[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

                              ----------                              
                                                                   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:]

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    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:]

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    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.]
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