[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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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
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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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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.]