testing one two testing one two testing one two three testing one two testing one two three testing testing today's hearing is part two of our examination of voluntary mortgage modification efforts with particular focus on the effectiveness of the treasury department's home affordable modification program or hamp and i say effectiveness or ineffectiveness which is something to be determined for me the foreclosure crisis particularly it's hits home in a survey of the top one hundred metro areas my home city of memphis ranks eighteenth in the number of foreclosures and in my town hall meetings more people called me and talk to me about personal foreclosures than anyplace else tonight of course is the first night of hanukkah and without a house there's no place to put a menorah so it's particularly relevant that we start today in a comparison of states my home state of tennessee routinely ranks among the top states the number of foreclosures mr hildebrand surely knows as the chapter thirteen trustee for national one of our witnesses the state of the foreclosure crisis is such that even some middle class areas are affected by growing foreclosure numbers the foreclosure crisis extends well beyond subprime mortgages with unemployment at ten percent many reasons possible homeowners find themselves on the brink of losing their homes or no cause of their own could be medical bills and force them into bankruptcy could be just being laid off because of the economy in the previous administration's failure to regulate that so back in july we are testimony to raise concerns about the effectiveness of the ham program that was in july and so far government's efforts at helping families avoid losing their homes appears not to be working effectively so my colleagues and i suspect that this is because the government's efforts have focused almost exclusively on the courage in mortgage lenders and servicers to voluntarily modify mortgage terms  might be the same as encouraging president karzai to root out corruption evidence suggests that encouraging voluntary modifications alone is at best minimally effective in helping financially struggling bar or stay in their homes or recognize that hamp nine months of age is still relatively new but i'm deeply troubled by continuing reports in the media and from the congressional oversight panel suggesting the ham program is simply ineffective in stemming home foreclosures certainly my constituents think it's ineffective because they're not getting help and they've tried this congress has acted earlier my co sponsored and helped campaign chairman conyers bill h r eleven o six the helping families save their homes act of two thousand and nine which among other things would have given authority to bankruptcy judges to modify debtors mortgage terms and bankruptcy including a reduction in the of the mortgage principal amount also sponsor chairman conyers amendments the financial regulatory reform legislation now being considered on the house floor and they did this morning this amendment contains language is substantially identical to the judicial mortgage modification authority of h r eleven zero six and my view this provision would have substantially ineffectively reduced the number of foreclosures unfortunate provision is not yet been signed into law as it hasn't been passed by the senate adopting this provision would help to strengthen any program to encourage voluntary mortgage modifications by loan servicers you need a hammer and make the animal work i thank the witnesses for appearing today and i look forward to their testimony and now recognize my colleague from the state that gave us our christmas tree mr franks the distinguished ranking member of the subcommittee for his opening remarks well thank you mr chairman and thank all of you for being here mr chairman undoubtedly the foreclosure crisis is one of the biggest issues facing america but this committee's year stiction to address the crisis is largely limited to modifying the bankruptcy code is that maintain ever since issue was first raised by majority i truly believe that allowing mortgage cramdown in bankruptcy poses a major threat to the housing sector and the overall economy is completely unfair to future borrowers it harms lenders lenders and investors and it undermines the stability necessary for recovery as we've seen such a proposal does not meet the threshold of support needed to pass the u s senate this is important because the uncertainty that cram down will create for mortgage originators is exactly what the housing sector does not need in the currently volatile housing market now allowing cram down would simply be a continuation of the heavy handed government interference in the housing and lending markets that got us into this precarious predicament in the first place you know as we know the political housing establishment in the name of increasing home ownership significantly contributed to the current crisis this is accomplished through the intentional weakening of traditional mortgage lending standards these weakened underwriting standards were encouraged by the community reinvestment act mandated by congress and spurred on by fan mr chairman what i what i see happening here is as my friends on the left work so hard to coerce banks into changing their lending practices and even to making loans that were untenable now we see them coming forward and suggesting that those banks should met now make those loans that failed because of the interference as free as they possibly can and it is a recipe that cannot stand the hope is not lost on my friends in the majority that the lesson of the foreclosure crisis is not what we need is not that we need more government intervention but that we need less allowing mortgage cramdown bankruptcy would simply be an extension of the failed government interference in the housing sector of the past of course according to the dat title of today's hearing we're not here to discuss mortgage bankruptcy cramdown we're here to do yes voluntary loan modifications and although voluntary loan modification efforts have not been perfect i would submit the evidence demonstrates that lenders and services and servicers are making an effort to keep borrowers in their homes they've been over six hundred fifty thousand trial mortgage modifications under the administration's home affordable modification program and over five million as part of the hope now alliance lenders and servicers continue to work every day to keep as many homeowners in their homes as possible but mr chairman their efforts are stifled and complicated by how poorly underwritten many of these loan loans really are and more importantly by unemployment rate that continues to hover at or above ten percent and as we all know if a homeowner loses their job it makes it difficult or almost impossible to repay any type of debt so mr chairman i guess at this point i just look forward to the witness's testimony and hope that they can provide some positive suggestions apart from bankruptcy cramdown for how we can improve on terry modification efforts and i thank the chairman and yield back thank you mr frank and now recognize the next gentleman an order which would be is this is the extreme price characters does just determined that he would like to make a statement on this issue i'll be very brief the my friend from these very very dire reality in terms of the housing market and i could not disagree with him more and i think the facts are that if one  examines mortgages issued pursuing the community reinvestment act that it is surprisingly a performance in terms of foreclosures and and trouble mortgages that i only wish was true of the entire mortgage industry the foreclosure rate is minuscule compared to the mortgages that were issued pursue issued by if you will be unregulated market so that's what the facts are but i think that's going to be determined at some future time by the commission that's independent that's bipartisan in nature that will review how we actually got here we didn't get here because of government we got here because government didn't do its job that's how we got here at least it didn't do its job until the election in two thousand and nine in the you know your ration of president obama now we're cleaning up the mess of government that did not pay attention to its responsibilit it isn't about government overregulating it's government abdicating its responsibility to supervise and ensure that the marketplace works and works fairly and is not susceptible and vulnerable to basically scam artists that actually have put us into this position now he's concerned about graeme dott it's interesting that if it's a business property you can do a cram down but you can't do it if it's a profit hole you know i wonder how that bought the home that somebody lives with lives in with their family i just would like to see the consumer treated fairly that's all every marketplace has its rules and that's what i hope we can achieve and do what we did before and have the senate finally wake up because i'm fortunately despite good intentions the voluntary programs don't seem to be working and i know people are making an effort to do what's right but you know i think if we continue to go the ro of a voluntary program we're just going to extend the pain the pain will be extended and you know what's going to happen we're never going to get out of this housing slump we're going to continue to see lower and lower prices and additional foreclosures and if that's what the minority party wants that's what's going to happen and with that i yield back thank you sir and now recognize the why one of your distant predecessors moved to texas but at least the correlation between the two states we all hope that voluntary loan modifications can help pull america's homeowners out of the foreclosure crisis unfortunately modification efforts are being made more difficult by continuing high unemployment which is not being reduced by the administration's economic policies in contrast of these voluntary modification efforts today the house is considering an amendment to r forty one seventy three that gives bankruptcy judges broad discretion to rewrite and cram down mortgages in bankruptcy the bankruptcy amendment to h r forty one seventy three not only fails to solve the foreclosure crisis but also makes the crisis deeper longer and wider allowing bankruptcy courts to modify home mortgages will have adverse consequences for all while providing little real relief to distress about bars bankruptcy lead to higher interest rates and less generous boring terms for future boars unemployment has been a driving factor behind most foreclosures but because individuals without regular income may not file for bankruptcy under chapter thirteen cramdown will do nothing for those most in need of relief the unemployed additionally many bars walk away from their homes not because they can't afford their monthly payments but because their homes are more good for more than they're worth these bars should live with the responsibility for their decisions not we see bailouts from bankruptcy courts allowing really through the bankruptcy system merely transfers the cost of bad financial decisions to prospect of home buyers who will find it much harder to get a mortgage rather than revitalizing the housing sector this will prolong the housing recession furthermore we must not forget that cram down will not only impact lenders but investors as well these investors often include pension funds representing the retirement savings of millions of people we should not pass the cost of irresponsible borrowing and lending off on current and future retirees considering that cram down will produce only modest results at best it is regrettable that the house is once again considering r forty one seventy three just as the senate wisely rejected cramdown earlier this year i hope that witnesses can provide us with some positive suggestions for improving voluntary mortgage modification programs suggestions that are not dependent on enactment of cram down however i don't believe that we will truly get out of this crisis until we focus our efforts on legislation that effectively improves the economy create jobs and revitalize is the housing market thank you m on the home affordable modification program it's ironic that the banking industry that made so much money based on these mortgage back securities that they both sold purchased the that they would you know i mean they made a lot of money when things got bad for them they got a in shape way to citizens had to bail them out and it's ironic that the representatives in congress who care more about the residence banking industry is fighting right now with our tarp money to oppose that why they're doing it i don't know but money they say money is the root of all evil but today we will explore the viability of hamp home affordable modification program and we'll explore whether voluntary mortgage modification is a viable way to keep families in their homes there are many who say that it is viable but it's not being exercised in good faith by the  experiencing a major mortgage foreclosure crisis and many families are struggling to make ends meet for homeowners who are struggling with their mortgage a foreclosure can be family who owned the house but also the neighborhood surrounding the house bringing down the value of the surrounding houses creating  places where criminals criminal kind could take place and just making the neighborhood look as if no one cares about it and  it's a psychological problem that ensues in people in the neighborhoods where there's large foreclosure activity and action to help the folks who are struggling on main street camp was intended to help homeowners modify their mortgage payments to make them more affordable and avoid foreclosure should act to ensure the hamp is restructured to fulfill its intended and very needed purpose i thank the chairman once again and i look forward to hearing from our witnesses chairman and as they say i'll be brief i had there are two issues that i think are important first deals with the fact that many people are what's called upside down in their mortgages where the they owe more than the house is worth in situations where there is secured collateral and the value is less than the debt the property is liquidated secured credit  a distressed sale which is usually low or modest expenses and that's all they get there is an option to what's called cramdown that is you can reaffirm the debt at the value of the property that is virtually always a better deal for the creditor because he's going to end up getting more than he would have in the dist the sale minus the expenses and so that the so called cram is available to in via crapsey except for home mortgages and we need to find out why that exception is there and whether that's an appropriate exception the other and whether or not that is a deterrent to modifications the other is whether or not there are some disadvantages and accounting for modifications because i understand that there may be a situation where if you agree to a modified bank agrees to a modification they have to realize the loss which they didn't have to do before they read to a modification which affects negatively affects their earnings and there may be a situation where affects their balance sheet where the modification gives them less capital or less lending authority so whether there are disadvantages in the accounting system disincentives in the accounting system to bring to modifications and also to  recognize the distinguished chairman of the committee the champion of cramdown the champion of the people the dispossessed those in need of help those who are calling and needing support to live the american way of life the distinguished gentleman from michigan mr con thank you mr chairman i think you should remain chairman in the next congress is will  ordered this is important to us because as you're going to testify the sub prime mortgage devil what triggered the financial place that we find ourselves in not nationally but globally as well because they chopped up all those mortgages rebundle and sent them out all over the country to all the markets and all over the world no our judiciary committee and i think everybody here on the subcommittee supported a simple solution since we have jurisdiction a bankruptcy to allow the primary home as chairman scott was referring to to be able to be adjusted where there so the bill was drawn and so we were working again i just left the press conference of the congressional black caucus and that's what we were talking about how do we create that coming out of an economic downturn getting the jobs rate up is the toughest single thing that we have to do and so i'm proud of the chairman for holding the hearing and i look forward to your testimony thank you thank you mr chairman i would now like to thank everybody for their statements without objection other members opening statements made clear in the record i'm pleased to introduce o minutes and you should be finished or in the process of being banished after each witness is presented his or her testimony so many members paper and ask questions again theoretically subject to the five minute limit our first witness is mr adam levittown professor levitan specializes in bankruptcy and commercial law partnership in new york he also served a special counsel for mortgage affairs that the rational oversight panel his research focuses on financial institutions the role of the consumer business credit economy click credit card regulation mortgage lending identity theft deficit  financing and debtor in possession financing and bankruptcy claims freddie thank you for coming in professor levitan and we perceive the testimony of chairman ranking member frank some members of the committee good morning my name is adam levin i'm an associate professor of years into a foreclosure crisis unequalled since the great depression the picture is graham mortgage foreclosure rates are at four and a half times their historic level over two million american families have already lost their homes in foreclosure sales millions more will over the next few years the cornerstone of federal efforts to mitigate the foreclosure crisis is the home affordable modification program or hamp hamper vides taxpayer funded incentive payments to mortgage servicers lenders and homeowners to facilitate standardized loan modifications hamp modification involves an initial trial modification period after which the modification converts to what is termed a per permanent status even though permanent modification is actually only a five year modification after which monthly payments increase in order for him modification to avert rather than merely delay foreclosure three things are necessary first a trial modification must be commenced second the trial modification must convert to so called permanent status and third the permanently modified loan must not redefault hamp is had some success at the first stage there have been around a million trial modifications offered far worse and around seventy percent have resulted in probably modifications commencing commencing a trial modification is easy though it can be done on a no doc or verbal basis even so there was a sharp decline in the monthly number of new hampshire trials commenced in november suggesting that monthly  the program might have already peaked unfortunately exceedingly few trial modifications have converted to permanent status data released yesterday by treasury indicates that nine months into the into ham there are about thirty one thousand three hundred  eighty two permanent modifications treasury has predicted a fifty to seventy five percent conversion rate but they congressional oversight panel reported that as of the end of october less than five percent of hand modifications were converting to permanent status by the end  standard three month trial period hence trial the permanent conversion rate has improved in recent months but it is still at a pathetically low level suggesting that the total number of permanent modifications produced by hamp will be quite limited and certainly not enough to have a noticeable impact on the foreclosure crisis conversion to truck from trial the permanent status however is not the only obstacle for him modification to be successful the modified loan must also continue to perform is too early to say much about  redefault on permanent have modifications but treasury's own baseline prediction is that forty percent will redefault within the first five years i think that's optimistic unfortunately the closest structural analogue to have modified loans are the exotic sub prime loans that we saw in recent years to be fair the monthly payments on hip modify loans are far more affordable but both hamp mobs and sub prime loans feature the below market introductory rates that step up over time balloon payments and extremely high loan to value ratios indeed hamp loans actually look worse in then some sub prime loans because of their deep level of negative equity typically around one hundred twenty four percent loan to value ratio the sustainability of hat modifications therefore is highly suspect taken as a whole low conversion rates and high expected redefault rates suggests that the success rate for hat modifications will be exceedingly low even based on treasury's own assumptions will only be a twenty to thirty percent success rate which would mean that current trial modifications would yield less than two hundred fifty thousand permanent modifications that's a drop in the bucket relative to foreclosures hamp is unfortunately incapable of producing the volume of modifications necessary to have a macro economic impact even if it does help individual borrowers treasury seems to believe that hemp can be corrected through some technical fixes in moral suasion i hope that is correct but i would submit that the program is fundamentally incapable of helping a substantial number of homeowners faced with foreclosure what's more homeowners cannot wait six months to find out if treasuries finally got it right this time the mortgage industry said multiple bites at the apple to get voluntary modification refinancing programs working private modifications the hope now alliance the f h a secure refinancing program hope for homeowners refinancing program and now hamper all of these programs rely on voluntary mortgage servicer cooperation for success and none has done the job for a variety of reasons including emitted capacity skewed incentives and contractual restrictions mortgage services are either unable or unwilling to perform sustainable modifications in sufficient volume i would congress to consider modification possibilities that you not rely on valon service or participation is time to try something else and it's not working thank you professor our second witness is myspace schwartz schwartz is the executive director of hope now alliance coalition of nationwide services lenders investors counselors and other mark mortgage market participants working together to help homeowners and distress service hope now is project manager  to joining hope now she was senior vice president of enterprise risk and public affairs option one mortgage corp a subsidiary of h and r block inc who would not walk to the courthouse with you or something to that effect the schwartz is also service the chair of the alliance working to reach and help as many homeowners as possible stay in their homes many hope now services are participating and hand the alliance is continuing to work with the geo cities in the administration implementing and improving the hamp program campus an important tool to prevent foreclosures hope now services are providing other modifications and work out solutions for homeowners who do not qualify for hamp also hope now members are continuing outreach events for borrowers who have special and we also the new web tool to better assist homeowners in applying for the current economic conditions are having a detrimental impact on homeowners and their ability to receive a loan modification help now and its members are working hard to help as possible unemployment continues to be our biggest challenge and we are working in the industry and regulators have a solution to assist homeowners who want to stay in our homes while they look for reemployment first i want to clarify that hamp is not a voluntary program or required to evaluate all fannie and freddie mac's loans for hamp alledge ability further once a service or signs up for hamp there is a legal contractual agreement between the service and the administration requiring that all loans be reviewed for eligibility before going to foreclosure on average over twenty thousand trial medications are being made every week and total of seven hundred twenty eight thousand have been reported thus far of trial modifications and all of those people are making lower payments every month substantially lower payments the key focus is now turning these trial modification into permanent modifications servicers are doing everything possible to gather the required documentation from borrowers to make the modification permanent we've suggested to treasury some improvements to make this process easier which i might highlight later the testimony campus not the only useful tool that services are using to help borrowers in two thousand and nine alone two point six million homeowners received a non mortgage workout which has that prevented foreclosures since mid two thousand and seven that number is five point eight million homeowners there are a variety of tools available to help distressed homeowners including loan modifications repayment plans extended for berenson if none closure since march two thousand and eight hope now is held fifty five local outreach events helping two thousand homeowners with the assistance of the federal reserve banks municipal government agencies and other support homeowners are given an opportunity to meet with their service or a counselor to get help we're planning at least thirty more in two thousand and ten additionally we continue to support the homeowner preservation foundation hotline eight hundred ninety five hope twenty four hours a day seven days a week three hundred  sixty five days a year finally hope now is launched a web portal hope alone port with six housing counseling agencies and six nationwide service and a mortgage insurer hope loan port counselors can submit borrowers applications to ha full financial data and all necessary documentation directly to the service or this provides better communication among servicers counselors and homeowners and eliminates the lost documentation issue the objective is to scale this to market for loans  upsy hope now is working with servicers bankruptcy attorneys and treasury in creating a loan workout solution for homeowners in bankruptcy and i anticipate there will be progress made on this issue which is needs to address best practice around modifications for loans already in bankruptcy are ongoing issues and struggles with the hand program as been noted we're working on many of these and i'd like to highlight a few that we've recommended to treasury want to streamline the hamp documentation the documentation requirements of hampstead strike a balance of being less extensive but maintain the integrity of modification document collection and perfection is often the cause of delays in turning trial mods to permanent mog we believe treasury should eliminate the requirement of tax returns for wage earners and allow the use of the most recent w t or two recent pay stubs some services to estimate an uptake of twenty to thirty percent of permanent mobs another example is to revise the redefault assumptions in hampton p v model the net present value method should be updated to reflect the positive impact of a trial performance and income verification service or data indicate borrowers who are successful in completing three month trial significant better performance than those with these changes we reaching as many distressed homeowners as possible services continue to expand capacity increases and enhance execution on loan modifications and i'm certainly willing to keep you all informed of that progress thanks for the opportunity to hank you for inviting me to testify regarding my work helping families facing foreclosure my testimony is based upon my work for these families and also my earlier work on quote unquote the other side in addition to my work for the servicer i also work with two foreclosure law firms prior to that so i really can see this from both sides i want to tell you what the letter the foreclosure crisis currently means for real people the current efforts are not enough i work on main street i defend homeowners whose goal is to try to save their homes these people are not wise guys who gambled with on affordable mortgages most are ordinary hardworking americans due to circumstances beyond their control they fell into a pit of quicksand and now cannot get out they are frightened desperate and losing hope most of us do not realize that if a borrower becomes more than sixty days delinquent the servicer thereafter rejects any subsequent mortgage payments unless at the same time the borrower cures the default so even if people manage to get a new job get back on their feet they are still not allowed to resume making payments even if they want to and are able to the result is that they then often become trapped in the foreclosure spiral although many would gladly resume making full or partial payment when they come to me they are terrified they have tried to gain entry into have tried to work with their servicers submitted financials and even in desperation fail victim to loan modification scammers often the same mortgage brokers th got them into the situation in the first place all became my clients when despite their efforts foreclosure was filed anyway forcing them to face the fact that the loss of their home was imminent and that they were helpless to stop and i set out to try to find them leverage this is different since our system currently affords them none generally it is only when i back the plaintiff into an untenable foreclosure case that any sort of potential concession emerges i also make a formal motion asking the court to require the servicer to accept a ham publications opposing counsel usually fight fiercely against this although my clients were clearly qualified for hamp and had tried fo months to get into it to date i have filed approximately sixty of these motions in only two of the cases foreclosure council sent me half application package all others were contested where the hearings have occurred all but one of the judges granted my motion however not one of my clients who got into a trial maad has to date received a permanent mot even after exceeding this three month trial period submitting all required documentation and making all payments i take issue with any claims of the foreclosure crisis is improving it is not so most troublesome is that the owners of many of these foreclosed homes could and would have made payments had there been simply a way to get their hamp and purely voluntary programs of course do exist but do not do enough or work fast enough to change the landscape significantly the real problems are that the mortgage industry players lack the ability the authority and the wherewithal to really solve this mess and there is no time to create something totally new such as half and have it move quickly enough structural hurdles make it virtually impossible for the voluntary program to work on any sort of meaningful scale quickly something must be done to resolve this problem what has been done so far has not worked in quantity and cannot work fast enough to turn the tide allowing bankruptcy judges to construct additional modifications of these mortgages should be given a chance i commend you mr chairman the full judiciary committee and indeed the full house of representatives for adopting legislation that would allow for mortgage modification in bankruptcy and i appreciate your fighting spirit for pushing the bill again as an amendment to the financial services reg reform bill now being debated by congress such an approach couldn't would immediately make a difference without a learning curve and without any cost to the taxpayer bankruptcy judges have extensive experience dealing with financial problems and they are optimized for just such a function bankruptcy courts routinely resolve and delinquency issues judicial modification of many kinds of secured loans has been the norm in bankruptcy the process is rigorous solutions are formulated where in the best interests of the creditors are prioritized the entire process is overseen by the department of justice because of the tying goal of the web of interests and lack of authority to restructure the loans services or servicers are unable to do it and are not vested with any other real option but to foreclose we need something more if are given the ability to address the problem the result would be a rigorous yet fails fair solution that would in a significant number of cases provide mechanisms to save homes and it would be immediate thank you very much for your time and attention word borrowers who are in bankruptcy remember bankruptcy there they are many of them in chapter thirteen in order to save their home they already have the incentive to try and save their home they want the house they want the mortgage they just need help doing it bankruptcy creates a system whereby documentation can be provided let's change the hamp program to allow the bankruptcy documentation to be to have sufficed instead of adding an additional level layer does this mean that because it didn't work that we stop on the process of trying to make better no we still need to do that we need to make it work so the trustees would encourage you to continue to look at the tools that can make chapter thirteen a better mechanism to cure defaults and get these mortgages back on track if representative frank has pointed out that eleven zero six is not the way you want to go and i would for mortgages that are being cured are different than the distressed values that are facing foreclosure the second recommendation we make bring trustees and attorneys into the hands process do not exclude them  ignore them and courage trustees and debtors attorneys to participate in the process and finally we'd recommend that if the hamp process is stalled doesn't work results in silence create judicial here to attempt to defend the ham program professor levin says it's a failure the judge go out and apparently says something similar and so does mr hildebrand they all have suggestions and like the cram down provision help those people get modification that's something we're already working on with some of my colleagues at the table here with another issue is not one loan should go to foreclosure that hasn't been reviewed for a hand or an other maad because let me assure you all the loans that fail hamp get other ma and they do as do many other invest i made a ruptured slightly i would because i know you have many other areas to go to that you want to agree with these folks judge you're shaking your head tell me why they're not getting reviewed i only see people when they have tried their hearts out and have not gotten reviewed they haven't gotten any answer and while they're still waiting for an answer the process server shows up with a has done that for about twenty years and in the context of farmers they're allowed to do this they're allowed to restructure home mortgages are far more over a period of time longer than the five year term and they have w and it has not caused credit to disappear professor levitan you say it's a failure or any way to cure hampered we need just a well it depends what you want him to do if you if you want him to have a and hamp is helping some people but it's just not going to ever produce the volume that we need to keep up with foreclosures so matter what percentage of people it's helping so like four percent mr schwartz you have an idea  well i think we don't know the answer yet because they're all in process sixty nine hundred twenty days under the grace period of getting the final docs in so that measurement is difficult to assess it's chairman yes just didn't respond to the seventeen hundred and eleven families have had their loans actually modified that it permanent modification that they were i actually have the number from the treasury report that there are thirty one thousand permanent despite the participation agreements many services will not even allow it so i have people that have also made their three month payments and they're still not getting permanent but i'm talking about people who can't even get in the there's a partisan disagreement over how this challenge came into existence but there's a there's a lot of statements on the on the other side of the aisle that says that that re bundling and all of these things that that were done with the derivatives were that were the problem but i just want to remind everyone if the loans that were the fundamental matrix all of those instruments if the loans that made up those financial instruments had performed as one would have expected them normally to do so none of this would have happened all of the derivative would have would have been fine i'm not suggesting it was a perfect system but i'm saying that the problem the the thing that caused this problem was that bad loans were made and certainly the c r a put a great deal of pressure on banks to make bad loans and banks do their own fault or due to the pressure that was in the system kind of did away with the three main legs and hold up loans and one of those is income one of those is credit history and of course one of those is the collateral how much money they they put into the to the loan in the first place and when you take those three things out as a lot of that to happen that's what catalyzed this problem and we should be as a congress looking very hard on ways to prevent that again and at least to face that squarely and i don't really think it's a partisan issue don't fortunately it's become that but i don't know what else we can do with  mrs smith's words i've been very obviously impressed with your testimony today you note that there have been six hundred eighty thousand trial modifications under hamp what does it take to convert a trial modification into a permit modification and there are  past is maybe less rigorous dotting of the i am crossing of that before you would grant a permanent modification it would be performance on pay history that you get from there you know documentation like a hardship maybe a pay etc this is more prescriptive in fact if you need a w two tax return and a forty five of six and the hardship letter and the other documentation if it's going back and forth with service counsellors and the borrower ten times on the same mortgage it's very difficult to be efficient and effective with any government program you're at risk of making a mistake and no one wants to make a mistake if they put them in a lot of process friction in the system understandably these are taxpayer dollars so that's the biggest difference is documentation streamlining and and trying to contact to the borrower that don't return calls and maybe one hundred twenty days later you start getting into recommendations to the government that we think there are ways to improve it i don't know that you're going to get the still the pull through that everyone wants and expects a program like this and again the unemployment is one of the biggest drivers the lack of means you cannot modify long i guess it was my next question how is unemployment affecting mortgage modification efforts and isn't it or is it the single greatest impediment to these modifications i think is one of the biggest ones in that we're all in such a changing landscape that what was one hundred twenty days before when you start trial modification a loss of income one spouse overtime being cut it changes the dynamics and when the income documentation gets documented it's different than what it was ninety days ago and so this changing landscape is difficult to keep the process in place and it's a threat i think all of the good work going on on all parties whether it's counselors lawyers and service or changing landscape is clearly the  guess with that i will just suggest that one thing that we should be able to get together on both sides this aisle here is to recognize the importance of jobs and productivity to solving these problems it is the only way home and it's a  lot of the economists can talk in big words but fundamentally the economy is about productivity and that's measured in large part by jobs and i hope that we can get together and face that i don't know of either side has the answer to how to fix it but we we're talking about here this is i'm going to say a funny kind of hearing but we got to witnesses that say everything is going on about as well as it can and to th clearly dissatisfied no my investigator tells me that the whole coalition is made up and all the nonprofit hud approved counseling agency that's correct how many how many bankers well we have thirty four different servicing institutions many of the top banks are members of they're the ones who created the problem you know what they're the ones who need to get you out of this you need to work with this because they got us into this they're the ones in charge of executing modifications and helping borrowers to loss mitigation and to not have them work through this to help get out of it would be a mistake how many how many bankers are right now i just don't people so all of these institutions and all of them i mean most of them are the resources of people to work with and all the committees and help go to the outreach events and send teams of people to meet with borrowers so there are all walks of life within the compan thousands probably working to help i don't understand a question perhaps i apologize but that's a great acronym reverend jesse jackson people and how many people have you helped this year alone the records on forty million loans which is the majority of the market share indicates that two point six million people have had either modifications or repayment plans in addition to the seven hundred thousand government trial plans three point four million people while seven hundred thousand went to actual foreclosure sale four times higher what do what  what's the basis for saying you're saying millions were saved if you prevent it how can you identify who was prevented from foreclosure in this  repayment plan or actual modification which is a structural change and i contract and we have the government actual modification trial and then foreclosure sales are record and so we know how many go to actual sale and there are a lot of people in between there are millions of people who need help and we know that well so i'm acknowledging that what i'm trying to share with you is data that is very strong data around the chairman the first it's important to distinguish between the private modifications counted by hope now and private modifications and repayment plans that are included in the statistics hamp modifications there are in the shorts notes several there have been several million repayment plans in private modifications there are a couple of important things to note about those first we don't know what the terms of any of those are and the terms actually matter or repayment plan can be a very helpful thing or can be a useless thing depending on its terms so just looking at an absolute number doesn't really tell us that much secondly there is double care some there's some element of double counting in the repayment plans in modifications is often the borrower gets in a repayment plan and fails in the repayment and then gets a modification and maybe fails in that modification gets another modification and we don't know how long you know how the how the string of events but just looking at the cumulative numbers from hope now compared with foreclosures is not the most meaningful comparison certainly hope now and its members are trying to do various mitigation actions and how effective those are is another question entirely this isn't working out in and you try another modification for instance maybe the modification you know that's another bite at the apple before you go to foreclosure and what i would say with my numbers that are accurate is we count every foreclosure so be one out of to go to foreclosure that's more work needs to be done i totally agree but i would say that every loan should be reviewed for a workout alternative and that is the prescriptive legal agreement of what  after they've been exhausted they go to foreclosure sale and you know i'd like to think that that is exactly what's happening and i don't know every answer on this but you say the mortgage bankers  and mortgage people are the ones that can help us get out of it who is it that helped us get into what i think there are a lot of parties to all these transactions we all know yeah right but i'm talking about  talking about what started it you shake your head you know i think it started in the product of high risk flaring and subprime and it's migrated to a different issue negative equity is now a big issue that hasn't been the cause that's another haunting issue as is unemployment so the nature of making a modification a change but the but the bankers and the mortgage people are the ones that gave out the subprime mortgages i'm working with a loan servicers are whose job is to a lot of talking about when a guy i'm talking about the industry people these are the guys that got us into this almost most people this a little deeper and i thank the gentleman and i thank the chairman of the full committee we have a series of votes let me inquire of the panel i think this is an important hearing it's my understanding that we're looking at probably a forty five minute recess if you are willing to come back i don't want to encroach on your time but i think this is an important hearing  you know it might only be one or two of us that come back but i think hearing from you at this point with the kind of questions that are being posed by by m is important is that if it's a significant inconvenience individuals obviously the chair would  not be in any way offended if you didn't return but i'd be great to hear from you because i think you all have so much to contribute that i have a show of hands if there's a genuine willingness   give the remaining time as much as he needs to mr scott to thank him he won't return but i promise i will and i know the chairman of the committee mr cohen he will be here because he too owe more than the value of the yacht what happens the implication in the question is can bankruptcy judge in a bankruptcy plan structure and recognize the economic reality that you mentioned in your opening higher rate or he's homeless traditionally bankruptcy laws being created to be fair to most people involved and in the context of putting one or any entity having more to modifications or incentives to modifications i understand there may be some realization problems that may affect the balance and earnings that would give people a  modify and if any of the witnesses can comment on that briefly or in writing out appreciate it i do not speak as an expert on accounting principles but i can say this accounting principles are a disincentive for doing modifications that involve principal write down is when you write down principal that immediately appears that it has a loss realization of an on a balance sheet where as if you lower interest rates that does not affect how the how of the loan appears on the balance sheet even if they would have the same and all of that is artificial because the fact that you modify what you need to better position because you're about to lose even more if you like doesn't go into foreclosure that's correct  i've been notified by as a gentleman here back i've been notified by staff that rather than forty minutes it's closer to an hour and fifteen now you know i'm sure that  some of us are more than willing to come back around two fifteen if that presents a problem and you can't make it that's fine i just think your testimony is that important i'll show up and we'll have a conversation and if anyone here is significantly inconvenienced far as anything else to do like christmas shopping or whatever we understand we don't want to impose but i think maybe mr caldwell and maybe myself and i know but you have established the fact that you have patience and can endure which means that you'd make fine members of congress particularly in the senate in the house waiting for the senate to do something pose a hypothesis i see clear problems in terms of utilizing voluntary  modifications i think it's been a to kill aided by at least three of our panelists and clearly any particular program no matter how well intentioned would have to be revamped take into account all of the what i believe to be obvious impediments to success that requires a sustained effort and much consultation i'm on the parties i read something recently in the media about how the treasury department was going to shame those banks who were not did it did not appear to he  cooperating and in terms of helping to resolve this problem i just don't think that works and it's not bankers i mean i don't want to particularly castigate anyone i think it's just that there are different viewpoints different obligations banks other corporations have a primary obligation to the shareholders there's obviously self interest self interest is not limited to  lenders it's not limited to politicians it's not limited to professors c e o s of nonprofits it's what human nature is all about but there needs to be a balance now in terms of voluntary programs does this make sense if they were and this is a hypothesis if they were authority conferred on the bankruptcy courts to reduce principle would in your individual judgments would we find a more would we find lenders moving more quickly to a voluntary program huge issues now and that's why when i get the plaintiff the bank in a jam in the foreclosure case that for the first time gives the borrower leverage then we get somewhere right now other than in that very limited cont words have no leverage so yes that is the possibility of a judicial modification or the chapter thirteen would certainly provide when she does that's what my instinct tells me and that you know  programs like hamp and you know i appreciate the fact that there is substantial counseling going on through these programs i think that's a positive but i don't think it gets us to the point where we're dealing with the with dealing with the issue i think what we're doing by going the voluntary route is delaying delaying the ultimate resolution and we're just extending the pain and suffering and pull possibly in potentially exacerbating into a full scale crisis that is no balance of power so whatever and that's why when these voluntary program modifications are proposed many times borrowers will accept them even though they know they can't pay them because it's better than nothing in their view and there is no opportunity to negotiate at all so it's take it or leave it and they figure well we better take it or else we will lose our out if there was a way to to discuss at length and to have recourse to a process if need be it would make a huge difference think and we have plenty of time well let me so this is going to be much more of a conversation than is usually the case in a in a formal congressional hearing because of the fact that i now have the gavel and i chair a chair the europe committee on foreign affairs and i describe it as a committee with no rules because i think it's much more important to be able to engage in a dialogue and fully flesh out these issues and see where there's agreement and see where there's this consensus i think it's clear you know where i'm coming from but that does not in any way mean that i don't appreciate the value of voluntary programs particularly counseling aspects and if you will think of it in this way oftentimes courts will refer matters to mediation and those mediators oftentimes have affect on on on serious problems because it keeps the court calendar is somewhat unclogged and it doesn't in any way like i say heard today that modifications are far better for investors than are foreclosures certainly in the market and so whether the redefault not because of unemployment and other burdensome issues in the economy those are requirements of the contracts they have in place for many parties in the united states government and the reason i say that is when i hear voluntary it makes me kind of crazy because the agreements for people to look through loans are to work on an  hear what you're saying and i'm sure that's true but how many individuals who find themselves in foreclosure proceedings are aware of that contract it's like when you talk about the credit card contract there is nobody in this room that's ever read credit card contract i mean i think we're asking too much too much add many people make thirty or forty attempts to reach the homeowner hall door knockers and don't have any communication some time after the foreclosure process again those are pretty good   we are really i don't think that the american public is aware members of congress are aware that given the data that i see in terms of the increasing numbers of foreclosures that time is of the if we continue to drag this out and attempt to perfect the all of the pieces anybody we get together like this and we have a conversation and you know and jim and calling and i a going to be on a plane going back to our respective districts you'll be going back to your offices and everybody here  will feel that it's been a good discussion but we need action know how and i get very frustrated because i understand the banks have their role but in the end it's self defeating i think for the lenders as well because god forbid they have a total collapse in the real estate market we're going to be back to where we were in september of two thousand and eight i can see that as a real possibility  and there is no more bailouts coming from this congress that ain't going to happen it's just not going to happen and again i'm thinking of you know the authority to reduce principle as a mechanism to that's when when you have everybody's feet to the fire you have the service are out there and it's somebody else's problem and the lender an investor and you know how do you find where the mortgage is because it's been securitize and it's often some you know never never land anywhere and you make and calls and you know the robo call comes in you're afraid it's the creditors so you don't you know pick up the phone i mean these are very real human responses and unless you get and these trustees of good we have a good bankruptcy system in this country and i just say mr hildebrand and his colleagues are not out to punish people and including all of the stakeholders as he said in part of his statement you know we want to be fair we understand that you know bankruptcy is incorporated into the into the constitution by the file and has to give people a chance but the same time there's a balance to ensure that the investor and the lender you know  treated fairly and equitably as well i just think that we have gone down a road that could very well bring us back even to a more dangerous in risky situation than what we were looking at better than a year ago and here we are today with you know and i really wanted to come back and i appreciate  you for you and indulging me because i want to get it on the record because god forbid but if i'm correct in my instincts are accurate i want to be able to read to refer to this record and say i told you so i told you so and all i hear is it's the c r a and fannie mae and freddie macin in all of this and it's government is the problem well you know it might it's not i'm not suggesting that government is the answer but a bankruptcy court system that has evolved from our constitution has proven to be a very effective instrument of helping people and at the same time being fair and equitable that's my concern i want your program to work i really do but i think you need i think you need a little bit of a hammer painting out  and i listen to a lot of experts and you know what i've discovered it's everybody's guessing ok there really aren't any actually i worry that  think that the major concern i have is timeliness and i don't see leverage to create the dynamic necessary to resolve the problem that is i'm not an advocate  you know to go into a situation with guns blazing and you know tear down tear the markets down i think you're correct i don't see right now a rational market and until it hits bottom and that's i think why people are hesitant because they don't think it's hit bottom and and i think on i agree with my republican colleagues it is about it isn't about subprime now it's about unemployment but you know there's this chicken and egg argument too if you go under water  then you know you lose you lose your house and you know people are holding back in terms of expenditure you create more joblessness you create this vicious cycle and i don't know you know and again i'm not saying it's a panacea you know the cram down authority but i'm saying it's a significant and it's not even a tool i would like to think that the voluntary modification programs would work if you just had that sitting over on the side to my making any sense to you perfect sense that this is that you must agree with me that this is you know do you want to should we approach this with a stick or carrot or both treasuries approach has been to offer a in taxpayer funded incentives paid to servicers to lenders and in some cases to homeowners to encourage modifications of carrots a good way of encouraging encouraging behavior but when it's combined with the stick it's likely to be much more effective take the carrot and if you don't outcomes the stick in bankruptcy would be to stick and there are a few things that miss work so that i do i want to comment on not not so much to disagree with her but just to expand on her comments  short's rightly noted that servicers are who signed up for him and it is volunteer is largely voluntary whether they sign up for him that servicers who signed up for him are then under a contractual obligation they have a contract with fannie mae that as treasury's agent that they will operate under the terms of the program it's worth noting that you know what's the penalty for server service or fails when the only thing that's in that service or participation agreement is regular contractual rights hold those assets so that you know when i have to report to stockholders and and i know how the brocker see moves and how often i'm going to get sued i might take the risk of not disregarding my contractual obligations but really not giving it my all even if it didn't suit my self interest i mean again i like to put these things in terms that i can understand and in the government doesn't have enough laws you know to to bring those kind of suits go ahead professor i want to be clear i  that i'm not alleging any actual bad faith no i understand nor am i services but this is a program with a very limited oversight it's and that's just the nature of trying if you're trying to modify tens of thousands of loans that there's limited without fermented staffing you can't do serious oversight and in that in that space where you don't have a lot of oversight and were servicers may have incentives not to do the modifications  you know would be surprising if we if we saw servicers dragging their feet that treasury's making incentive payments servicers it's far from clear though whether the incentive payments are enough to make this we'll see that's my point to you know i look at the numbers it's a thousand dollars and i'm a service and i let's say i'm the guy on the phone i don't mean the service or the corporate entity but if i'm the guy on the phone and how is he getting paid is that a commission or is  it what's my piece of the thousand are my just a straight salary i mean i i know how it again and maybe i'm wrong but i just think of human nature and when we talk about how we got here i can remember talking to two you know mortgage brokers and i say why the sub prime the answer was very simple well the subprime because you know the salesman that was out there pitching the mortgage because i saw these numbers and i presume that you wouldn't have any great disagreement but seventy percent of those that took a subprime loan could qualified for the traditional thirty year fixed rate which they might have been able to sustain i should how did that happen because i'm naive i don't really know well because they got thirteen thousand dollars commission for pushing the subprime rather than the three thousand that they would have got you know for the traditional and then you get lucy goosey with the underwriting standards and you get into you know it was the wild west and that's why i take offense when i hear it's the community reinvestment act that did this that's about loaning that has no date or at all to support it it just doesn't but we hear because we want to be that way because government is bad government had nothing to do with that it's human nature and you have government to kind of keep our our demons from you know  from surfacing and hurt the community at large that's my sense of government i mean i'm a free market guy i'm a capitalist yes you're not recognized because mr levittown had his hand raised sample on you know this is this is been a good discussion it's excellent discussion the problem is the house just voted down the cram down provision as amendment to the to the wall street you know we had the senate's never passed it and the problem is you know you're right about government the problems and the one regulation and all these things but if we can't get two hundred eighteen votes and we get to eighteen the house we passed it once with the senate can't pass it we've got to have something else to help people that's reality and that's just the same thing is as a public option if there aren't the votes for a public option in the senate the house as good as we can be and force nightingale wanting to be you got to do something else and that's just got to deal with senate we need a unicameral legislature we really do and it would be on this camera but you know it's a mess steve can you recommend we go about the well you know i like to pose to the to the floor and i i'm very disappointed and i think it says something about our system our political system and how you know how there are powerful interests that oftentimes i believe don't really understand their own interests in the long term you know they see it in very in a very short window gotta keep that was going to keep those balance sheets there we don't want to do this and i understand that and i'm not being critical of their self interest because that's that's their obligation at the same time in terms of the a long term be it would be ideal to clean up this mess before the mess continues to exacerbate and bring down those big banks one more time because i don't know how the chairman feels but i know that the bailout time is over if they want the market to function in a way where there is no government support intervention or regulation they will discover it if there is another september of two thousand and eight it will be a d because there is no political will in the united states congress that i can discern on either side of the aisle for any continued support if it gets bad again let's be clear those that kill a lot legislation today can lead amendment other ones that are going to be responsible and let them face the american people and say well we thought you know we thought it was in the long term best interests of the market there's really no data anywhere then indicates that interest rates would rock that's baloney that's just the short term view i like to think that it's our responsibility here in the congress to take a long term view and try to understand what the best interest of free market economy is so that we have at the end of the day a functioning  functional capitalistic system but my question is how do we give me what the leverage if we can't get the bill through so that the voluntary modification programs work without going through all of the bureaucratic you know gyrations that we no longer have time for you know maybe that we should walk before view in a room someplace and try to come up with the answers and come back so that we can satisfy the those powerful interests on wall street so that we can save wall street from itself and save the american economy professor there are some steps that can be taken definitely to improve the ham program and i think a few of those would be firstly greater transparency both on the overall sort of them that the macro level of the program that the data that treasury's been releasing has not been particularly granular makes it hard for for any kind of real outside analysis but also on the borrower side that the  well i don't know but i'll make a suggestion ok that treasury needs a club to go with exactly and if bankruptcy isn't to be that club then some sort of some sort of very concrete  that can enforce even as it currently stands the chairman there are borrowers do not have the ability as the intended third party beneficiaries of these contracts to come into court they would willing to enforce it for treasury but as several times it's been attempted is that in fact there's a new class action filed in the last few weeks where that's exactly what borrowers are trying to do but the courts don't understand why borrowers can stand in the shoes of treasury so so far that's not been available but if because aig aig without some sort of balance of power there's just no way to get the wheels turning that's what that's what's or whatever i mean i'm just really really concerned about this and i'm going to turn the gavel back to the real chair of the commercial in a minute strait of law subcommittee mr steve tennessee distinguished gentleman from massachusetts the vice chair for that discussion that he led and for the time he spent and for as many good works and years of service to the base state as well as the united states and and i you know he got back here quicker than i did i was she was disappointed as i was very disappointed at the vote today and they were serious about so i was disappointed in sarbanes oxley one extended to the fully implemented and the cram down not going to have the sometimes you can put these provisions on other bills that look like they're really in but that's the only way you can sometimes good alien projects to become law so the system sometimes has a method to his madness i thank each of you for your time you've taken to be witnesses to this testimony today without objection members of bob legislative days to submit any additional written questions which are for to the witnesses and ask to answer is probably as you can be made a part of the record without objection the record being made open for five days for the submission of any other additional material again i thank everyone for their time and patience i wish everybody a happy hanukkah a merry christmas happy kwanzaa and any other holidays that you may hold dear and near this hearing of the subcommittee and commercial