appreciate that. And thank you for your time.
        Chairman Issa. Thank you. We ask that you observe the light
    in front of you, try to stay within the spirit of the 5-minutes
    or less. Understand that your entire opening statements,
    prepared statements, will all be placed in the record, so you
    need not make sure you read it all. You can ad lib if
    appropriate and you certainly can skip over areas, recognizing
    that if your statement is beyond 5 minutes, the last part will
    not be heard if you go substantially beyond it.
        So we will go down the row starting with Mr. Morgan and be
    recognized for 5 minutes.
        Mr. Morgan. Chairman Issa------
        Chairman Issa. And see if you can get the mic a little
    closer. We cannot quite hear you.

                       STATEMENT OF MORRIS MORGAN

        Mr. Morgan. Chairman Issa, Ranking Member Cummings, and
    members of the committee, my name is Morris Morgan, and I am a
    deputy comptroller for large bank supervision at the OCC. I
    have been a national bank examiner for 26 years and I am
    responsible for overseeing the activities of several of the
    large mortgage servicers and their compliance with the OCC's
    enforcement actions issued in April 2011. I appreciate the
    opportunity to appear before you this morning.
        Nearly a year ago, the OCC issued comprehensive enforcement
    orders against the major mortgage servicers we supervise to
    correct a wide range of deficient and unsafe and unsound
    practices documented in the orders, identify borrowers who may
    have suffered financial harm as a result of those practices,
    and provide any harmed borrowers with financial remediation.
    Simply put, we wanted to fix what was broken, identify
    borrowers who were financially harmed, provide compensation for
    that injury, and make sure this does not happen again. My
    written testimony details extensive work performed by our
    examiners and their findings that became the foundation for our
    enforcement actions.
        My statement also describes the wide range of mortgage
    servicing and foreclosure processing activities we have
    required servicers to correct. These efforts include
    improvements in mortgage servicing, foreclosure processing, and
    oversight in management of third-party service providers.
        The OCC has also required the servicers to retain
    independent consultants to conduct a review of each servicer's
    foreclosure activities for 2009 and 2010. This review has two
    parts. First, a request for review process for borrowers who
    believe they were financially harmed by defective servicing and
    foreclosure practices; and second, a file review.
        This is a significant undertaking. As of last week, more
    than 121,000 requests for review have been received and the
    file review at national banks contain nearly 135,000 borrowers.
    Therefore, more than a quarter million files are currently
    slated for review and this number will in increase.
        The request for review process was launched last November
    1st. Since then, more than 4.3 million letters have been sent
    to borrowers explaining how they can request an independent
    review. Requests for review may be submitted until July 31,
    2012.
        Throughout the independent review process we have worked
    with a number of community and housing organizations. These
    discussions have influenced our decisionmaking in a number of
    areas, including marketing and research. The OCC has required
    servicers to use advertising, the website, toll-free number,
    and various other forms of outreach in both English and Spanish
    to increase awareness and understanding of the review process.
    To date, advertisements have appeared in more than 1,400
    publications nationwide, including those that serve minority
    and underserved audiences, and the circulation covers all 50
    states. The OCC has significantly complemented this effort with
    our own media outreach and public service advertising.
        As stated earlier, our enforcement orders also require
    independent consultants perform file reviews of identified
    segments of borrowers. They are using sampling and other tools
    to identify files for review subject to guidance and oversight
    of the OCC. We are requiring 100 percent review of some
    borrower segments, including cases involving the Service
    Members Civil Relief Act, bankruptcy cases involving
    foreclosures, and cases referred by state and Federal agencies.
        When independent consultants find errors,
    misrepresentations, or other deficiencies, the next step is to
    determine if those errors caused financial injury, then
    recommend remediation. We have provided guidance of what might
    constitute financial injury and we are finalizing a remediation
    framework which clarifies expectations about the amount and the
    type of compensation recommended for certain categories of
    harm. Importantly, there are no caps or limits to the amount of
    compensation that will be paid out or remediated by the
    servicers.
        Finally, we are pleased to see the finalization of the
    national mortgage settlement last week. We have been in regular
    communication with the Justice Department and other Federal
    agencies for more than a year to ensure that our enforcement
    actions did not interfere with and were complementary to
    actions required by national settlement. We will continue to
    work closely with Justice and others to ensure the servicing
    standards required by that settlement are met by the servicers
    we supervise.
        Again, I appreciate the opportunity to testify and am happy
    to answer your questions.
        [Prepared statement of Mr. Morgan follows:]

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        Chairman Issa. Thank you. Ms. Killian? I am afraid you will
    have to pass the mics back and forth. Thank you.

                    STATEMENT OF SUZANNE G. KILLIAN

        Ms. Killian. Thanks. Chairman Issa, Ranking Member
    Cummings, Congressman Towns, and members of the Committee.
    Thank you for the opportunity to appear today to discuss the
    Federal Reserve's progress in implementing both the foreclosure
    review process as well as its progress in implementing the
    requirements of the enforcement actions.
        Those actions were taken against 10 financial institutions
    in response to the patterns of misconduct and negligence
    related to deficient practices in residential mortgage loan
    servicing and foreclosure processing.
        The Federal Reserve is strongly committed to ensure that
    past harms were mediated and proper action was taken. The
    Federal Reserve's enforcement actions require the servicers to
    retain one or more independent consultants acceptable to the
    Federal Reserve to conduct a foreclosure review to determine
    whether borrowers suffered financial injury as a result of
    errors, misrepresentations, or other deficiencies in the
    foreclosure process. Where financial injury is found, the
    servicers must compensate the injured borrowers. We are
    requiring the independent consultants to include in the review
    all files for particular categories of borrowers who we have
    determined present a significant risk of being financially
    injured in the foreclosure process.
        To supplement the file review the enforcement actions
    require that the servicers implement a process for the receipt
    and review of borrower claims and complaints. Consequently, the
    servicers developed a borrowers outreach program which is
    intended to make eligible borrowers aware of the opportunity
    they have to have their foreclosures independently reviewed.
    Borrowers are eligible to request that their files be reviewed
    if their primary residence was in the foreclosure process in
    2009 or 2010, whether or not the foreclosure was completed and
    even if they previously filed a complaint with their servicer
    about their foreclosure.
        Additionally, to allow an adequate period to submit claims
    for review and redress, on February 15, 2012, the Board and the
    OCC extended the April 30th deadline to July 31st.
        The Federal Reserve, working with the OCC, sponsored
    webinars to explain the process for submitting a request for
    review. The Board and the OCC will soon release joint guidance
    on how the servicers should provide remediation to borrowers
    for financial injury caused by the servicers' deficiencies. The
    guidance will illustrate the kinds of payments and other
    corrective measures a servicer must undertake to address
    specific types of financial injuries suffered by borrowers as a
    result of errors by the servicer. We believe that there should
    be transparency for the process of borrowers' remediation and a
    correct way to process deficiency.
        On February 27 and March 8, 2012, the Board publicly
    released the approved engagement letters nationally. The
    engagement letters describe how the independent control centers
    will conduct the foreclosure relief. The action plans and
    engagement letters are appropriate because of the compelling
    interest in assuring the public that the pervasive and serious
    deficiencies found in the servicing and foreclosure processes
    of these institutions are being vigorously and fully remedied.
    We will continue to monitor on an ongoing basis the results of
    the independent reviewer corrective measures that are being
    taken by the servicers and bank holding companies it
    supervises.
        On February 9, 2012, the Board announced monetary sanctions
    against 5 banking organizations totaling $766.5 million for
    engaging in unsafe and unsound practices in their mortgage loan
    servicing and foreclosure processing. The amount of the
    sanctions takes into account the maximum amount prescribed for
    unsafe and unsound practices under applicable statutory limits.
    In an effort to facilitate a broad settlement of related state
    and Federal claims, and to maximize the effectiveness of
    assistance provided through an integrated set of remedial
    programs, the board decided to act in conjunction with the
    comprehensive settlement between those five firms, the U.S.
    Department of Justice, and the state attorney general.
        The Federal Reserve takes seriously its responsibility to
    oversee the implementation and execution of the requirements of
    its April 2011 enforcement actions, including the foreclosure
    review and other requirements described. We understand that
    implementing and executing those requirements effectively is
    critical to ensuring that the identifying deficiencies are
    corrected, that future abuses in the loan modification and
    foreclosure process are prevented, and that borrowers are
    compensated for financial injury they suffered as a result of
    errors, misrepresentations, or other deficiencies in the
    foreclosure process.
        Thank you for the opportunity to appear before you today. I
    will be happy to answer any questions you may have.
        [Prepared statement of Ms. Killian follows:]

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        Chairman Issa. Thank you. Mr. Pollard.

                     STATEMENT OF ALFRED M. POLLARD

        Mr. Pollard. Mr. Chairman, Ranking Member Cummings, Mr.
    Towns, and Mr. Platt, thank you for the opportunity to address
    a very, very serious and critical problem. The Federal Housing
    Finance Agency oversees Fannie Mae, Freddie Mac, and the
    Federal Home Loan banks. These firms collectively have nearly
    $6 trillion in mortgage-related business. Since the onset of
    the financial crisis these institutions have maintained
    operations and provided stability in financing to the vast
    majority of homeowners. This is an ongoing, important and often
    un-talked about fact.
        At the same time, it is altogether appropriate that we
    focus on those of our citizens who are distressed. Fannie Mae
    and Freddie Mac have been very active in loss mitigation
    efforts at the same time that they are operating the
    conservatorships with the support of taxpayers. The goal has
    been to avoid foreclosures and to keep homeowners in their
    homes. While the portfolios that I will describe from Fannie
    and Freddie were performing better than many large
    institutions, we remain vigilant in those efforts. I will
    briefly describe who they are in line.
        As to loan modifications on a nationwide basis, Fannie and
    Freddie own or guarantee 60 percent of the mortgages
    outstanding, but they account for a much lower proportion of
    serious delinquent loans, roughly 29 percent. Data from the
    Office of the Comptroller of the Currency show that in the 2
    years ending in the third quarter of 2011, modifications on
    Fannie and Freddie loans accounted for 40 percent of all loan
    modifications.
        The Home Affordable Refinance Program, Fannie Mae, and
    Freddie Mac are at the forefront of refinance activity for
    current borrowers. They have completed more than 10 million
    refinances, accounting for 63 percent of refinance originations
    over that period.
        With respect to underwater borrowers, Fannie and Freddie
    account for less than half of underwater borrowers compared to
    their 60 percent share of total mortgages services. But they
    were the only institutions that currently operate a large-scale
    refinancing program for underwater borrowers. We have completed
    over 1 million refinances of the Home Affordable Refinance
    Program and 1.9 million streamlined refinances. In October
    2011, we announced additional changes to the program.
        I do note a very significant development, which is the
    Servicing Alignment Initiative crafted by Fannie and Freddie
    under FHFA direction. This established new borrower
    communication requirements for servicers to ensure that
    borrower outreach occurs at the earliest stage of delinquency
    when foreclosure prevention measures are most effective. Under
    the SAI, servicers are expected to evaluate borrowers
    contemporaneous for the full range of loss mitigation options
    simultaneously. They are obligated to collect information,
    access their eligibility for a modification before a loan is
    referred for foreclosure, and foreclosure referrals may only
    occur after an independent review of the case to ensure that
    the borrower was, in fact, considered for an alternative to
    foreclosure.
        There are significant and substantial incentive payments to
    servicers to motivate and to meet the aggressive timelines in
    offering loan applications, and the Treasury Department has
    acknowledged the benefit of the standard modification approach
    and amalgamating this approach. We are also taking initiatives
    on real estate loans.
        Mr. Chairman and members of the committee, I do want to
    highlight another issue, however, today, and that is an
    emerging problem as we look out over the past 5 years.
        States and localities face significant challenges from the
    housing crisis: homeowners losing their homes, erosion of the
    tax base, and curtailment of local services and, in many areas,
    blighted neighborhoods. The response, however, to this has been
    a rash of local laws and ordinances that while intended to
    assist homeowners, result in unintended consequences and fail,
    in many instances, to achieve their goals. Laws that stretch
    out the period for legitimate foreclosures after legitimate
    efforts have been made to avoid foreclosure and keep homeowners
    in their homes result in no added benefit for the homeowners
    and produce harm to the very housing finance on which those
    homeowners acquired their loans.
        Simply put, stretching the time period 5-, 600 here in the
    State of New York is the longest in the Nation's by 1,019 days
    to undertake a foreclosure has a consequence of separating a
    continuing relationship.
        This is my testimony and I stop at this point, Mr.
    Chairman.
        [Prepared statement of Mr. Pollard follows:]

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        Chairman Issa. Thank you. Mr. Schuppenhauer.

                   STATEMENT OF ERIC J. SCHUPPENHAUER

        Mr. Schuppenhauer. Chairman Issa, Ranking Member Cummings,
    and members of the committee, thank you for inviting me to
    appear before you today. It is an honor to join you in
    Congressman Towns' district to talk about Chase's foreclosure
    prevention efforts.
        My name is Eric Schuppenhauer, and I am the senior vice
    president for mortgage banking core servicing and borrower
    assistance at JPMorgan Chase & Co. Since taking over the
    borrower assistance program, I found the single most important
    factor in defending the foreclosure is whether the borrower is
    able to be contacted. For that reason we have invested heavily
    in personnel, bringing more locations and technology to help us
    reach the borrowers. Nationwide we have over 3,000 customer
    assistance specialists ready to help borrowers. We have opened
    82 Chase homeowner centers around the Nation where we can work
    with our borrowers face-to-face to prevent foreclosures. These
    centers are located in about 28 states and in the District of
    Columbia and within driving distance of 70 percent of Chase
    borrowers. In fact, in New York City and Long Island, we have
    28 trained counselors at 4 centers, including here in Brooklyn
    as well as in the Bronx, Queens, and Hauppauge.
        To address the special circumstances of our military
    customers we have opened six military homeowners centers in
    cities near major military basis. In these centers all of are
    specially trained counselors are either former military or
    their spouses.
        We also rely on our community and nonprofit partners. We do
    critically important foreclosure prevention work. We are in
    partnership with nearly 800 HUD-approved housing counseling,
    state housing agencies, and local nonprofit organizations. In
    partnership with them we have helped over 88,000 customers in
    1,800 local multiday outreach events around the country.
        In addition, we host our own outreach events where we work
    side-by-side with borrowers and community partners. In fact, we
    have an event here at the Brooklyn Marriott at the Brooklyn
    Bridge April 12th to the 15th, where we have invited about 200
    of our community partners and we expect to help over 1,500
    customers. We can only succeed in preventing foreclosures if we
    are in touch and in tune with what borrowers are experiencing.
        Every day we listen to our customer services calls to make
    sure borrowers are getting good, clear information. Every week
    we meet to review complaints, spot trends, identify root
    causes, and find solutions.
        I receive copies of every single complaint when it is filed
    and when it is closed. Each borrower is unique, which is why we
    offer a wide range of foreclosure prevention programs. We are
    currently preventing foreclosures at a rate of two to one
    nationwide. Twice as many modifications are made outside of the
    government programs as through them.
        Over the last 2 years we have prevented over 775,000
    foreclosures nationwide. Over the last 3 years we have made
    close to half a million permit modifications and we have
    approved and closed over 165,000 short sales to borrowers. Our
    investments in personnel and systems have helped us to reach
    borrowers early. Most people hear from us by the time they are
    15 days late. When an account is delinquent, we make repeated
    attempts to contact the borrower by letter and by phone so we
    can understand their situation and talk about foreclosure
    prevention options.
        We will not complete a foreclosure until we have made, on
    average, over 100 attempts to contact the borrowers. Helping
    borrowers understand their options is absolutely critical. We
    want to make foreclosure the last resort. We also understand
    that the loss of every home affects the committee at large.
        Homes that go through foreclosure can bring down property
    value in the neighborhood and contribute to community
    downgrading.
        To combat this troubling trend we have established the
    Chase Community Revitalization Program, which helps turn Chase
    Real Estate-owned properties into owner-occupied homes
    nonprofit partners. And Chase understands that keeping people
    in their homes is good for everyone: the borrower, their
    family, the investor, the neighborhood, the housing market and
    our economy. We are committed to ensure that every borrower is
    treated fairly and we live up to the high standards we set for
    ourselves.
        Chairman Issa. Thank you, Mr. Schuppenhauer.
        [Prepared statement of Mr. Schuppenhauer follows:]

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        Chairman Issa. I would like to thank all of you for being
    the best witnesses so far when it comes to the 5-minutes.

                        STATEMENT OF JOE OHAYON

        Mr. Ohayon. Chairman Issa, Ranking Member Cummings, members
    of the committee, I am Joe Ohayon and I manage national
    community outreach for Wells Fargo Home Mortgage's servicing
    business. Today I would like to outline four broad areas where
    we have focused our efforts to manage the challenges that our
    housing market continues to face.
        First, we engage with our customers in innovative ways to
    understand their unique circumstances. In 2009, we began
    hosting large-scale Home Preservation Workshops. At that event
    our customers have the opportunity to meet face-to-face with a
    Wells Fargo home preservation specialist who has the authority
    to make decisions on the spot in many cases, providing loan
    modifications and other payment relief options. We have found
    these types of face-to-face meetings with our customers to be
    very successful. We are typically able to provide a workout to
    about two out of three customers who attend a Wells Fargo Home
    Preservation Workshop.
        To date, Wells Fargo has conducted 57 Home Preservation
    Workshops nationally, meeting with more than 31,000 customers
    since late 2009. Wells Fargo is scheduling dozens of these Home
    Preservation Workshops in 2012 across the country to help
    homeowners who may be facing difficulty with their mortgage
    payments.
        I have personally attended at least 50 of our Home
    Preservation events, including one right here in Brooklyn in
    January 2011, where we met with nearly 1,000 of our customers.
    We are coming back to Brooklyn in July of this year.
        I sat down with customers, listened to the stories told by
    families, and have a better understanding of what brought them
    to the point of possibly losing their homes. It is not just
    about the numbers and their finances, it is about understanding
    what put their homes at risk. We have learned a lot at these
    events and we have applied what we found at our outreach events
    and to the way we serve our customers every day.
        Second, we collaborate with local leaders, community
    groups, and housing advocates to develop initiatives to address
    unique housing needs in their communities. There is great value
    in the strong relationships we have formed with groups such as
    NACA, HopeNow, HomeFree USA, and Neighborworks, who serve as
    another portal to reach customers individually.
        Our customer outreach and work with the communities have
    led to success in assisting customers that work with us by
    using a combination of our own refinance and modification
    programs along with the programs that have been made available
    through making homeS affordable, the hardest hit funds and
    other government programs.
        Our third area of focus is the recent announcement of a
    settlement by 5 of the Nation's largest servicers with 49 state
    attorneys general and various agencies of the Federal
    Government. While the settlement is not final until it is
    approved by a Federal District Court judge in the District of
    Columbia, we believe that the various components of the pending
    settlement collectively represent very important steps toward
    restoring confidence in mortgage services and stability in the
    housing market.
        Wells Fargo's financial commitment toward the overall $25
    billion agreement is $5.3 billion. It is comprised of programs
    that build on the significant refinance and consumer relief
    efforts we have made to date.
        Starting on March 1st, despite the fact that the settlement
    is still pending, we began actively communicating with
    borrowers who might qualify for consumer relief under the terms
    of the settlement. Also as of March 1st, we let customers know,
    upon request, if they may be eligible for the expanded first
    lien refinance program. And beginning in April, mailings will
    go out to customers who are current on their payments, have
    little or negative equity in their homes, but may qualify for
    the new refinance program.
        We are working diligently to finalize plans to quickly
    provide consumer relief to as many customers as possible. At
    this early date, it is premature to project which forms of
    relief will be provided to which customers.
        Our fourth area of focus as the Nation's leading mortgage
    lender and servicer reflects our deep commitment to
    homeownership in America. Despite the challenges of recent
    years, we know that homeownership is still highly valued and
    desired by the American public. In February, Wells Fargo
    launched a pilot program called NeighborhoodLIFT, an initiative
    that includes down payment assistance, locally designed
    programs to address housing priorities, and local outreach
    events focused on home buying, education, and support. More
    than 2,000 prospective homebuyers attended the first
    NeighborhoodLIFT events in Los Angeles and Atlanta, and of
    those, 647 made reservations for down payment assistance
    grants.
        Another program we have launched is My Home Roadmap, a
    first of its kind service for customers who have met with one
    of our home mortgage consultants and were either turned down
    for credit or elected not to apply at the time. This program
    offers a referral for up to 2 hours of pre-purchase counseling
    with a certified national credit counselor paid for by Wells
    Fargo to provide them with options and support as they proceed
    down the path to homeownership.
        In conclusion, we remain fully committed to doing what we
    can to help stabilize the housing industry for the benefit of
    homeowners, individual communities, and the overall economy.
        Thank you for your time. We look forward to your questions.
        Chairman Issa. Thank you.
        [Prepared statement of Mr. Ohayon follows:]

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        Chairman Issa. Mr. Jaffee.

                        STATEMENT OF JEFF JAFFEE

        Mr. Jaffee. Good morning, Chairman Issa, Ranking Member
    Cummings, Congressman Towns, and Congressman Platts. My name is
    Jeff Jaffee. I am the chief regulatory affairs officer and I am
    a director of CitiMortgage. I am pleased to speak with you
    today about Citi's efforts to assist homeowners. And on behalf
    of all of Citi's employees I want to welcome you to our home
    town.
        At Citi, we are dedicated to helping families stay in their
    homes and devoted a number of resources to achieve its goal.
    Since 2007, we have nearly tripled the amount of our specially
    trained staff dedicated to working with at-risk homeowners. And
    we are pleased to note that since 2007, we have been able to
    help more than 1.1 million distressed borrowers in their
    efforts to avoid potential foreclosure.
        Last year CitiMortgage launched a Road to Recovery tour,
    visiting 25 cities nationwide that were hard hit by the
    financial crisis to connect directly with distressed
    homeowners. During these events, CitiMortgage customers, some
    of whom we have previously not been able to reach, spoke face-
    to-face with representatives to get much needed relief.
        We kicked off our Road to Recovery program in Baltimore. In
    building on these successful efforts, the 2012 Road to Recovery
    tour is expected to begin in the coming weeks.
        Citi engages in multiple outreach programs designed to
    ensure that borrowers are aware of Citi's loss mitigation
    solutions, working with numerous nonprofit organizations to
    help us reach borrowers at risk. These events are in schools,
    community centers, hotels, gymnasiums, personally anywhere that
    accommodate our borrowers and our associates. In fact, one of
    the first events that Citi sponsored was at the House of the
    Lord Pentecostal Church on Atlantic Avenue here in Brooklyn.
        Recently we have partnered with Hope Now, the Treasury, and
    Defense Department to sponsor borrower outreach events on
    military bases. Our first event was at Camp Pendleton. Citi
    fully supports HAMP and other Federal programs designed to help
    homeowners.
        CitiMortgage has also participated in the HAMP Principal
    Reduction Alternative Program since October 2010. Since being
    announced late last year, the Home Affordable Refinance
    Program, Version 2, has also generated significant interests
    from borrowers and applicants. Other programs are still in
    development to support the National Mortgage Servicing
    Settlement which was recently announced and is currently
    awaiting approval.
        For those customers who do not qualify for Federal
    assistance programs, Citi has developed its own programs to
    assist customers with specific challenges such as unemployment
    and other life events. For those borrowers who simply cannot
    sustain homeownership, Citi has programs customized to meet
    their needs, including dedicated short sale and deed
    foreclosure solutions.
        Foreclosure should always be a last resort. Citi recognizes
    the hardship that can be suffered by a family losing its home
    and we do everything we can to make the transition for our
    customers as smooth as possible.
        In 2009, Citi self-identified opportunities to include its
    foreclosure processes and proactively took action to enhance
    its policy and controls, including centralizing our foreclosure
    operations into one unit, adding staff, and enhancing training
    through greater compliance and control.
        We were also deeply committed to working with our Nation's
    veterans and military families whose loved ones are serving our
    country abroad. Citi has extensive policies and procedures on
    SCRA compliance, and maintains qualified staff to help service
    members dealing with mortgage issues. In addition, we have
    implemented robust internal controls that involve check loans
    against the Department of Defense's manpower data center data
    base. We are committed to doing all we can to help service
    members and their families facing mortgage hardships.
        Citi recognizes that we have a responsibility to help
    navigate Americans through their financial troubles, especially
    in these challenging times. As part of this effort we will
    continually strive to provide homeowner assistance and keep
    families in their homes. We know we have more work ahead of us
    and are committed to partnering with Congress and other
    stakeholders.
        Thank you for your time and I look forward to your
    questions.
        Chairman Issa. Thank you.
        [Prepared statement of Mr. Jaffee follows:]

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        Chairman Issa. Ms. Sellers.

                      STATEMENT OF SHEILA SELLERS

        Ms. Sellers. Good morning, Chairman Issa, Ranking Member
    Cummings, Congressman Towns and Platts, members of the
    committee. Thank you for the opportunity to appear today. My
    name is Sheila Sellers, and as senior vice president for
    National Mortgage Outreach at Bank of America I work directly
    with families struggling to keep up with their mortgage
    payments. I do this at borrower outreach events across the
    country in some of the hardest hit communities, including right
    here in Brooklyn, and we have recently served the community of
    Brooklyn.
        While there have been challenges in responding to the
    unprecedented number of people seeking assistance, I need to
    share with you today that Bank of America is committed to doing
    the right thing for our customers and for our neighborhood. At
    Bank of America we have increased our staff nearly tenfold over
    the last 3 years and today have 45,000 people dedicated to
    assisting our customers. We are also at the forefront of key
    issues such as targeted principal reduction and special
    assistance to military service members and to veterans.
        Here in the Greater New York Area, we are partnering with
    local leaders, like Christie Peel at the Center for New York
    City Neighborhoods, to make assistance more easily accessible
    and understandable and to invest in the future of the region.
    Our goal is to help customers stay in their homes whenever
    possible. When that is not possible, we offer short sale
    foreclosure options. Each allows customers to avoid
    foreclosure.
        At Bank of America foreclosure is the last option and we do
    everything to assist our customers before that happens. We do
    many things to help customers more easily understand their
    options and pursue what is best for their specific
    circumstances, including providing a single point of contact to
    work with them through resolutions.
        We hold events that bring a full loan modification process
    under one roof. We participate in events hosted by local
    organizations like the center. We also have a network of over
    50 brick-and-mortar assistance centers across the country where
    customers receive face-to-face assistance.
        Here in Brooklyn, we have a center near the Atlantic train
    station where 10 of my teammates provide multicultural support
    to customers in the area. The manager of that Brooklyn center
    is here in the audience today, Nick Condo, and he is available
    if you have questions later.
        Additionally, we work hard to ensure the services we will
    provide our military customers and their families reflect the
    sacrifices that they have made. At Bank of America we believe
    the servicers expand support for military and their families,
    including providing more options for customers with a permanent
    change of station and greater access to financial education for
    those coming off of active duty.
        I know Chairman Issa, Ranking Member Cummings, and the
    committee have taken a leadership role in working for our
    military families, and I personally thank you for doing that.
    At Bank of America we have an obligation to treat all of our
    customers fairly. When and where that has not happened we have
    accepted responsibility and have taken extensive steps to
    improve our service level.
        The completion of the settlement with Federal and state
    officials is another important step forward. It will allow us
    to build on the programs and services already in place and will
    result in additional support for homeowners. And at the same
    time, we will be able to continue to pursue additional ways to
    help those who are not eligible for modification to avoid
    foreclosure.
        The long-term health of the housing market and the economy
    begins by stabilizing our community and putting them on the
    path to recovery. One key is helping customers who are
    transitioning out of their home. Over a year ago, together with
    the United Way, Bank of America introduced a home transition
    guide. I have a couple of copies and I believe that we have
    provided you with materials as well. We produced this guide, so
    I think that you do have that.
        Chairman Issa. I ask that unanimous consent that the entire
    guide be placed on the record. Without objection, so ordered.
    We have it all.
        Ms. Sellers. Thank you, sir. And the guide provides
    educational information and access to community resources like
    counseling services.
        Through participation and partnership with cities,
    community groups, and nonprofits, we also help stabilize hard-
    hit communities by actively addressing our real estate owned
    properties. This includes rehabilitation and preservation
    programs and a donation in sales of property in discounted
    prices to those who are in need.
        I think my pages are sweating so they are kind of stuck
    together. I apologize. Along with all of this------
        Chairman Issa. Wait until summer in Brooklyn. [Laughter.]
        Ms. Sellers. Along with all of this we continue to extend
    credit and invest in our neighborhoods in order to build for
    the future.
        At Bank of America our commitment to helping customers
    avoid foreclosure and doing what is best for our community is
    strongly enduring. There is no single solutions. But with the
    completion of the global mortgage settlement we have the
    opportunity to further strengthen our focus on helping
    homeowners and the housing market get back on track.
        I thank you for your time today and I look forward to your
    questions.
        Chairman Issa. Thank you.
        [Prepared statement of Ms. Sellers follows:]

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        Chairman Issa. I want to thank our entire panel. There was
    a lot of witnesses and very well done.
        Before I recognize myself, I will announce our intention is
    to do one full pass through the questioning and then a short
    second round.
        Additionally, I would ask can all of you stay while our
    second panel testifies? I think you will find that--okay,
    because obviously they are not going to agree with everything
    you say here, and I would like to make sure you hear it for all
    of us.
        Okay, I recognize myself for 5 minutes now. I am going to
    hold you accountable, Ms. Sellers, with only one question. When
    you said you tripled the staff is some of that the fact that
    you brought Countrywide or is that staff tripling the result of
    new hires at both the Countrywide unit and the Bank of America
    unit?
        Ms. Sellers. That staff is the result of the need, and that
    is post-Countrywide acquisition.
        Chairman Issa. So essentially both parts of B of A, now one
    company, have increased by that amount?
        Ms. Sellers. Correct. And those 45,000 are focused on
    servicing our portfolio customers.
        Chairman Issa. Well, I'm particularly sensitive, Mr.
    Ohayon, some people earlier mentioned that perhaps under 1
    percent, not the 99 percent--before I came to Congress, Wells
    Fargo was one of my tenants in one of our units and I watched
    the mortgage unit close down exactly at the time in which you
    should have been staffing up, exactly at the time in which
    instead of processing new mortgages, essentially you had an
    increase in trouble mortgages. Is that something that in your
    role you are seeing as a lessen learned that all banks need to
    know for the next time, that it is no time to reduce the size
    of your mortgage unit at a time when mortgage origination and
    servicing exactly at the time in which you are likely to have a
    huge amount of mortgages in trouble?
        Mr. Ohayon. Mr. Chairman, we have learned a lot throughout
    the experience of the mortgage crises. Like Bank of America, we
    actually increased the staffing in mortgage servicing as well.
        Chairman Issa. And when did that begin for you, from 2009,
    2010?
        Mr. Ohayon. Yes, it began in 2009. We increased staff by
    over 10,000 team members. We now have had over 15,000 team
    members that are working every day with customers who are
    struggling on their mortgage payments.
        Chairman Issa. I am not going to necessarily call on all of
    the banks because we have limited amount of time.
        Mr. Pollard, you and your boss are the subject of a lot of
    questions about Freddie and Fannie. Would you explain to me how
    I get the most for the taxpayer and the most for the consumer
    or public that finds themselves upside down? And before you
    answer, I understand that if you do mortgage modification,
    reduce principal, principal reduction, people will owe less. I
    understand that the programs in which this abatement is
    temporary, and ultimately we would like to receive the full
    amount, has not been universally embraced by those who still
    owe the whole amount.
        And I understand that if we allow somebody to refinance to
    today's lower rates, by definition the income to Freddie and
    Fannie would go down. So there are losses in all three ways, at
    least for the short run.
        Can you justify to me, one, which is the best solution cost
    effectively and why, and what your sources were?
        And second, if it is not across the board widespread
    resetting of rates to today's prevailing rate, tell me if, in
    fact, the Federal Government is now telling people that they
    can walk away from a home and get out of it, but they cannot
    refinance if they are simply underwater, and on what basis,
    even if it costs the American people through taxes and money on
    what basis I can say no?
        Mr. Pollard. I think your first question is about the
    process for us testing or trying these various programs. It is
    also important that we are transparent. We published a monthly
    and quarterly report of results so that people can see not only
    have we modified the loan, but has that loan re-defaulted or
    has it continued to perform?
        I think that has been probably the best way of looking what
    we are doing from the taxpayers' perspective. And the three
    methods that we used has been to reduce interest rates at about
    31 percent, which we believe is critical. We have looked at
    extension of various timeframes and at principal forbearance
    where the principal is------
        Chairman Issa. Principal reduction has never been chosen--
    ----
        Mr. Pollard. That is correct.
        Chairman Issa. Okay. For the banks, and I would like to
    play a little bit off of each other, I asked the last question
    which was, I know it is your money, I know it is the taxpayers'
    money, but how is it that we should not tell people who are
    willing to keep paying their loans, who have become ``upside
    down in equity,'' how is it we say to those people, you can
    walk away from your loan, but we will not refinance it if you
    have negative equity? How is that fair? How is that not
    inherently the first step?
        And I know that Freddie and Fannie have been leading it.
    But some of your banks have been trailing in willingness to
    refinance without additional equity. Why is it that those
    people find themselves adversely affected when, in fact, home
    affordability will increase if you did it?
        And anyone who would like to answer all four?
        Well, Bank of America will probably tell me how much you
    are doing. [Laughter.] I am Californian, so they used to be
    Californian.
        Ms. Sellers. We are a little bit everywhere.
        Chairman Issa. You are a little bit everywhere.
        Ms. Sellers. For Bank of America and Bank of America-owned
    assets we offer a myriad of solutions that are designed
    specifically for the customer's situation.
        Chairman Issa. My question is much more narrow and we are
    out of time, so I only want the answer to the narrow one and
    probably catch you on the second round. The narrow question is,
    how is it that the consumer should not expect that they should
    be treated as well as the person who chooses not to pay their
    mortgage if they choose to pay their mortgage in the sense of
    being able to refinance at today's lower rates?
        That is one of the things that--and I know all of us have
    constituents, but it is one of the things I hear constantly is
    that I am doing the right thing. I am underwater. I do not want
    to walk away from my loan, but why am I paying 7\1/2\ percent
    for something that I can go out and get a lower rate today? So
    briefly, either what you do or how you justify not doing it
    today?
        Mr. Pollard. Mr. Chairman, I think we will be doing more in
    terms of refinancing. We will be doing more, so we will be
    refinancing. And if you really look at the statistics, if you
    look at it nationwide, approximately 70 percent of underwater
    borrowers are actually paying their mortgages. So it is
    critically important that we get them refinance alternatives
    and get them to lower rates.
        I know this is part of the consumer benefits under the
    settlement agreement. We will be doing more for those that are
    in our own book. That combined with HARP, which has 60 percent
    of the mortgages in the United States under the GSE control,
    that should get to a broad range, and then what you are left
    with happens to be mortgages and private label securities.
        Chairman Issa. Okay, I will catch the rest on the second
    round. I want to be respectful of time. Mr. Cummings.
        Mr. Cummings. Thank you very much, Mr. Chairman. I am
    hoping that you all will follow up on that question on the
    second round because it is a very important question and I
    would encourage you all to find ways to get that done.
        Mr. Pollard every single bank on this panel has done some
    form of principal reduction for mortgages they own. In
    addition, under the $25 billion settlement with the 49 states
    the banks have agreed to do additional principal reductions.
    The chairman of the Federal Reserve, the president of New York
    Fed, countless economists, and even the former special
    inspector general for TARP have all called for principal
    reduction as the best way to end the housing crisis, help
    homeowners, and save taxpayers money.
        Right now, your boss, Ed DeMarco, is the acting head of
    FHFA and he seems to be the only one who disagrees with this
    approach. As a result, any loan guaranteed by Fannie Mae or
    Freddie Mac is ineligible for principal reduction and
    modifications.
        When Mr. DeMarco appeared before this committee last fall,
    he said he lacked the authority for principal reductions, but
    that is not true. In 2008, Congress passed the Emergency
    Economic Stabilization Act and redirected FHFA to, ``Maximize
    assistance for homeowners.''
        We explicitly authorized the use of principal reductions.
    So as the chief counsel of FHFA have you now abandoned the
    legal argument that FHFA lacks the authority to do principal
    reduction?
        Mr. Pollard. I think the position that the director took at
    the time in explaining that fully was that we have several
    legal obligations, one of which is to also monitor carefully
    the expenses and to preserve and conserve the assets of Fannie
    and Freddie which are supported by the taxpayer. Therefore, Mr.
    Cummings, we take very seriously your inquiries, absolutely.
        And this principal reduction that has been talked about,
    there is no debate about that. We have studied it. We have
    looked at the methods we currently use. We have looked at--and
    I think this HARP 2 that the banks have mentioned that is a new
    program is being widely looked to.
        The difference is, is the portfolios of the GSCs are
    different from those of the banks in terms of both performance
    and the number of borrowers underwater. The taxpayer in
    principal forgiveness, the taxpayer that we deal with, not
    shareholders, gives up the upside if there is principal
    forgiveness rather that forbearance. I think the chairman was
    referencing that.
        There has also been indications that the acceptance rate is
    not necessarily higher for forbearance. Customers are looking
    to lower the interest rate. It requires more complex
    calculations than simply forbearing where you simply move
    principal to try and figure out who is eligible, who is not
    eligible, who should or should not be eligible. Where does it
    stop and how much should be done makes it much more complex----
    --
        Mr. Cummings. But that does not mean we should not try to
    do it because it is hard to figure out, right?
        Mr. Pollard. Well, and let me add one thing and I want to
    answer that point. And I think there are also operational
    deployment issues of deploying these programs. One thing that
    has been criticized of all the programs, be it HAMP or any
    program, has been the actual deployments. What does it take to
    restructure your departments? What I would say------
        Mr. Cummings. Well, let me ask you this because I have a
    limited amount of time. But let me just ask you. Do you have
    the authority? I guess that is what I--do you--are you saying
    that you do not have the authority or you do?
        Mr. Pollard. What I think we have been trying to say is
    that we have broad authority, but in looking to what our
    authorities are, we are driven to do the most cost-effective
    method.
        Mr. Cummings. So you do have the authority but--so you--but
    based upon the circumstances, you chose not to?
        Mr. Pollard. We operate under several requirements under
    HARE and VISA, but I do want to conclude because you asked
    something I do want to answer, I do not want to leave today.
        One, is that, you know, we have conveyed the reports that
    we have done to the committee.
        Mr. Towns. Could you talk into the mic? I am having trouble
    hearing you.
        Mr. Pollard. I am sorry, Mr. Towns. We have conveyed the
    analysis we have done and we are undertaking another review per
    your request and that work is moving apace.
        Mr. Cummings. And how soon do you think we will have that
    response?
        Mr. Pollard. I hope we would have that by the end of the
    month.
        Mr. Cummings.  By the end of week?
        Mr. Pollard. End of the month.
        Mr. Cummings. End of the month? So, let me be real clear.
    Do you have the--you do have the authority for principal
    reduction?
        Mr. Pollard. Well, I do not want to obfuscate or make it
    more complex.
        Mr. Cummings. I am not trying to attack you. I just want to
    make sure------
        Mr. Pollard. I think we have authority to undertake a broad
    range of activities, but those are circumscribed by other
    requirements about how we undertake our activities.
        Mr. Cummings. I see.
        Mr. Pollard. So putting the two together leads us to be
    somewhat constrained to take the most cost-effective approach.
        Mr. Cummings. Mr. Chairman, I do not know how much time we
    have. I do not know------
        Chairman Issa. Well, I would ask unanimous consent the
    gentleman have additional 30 seconds, please.
        Mr. Cummings. Thank you. Thank you. So to the banks, we
    see, you know, some of these people suffering and I have heard,
    you know, what you all are doing. I just want you to--I want to
    just pick up where the chairman left off, that whole issue.
    People should be able to get now lower interest rates and
    people should have--I hope you do not mind, Mr. Chairman?
        Chairman Issa. No, go ahead.
        Mr. Cummings. And people should--it seemed like they should
    have an opportunity to take advantage of those rates, it might
    be a difference of as many of 4 points. That is a lot of money,
    and would keep somebody in their houses. So we should just pick
    up--I think you tried to answer and then the others if you do
    not mind.
        Mr. Ohayon. Yeah, Congressman, we certainly support giving
    customers the opportunity to refinance and part of the expanded
    relief options, specifically the refinance option under the
    settlement, will provide that opportunity for customers who
    have little or no equity in their home to refinance.
        In addition, Wells Fargo is working on a portfolio product
    that would create additional opportunities to refinance for
    those that are in our books, in our portfolio. We also
    participate fully with HARP and HARP 2 on investor owned----
        Mr. Jaffee. Yes, Mr. Cummings, at Citi we do participate in
    HARP 2. We also have portfolio products. To take Chairman
    Issa's example, for someone that was at 7\1/2\ percent interest
    rate and was underwater, up until a few months ago we did not
    have a solution for them. Now under HARP 2 we can, we can say
    thank you for doing the right thing. Thank you for making your
    payments. We are able to give you a lower rate. And we can do
    that regardless of the loan and the value.
        Ms. Sellers. Mr. Chairman, from the Bank of America
    perspective, we have participated in the Federal programs both
    HARP and now HARP 2. Underneath the proposed settlement we have
    opportunity to institute additional options, and that is for
    our current performing customers.
        And then for our delinquent customers we can adjust the
    interest rate as part of the modification agreement.
        Mr. Cummings. Thank you very much, Mr. Chairman.
        Chairman Issa. Thank you. Mr. Platts. And by the way, Mr.
    Platts, I want to thank you for driving up here. The rest of us
    took the train, but you braved the morning commute. So thank
    you.
        Mr. Platts. Mr. Chairman, thank you. Thanks for hosting
    this or holding this hearing and, Mr. Towns, I appreciate your
    bringing us here to Brooklyn. Good to be back in Brooklyn with
    you as well as the ranking member, Mr. Cummings. And appreciate
    everyone's interest in this.
        I want to start by associating myself, Mr. Chairman, with
    you and the ranking member's comments about the importance of
    us doing better with those individuals who are paying their
    bills, they are meeting their obligations, but are underwater
    and they are trying to refinance. To say we are going to help
    those who have walked away from their obligations, but not do a
    better job to helping those who are accepting their
    responsibilities, is just wrongful policy. So the importance of
    us getting that right I think is very important and that means
    a greater opportunity to refinance for those who have not
    walked away from their responsibilities.
        I want to start here and get through as much as I can,
    starting with Mr. Morgan. In your testimony, and I appreciate
    the written testimony and the detail you have given, but you
    talk about that 4.3 million letters have gone out. You say that
    you anticipate a quarter of a million reviews of which about
    210,000 have been done so far between the independent
    requested--or the independent look-back and those requested.
        You referenced 121,000 that have been requested and about
    90,000 independent.
        How do you first come up with that 250,000 number in your
    testimony that you expect that number of reviews to be
    conducted?
        Mr. Morgan. The 250,000 number is comprised of two
    components, the first of which is the current sample size that
    is the part of the file review. There is about 130,000
    borrowers that are part of that file review.
        And then to date, I believe the testimony says that
    approximately 116,000 requests for review has been received.
    And so we were putting those two together to make up the
    current slate of 250,000 slated for review.
        Mr. Platts. So you do not have a--that 250 is not what you
    anticipate, just where we are not knowing where we will end up?
        Mr. Morgan. Correct. That is where we are today. We have
    till July 31st for additional requests for reviews to come in.
        Mr. Platts. And this refers to the enforcement actions of
    2009, 2010. Anybody who may have been improperly foreclosed on
    during that time period is the relevant scope of borrowers we
    are talking about, right?
        Mr. Morgan. The scope is actually a little broader than
    that. It does not require that people were foreclosed on during
    that time period, just if they were in the foreclosure process
    at any time during that time period.
        Mr. Platts. Right. Can you talk how you set that timeframe,
    January 1, 2009, December 31, 2010? What if somebody is out
    there that believe they are treated the same in, you know,
    February 2011? How did, you know, OCC and the Feds settle on
    December 31, 2010? And are you still willing to consider those
    who believed they have been treated wrongly beyond that date?
    Is that still an option?
        Mr. Morgan. Yes. The timeframe in our consent orders are
    matched to the timeframe of our examinations that occurred in
    the fall of 2010. And the timeframe that was the scope of our
    examinations we thought was set to match the period of time in
    which the greatest operational strains were on the system due
    to the high volume of delinquencies and the extreme ramp up in
    the foreclosure processes.
        I would note that our review will pick up borrowers who
    were in the process of foreclosure prior to 2009 because of the
    length of time foreclosure takes. For those, to your other
    questions, for those that entered the foreclosure process after
    our timeframe, we are encouraging those borrowers to, you know,
    file their complaints, if you will, with their servicers and
    also with our consumer assistance group.
        Mr. Platts. My concern here is probably an obvious one, is
    that, you know, we do not arbitrarily treat somebody who is
    treated the same wrongly in January 2011, you know, from
    somebody who is in 2009 or 2010, so that we get equity that we
    are trying to make right and do right by everybody.
        A quick follow-up, in your testimony and also with the
    Feds, the discussion about later this month or in a month
    guidance about what type of compensation should be paid. If I
    understand the testimony correctly, it relates to where the
    independent, you know, look-back is done, that if they find--
    that independent entity finds wrongdoing, they can then
    recommend certain compensation. And that is what the guidance
    is going to relate to.
        Will that guidance also, or something similar, be given to
    where the borrower requested the review and then there is
    wrongdoing found? You know, what type, if any, guidance are we
    giving where there is wrongdoing in those circumstances?
        Mr. Morgan. Yes, the joint guidance for remediation will
    apply to both borrowers that are in the file review and those
    that have requested an independent foreclosure review.
        Chairman Issa. Thirty additional seconds.
        Mr. Platts. Any appeal process if--based on that
    independent look back there is a recommendation of certain
    amount of compensation to the borrower. If the borrower thinks
    that that is not acceptable, what is their ability to contest
    it as not being adequate or appeal it in a formal manner?
        Mr. Morgan. Our consent orders do not contain a specific
    appeal process. Obviously borrowers would have a choice to
    accept the offer or to pursue their interests through other
    means. And additionally, they would be able to file complaints
    with the servicer or our consumer assistance group, but there
    is not a formal appeal process as part of the consent order.
        Mr. Platts. Okay, thank you. Thank you, Mr. Chairman.
        Chairman Issa. Thank you. Former chairman of the full
    committee, Mr. Towns.
        Mr. Towns. Thank you very much, Mr. Chairman. Let me begin
    by saying every mortgage servicer testified today has talked
    about how great an effort they have made to work with the
    delinquent borrowers on modifications as a method of
    foreclosure prevention.
        However, every single day I get calls in my offices, and of
    course people coming in and visiting, talking about how
    difficult the process is, and that almost making it impossible
    for them to obtain a modification. I hear from the legal
    community also that are working with services toward a
    solution, even when the foreclosure case has been pending in
    court for a while, it is extremely difficult.
        I have in my hand right here now the loan modification
    paperwork for Mr. Nathaniel Barton, who lives in the 10th
    Congressional District which I represent. The letter from the
    attorney to Mr. Barton starts out encouragingly enough because
    he is, and I quote, ``informed that the borrower has been
    approved for a loan modification.''
        Here is the problem: the good news falls apart very
    quickly. For this reason Mr. Barton is about $79,000 delinquent
    in his mortgage and owes another $11,000 in late charges and
    attorney fees. According to the letter he can make 3 months of
    trial payments totaling about $10,000 a month. However, once
    the trial period is over, Mr. Barton has to pay the remaining
    balance of $80,000. What kind of modification is that?
    [Applause]
        If he does not pay the balance, he must sell his home. I am
    told by the community that this is a rising trend among
    servicers. The situation is bad to begin with and impossible to
    work out. Let me begin with you, Mr. Jaffee.
        If Mr. Barton did not have $80,000 to pay when he became
    delinquent, but now has a job and can make his mortgage
    payments, why is he being expected to pay the $80,000 as a
    condition for his modification when he probably makes 50,000 or
    $40,000 a year? Tell me. If he had $80,000 he probably would
    not have be in--would not even have the problem. [Laughter.]
        Mr. Jaffee. Congressman Towns, I am not personally familiar
    with that particular transaction, but I would say that
    generally we try and sell for affordability. The first thing we
    do is look and see how much money someone makes and then we try
    and solve it using the 31 percent ratio that is in the HAMP
    guidelines. And if that does not work, then we look for city
    proprietary products.
        I am happy to chat with your staff about specific
    transactions. But what we are trying to do is find affordable
    solutions that allow people to remain in their homes.
        Mr. Towns. But do you agree that that is not affordable
    solution? You agree with that, right? Because if he had $80,000
    he probably would not have the problem.
        Mr. Jaffee. I would say probably.
        Mr. Pollard. Mr. Towns? Can I weigh in just as someone who
    is not--even though I work with the Federal Government here.
    Part of the servicing alignment--the letter you just read I
    find very troubling.
        Mr. Towns. I did not hear you.
        Mr. Pollard. I said the letter you just read I find very
    troubling.
        Mr. Towns. Yes.
        Mr. Pollard. Part of the servicer alignment was to make
    uniform those forms that are used for people, some of them are
    three pages long, and include models for letters for law firms
    that are to be followed.
        So what I want to convey is I think what Mr. Jaffee is
    saying is when you see some of these items and they are
    referred to us as an agency that we pass along to Fannie and
    Freddie or to one of these institutions, I would tell you we
    spend a lot of work on mortgage fraud in our agency. We spend a
    lot of time on mortgage scams in our agency. And we are
    committed to making sure that the initiative that we have put
    in place is followed by the servicers.
        I would note that the consent orders of the bank regulators
    recognize this alignment initiative, that there needs to be
    early action. There needs to be uniformity in the forms and
    even in the model letters that lawyers send out.
        So I have not seen this letter in particular, but I just
    want to give you some background that that is what this effort
    is about, is to get in early, to do it clear and concise to get
    the modification done.
        Now, I would way one final thing. We also recognize that
    under every scenario there is a possibility, and even under all
    the ones, including the ones Mr. Cummings has talked about
    today, there may be scenarios where people do not qualify and
    that is a reality. But I think what you have described to me
    gives me some concern.
        Chairman Issa. I ask the gentleman have an additional
    minute.
        Mr. Towns. Thank you. Thank you very much. You know, based
    on, you know, what I am getting from my staff and what I am
    getting when I go to churches and when I talk to people in the
    community, this is a common practice. This is not a
    modification that is going to help people. And it is a
    modification that is suppose to help. I mean, this does not get
    us there???????
        Thank you, Mr. Chairman. Thank you very much, Mr. Chairman,
    for the extension.
        Chairman Issa. Yeah, I would like--if the gentleman would
    yield.
        Mr. Towns. I would be delighted to.
        Chairman Issa. If I could ask each of four banks, and
    Allied who is not here we will reach out to in a letter, would
    you agree to deliver to us a full sampling of the letters going
    forward, format that you intend to offer?
        I think Mr. Towns has hit on a very important point. That
    is, this is a historic letter from one of your banks. But if
    you are not giving either your first offer being a fair offer
    designed to be reasonable by comparison to this or if you are
    giving one like Mr. Towns showed, it does not seem to have, it
    does not have, on the bottom some sort of although this is a
    first offer we stand ready to negotiate a payment scheme. If
    you do not either give a better offer that is likely to be
    affordable or let the borrower know that, in fact, there is an
    opportunity to work out an affordable scheme to get caught up,
    if you do not do that, then to a certain extent we are going to
    be back in court, we are going to be back in Congress looking
    at what you are doing going forward, not just because it was a
    lot of crowd pleasing on Mr. Towns' part, but because I am
    concerned and Mr. Towns is concerned. Would you all agree to
    deliver us, and we will give you, you know, 30 days, I realize
    this is still ongoing, to deliver us a go forward sample of
    this unified and consistent set of letters so the committee can
    have that for the record?
        [A chorus of yeses.]
        Chairman Issa. Thank you. I got all yeses. And I will
    contact the one major handler that is not here by letter.
        And with that we have done well. So we are going to do a
    second round. Now I will recognize myself for 5 minutes.
        Mr. Pollard, I am talking advantage of your being here
    representing 60 percent of mortgages and between the rest of
    you we are up in the 75, 80 percent. Your organization is
    resisting principal reduction. But let me ask you the question,
    what is your effective borrowing rate as an agency and
    conservatorship, your agencies and conservatorship? Is your
    effective borrowing rate today less than 1 percent? Is that
    roughly what it costs Freddie and Fannie to borrow money?
        Now, the Fed is next to you, so they will probably quickly
    tell us how cheap they are borrowing money. I realize that is
    the short-term cost, but do you not have a cost that is, even
    in the midterm, below 2 percent cost of money?
        Mr. Pollard. Mr. Chairman, I do not want to speculate on a
    precise number.
        Chairman Issa. You got to really get closer.
        Mr. Pollard. I am not going to speculate on the number
    because I do not want to give you a misinformed number.
        Chairman Issa. Ms. Killian------
        Mr. Pollard. Let me get that for you.
        Chairman Issa [continuing]. The Fed notoriously borrows at
    an incredibly low rate today, do they not?
        Ms. Killian. Again, I am sorry, that is not my area of
    expertise at the Fed, so I do not know.
        Chairman Issa. Okay. Well, let me just say as somebody who
    was described as the 1 percent, I look at these things. And
    between LIBOR and the Fed you are borrowing money at an
    incredibly low rate. So if you borrow at that rate, why would
    it not be--assuming you forget about future going forward
    profits.
        But if you got, if you got a mortgage that is at 7, 6, 6-1/
    2, even 5 percent, is it not true that you can go to the Fed
    window, you can get the money, you could refinance and still
    make a profit on that mortgage with your current cost of money?
    [Applause]
        We will assume that I am correct that your cost of money is
    well below 3 percent.
        Mr. Pollard. Well, first I note that Fannie Mae and Freddie
    Mac do not originate mortgages. That is a market function of
    the banks that do the origination.
        Chairman Issa. Yeah, please get as close as you can. There
    is nothing worst than a mild-mannered lawyer. It throws us off.
    [Laughter.]
        Mr. Pollard. I know. I would note Fannie and Freddie do not
    originate mortgages. They purchase mortgages and guarantee
    them. So the rates that are set in the market and how that is
    calculated I am just not going------
        [Disturbance in the hearing room.]
        Chairman Issa. Yeah. Okay. No, I understand, Mr. Pollard,
    but, you know, you knew this was not going to be necessarily
    the easiest day when you got your invitation------
        Mr. Pollard. That is right.
        Chairman Issa [continuing]. And a repeat invitation from
    Mr. Towns, Mr. Cummings, and myself.
        The fact is you own these mortgages now. You have the right
    to write them down. I think Mr. Cummings made that pretty
    clear. You are choosing not to write them down because it is
    not in the best interest of the other part of your
    requirements, which is to minimize the loss to the taxpayer.
        On the other hand, if your entire portfolio, if every one
    of these mortgages that you currently--it is been sold to you,
    many of them by Countrywide--our investigation has not
    finished, Ms. Sellers, on to Countrywide, before you brought
    them--but the fact is that you own them. You could refinance
    every one of them to a new rate and you would own a lower
    paying rate. So that is within what you can do. The only
    question is what would it cost, right?
        Mr. Pollard. I think that is correct.
        Chairman Issa. Okay. Now, I understand that the estimates
    of principal reduction would be north of $100 billion of loss
    if you did that. Is that your estimate today?
        Mr. Pollard. I think the estimate, that is the range that
    we have------
        Chairman Issa. What is your estimate to mark to market, if
    you will, the interests rates of the entire portfolio? If
    everybody were able to get a close to market, current market
    rate from your portfolio, that entire $6 trillion?
        Mr. Pollard. I would want to get that number for you.
        Chairman Issa. Would you please get that for us?
        Now, for the rest of you, you know, Citi and all of you,
    your cost of money is higher, there is no question at all. But
    is there any reason that it is not in the best interest for
    people to be able to exercise both in and out of what will soon
    become a court settlement?
        If you run out of court settlement money, are you going to
    continue to allow people to refinance even if it has a short-
    term loss to your bank but a long-term benefit to your
    community, or we would expect that when you run out of this
    different figures, we will call it $17 billion initially, that
    when you run out of that or a 5.3 each of your sections, that
    this will stop?
        My biggest question today is, I see there is a sunny side
    to a 49-state lawsuit, I want to know what the other side is.
    Are you going to do the things you talked about today when you
    run out of that money or are you going to use it until you are
    done with it and then say the program is over? And I will go
    right down the line.
        And I realize you are not the CEOs, but we chose to have
    you all here today because you were the best qualified to
    answer current questions. This committee, no matter who is
    sitting at the dais, will have your CEOs back subject to what
    you answer today if it does not happen, so no pressure.
    [Laughter.]
        Mr. Schuppenhauer. Mr. Chairman, even with the pressure, I
    will go ahead and answer. So we have actually refinanced
    millions and I think you know that. There has been a massive
    refinance boom and so the one population has been that
    underwater borrower, particularly in areas where you live, for
    instance.
        Chairman Issa. Or in Stockton, California.
        Mr. Schuppenhauer. Or in Stockton or Modesto or wherever,
    as well as here in Brooklyn. And we are firmly committed to a
    refinance program for underwater borrowers on our own book and
    we are firmly committed to following through with HARP and HARP
    2.0 programs and we actually lead at JPMorgan Chase the
    statistics in HARP refinances. And we will continue to do so as
    we go forward.
        Chairman Issa. Right down the aisle. Mr. Ohayon.
        Mr. Ohayon. Mr. Chairman, I mentioned earlier that we are
    implementing the expanded relief program, specifically the
    refinance program, under the terms of the settlement.
        In addition, to complement that, we are utilizing HARP,
    HARP 2, and then on our own portfolio developing a refinance
    program for borrowers who have little to no equity in their
    home.
        On the loan modification side, because I think you asked
    the question earlier, we have been utilizing principal
    forgiveness on our owned assets for customers who are
    experiencing financial hardship as a means to create
    affordability. Typically it is done in conjunction with
    reduction of rate or term extension. But the key for us is try
    to find an affordable payment and utilizing all those different
    items is important.
        Chairman Issa. Mr. Jaffee.
        Mr. Jaffee. Yes, Chairman Issa, we are spending significant
    resources now ramping up our staff. We have started taking
    applications, since March 1st, in relations to the then
    proposed settlement.
        We are working to get that rolling. One thing we have
    learned through the crisis is it is a very big organization and
    it is hard to turn around. Our objective is not just to turn it
    around, to spend our money, and then be done with it. That is
    going to be the way we will move going forward.
        Chairman Issa. Ms. Sellers.
        Ms. Sellers. Mr. Chairman, Bank of America has announced
    since the global settlement additional provisions that it will
    take on both principal reduction and its commitment to
    refinance on our own portfolio and those situations where we
    act as delegated authority, as servicer, for our investor
    customers.
        Chairman Issa. So as we go to Mr. Cummings it is fair to
    say that whether it is on the Federal Government side or the
    private sector side, if somebody has a mortgage, they are
    currently underwater, this is the time they should--and they
    are making or not making their payments, this is the time to go
    in and begin the process of asking to refinance to today's
    lower rates, correct?
        I got all yeses. Mr. Cummings.
        Mr. Cummings. And I just wanted to say we are going to hold
    you to that. Mr. Chairman, is there some kind of way we can get
    some kind of report, a follow-up, as to them doing what they
    just said they would do?
        Chairman Issa. Oh, absolutely. Like I say, we have
    operatives, good high-ranking operatives, in lieu of their
    CEOs. Their CEOs have been before our committee before. If we
    do not get satisfaction, we will invite them back.
        Mr. Cummings. Thank you very much. Let me just ask you
    something, a very practical question. A lot of people--we have
    a person in our office, all she does is helping people with
    foreclosure. But there is something that used to happen, and I
    hope it is not still happening, where people would go to the
    library, fax their papers in to you all, and then they check on
    them and they get no response, and then come to find out you
    never received them. [Applause] And then they send them again,
    they send them again, and send them again. And then they come
    to my office and we send them for them, and then the company
    still claims they never got them. And I mean, we had so much of
    that.
        And I am wondering have you all resolved that issue because
    it is almost like there was something, a big machine eating up
    the papers. [Laughter.] And I am very serious about this.
        I mean, and we got disgusted.
        I mean, have you all been able to resolve that? Because a
    lot of the things that we are talking about, you know, these
    people do not have a lot of money because they take off from
    work, they do not have a fax machine at home. And so they are
    trying to get this stuff done. And then they are disgusted
    because they find that it is like a deep hole on the end of
    their fax machine.
        So, what is going on here? I mean, can you all--has that
    issue been resolved? It sounds like a little issue, Mr.
    Chairman, but this is a major issue. Have you all been able to
    resolve that? I know you have heard the complaints. We will
    start with you, very quickly.
        Ms. Sellers. We have definitely taken steps to resolve
    that, sir. One of the challenges for our customers is to
    understand what they need to be sending in and making sure that
    they have full packages when they send that in. At our customer
    assistant centers and at our outreach event, one of my personal
    biggest challenges is to get customers to provide the
    information as requested. So we have taken a lot of steps to
    reduce that type of situation that occurred in the past.
        Mr. Cummings. The others of you just yes or no, you have
    heard about it, but have you tried to resolve that?
        Mr. Jaffee. I think we have made significant progress there
    and I think that is why we do a lot of outreach events we do.
    That is why we participate with Hope Loan Port, which allows
    electronic transmittal of documents. We are trying everything
    we do.
        And, in fact, the complaints we have on missing documents
    have reduced dramatically. What we see now is you got the
    documents, they may not like the answer they get from us, but
    it is not that we have lost the documents.
        Mr. Cummings. And just very quickly.
        Mr. Morgan. Congressman, we have done a number of things to
    mitigate the chances of lost documents, including the
    implementation of single point of contact. So the customer
    knows who the point of contact is, what the phone number is,
    and who to direct all correspondence to.
        Mr. Pollard. And I would say the same thing. From a
    JPMorgan Chase standpoint, looked at it and believed we fixed
    it. We would love to hear any inquiries that are coming into
    your office and we will deal with them effectively.
        And furthermore, we will actually, as part of the
    settlement, be further developing a borrower portal that should
    help with that issue as well.
        Mr. Cummings. Now, Mr. Pollard, just one quick question. In
    answer to the chairman's question about the statement that Mr.
    DeMarco made when he said it would cost $100 billion if you all
    were to do principal reduction. The question is, is what would
    it cost if we allow people to just be foreclosed upon? I mean,
    you have not done an estimate on that because you are
    destroying communities. [Applause]
        I mean, the communities--I mean, people are put out of
    their houses and, and the tax base goes down. It is just a
    whole list of things that happen as a result of foreclosure.
    And I am just wondering, that is $100 billion in one instance,
    but what about, you know, what it cost, the price of
    foreclosure?
        Mr. Pollard. The price of foreclosure is high. And we
    believe that the programs that we have undertaken have proven
    to be the most------
        Mr. Cummings. Keep your voice up. I cannot hear you, I am
    sorry.
        Mr. Pollard. We believe that the price of foreclosure is
    high. No thoughtful person wants to foreclose. No lender, no
    investor wants to foreclose, okay. So every effort made to
    avoid that is in the best interests of those parties. But we
    have to look at what is the most cost-effective method and the
    methods that we are using are having results. They have been
    proven and tested. We have this principal forbearance that
    seems to work. We are getting people to the 31 percent. We have
    done this HARP 2, which I think the banks are seeing a quick
    uptake in acceptance. And I think that is what has been driving
    it.
        Mr. Cummings. And last by not least, how do you define
    success so that we can hold you accountable? I mean------
        Mr. Pollard. Well, can I make------
        Mr. Cummings. And really, I want to applaud the chairman,
    because one of things I have noticed throughout this hearing is
    he has been trying to make sure that you do not come here and
    make some nice statements and then just go away and then the
    people are still suffering with no accountability. And I do, I
    do want to thank you, Mr. Chairman.
        And I am just trying to figure out how can we hold you all
    accountable if you make these kind of statements? You follow
    me? Because other than that------
        Mr. Pollard. Yes, sir. Let me just say today, later today I
    believe, we will be announcing------
        Mr. Cummings. Nice and loud. You are going to make an
    announcement.
        Mr. Pollard. We will be making an expansion of our
    quarterly Foreclosure Prevention and Refinance Report. This is
    our report to you required by law that provides detailed
    analysis. We are expanding that analysis. It will show the
    numbers of loans owned or guaranteed by Fannie and Freddie,
    delinquencies, foreclosure prevention activities, success rate,
    REO properties, and refinancings in each state. It will have
    delinquent loans by state for the first time and profiles of
    key states. And New York is one of the key states, and
    California and Florida are the ones we all know about.
        It will enhance our disclosure to you of the activities
    that we are taking. We already do this report, but today it
    will be--and I hope this will happen today after I said it, but
    it is planned for today, that you will be able to have. We do a
    conservator's report that details all of this.
        I would like to make sure you have that. I would like to
    make sure it is in the form that you find digestible and
    usable. And so I would be happy to follow up on that with your
    staff after this hearing. But this is coming out later today
    that we will have this in hand------
        Mr. Cummings. So this is hot off the press?
        Mr. Pollard. I hope it gets to the press as quickly as I am
    releasing it.
        Mr. Cummings. All right.
        Chairman Issa. We will hold the record open in order to
    make sure it is included in today's record. With that we will
    go to the gentleman of Pennsylvania, Mr. Platts.
        Please see report at the following site: http://
    www.fhfa.gov/webfiles/23522/4q11_fpr finalv2i.pdf
        Mr. Platts. Thank you, Mr. Chairman. I want to echo the
    words of the chairman, the full committee ranking member, and
    Mr. Towns as the subcommittee and financial management ranking
    member, which I had the privilege to chair, that Mr. Towns is
    bringing us here today is not to have a 1-day focus on this,
    but to make sure we have a long term permanent solution. And I
    think what you are hearing from all of us is that is what we
    are looking for from our colleagues in the Federal Government
    as well as our witnesses here today in the private sector, that
    the commitments you are making are followed through on and that
    we do right by your customers, our constituents, and in the end
    have a good resolution for all in good faith.
        And I would emphasize, to me, as we have discussed issues
    here, Mr. Towns' focused on good faith modification efforts. It
    is one thing to say we are willing to do modification, but it
    has got to be good faith and it has got to be legitimate.
        And as the example he highlighted, that clear was not a
    good faith modification effort. At least from what we know here
    today, that was one that was just put out there with a
    knowledge when it was put out that it was not going to be able
    to be achieved, so I would not consider that to be good faith.
    So we want to see good faith modification.
        And I would emphasize, again, the refinance issue. As the
    chairman well documented to Fannie Mae and Freddie Mac the
    ability to borrow today, minimal cost, and even to the private
    sector that, you know, these are people who want to pay and
    meet their obligations if we can help them refinance.
        And if we go that route, which I will contend should be the
    first and most important route ahead of any write-down, we not
    only do right by those who are refinanced, but we do right by
    all American taxpayers, including those who are not looking to
    refinance, who are making their obligations.
        Because I will tell you, in my district one of the concerns
    that has been raised to me is while we help those who have been
    wrongly harmed by bad faith in the lending industry, we do so
    in a way that does not unfairly hurt those who have been paying
    their bills all along. And why I say that is a constituent came
    to me and says if my neighbor is struggling, I want them to get
    help, but I want them to get help in a way that is not
    punishing me.
        And the concern is, on the write-down issue, that their
    neighbors will be written down and they will pay--and they may
    have bought the identical house in a development for the same
    price, and the guy who is always paying his bills is still
    paying a mortgage on the full amount and the neighbor got a
    write-down as paying a mortgage on a lower amount, you know,
    even though same house, same value, everything.
        So I, I think the emphasis by Mr. Towns--and Mr. Towns and
    I have had the privilege to work as chair and ranking member.
    He has been chairman in the past and I have been ranking member
    of the Subcommittee Financial Accountability. I am now chairman
    he is now ranking member because of the shift in the overall
    majority in the House. But our focus as with the chairman and
    the ranking member of the Full Committee is we do not want just
    words, we want results.
        And I think that is what you have committed to here today;
    private sector as well as public sector. And we want to work
    with you to make sure that happens. Because in the end it is
    good for business, it is good for government doing right by our
    constituents, and everybody gets a win, especially the American
    people. So I appreciate that.
        I want to add one other issue and it has been referenced
    here again by Federal partners as well as private sector, and
    that is the issue of focus on service men and women. You know,
    I have not worn the uniform. What I do pales in comparison to
    those who wear the uniform past and present. And the fact that
    we have men and women who are in harm's way defending this
    great Nation while their families were being improperly, you
    know, provided for regarding their home mortgages is
    outrageous.
        And that 100 percent review of those who were--you know,
    related to the service personnel is outstanding. We need that
    across the board, whether it is public, private, you know, that
    we make a commitment that no man, no woman, or their families,
    because the families have sacrificed on the home front while
    their loved ones are in harm's way, that we do right by every
    one of them to make them whole. Because all individuals who
    have earned our greatest respect and absolute gratitude is
    those who defend us. And the fact that we have those
    individuals in this category of those who were wrongly treated
    is outrageous.
        So I commend the 100 percent review of the regulatory
    approach and the commitment to make sure we do that in the
    private sector as well. But we need to do right by these men
    and women and their families.
        So, Mr. Chairman, I yield back.
        Chairman Issa. I thank the gentleman. We now recognize Mr.
    Towns for his second round.
        Mr. Towns. Thank you very much, Mr. Chairman. Let me direct
    this to you, Mr. Pollard, the chairman of the------
        Chairman Issa. Ed, now we need you to get the mic closer.
        Mr. Towns. Okay. Thank you very much. The chairman of the
    Federal Reserve, the president of the New York Feds, countless
    economists, and even the former special inspector general for
    TARP have all called for the principal reduction as the best
    way to end the housing crisis and to help homeowners and save
    taxpayers money.
        Right now your boss, Mr. DeMarco, is the acting head of
    FHFA and he seems to be the only one who disagrees with this
    approach. As a result, any loan guaranteed by Fannie Mae,
    Freddie Mac is ineligible for principal reduction modification.
    When Mr. DeMarco appeared before this committee last fall, he
    said he had lacked authority for principal reductions.
        Now, and I know that this was raised by the gentleman from
    Maryland, but I did not quite get your answer. But that is not
    true. In 2008 Congress passed the Emergency Economic
    Stabilization Act and redirected FHFA to maximize assistance
    for homeowners. We explicitly authorized the use of principal
    reductions.
        As the chief counsel of FHFA, have you now abandoned the
    legal argument that FHFA lacks authority to do principal
    reductions?
        Chairman Issa. Will the gentleman yield for a second?
        Mr. Towns. I would be delighted to yield.
        Chairman Issa. You know, as you hear the same question
    again and again it is because we are not getting the answer of
    do you have the authority, not do you have the authority and
    there are some other areas in which your judgment is that you
    would be missing some other part. So if you could answer for
    the former chairman the explicit question of--assuming for a
    moment that the best avenue for the taxpayer was loan
    modification by reducing principal, do you have the authority?
    Because the chairman is asking this for the third time, along
    with all of us on the bench, because they want that narrow
    answer not the broader answer of are their conflicts?
        I thank the gentleman for yielding.
        Mr. Towns. Thank you very much. I appreciate that.
        Mr. Pollard. Clearly, EESA provided for a number of
    alternatives, including principal reduction, as a vehicle for
    assisting homeowners.
        Chairman Issa. So that is a yes? That is a yes you have the
    authority?
        Mr. Pollard. We have authority to take these various
    actions.
        Chairman Issa. You got the question.
        Mr. Towns. So your answer to that question is yes?
        Mr. Pollard. Yes, we have authority to take a different
    range of actions, that is correct. [Laughter.] But I just have
    to put it back in the context.
        Mr. Towns. I am afraid you might be asked again. That is
    the reason--I know the gentleman from Maryland asked the
    question, too, and that is the reason I am raising it again. Is
    it a yes or no that you have the authority to do this?
        Mr. Pollard. It is a yes that we have authority to take the
    range of actions in EESA, yes, sir. [Laughter.]
        Chairman Issa. Okay, folks------
        Mr. Towns. Let the record reflect I tried.
        Chairman Issa. The chair will stipulate, if the gentleman
    will yield, the chair will stipulate that it is within the
    congressional action and authority granted and that it has been
    answered in the affirmative.
        Now you can follow up with other questions Mr. Chairman and
    I appreciate that but we are stipulating at this point.
        Mr. Towns. Thank you very much. Mr. Pollard, if your agency
    could be saving the American taxpayers $500 million right now,
    today, by doing principal reductions, why are you contradicting
    the Federal statue and refusing to do so?
        Mr. Pollard. The calculations we have made today, as I
    stated earlier, do not show that benefit and did show actual
    problems with adopting such a program, and that is the best I
    can tell you in terms of why we have not adopted it.
        Mr. Towns. I did not hear the first part.
        Mr. Pollard. I said the problems with deploying it, the
    potential benefits we see from the tried-and-true methods that
    we have employed so far give us comfort in these as fitting
    with in our mandate to do this in the most cost-effective
    fashion.
        Mr. Towns. Let me close with this question. Mr. DeMarco
    wrote in his January 20th letter to Representative Tierney, of
    course, and I was on that letter as well, that we would've
    consider principal reduction if other funds became available.
        So, Mr. Chairman, on that note I yield.
        Chairman Issa. I thank the gentleman. I thank all of our
    witnesses. I will ask just one last indulgence besides that you
    remain for the second panel. Would you agree to take additional
    questions? Because I think--and not that same question again,
    although we would like a more clearly answer, but additional
    questions that we place in writing within the next 5 days?
        [A chorus of yeses.]
        Chairman Issa. I get a yes from everyone. I thank our first
    panel. We are going to take a short recess while they set up
    for the second panel.
        [Recess]
        Chairman Issa. We will now recognize our second panel. The
    chair will now recognize the Honorable Arthur Schack. He is a
    Justice of the Supreme Court of the State of New York. Ms.
    Meghan Faux is deputy director of South Brooklyn Legal
    Services. Mr. Edward Pinto is a resident fellow at the American
    Enterprise Institute.
        Chairman Issa. Pursuant to the rules, if you would please
    rise to take the oath.
        [Witnesses sworn.]
        Chairman Issa. Let the record indicate all members of the
    panel answered in the affirmative. Please take your seats.
        Again, as the first panel, there is a set of lights in
    front of you. And as my predecessor Mr. Towns says, everywhere
    in American we know that green means go, yellow means it is
    going to change to red, and red means stop. So do not be long
    overdue, as my predecessor also would say to people who went
    past red.
        Your entire statements will be placed in the record so that
    not a word will be missed by the transcribers.
        And with that, Justice, you are recognized for 5 minutes.

              STATEMENT OF THE HONORABLE ARTHUR M. SCHACK

        Judge Schack. Good morning. Thank you, Chairman Issa. I
    want to thank Ranking Member Cummings, Congressman Towns whose
    home district we are in, and Congressman Platts for this
    opportunity to speak.
        At the present time we are here in the Borough of Brooklyn,
    which is also known as Kings County, so I will use those terms
    interchangeably.
        And as a sitting Justice in the Supreme Court of Kings
    County, we have right now pending about 14,000 foreclosure
    cases. Of these about 4- to 500 approximately right now are
    assigned to me.
        Starting about 2007, I started to observe the bursting of
    the housing bubble and the growth in foreclosure filings. We
    went from about 3,000 to 3,500 foreclosures per year in this
    county to more than 7,000 filings per year. New York is a
    judicial foreclosure state and the power to order a judgment of
    foreclosure is vested in the Supreme Court by the State of New
    York, which despite it is lofty title is actually the court of
    general jurisdiction in this particular state.
        I am one of about 300 Supreme Court justices about 15
    percent of the Supreme Court justices in our state are in this
    county because we have about 15 percent of the population. And
    my experience in dealing with residential foreclosures has
    given me a unique perspective on what is happening with the
    housing market.
        I am not going to discuss any specific cases, lenders, or
    homeowners, but I observed many problems, including but not
    limited to the shoddy paperwork executed by lenders or their
    mortgage services, determining the actual owners of mortgages
    and notes, and the disproportionate impact of foreclosures upon
    minorities and neighborhoods that have predominant minority
    population.
        As a judge I am the neutral. My role is to apply the law
    equally to all parties so we have a level playing field. And
    for a lender to receive a judgment of foreclosure, similar to
    any other type of judgment, due process of law must be
    followed. I have taken an oath to uphold this. And my job is to
    apply justice to each individual case no matter how the chips
    fall.
        Now, for a plaintiff to receive a judgment of foreclosure,
    it must demonstrate three things to the court: the existence of
    a mortgage and note, the plaintiff's ownership of the mortgage
    and note, and the default of the defendant. This might sound
    relatively simple, but in this age of mortgage securitization
    and numerous assignments of mortgages and notes, it is not easy
    in many cases to demonstrate the plaintiff's ownership of the
    mortgage and note.
        Further, the plaintiff must demonstrate standing. That
    means that it or its predecessor of interest own the mortgage
    and note when the foreclosure case commenced.
        I have been confronted many times with the problem of
    determining who actually owns a particular mortgage and note. I
    have seen a plethora of cases with defective assignments of
    mortgages and notes by robo-signers. And I continue to see
    conflicts of interest. Numerous cases I will see that an
    individual might have signed a mortgage and note as an officer
    of entity A and then days, weeks, or months later sign an
    affidavit on behalf of mortgage entity B. So I have also
    noticed defects in the notarization of assignments and
    affidavits missing powers of attorney, defective powers of
    attorney for mortgage services who submit affidavits on behalf
    of alleged plaintiffs, attempts to retroactively assign
    mortgages and notes to attempt to legitimatize foreclosure
    actions, and a failure to produce pooling and servicing
    agreements that detail the powers that are allegedly given to
    mortgage services.
        One of the things that I found to be quite amusing at
    times, but certainly a major problem, that I try to conduct
    conferences to try to modify mortgages and we come up with some
    numbers. I propose numbers to bank lawyers. I am told it has to
    be--they have to check with the lender. And that always piques
    my curiously--I am sorry, the investor, my mistake. My mistake.
        And then I say, who is the investor? And many times the
    bank lawyers look very puzzled at me and say, I do not know. So
    we have this problem determining what happens.
        A lot of it is also related to the fact we have the MERS
    system, which I think the committee is familiar with. And we
    have major problems as MERS move mortgages around without
    recording them. We have major problems because mortgage
    assignment as well as mortgages are not necessarily recorded
    because they do not have to be.
        So I want to propose to the committee that we have some
    kind of legislation in this country which would reduce the
    abuse, also increase the fees received by localities and
    counties with reporting that to be enforceable in court that
    all mortgages and assignments have to be recorded. The
    localities would receive payments to improve their bottom line
    for the fees and it will add up to billions of dollars, the
    bank's the MERS system, that localities have not gotten in this
    country.
        So I see the amount of time. I will be very happy to answer
    any questions that the committee has.
        Chairman Issa. Thank you, your Honor.
        [Prepared statement of Judge Schack follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Issa. Ms. Faux.

                        STATEMENT OF MEGHAN FAUX

        Ms. Faux. Thank you, Mr. Chairman. I would like to thank
    the committee for holding this hearing; Chairman Issa, Ranking
    Member Cummings, Representative Towns for extending an
    invitation to us and Representative Platts.
        Legal Services, I will be testifying today on behalf of
    Legal Services NYC and I prepared this testimony in
    collaboration with our Bedford-Stuyvesant Community Legal
    Services Office and our Brooklyn Legal Services Corporation A
    Office. And together we have been addressing the foreclosure
    crisis in Brooklyn for more than a decade.
        Our Legal Services NYC now operate six dedicated units,
    foreclosure prevention units, across the city. We have more
    than 45 attorneys and paralegals working with homeowners. And
    we have assisted more than 6,000 homeowners in the past years.
    Our Bedford-Stuyvesant office alone has helped almost 300
    homeowners in Congressmen Towns district.
        But yet still, with all of our efforts and with the many
    investigations and regulations that have been implemented,
    communities in Brooklyn are struggling more now than ever. Our
    neighborhoods continue to endure catastrophe as record numbers
    of families face foreclosure. And in New York City the economic
    down turn and rising unemployment have deepened a crisis that
    was caused by abusive subprime lending. For years, low-income
    communities of color were aggressively targeted for abusive
    unaffordable mortgages, including adjustable rate mortgages,
    stated income loans, and payment options adjustable rate
    mortgages.
        As the foreclosure crisis deepened and the economy
    declined, more homeowners fell into foreclosure due to
    unemployment and underemployment. These are not homeowners who
    are walking away from their responsibilities. These are
    homeowners who are trying to make ends meet. These are
    homeowners who need our assistance.
        For most of our clients, approximate cause of the default
    is the economic hardship, but the fundamental problem was this
    mortgage was never affordable from its inception. And so today,
    we face in Brooklyn alone more than 27,000 mortgages that have
    gone into default in 2011, on top of the 14,000 pending
    foreclosure cases that Judge Schack testified. That means in
    some Brooklyn and Queens neighborhoods one in three homes is in
    foreclosure. One in three homes is at risk of being vacant and
    deteriorating. One in three families are going to lose their
    long-time home and their long-time community.
        And the map that I attached to my testimony really depicts
    very clearly the neighborhoods that are hardest hit: Canarsie,
    Brownsville, Bushwick, Bedford-Stuyvesant, and Flatbush.
        Every day our advocates see the terrible impact the
    foreclosures have on individual families, the stress, the
    terror, the fear. Yet vacant and deteriorating houses,
    increased crime, drastic home depreciation, and disappearing
    affordable rental housing threaten our community at the core.
    If continued vigilance and aggressive reform are not
    implemented and implemented now, communities like Bedford-
    Stuyvesant and Canarsie will take decades to rebuild.
        Our clients and our communities, as I just said, are trying
    to work with servicers. They are trying to meet their
    obligations. They are trying to obtain affordable housing. That
    is all they want, is a mortgage they can afford to repay. And
    yet many of our clients who come to us have been trying to work
    with their servicer for more than a year, denied more than once
    for a mortgage modification. Over 80 percent of our clients
    came to us after trying to work with their servicer for many,
    many years.
        And while there is lots of talk about HARP and there is
    lots of talk about refinancing programs, the reality is that
    most of our clients, not some, but most of our clients, have no
    hope of refinancing. There is not access to fair credit in the
    low-income communities of color in Brooklyn. There is not. And
    there is not from the banks that were sitting here today and
    there is not from most of the other banks who are not here
    today. And deed the hardest hit areas of Brooklyn, the only
    hope they have is an affordable modification, and that is what
    they deserve.
        Now more than 4 years into the foreclosure crisis,
    deliberate delays and improper denials remain the servicers'
    primary response. And I am going very briefly outline the
    barriers that we see that most prevent our clients from getting
    modification.
        First, is unnecessary delays. It does take a long time to
    get through the foreclosure process in Brooklyn, but almost 2
    years of that is spent in settlement conferences, and the bulk
    of that delay is because of servicers failing to respond to
    repeated loan modification applications and properly reviewing
    clients for modifications.
        Unexplained and excessive fees continue to remain a huge
    problem. Improper denials and failure to look at the
    applications before them remain a huge problem.
        And I know I am out of time, but I would just ask your
    indulgence for one more moment. What we need is an aggressive
    enforcement of strong servicing standards for everyone.
    Servicers should not be above the law and they need to be
    enforced and held accountable for their actions.
        And as the committee members have talked about earlier, we
    need principal reduction. It needs to be mandatory when it is
    in the best interest of the investors. Voluntary programs are
    not enough. Servicers coming here and saying that they will
    abide by the law is not enough. Our communities and our economy
    need more.
        Thank you. [Applause]
        Chairman Issa. Thank you.
        [Prepared statement of Ms. Faux follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Issa. Mr. Pinto. And please pull the mic as close
    as you can.

                       STATEMENT OF EDWARD PINTO

        Mr. Pinto. Chairman Issa and Ranking Member Cummings, thank
    you for the opportunity to testify today.
        The failure of the housing market to recover is the result
    of two errant policy initiatives. The first was pushing broad
    affordable housing mandates that started in the early 1990's,
    which along with other government policies drove an
    unsustainable home price boom. Second, once the housing market
    collapsed many of the supporters of these policies effortlessly
    switched gears and undertook a multiyear effort to prolong the
    market clearing process.
        Ominously, the FHA has already announced plans to expand
    lending practices destructive to borrowers and neighborhoods
    alike. Additionally, the Fed recently approved Capital One
    Financial Corporation's acquisition of ING Direct. Capital One
    committed to a $180 billion Community Reinvestment Act
    commitment. This included an agreement to originate FHA loans
    to borrowers with FICO scores as low as 580. Loans with a 580
    to 599 FICO score have an estimated claim rate of 30 percent. A
    failure rate that in good times would be 30 percent. Rather
    than protecting consumers and neighborhood by avoiding such
    destructive lending, FHA is planning a major expansion.
        Here are my four simple principles to guide FHA reform.
    Step back from markets that can be served by the private
    sector. Two, stop knowingly lending to people who cannot afford
    to repay their loans. Three, help homeowners establish
    meaningful equity in their homes. And four, concentrate on
    homebuyers who truly need help.
        We are now 6 years into the housing bust. what should we
    do? First, do no harm. After the national mortgage settlement
    was announced HUD Secretary Donavan sat down with the Wall
    Street Journal. He was asked, how many borrowers current in
    their mortgage were booted out of their homes? He could not
    provide a number, but estimated it would be a tiny fraction of
    the robo-signed foreclosures. That is a remarkable admission.
        Worst of all, the settlement and other misguided policies
    have harmed those who have done the right thing. They did not
    over-leverage their homes. They paid their mortgages on time.
    They did not borrow more than they could afford. They saved all
    their lives. They are now being punished by near zero interest
    rates. They were not friends of Angelo and they were not Fannie
    Mae crony capitalists.
        The housing recovery has been stymied for three reasons:
    policies preventing the market from clearing, inadequate demand
    relative to supply, and too much leverage. In my written
    testimony I note numerous initiatives that have contributed to
    preventing the market from clearing.
        I propose two steps that would have a huge upside potential
    and minimal downside potential. First, promote the conversion
    to rental of properties resulting from short sales, REOs, and
    foreclosures by expanding Fannie's and Freddie's individual
    investor loan limit. Fannie currently limits to a single
    investor of 10 loans from any source and Freddie to 4. Why not
    increase the limit to 30 with a maximum loan to value of 65
    percent? Hundreds of thousands of investors will be instantly
    mobilized to action the day this change is announced. If only
    15 percent of the some 3 million individual investor property
    owners were able to purchase an average of 4 more properties
    each, 1.8 million properties would be absorbed.
        Second, what to do about refinances. This was a topic
    earlier in the first panel. HARP, FHA, and GSA-assisted
    refinances have done almost nothing to reduce leverage. They
    have cut a stagnant economic pie into smaller pieces and then
    the savings are called stimulus. This presents four problems.
        One, it is an extremely weak form of stimulus. The
    administration estimate annualized savings of $27 billion from
    14 million refinances. That is less than two-tenths of 1
    percent of the GDP. To paraphrase Winston Churchill, that is
    like standing in a bucket trying to lift one's self up by the
    handle.
        Compare this to any number of sound private sector job
    growth ideas that have been rejected by the administration.
    These new jobs, if they were undertaken, would grow the
    economic pie while refinance is merely distributed.
        Last, underwater HARP borrowers who have generally left
    even more underwater than when they started. The solution is a
    simple one: help underwater borrowers who have done the right
    thing and made loan payments for the last five-plus years get
    the benefit of a lower rate, but let them keep or require them
    to keep the same monthly payment. This way the loan will
    amortize much faster, helping the homeowner get himself out
    from underwater very quickly.
        For homeowners who are 20 percent or more underwater,
    Fannie and Freddie could modify these loans on their own
    initiative today to a rate of, say, 3.75 percent and a
    resulting term of about 17 years, keep the payment the same,
    and put the loans on track to get out from underwater. The day
    that program is announced it would start solving the problem
    rather than kicking the can down the road.
        I will be happy to answer questions at the appropriate
    time. Thank you.
        Chairman Issa. Thank you.
        [Prepared statement of Mr. Pinto follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Issa. And reserving time so that I will both use
    my last 5 minutes to close and for my questions, I would like
    to go to the ranking members, Mr. Cummings, for his round. The
    gentleman is recognized.
        Mr. Cummings. Thank you very much, Mr. Chairman.
        Ms. Faux, let me just go back to some of the things that
    you said. You know, some people have the impression that folks
    got into these loans and found themselves in trouble because
    they were people who simply took advantage of a system of no
    docs and whatever. But it seems to me that when you look at
    someone who is underwater, in many instances it is probably no
    fault of their own. Because if you have a situation, like in
    the block that I live in, I often say where The Wire is filmed
    in Baltimore, where across the street from me out of 15 houses,
    6 of them are in foreclosure, and the property value has gone
    down 50 percent in the last 3 or 4 years, it is no fault of my
    own that I could be underwater. Am I right, is it?
        Ms. Faux. There are a lot of homeowners who are now
    underwater because of declining home values. And there are many
    who are underwater because of over appraisals, but there are
    many who are now underwater because of the foreclosure crisis
    and bringing home prices down.
        Mr. Cummings. But a lot of these people, they are not
    looking for somebody just to give them a gift. They are trying
    to figure out how to stay in that house, is that right?
        Ms. Faux. Yes.
        Mr. Cummings. I mean, and they do not mind trying to pay
    what they can, am I right?
        Ms. Faux. I mean, all of my clients that we represent want
    to pay a mortgage. They want to pay a mortgage they can afford
    and that fits within their monthly budget.
        And, you know, the principal reduction, I think, makes
    sense as a public policy, but many of our clients are accepting
    mortgages--I mean, modifications that are hundreds of thousands
    of dollars, you know, the principal balances are hundreds and
    thousand of dollars over the actual value of the home because
    they want to stay in their house and they want to stay in their
    community. And, you know, what principal reduction will allow
    are bringing those modifications to a more affordable level and
    then allow people the freedom to move if they need to sell
    their house because of family or a job they got somewhere else.
    It is good public policy, but it is not even what our clients
    asked for in the first instance.
        Mr. Cummings. I think there is something that people often
    forget, too, is when a house is underwater several things
    happen: one, you cannot sell it; two, you cannot go and buy
    another house; and three, the neighborhood goes down; four, you
    are losing municipal and state taxes. I mean, just a whole
    range of things.
        And I think you, Judge, I think it was you, who said that--
    I think you were talking about--it was one of you talking about
    how we lose tax dollars. Was that you, Judge?
        Judge Schack. This is with the subject of assignments------
        Mr. Cummings. Oh, the MERS thing. Because, I mean, that is
    very significant.
        Judge Schack. Because we have lost about $3 billion for all
    the counties or whatever the local recording authority is
    around the country, so this is a national issue. It is not only
    New York.
        Mr. Cummings. Right.
        Judge Schack. Florida, California, Pennsylvania, Maryland,
    wherever. And our counties and the localities are hurting, and
    this could help them besides trying to end abuses with fraud as
    well.
        Mr. Cummings. And Judge, if you had to--if you were--if you
    could--you know, just based upon what you have seen, and you
    said that you see that there are certain communities that are
    affected disproportionally than others, I mean, what would you
    like to see to try to--I mean, if you could figure out a way to
    kind of correct this situation?
        Judge Schack. If I can do that, I would be making a lot
    more money than what I make now. [Laughter.] All of us would.
    But on a serious vein, in this particular county--because, you
    know, I am dealing with foreclosures throughout Brooklyn,
    Brooklyn is approximately 2\1/2\ to 2-3/4 million people. But I
    say that probably 90 percent of those 14,000 foreclosures are
    in predominantly minority communities.
        And some of the speakers have named the neighborhoods: East
    New York, Canarsie, Brownsville, Bushwick, Bedstuy, Crown
    Heights, et cetera. And then there is other parts of Brooklyn,
    like Bay Ridge, I will pick on Bay Ridge, very rare.
        I mean, you see foreclosures there. Some people fall into
    problems. But predominantly the majority of the community it is
    very rare to see foreclosures. So there is an impact on a
    minority community.
        There is a variety of reasons I think that are more
    economic than anything else with more families taking two and
    three jobs because they want to achieve that American dream of
    owning their own house. They want to be in the house. People
    lost jobs. People fell on hard times. People signed these
    adjustable rate mortgages, the rates went up. A whole variety
    of reasons that caused these problems. And we are faced to deal
    with it, at least I know lawyers already deal with this, the
    court system. And, you know, we cannot escape from it.
        I mean, I like to--well, I will use an analogy in a way. I
    used to use this when I sat on the criminal side. I am like the
    doctor in the emergency room: there is a problem, I have to
    deal with it. I cannot duck. I cannot hide. It is what it is
    and it comes before me and I got to do something, and so do the
    other judges. And we face the society and we face this as the
    ills of society in our courtroom. So this is one of these we
    have to deal with one way or another.
        Mr. Cummings. Thank you very much.
        Chairman Issa. Thank you. Mr. Platts.
        Mr. Platts. Thank you, Mr. Chairman and certainly thank
    each of you for your testimony. And is it Folk?
        Ms. Faux. Faux.
        Mr. Platts. Faux. Okay. I want to especially thank you for
    your work with Legal Services. As an attorney by training I
    know that for our judicial process to work well the parties
    that come before the system need to basically try to be on a
    level playing field to make sure the system works as we intend.
    So the work of you and your agency is most appreciated.
        One of the most historic statements in your written
    testimony that just kind of undercuts our first panel about how
    we are changing things was you say, ``Despite countless
    investigations, regulations and initiatives, our offices have
    seen little change in the day-to-day practices of servicers.''
    And that is why we are here, as Mr. Towns in Brooklyn and on
    the broader issue as a committee trying to look at this issue
    because it has to change.
        Ms. Faux. Right.
        Mr. Platts. You referenced that despite the attention that
    there continues to be routine violations of Federal and state
    regulations. Could you identify what would be the most common
    violation of am actual law, state or Federal, or Federal or
    state regulations, that is most routine that you see?
        Ms. Faux. The regulations I was speaking to are the HAMP
    guidelines and the state servicing regulations. And what we
    still see routinely is despite, you know, a complete
    modification package put in, many months delays before we
    receive an answer; we see denial responses that do not relate
    to the reason the homeowner was actually denied; and we see
    servicers who, you know, are, you know, making mistakes in the
    review process. But that is many, many months later that we
    realize why the homeowner was denied, and it is very costly to
    our clients in terms of interests and fees. And then, you know,
    putting forth a denial because of an investor restriction. And
    then, you know, while this is not--we wish this was a
    violation, but failing to disclose the investigator restriction
    to us, and then once we investigate they are not actually being
    an investor restriction.
        And, you know, I should say I have worked with many of the
    panelists who were on the first panel for years, and many of
    the lender representatives in this room. And we can come to an
    agreement about what a lot of these problems are, but then when
    we get back to the frontline staff and in the community, we see
    the same problems over and over and over again. And I do think
    that is because the enforcement of the regulations has been
    minimal.
        Mr. Platts. Yes, and that actually touches on two follow-
    ups.
        One, have you ever seen a consequence to a lender or
    servicer for failure to comply, a penalty not through this
    global agreement, but, you know, on an individual case where
    there was a violation and there was a consequence to the person
    or the entity that failed to comply?
        Ms. Faux. Yes, when we are in court. We have the judges in
    Brooklyn will consider totaling interests and fees if the
    servicers are not negotiating in good faith in the contacts of
    settlement conferences, but outside that, no.
        Mr. Platts. And I guess, Your Honor, how common would you
    say that is the case, you know, that you are able to impose
    those type--because to me for this to change there has to be
    consequences.
        Ms. Faux. Yes.
        Judge Schack. Funny you should ask me, you know, because of
    my reputation, but I have sanctioned banks. As I said, I do not
    want to talk about specific cases. You want to go Westlaw, feel
    free to read what I have written and that is a matter of public
    record. But I really do not want to comment because there also
    pending cases that are on appeal. But there are unique cases.
        You know, every case is unique, obviously. And that is one
    of the--you know, it is great to hear the first panel talk in
    broad generalities about what they would like to do, but I have
    to deal with--you know, I have a case in front of me, this is a
    real homeowner, a real property, and that person or their
    family have to deal with it on a case-by-case basis.
        And I also have to say there are other homeowners where I
    have signed judgments of foreclosure and people have been
    evicted and moved out. So every case is unique. But there are
    cases where I have had to sanction lenders for some of their
    practices.
        Mr. Platts. But by your testimony and, Ms. Faux, your
    statements in line with the previous panel that there seems to
    be a breakdown in communication you referenced with working
    with some of those individuals, but when you get to the front
    lines. And so I know most, if not all, of the previous panel
    members are here, is I would encourage each of you to make sure
    that Ms. Faux has not just your contact information, but who is
    the troubleshooter in your entity, you know, within your bank.
    Who should she talk to to make sure that the front line is
    dealing what we heard pledged to us today because that seems to
    be the issue. We have the senior management making the
    commitment, but unless the guys on the front lines are actually
    delivering on it, they are going to keep coming before the
    judge, you are going to continue to devote, you know, months
    and months and months of, you know, effort that means you are
    also taking from other important legal services.
        So for those witnesses here from the first panel, I would
    encourage you to make sure that Ms. Faux and her colleagues
    have a direct line to whoever can troubleshoot to make sure
    that we line up front line service with the commitments we
    heard today. Mr. Chairman, thank you.
        Chairman Issa. Thank you. I now ask unanimous consent that
    the then minority report from February 25, 2010, entitled
    Treasury Department's Mortgage Modification Program, be entered
    into the record. Without objection, so ordered.
        We now recognize Chairman Towns for his round of questions.
        Mr. Towns. Thank you very much, Mr. Chairman. Let me just
    recognize, because I want you to know that I am really
    impressed with the fact that we have some judges, you know, in
    the room and I want you to know that that to me is very, very
    important. Aside from Judge Schack we have others that are
    here. We have Judge Slyvia Hines Reddick, supervising Justice
    of the Civil Term Brooklyn Supreme Court is in the room.
    [Applause]
        Chairman Issa. How often do you hear judges get applause?
    [Laughter.]
        Mr. Towns. Is that not something? Yes. We also have former
    Family Court Judge Betty Staton is also in the room. Judge
    Staton, Family Court, is also in the room as well. [Applause]
    And I want to thank you for being here.
        And, of course,the person that has done so much of this,
    Cathy Asobiey, it is always--you know, who has done so much of
    this kind of work on behalf of the people in Brooklyn.
    [Applause]
        Let me just move forward by, first of all, Judge Schack,
    you talked about conflict of interest and fraud. What are some
    of the most frequent kinds of conflicts you see? What? I am
    sorry.
        Chairman Issa. These are really great mics. They are just--
    you got to get up close and personal with them.
        Judge Schack. I know that. Thank you.
        Mr. Towns. What are some of the most obvious conflicts of
    interest and fraud that you see in your court?
        Judge Schack. Well, we will come back to the MERS system
    for a moment. Many times you will see someone sign a document,
    particularly an assignment of a mortgage from MERS to whoever
    becomes the plaintiff in a foreclosure, and they will sign it
    as an officer of MERS. And that conflict would be as an
    assistant--usually an assistant secretary to assistant
    treasurer in court. But then you find out they are not an
    employee of MERS. In some cases I found out they do not even
    know what MERS is, they just signed the thing with the robo-
    signers. And then a month, 2 months, 3 months, whatever it is
    later on, then the present owner of the mortgage will file with
    their papers for a foreclosure what we call an affidavit of
    merit. Typically that is on a default case because the
    plaintiff has to attest to the facts in the filing. And it will
    be the same person with a different title. Now they are the
    vice president of bank X or mortgage servicer X. So now they
    wear two hats. I have had cases where they wear three hats, or
    I have had cases with some particular law firms where a lawyer
    who works for that particular law firm signs as an officer of
    MERS and then that is the assignor who signs the mortgage, and
    then suddenly that law firm is now the lawyer for the lender
    who is the assignee. So, that is a conflict.
        So those are some of the typical conflicts that not only
    have I seen, but I continue to see despite everyone is talking
    about doing these wonderful things, but I continually see this
    day-in and day-out.
        Mr. Towns. Thank you very much. Ms. Faux, you mentioned
    that servicers should not be above the law. Could you sort of
    expound on that a little bit?
        Ms. Faux. I mean, it is the HAMP guidelines and, you know,
    the New York State servicing regulations, which are some of the
    strongest in the country, you know, even if only those
    regulations were followed, we would be well further along in
    resolving the foreclosure crisis.
        And I think that the AG settlement, you know, the servicing
    standards there are, you know, very commonsensical. Yet, you
    know, what we need, they are going to have to be aggressively
    enforced. You know, it takes us months to litigate a case, you
    know, in the courts about whether the servicer and the
    plaintiff, you know, failed to negotiate in good faith. There
    are dozens, if not hundreds, of other cases pending where those
    homeowners do not have that same type of relief, and all
    homeowners should be treated fairly. Servicing should be
    transparent and they should get prompt review of modification
    packages.
        Mr. Towns. Right. Sitting right next to you is Mr. Pinto,
    who has stated during an interview last month, and I quote,
    ``There are not any damages that have been demonstrated.'' A
    few days later, he stated that the settlement, and I quote
    again, ``Really is not based on damage that was actually done
    that was proven.'' He said, the settlements, and I quote,
    ``Deals with some nebulous claims that were made by state
    attorney generals and regulators.''
        Do you still stand by that?
        Mr. Pinto. Not only do I stand by it, but Secretary Donovan
    said the same thing. I quoted him in my testimony.
        Mr. Towns. Judge Schack and Ms. Faux, what do you say to
    that? I do not want to start a fight up here, but I sure want
    to get to the point.
        Chairman Issa. We just need a bench ruling.
        Judge Schack. I know you want that, Mr. Chairman. But on a
    serious vein on this, you folks have more First Amendment
    rights than I have since I am a neutral. As a judge I really
    cannot talk publicly about a lot of things, but I will just
    leave it that the abuses that we have read about in the media
    or heard about, they continue on a day-to-day basis. So I will
    leave it at that.
        Ms. Faux. The abuses continue and, I think, homeowners are
    the one who are harmed the most. You know, they--while during
    the delays or the, you know, improper foreclosure filings and
    the refusal to negotiate in good faith, homeowners get hundreds
    of thousand of dollars of accrued additional debt, and that
    means it is just that much more difficult for them to save
    their home.
        And we still see, you know, questionable assignments and
    affidavits. We still see foreclosures being filed where it is
    unclear whether the plaintiff owns the debt. And we have no
    idea who to negotiate with.
        And all of those actions, all of that fraud, and the
    deception that underlie origination, and then throughout the
    foreclosure process is incredibly costly to the community.
        Mr. Towns. Two years in settlement, that seems to be a
    long, long time in settlement conference?
        Ms. Faux. Yes.
        Mr. Towns. What do you think we can do to sort of shorten
    that?
        Ms. Faux. I mean, there is a number of recommendations that
    we have to streamline the process, and we are working with the
    Office of Court Administration to implement those procedures.
    But what the bulk of these conferences, you know, six to eight
    appearances per case over twice as many months, you know, are
    about, you know, servers who say the package is complete and
    then come back 2 months later having not reviewed it asking for
    more documentation at the conference instead of in between and
    asking for unnecessary documents or documents that we provided
    over and over and over again. And they need to be held
    accountable for failing to review in a timely fashion. And they
    need to just know what they need up front and then not change
    their mind later.
        And, you know, homeowners are perfectly willing to document
    their income to provide complete modification applications.
    They should not have to do it four and five times before they
    are able to obtain a mortgage modification.
        Mr. Towns. Thank you very much. Mr. Chairman, thank you.
    Let me thank you for bringing the hearing to Brooklyn. I want
    to thank the witnesses for their participation. And we look
    forward to working very close with you in the days and months
    ahead to try to bring about a solution to this very serious
    problem. Thank you.
        Chairman Issa. Thank you, Mr. Towns. And this is the second
    time you have brought me to this beautiful, ornate, and
    historic building on this subject, so I thank you for inviting
    us back to Brooklyn.
        I will now recognize myself. And there is a number of
    things. First, Justice, you have, at least on a preliminary
    basis, looked at the settlement. Do you think it is going to
    change the behavior of the banks that you see before you and
    other mortgage owners?
        Judge Schack. I hate to say it but probably not. I mean,
    you know, I said Brooklyn, maybe I should be in Missouri
    because they are going to have to show me. I do not know. Time
    will tell.
        Chairman Issa. Ms. Faux, how about you? Do you think that
    the behavior, what you are describing, sounds not like they do
    not have the tools or that they have not successfully done--and
    if we counted up all the banks we would have several million
    modifications, successful refinancing, and, of course, you add
    Freddie and Fannie you get several million more. But the 5- or
    6 million successes that were spoken of in the first panel, you
    do not see the successes, you see the failures for the most
    part, do you not? Do you think this is going to change with
    tens of billions of dollars committed to the process?
        Ms. Faux. I guess I have slightly more hope. But it will
    depend if the attorney generals are willing to aggressively
    enforce this. Obviously it would help if homeowners could
    enforce the agreement themselves, if there was a private right
    of action, if there was a defense to foreclosure for violating
    these agreements. But, you know, we are also looking forward to
    partnering with the attorney generals, with the CFPB, and the
    other enforcement agencies to ensure that servicers, now that
    they have again agreed to this, actually follow through.
        Chairman Issa. Now, you are an economist, Mr. Pinto. The
    two of you are obviously attorneys. Have you looked at the 1978
    Reform Act? Are you familiar with it?
        Mr. Pinto. No, I am not.
        Chairman Issa. It is perplexing to me. And this is not to
    say that I am not trying to find solutions that are outside
    historic. 1978, Democrat President, Democratic House,
    Democratic Senate, the reform specifically eliminated cram-down
    or principal reduction even in bankruptcy.
        As we try to find the right way--and I am going to get to
    Mr. Pinto on a number of his proposals, but as we try to find
    the right way--do you know of any statutory history of what
    used to be called cram down because it did exist in bankruptcy,
    but specifically excluded in order to make mortgages more
    desirable essentially and more reliable? Do you know of any
    statutory basis, either as a Justice or as a consumer attorney,
    do you have any basis for us to order that in the private
    sector notwithstanding a settlement where they have agreed to
    it or the 60 percent that is controlled by Congress?
        Judge Schack. As far as I know, and I do not--without doing
    any kind of legal research, I am not familiar with any statute
    that would require that.
        Chairman Issa. Ms. Faux, you do not know of any either?
        Ms. Faux. I do not, but it would be great if there could be
    bankruptcy reform that allow it.
        Chairman Issa. Well, and it is one of the questions. I
    serve on Judiciary. It is one of the questions of do we relook
    at the 1978 act? And if we do, Mr. Pinto, I now close with you.
        First of all, as an economist, what would that change do?
    In other words, the anticipation that there could be if the
    market goes up, the consumer takes the profit; if the market
    goes down, the principal is reduced on a relatively consistent
    basis and yet the owner keeps it. What is that going to do to
    the cost of a mortgage in your estimate as an economist? And
    you obviously served in that capacity at high level.
        Mr. Pinto. My estimate would be it would raise the cost of
    financing. In my testimony I talked about a slightly different
    Catch-22, which is having low down payments, virtually no down
    payments, that was proposed by Mr. Belsky, who is the head of
    the Joint Center for Housing at Harvard. And he was speaking
    before the FDIC and he said while the advantage to getting a
    home with a very small down payment is you have a tremendous
    upside potential, as you have just indicated, and your downside
    potential is also advantageous because it takes so long to
    foreclose. And if you added cram down to that, I think you
    would just be creating additional problems.
        Chairman Issa. Well, leverage always works hard. It just
    sometimes works hard for you and sometimes against you.
        In closing though, if your principal concept that you had,
    which was that basically we should refinance people to today's
    lower rates, keep the payment, if they can make it, the same,
    thus they get out a hole or if they stop being upside down and
    go right side up quicker, I found it interesting only for one
    reason. In virtually every mortgage these days, modern
    mortgage, and all of you can weigh in, they almost all have an
    absolute right to, in a relatively short period of time,
    refinance, close out with little or no penalty, right?
        Judge Schack. That is correct.
        Chairman Issa. So home mortgages start off with the
    presumption of an absolute right by the homeowner to go out and
    refinance them.
        So my closing question to all of you is--and by the way, I
    will talk a little more about the questions afterwards, but is
    not what we should have looked at from day one, all the way
    back when the mortgage rates started going down in 2008, the
    ensuring that people, even if they are underwater, could take
    advantage of the affordability that was coming and reasonably
    expected within their mortgages through refinancing to
    prevailing rates that were lower?
        My closing question for each of you, because you did not
    agree in your opening statements. Can we agree in the closing
    statements that that would have dramatically made homes more
    affordable and reduce the amount of blighted communities?
        Mr. Pinto.
        Mr. Pinto. What I actually suggested was that loans be
    modified that are underwater 20 percent or more. There are
    restrictions on Fannie and Freddie and I specifically talked
    about Fannie and Freddie.
        Chairman Issa. Well, no, my question is very limited, and
    you can answer further what you think I asked for the record.
    But my question was if we in the government had alleviated any
    limitations on Freddie and Fannie, if we in the government had
    encouraged from day one and encouraged from day two, being
    today, banks to, in fact, allow people to exercise the
    reasonable expectation they had, which was that they could
    refinance with a point or two, whatever the normal refinancing
    was, if, in fact, rates went down, they had that expectation,
    it was explicitly in their contracts that they could do in
    virtually every home mortgage, would that not, as an economist,
    have dramatically reduced the problem of people not being able
    to afford their homes and the blighted communities?
        Mr. Pinto. It is not that simple. Sorry.
        Chairman Issa. Okay, perhaps for a lawyer it is simpler.
        Ms. Faux. I think access to, you know, that kind of
    affordable credit would have helped a number of people
    prevent--who are now going into foreclosures. And just I think
    you need to ensure that really every community has access to
    that fair and affordable credit.
        Chairman Issa. Judge.
        Judge Schack. I am going to agree partially with Mr. Pinto
    that it is not as simple as------
        Chairman Issa. It does not take care of everyone is what
    you are saying?
        Judge Schack. Right. Because there are people who have
    individual credit problems. So assuming people are working,
    they have the correct credit rating, that might be the way to
    go if it is high enough.
        Chairman Issa. My question was not that simple, you know.
    My question, and I asked it to the first panel was, in fact,
    yes, their credit in some case diminished, yes, they were
    behind in their payments or barely keeping up. The fact is
    there was a reasonable expectation within the contract that
    they could refinance. If we said, if we encouraged--let us just
    take--and I have got Mr. Pollard still patiently here.
        If we said to Freddie and Fannie thou shall refinance since
    you are getting your money cheaper with Fed paper, we want you
    to refinance to that 3\1/2\ percent from the 7 percent, if we
    had done that, it certainly would have had an adverse effect.
    All of us understand there was a revenue loss. But would it not
    have dramatically reduced the amount of people in front of you?
        Let us just assume they are 525, they did a no docs loan,
    all the other things that I talked about, but it is in Mr.
    Pollard's, the companies he represents, it is in their hands.
    And they are making a decision, oh, you are underwater--and I
    hope you do not mind me going over just a little--you are
    underwater and you got a 525 FICO score, so we are not going to
    refinance you. As a result they end up turning in the home
    because they cannot afford it at 7 percent. The fact is in your
    court would that not have dramatically reduced the amount of
    people that would have been in front of you simply because they
    could have refinanced?
        Judge Schack. Well, a certain percentage of people you are
    correct. Obviously there are people because of the credit
    problems they would not do it for. But certainly, I do not know
    what the numbers would be, but I believe you are correct, Mr.
    Issa.
        Chairman Issa. Okay. Now, I am going to ask something of
    the two panels, because I asked you to remain and the first
    panel remained.
        I know that the three of you, probably particularly two of
    you, Justice, you may not want to ask questions, but you may
    have questions that you did not feel we asked on the first
    panel. If you do, and you submit them to us, we will forward
    them to the first panel.
        Vice versa, anyone on the first panel, if there is
    something that would complete the record by either a comment or
    a question to the second panel, I want to make sure our record
    today is full and complete.
        We have been doing this since 2007. The intention of this
    committee is to publish a record of the many hearings held
    under both majorities and minorities. And Chairman Towns was
    very helpful when I was the ranking member in minority.
        We want, we want to come out with something because, quite
    frankly, between the failures of HAMP, and today the good word
    we are hearing about, you know, HARP 2, you know, we want to
    make sure that we spell the record out so that future--if this
    happens in the future, some of these fixes, some of the upsides
    and downsides are better understood.
        My greatest concern is that, in fact, if we were to have 10
    years of good times and go back into bad times, we would all be
    back in this beautiful building with very little changed other
    than who was sitting in our seats.
        So the first panel has been very kind. I extend it to you
    so that, in fact, you can have answers to questions you could
    not ask. We will make the record complete. We will hold it
    open, at least the question portion, for 5 days, and then the
    answers a reasonable time thereafter.
        I want to thank all of our panelists for remaining. And for
    all of you in the audience, the remaining people who sat
    patiently and attentively, I want to thank you. This is what
    democracy is suppose to be about. This is the reason Chairman
    Towns asked me to come here and that I came here a second time.
        With that we stand adjourned.
        [Whereupon, at 12:34 p.m., the Committee was adjourned.]