U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

93–280 PDF 2015

CONSUMERS SHORTCHANGED? 

OVERSIGHT OF THE JUSTICE DEPARTMENT’S 

MORTGAGE LENDING SETTLEMENTS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

REGULATORY REFORM, 

COMMERCIAL AND ANTITRUST LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

FEBRUARY 12, 2015 

Serial No. 114–16 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 
(II) 

COMMITTEE ON THE JUDICIARY 

BOB GOODLATTE, Virginia, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

LAMAR S. SMITH, Texas 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

RAU ́ L LABRADOR, Idaho 

BLAKE FARENTHOLD, Texas 

DOUG COLLINS, Georgia 

RON DeSANTIS, Florida 

MIMI WALTERS, California 

KEN BUCK, Colorado 

JOHN RATCLIFFE, Texas 

DAVE TROTT, Michigan 

MIKE BISHOP, Michigan 

JOHN CONYERS, JR., Michigan 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

JUDY CHU, California 

TED DEUTCH, Florida 

LUIS V. GUTIERREZ, Illinois 

KAREN BASS, California 

CEDRIC RICHMOND, Louisiana 

SUZAN DelBENE, Washington 

HAKEEM JEFFRIES, New York 

DAVID N. CICILLINE, Rhode Island 

SCOTT PETERS, California 

SHELLEY HUSBAND, Chief of Staff & General Counsel 

PERRY APELBAUM, Minority Staff Director & Chief Counsel 

SUBCOMMITTEE ON REGULATORY REFORM, COMMERCIAL AND ANTITRUST LAW

TOM MARINO, Pennsylvania, Chairman 

BLAKE FARENTHOLD, Texas, Vice-Chairman 

DARRELL E. ISSA, California 

DOUG COLLINS, Georgia 

MIMI WALTERS, California 

JOHN RATCLIFFE, Texas 

DAVE TROTT, Michigan 

MIKE BISHOP, Michigan 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

SUZAN DelBENE, Washington 

HAKEEM JEFFRIES, New York 

DAVID N. CICILLINE, Rhode Island 

SCOTT PETERS, California 

DANIEL FLORES, Chief Counsel 
(III) 

C O N T E N T S 

FEBRUARY 12, 2015 

Page 

OPENING STATEMENTS 

The Honorable Tom Marino, a Representative in Congress from the State 

of Pennsylvania, and Chairman, Subcommittee on Regulatory Reform, Commercial and Antitrust Law .................................................................................. 1 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, and Ranking Member, Committee on the Judiciary ......... 3 

The Honorable Bob Goodlatte, a Representative in Congress from the State 

of Virginia, and Chairman, Committee on the Judiciary ................................. 7 

WITNESSES 

Geoffrey Graber, Deputy Associate Attorney General and Director, RMBS 

Working Group of the Financial Fraud Enforcement Task Force, U.S. Department of Justice, Washington, DC 

Oral Testimony ..................................................................................................... 21 

Prepared Statement ............................................................................................. 24 

Paul J. Larkin, Jr., Senior Legal Research Fellow, Edwin Meese III Center 

for Legal and Judicial Studies, The Heritage Foundation, Washington, DC 

Oral Testimony ..................................................................................................... 49 

Prepared Statement ............................................................................................. 52 

Theodore H. Frank, Founder, Center for Class Action Fairness, Washington, 

DC 

Oral Testimony ..................................................................................................... 69 

Prepared Statement ............................................................................................. 71 

Cornelia Mrose, CEO, Compass Films of New York LLC, Westchester, NY 

Oral Testimony ..................................................................................................... 85 

Prepared Statement ............................................................................................. 88 

Alan M. White, Professor of Law, CUNY School of Law, New York, NY 

Oral Testimony ..................................................................................................... 92 

Prepared Statement ............................................................................................. 94 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Material submitted by the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, and Ranking Member, Committee 

on the Judiciary ................................................................................................... 4 

Prepared Statement of the Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress from the State of Georgia, and Ranking Member, 

Subcommittee on Regulatory Reform, Commercial and Antitrust Law .......... 8 

Material submitted by the Honorable Tom Marino, a Representative in Congress from the State of Pennsylvania, and Chairman, Subcommittee on 

Regulatory Reform, Commercial and Antitrust Law ........................................ 10 

Material submitted by the Honorable Hakeem Jeffries, a Representative in 

Congress from the State of New York, and Member, Subcommittee on 

Regulatory Reform, Commercial and Antitrust Law ........................................ 37 

Material submitted by the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, and Ranking Member, Committee 

on the Judiciary ................................................................................................... 103 
Page

IV 

Material submitted by the Honorable Tom Marino, a Representative in Congress from the State of Pennsylvania, and Chairman, Subcommittee on 

Regulatory Reform, Commercial and Antitrust Law ........................................ 114 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Response to Questions for the Record from Geoffrey Graber, Deputy Associate 

Attorney General and Director, RMBS Working Group of the Financial 

Fraud Enforcement Task Force, U.S. Department ............................................ 122 

Response to Questions for the Record from Alan M. White, Professor of 

Law, CUNY School of Law, New York, NY ....................................................... 127 

Letter from Lautaro ‘‘Lot’’ Diaz, Vice President, Housing and Community 

Development, National Council of La Raza (NCLR) ......................................... 131 

Prepared Statement on Behalf of the Association of Mortgage Investors 

(AMI) ..................................................................................................................... 138 
(1) 

CONSUMERS SHORTCHANGED? OVERSIGHT 

OF THE JUSTICE DEPARTMENT’S MORTGAGE LENDING SETTLEMENTS 

THURSDAY, FEBRUARY 12, 2015 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON REGULATORY REFORM, COMMERCIAL AND ANTITRUST LAW

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:32 a.m., in room 

2141, Rayburn Office Building, the Honorable Tom Marino (Chairman of the Subcommittee) presiding. 

Present: Representatives Marino, Goodlatte, Collins, Ratcliffe, 

Trott, Bishop, Conyers, and Jeffries. 

Also present: Representative King. 

Staff present: (Majority) Dan Huff, Counsel; Andrea Lindsey, 

Clerk; and (Minority) Slade Bond, Counsel. 

Mr. MARINO. The Subcommittee on Regulatory Reform, Commercial and Antitrust Law will come to order. Without objection, the 

Chair is authorized to declare recesses of the Committee at any 

time. 

We welcome everyone to today’s hearing on Consumers Shortchanged? Oversight of the Justice Department’s Mortgage Lending 

Settlements. I will recognize myself for a brief opening statement. 

Welcome to this hearing entitled ‘‘Consumers Shortchanged? 

Oversight of the Justice Department’s Mortgage Lending Settlements.’’ At issue are DOJ’s high profile settlements with 

JPMorgan, Citi, and Bank of America over their activities related 

to the financial crisis. The Committee is concerned that too much 

of the settlement money is not making it directly to consumers 

genuinely harmed. 

The Citi and Bank of America settlements require the banks to donate at least $150 million and as much as over a half billion dollars to activist groups. To be sure, those groups do engage in housing counseling and related activities, but those activities are most 

helpful to families still in their homes. What about the millions of 

Americans who have already lost their homes? 

I know the Department of Justice responds that the mandatory 

donation provisions represent only a small portion of the consumer 

relief packages which total in the billions, but tell that to Jeff and 

Robin Brown. After the Chrysler plant in Newark, Delaware closed 
2 

in 2009, they fell on hard times. Frustrating attempts to renegotiate their mortgage with Citi was were fruitless. They lost $3,000 

to a loan assistance scam, then they received an eviction notice. 

The request for two extra weeks so Robin could recover from a 

setback with her multiple sclerosis was denied. So they looked at 

what they could and they took what they were able and departed 

the home they had saved for and lived in for 8 years. As a result 

of the settlement, they got a check from Citi for $500. 

Their experience is detailed, along with others, in a Delaware online story titled ‘‘Some Who Lost Homes Feel Forgotten in Foreclosure Settlements.’’ They are upset that the State of Delaware is 

poised to spend the remaining $36.6 million on community service 

projects instead of actual victims. I want to know why DOJ did not 

do more to ensure that States receiving settlement money put victims before pet projects. 

The evidence is not nearly anecdotal. The story noted that of 

32,000 homeowners foreclosed upon, only about a thousand ever received compensation. Most checks were for less than $1,500. That 

is just in Delaware. Since 2008, there have been 4.9 million foreclosures nationwide. It is a cruel irony that those who have lost the 

most to the foreclosure crisis seem to be helped the least from DOJ 

settlements. 

Loan modifications cannot assist those already evicted. They 

should have the strongest claim to the limited amount of hard dollars that the banks are paying out. Instead, the cash is going to 

activist groups because they work with victims of the housing crisis. I guess this means the Administration does believe in trickledown economics so long as the money is trickling through activist 

groups. I hope these groups at least do good work because Congress 

already funds some of them through Federal grants. 

But therein lies another problem. It is the role of the Congress, 

not the executive, to allocate funds. This is a core feature of our 

constitutional system of separation of powers. James Madison 

called Congress’ appropriations power ‘‘the most effectual weapon.’’ 

He noted it was the power of the purse that allowed the British 

Parliament to reduce ‘‘the overgrown prerogatives of the other 

branches of government.’’ 

Also oversight is lacking. For example, the Legal Services Corporation, which provides funding for legal aid, has a dedicated 

oversight section to monitor grantees. The bank settlement provides no such oversight to ensure the recipient of donations use 

them as intended. If the money is not being used to lift up those 

most affected by the housing crisis, should we not at least be concerned about how it is spent? In short, the mandatory donation 

provisions also raise a host of legal and policy issues, including potential violations of the Miscellaneous Receipts Act and internal 

DOJ policies. 

I thank Deputy Assistant Attorney Graber and all of our witnesses for attending, and I look forward to the discussion. Unfortunately, my good friend, Mr. Johnson, is not here today because he 

has the flu, and he is the Ranking Member of the Subcommittee. 

But we are also honored and fortunate enough to have the Ranking 

Member of the full Committee, Mr. Conyers. So I am now going to 

ask Mr. Conyers to make an opening statement if he wishes to. 
3 

Mr. CONYERS. Thank you, Mr. Chairman. I do wish to. Members 

of the Committee, the stated purpose of today’s hearing is to determine whether there has been a misuse of mortgage settlement 

funds by the Administration for its so-called ‘‘pet projects.’’ In 

truth, however, this really is a hearing, a misguided hearing, a 

witch hunt, that has absolutely nothing to do with helping the millions of hardworking Americans who were swindled by unscrupulous and predatory mortgage lenders and mortgage services. Nor 

does it have anything to do with addressing the massive fraud committed by the securities industry that nearly led to the financial 

collapse of our Nation’s economy. 

Rather than focus on these critical issues, the majority has cited 

the so-called activist organizations and the Justice Department as 

the perpetrators worthy of this hearing. And who exactly are these 

entities? They are housing counseling programs administered at 

national, State, and local levels by service providers subject to a 

rigorous certification process by the United States Department of 

Housing and Urban Development. They include such organizations 

as the New York State Office for People with Developmental Disabilities, the Michigan State University Extension Service, the New 

York City Commission on Human Rights, and NeighborWorks 

America. 

So let us take a look in depth at one of these organizations. 

NeighborWorks is chartered by Congress. Its board of directors, 

whose membership is determined by statute, consists of the heads 

of the financial regulatory agencies, who are presidential appointees subject to Senate confirmation. In fact, Congress in 2007 

designated NeighborWorks America to administer the National 

Foreclosure Mitigation Counseling Program pursuant to which this 

organization has helped more than 1.725 million homeowners. That 

is almost 2 million homeowners. 

If the majority really cared about the victims of the foreclosure 

crisis, we would be holding a hearing on either the mortgage crisis 

that still grips many parts of our Nation, or on how Congress could 

better assist those millions of Americans who still are at risk of losing their homes. Now, in stark contrast, when I was Chairman of 

this Committee, we held nine hearings and two field briefings examining the causes and impact of the foreclosure crisis as well as 

potential solutions. Over the course of those hearings, the Committee heard from a United States senator, various Members of the 

House, representatives from the Treasury Department, the Comptroller of the Currency, the Federal Housing Finance Agency, bankruptcy judges, nationally recognized economists, leading academics, 

victims of predatory mortgage lending, and many more voices. 

Finally, I am particularly concerned that the majority has unfairly singled out the National Council of La Raza, which is the Nation’s largest Hispanic civil rights and advocacy organization. The 

Chairman of this Committee and the Chairman of the Financial 

Services Committee in a letter to the Justice Department last November characterized La Raza as ‘‘activist group that stands to 

benefit from the mortgage settlement agreements with Citicorp and 

the Bank of America.’’ As detailed in a response from La Raza, 

which I ask unanimous consent to include in today’s hearing 

record, there is absolutely no truth to this allegation. 
4 

[The information referred to follows:] 
5 
6 
7 

Mr. CONYERS. In fact, La Raza has not received a single penny 

from these settlements, and it did not proactively seek to be designated as a recipient of these funds. La Raza is not even named 

specifically in either of these settlement agreements as a designated recipient. And if it was to receive any monies under these 

agreements, La Raza has a firewall between its housing counseling 

activities and its advocacy activities, as well as accounting standards in place to ensure such a separation. This information was 

readily available had the majority simply reached out to La Raza 

to confirm its allegations before putting them in writing to the Justice Department. 

Thank the witnesses for joining us here today, and, Mr. Chairman, I yield back the balance of my time. 

Mr. MARINO. Thank you, Congressman Conyers. It is my pleasure now to recognize the Chairman of the full Judiciary Committee, 

the gentleman from Virginia, Congressman Goodlatte, for his opening statement. 

Mr. GOODLATTE. Thank you, Mr. Chairman. This hearing opens 

a pattern or practice investigation into the Justice Department 

mortgage lending settlements. The concern is that DOJ may have 

systematically subverted Congress’ budget authority by using settlements to funnel money to activist groups. The evidence is a progression of startling terms in the DOJ’s mortgage banking settlements. It began with the JPMorgan settlement that merely offered 

credit for donations to community redevelopment groups. Next 

came Citi and Bank of America settlements requiring $150 million 

in donations to housing nonprofits. 

These donations earned double credit against the banks’ overall 

obligations. Meanwhile, credit for direct forms of consumer relief 

remain dollar for dollar. Bank of America’s settlement also required it to set aside $490 million to pay potential consumer tax 

liability arising from loan modifications. Should Congress again extend the non-taxable treatment of home loan forgiveness, the 

money does not revert to the bank. Instead it flows to activist 

groups, like NeighborWorks America, which has been described as 

funding ‘‘a national network of left wing community organizers operating in the mold of ACORN.’’ 

All told, DOJ has directed as much as half a billion dollars to activist groups entirely outside of the congressional budget and oversight process. DOJ will say that the groups receiving donations 

provide relief to homeowners. Even assuming this housing-related 

work is entirely non-partisan, money is fungible. Donations to the 

housing arm of any recipient would free up funds for the recipient 

to engage in more controversial activism in other areas. Furthermore, the Miscellaneous Receipts Act, or MRA, requires that money 

received by the government from any source be deposited in the 

Treasury. Directing a defendant to pay money directly to a third 

party interest group is simply an end run around the law. 

DoJ’s own internal guidance documents acknowledge the potential for abuse when settlements require donations to third parties. 

The U.S. Attorney’s Manual says that the practice is restricted because it can create actual or perceived conflicts-of-interest and/or 

other ethical issues. It was almost entirely banned in 2008 due to 

instances of perceived abuse. 
8 

Exception was made for environmental settlements in view of robust guidance issued by DOJ’s Environment and Natural Resources Division. However, to the extent that guidance is the basis 

for an exemption, DOJ’s banking settlements violate it. The guidance requires a mechanism to ensure that any party receiving the 

funds spends them in a manner consistent with the intent of the 

community service requirement. There is no such oversight in the 

DOJ’s banking settlements. The monitor is responsible only for the 

bank’s compliance, not how the activist groups who receive donations use them. Related guidance also caps credit for donations to 

community service projects at dollar for dollar. 

Even more troubling, the guidelines state that community service 

cannot be of such a nature that it provides additional resources for 

the performance of an activity for which Congress specifically has 

appropriated funds. This ensures that the settlement does run not 

afoul of the Miscellaneous Receipts Act by unilaterally augmenting 

a congressional appropriation. 

Congress specifically funds the Department of Housing and 

Urban Development’s Housing Counseling Assistance Program. In 

a press release, La Raza, one of the largest grant recipients under 

the program, lamented that Congress cut funding from $88 million 

to $45 million. It subsequently praised DOJ bank settlements, 

which required $30 million in donations specifically to HUD-approved housing counseling agencies. Thus, DOJ’s settlements appear to restore most of the funding that Congress specifically cut. 

For DOJ to funnel money to third parties through settlements 

this way may violate the law and is undoubtedly bad policy. The 

purpose of enforcement actions is punishment and redress to actual 

victims. Carrying that concept to communities at large or activist 

community groups, however worthy, is a matter for the legislative 

branch and is not to be conducted at the unilateral discretion of the 

executive. 

I thank all of our witnesses for appearing and look forward to 

their testimony today. Thank you, Mr. Chairman. 

Mr. MARINO. Thank you, Chairman. Without objection, other 

Members’ opening statements will be made part of the record. 

And now just to do some little detail work, I think Mr. Conyers 

wants to enter something in the record. 

Mr. CONYERS. Yes. I would like to put our colleague, Hank Johnson’s, statement in the record. And I ask unanimous consent to 

have his statement put into the record, please. 

Mr. MARINO. Without objection, so ordered. 

[The prepared statement of Mr. Johnson follows:] 

Prepared Statement of the Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress from the State of Georgia, and Ranking Member, 

Subcommittee on Regulatory Reform, Commercial and Antitrust Law 

Thank you, Chairman Marino. 

Built on the back of predatory loans, toxic mortgage securitization, and regulatory 

failure, the mortgage-foreclosure crisis has blighted entire cities across the country 

while destabilizing the home market and countless other industries. 

But the effects of foreclosures go far beyond simple economics. 

Since the start of the Great Recession, foreclosures have sent shockwaves 

throughout entire communities, taking children out of schools, pulling families and 

friends apart, undermining religious congregations, and creating other forms of social instability. 
9 

Although recent data indicates that the foreclosure-filing rate is dropping to its 

lowest level since 2006, these positive figures do not capture the continued hardship 

of low-income and minority and households, which lag far behind national homeownership rates. Andrea Levere, the president of the Corporation for Enterprise Development, notes that this trend threatens ‘‘to exclude an increasing percentage of 

Americans from our mainstream financial systems.’’ 

We can’t allow this to happen. 

It is therefore incumbent on the federal government to not only hold fraudulent 

corporations accountable, but to also require that they meaningfully help the millions of consumers they harmed. 

Today’s hearing concerns settlement agreements between the Justice Department 

and JPMorgan, Citigroup, and Bank of America—companies that each admitted to 

fraudulently packaging, marketing, and selling residential-mortgage back securities, 

even where the banks knew the loans were defective. 

These settlements amply demonstrate the fraud that pervaded every level of the 

securities industry, fraud that substantially contributed to the mortgage-foreclosure 

crisis and recession. 

In addition to significant civil penalties, each of these agreements contains consumer-relief provisions designed to provide much-needed relief to millions of Americans affected by the fraudulent sale of toxic securities. These provisions of the 

agreement require the banks to provide billions in first-lien principal forgiveness to 

help families who are underwater on a mortgage to stay in their homes. 

When homeowners fall behind in their mortgage payments, it is often a major 

task to bring them current. For that reason alone, mortgage modifications—such as 

those under the settlement agreements—are a standard tool to bring homeowners 

in good standing with their home loan and stop the foreclosure process. 

Educating and assisting consumers is also a critical tool in foreclosure prevention. 

The Department of Housing and Urban Development (HUD) has documented that 

if a consumer works with a HUD-approved housing counseling agency, the odds of 

a favorable outcome are almost two-times greater. 

Two of the Justice Department’s settlements also require the settling banks to donate funds toward neighborhood reinvestment activities, which include donations to 

HUD-approved Housing Counseling Agencies, state-based Interest on Lawyer Trust 

Accounts organizations, and Community Development Financial Institutions. 

Housing counseling agencies offer a critical education component to helping consumers avoid default and foreclosure by identifying the documents the mortgage 

company needs from the homeowner and contacting the mortgage company on the 

homeowner’s behalf. 

As we search for ways to avoid another mortgage crisis while repairing the incalculable damage that has already occurred, it is essential that we use every tool to 

keep families in their homes. 

Although I wish that the Justice Department’s settlements had required more of 

the banks that contributed directly to the plight of so many, I am confident that 

these agreements will do much to help millions of consumers across the country. 

I yield back. 

Mr. CONYERS. Thank you. 

Mr. MARINO. And I am asking unanimous consent to enter into 

the record the following: number one, a letter to the Committee 

from the predominant legal scholar, Richard A. Epstein, outlining 

his view that appropriations to community groups should not be 

made part of the settlement process; number two, a statement for 

the record from the U.S. Chamber of Commerce and the U.S. 

Chamber Institute for Legal Reform noting that directing private 

parties to make payments to other private parties as part of settlement is, in effect, creating a Federal grant program that is administered by the agencies without statutory authorization; and finally, 

number three, a memo from the organization, Cause of Action, entitled ‘‘Investigation of Bank of America Settlement Receipts, 

NeighborWorks America.’’ 

Hearing no objections, so ordered. 

[The information referred to follows:] 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 

Mr. MARINO. We have a very distinguished member today from 

the Department of Justice. Welcome, sir, and I will begin by swearing you in. Would you please stand and raise your right hand, 

please? 

Do you swear that the testimony you are about to give is the 

truth, the whole truth, and nothing but the truth, so help you God? 

Mr. GRABER. I do. 

Mr. MARINO. Thank you. Let the record reflect that the witness 

has responded in the affirmative, and please take a seat. 

Mr. Geoffrey Graber is a deputy assistant attorney general and 

the director of Residential Mortgage-Backed Securities Working 

Group of the Financial Fraud Enforcement Task Force for the 

United States Department of Justice. Mr. Graber was an associate 

for the San Francisco branch of Morrison & Foerster prior to joining the Justice Department’s Civil Division. At the litigation department of Morrison & Foerster, Mr. Graber specialized in consumer class actions, securities fraud, product defects, tort, contract 

law, and general civil litigation. 

Mr. Graber is a graduate of the University of Southern California 

Law School. And I also understand that you do a pretty good Alec 

Baldwin/Glenn Close imitation? 

Mr. GRABER. Yes. 

Mr. MARINO. We may need that some time through the testimony 

here, sir. The witness’ written statement will be entered into the 

record in its entirety, and I ask if you would please summarize 

your opening testimony in 5 minutes or less. And to help you stay 

within the guidelines, there is a timing light in front of you, and 

when the light switches from green to yellow, it indicates that you 

have 1 minute to conclude your testimony. When the light turns to 

red, it indicates that your 5 minutes have expired. And I will just 

politely, because sometimes it is difficult to keep an eye on the 

lights and talk. So I will just politely tap here to give you an indication that your time has run out, and please sum up at that point. 

I now recognize Mr. Graber to give his opening statement. 

TESTIMONY OF GEOFFREY GRABER, DEPUTY ASSOCIATE ATTORNEY GENERAL AND DIRECTOR, RMBS WORKING GROUP 

OF THE FINANCIAL FRAUD ENFORCEMENT TASK FORCE, 

U.S. DEPARTMENT OF JUSTICE, WASHINGTON, DC 

Mr. GRABER. Thank you. Chairman Marino, Chairman Goodlatte, 

and Ranking Member Conyers, and Members of the Subcommittee, 

thank you for inviting me here and for providing the Department 

of Justice the opportunity to appear at today’s hearing to describe 

a series of settlements that have arisen out of the Department’s efforts to address fraud in connection with the packaging and sale of 

residential mortgage-backed securities. 

In November 2009, the Financial Fraud Enforcement Task Force 

was established in order to strengthen the efforts of the Department of Justice to pursue potential misconduct committed in connection with the financial crisis. And in January 2012, the Department of Justice formed the Residential Mortgage-Backed, or RMBS, 

Working Group, in the task force to investigate those responsible 

for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities. 
22 

The efforts of the RMBS Working Group have focused on achieving accountability from financial institutions that engaged in 

wrongdoing relating to residential mortgage-backed securities and, 

to the extent possible, bringing some measure of relief to homeowners who suffered as a result of the financial crisis. These goals 

reflect the fact that misconduct in the RMBS market impacted the 

entire financial system and the American economy as a whole. 

To date, the efforts of the RMBS Working Group have secured resolutions valued at more than $36.6 billion in penalties, compensation, and consumer relief to investors, victims, and the American people. These settlements each embody the goals spelled out 

in the formation of the RMBS Working Group. 

First, each settlement achieved accountability by requiring a significant and, in some cases, record monetary penalty, as well as a 

statement of facts acknowledging the evidence underlying the government’s allegations. These penalties will hopefully serve to deter 

future misconduct, and the statements of fact serve as an acknowledgment by the banks to their shareholders and the American public of the misconduct uncovered by the Department of Justice. 

Second, each bank committed to provide many billions of dollars 

of consumer relief of a type that is designed to enable many Americans to stay in their homes. These consumer relief provisions provide an especially salient feature to these settlements. This type of 

relief likely could not have been ordered by a court even if the government has prevailed at trial. In general, the consumer relief component consists of a menu of different types of consumer relief, 

menus developed in consultation with the Department’s law enforcement partners, including Federal regulatory agencies and 

states. 

In each of these resolutions, the settling bank can fulfill its obligations to implement consumer relief by undertaking the consumer 

relief set forth on the menu. The banks agreed to meet certain consumer relief targets. The agreements establish certain constraints 

on how the relief is to be provided. Beyond that, though, the banks 

have latitude to decide precisely how to satisfy their consumer relief obligations. 

For example, the Bank of America settlement provided for a total 

of $7 billion in consumer relief, including a minimum of $2.15 billion in first lien forgiveness calibrated to help homeowners who 

face the risk of default and foreclosure. Within this broad target, 

though, the bank has discretion to decide precisely how to provide 

such relief. 

As a second example, the various settlements all contemplate 

neighborhood reinvestment activities, a type of relief that includes 

the provision of certain kinds of foreclosure prevention assistance 

and other counseling activities. This is to be provided by certain 

categories of organizations chosen by the bank that will receive a 

directed donation to perform the types of activities specified in the 

agreements, such as foreclosure prevention and counseling activities. 

These include organizations that help veterans avoid foreclosure, 

organizations that deal with abandoned properties that can inhibit 

neighborhood recoveries or organizations to help prospective home 

purchases navigate the process of buying a home. With the single 
23 

exception of IOLTAs, the banks choose which specific organizations 

receive these donations. The Department of Justice does not mandate that any money will go to any specific third party charity organization. 

The RMBS Working Group has achieved a great deal in fighting 

financial fraud. These efforts have resulted in record civil penalties, 

factual statements in civil cases that show an unprecedented level 

of accountability from the financial institutions and transparency 

to the marketplace, and meaningful consumer relief for the American people. 

Thank you once again for the opportunity to appear before you 

today. At this time, Mr. Chairman, I would be happy to address 

any questions you or Members of the Subcommittee may have. 

[The prepared statement of Mr. Graber follows:] 
24 
25 
26 
27 
28 
29 

Mr. MARINO. Thank you, Mr. Graber. And because the Chairman 

of the full Committee has to be in three places at once, I am going 

to defer to him for his questioning for 5 minutes. So, Chairman 

Goodlatte. 

Mr. GOODLATTE. Mr. Chairman, thank you for your consideration. Mr. Graber, welcome. You are a litigator, so you know failure 

to provide discovery can trigger an order to a jury to draw an adverse inference. And that is what we are doing right now because 

I along with Chairman Hensarling of the Financial Services Committee requested all communications pertaining to the mandatory 

donations provisions in the bank settlements over 2 months ago, 

but we have yet to receive any responsive documents from the Department of Justice. When can we expect to receive that? 

Mr. GRABER. Thank you, Mr. Chairman. I appreciate the concern, 

and I understand the concern. I can tell you that we are in process 

of reviewing documents that may be responsive to the Committee’s 

request. 

Mr. GOODLATTE. Will the Department of Justice claim any privileges over a significant percentage of the relevant documents? 

Mr. GRABER. Well, because the review is ongoing, sitting here 

today, I cannot tell you whether or not there would be any type of 

assertion of privilege. But I can assure you that a review is ongoing, and—— 

Mr. GOODLATTE. Well, let me just add that this Committee will 

not stand silent, nor will, I am sure, the Financial Service Committee, and you can expect that this will escalate if you do not provide the documentation that we requested over 2 months ago. 

Secondly, did anyone at the Department of Justice ever consider 

the serious appearance of impropriety in requiring banks to make 

available to activist organizations the lion’s share of funding that 

Congress has previously cut off to them? That is one of the reasons 

why we want to see the communications. We want to know what 

considerations went into making this decision to take this action. 

Mr. GRABER. Thank you, Mr. Chairman. Again, I understand the 

concern. And I can tell you that one of the reasons that the Department wanted to use a preexisting list, the one that I believe you 

are referring to, the HUD approved counseling agency list, is because that list is preexisting. The Department did not want to be 

in the business of picking and choosing which organization may or 

may not receive any funding under the agreement. 

Mr. GOODLATTE. No, but it is the Congress’ responsibility to appropriate funds, and the Congress’ responsibility to be picking and 

choosing who gets appropriations for expenditures. And we want to 

know what connection there is between the fact that cuts were 

made and then apparently restored through a settlement. 

Mr. GRABER. Well, Mr. Chairman, to my knowledge there was 

never any discussion of a decision by Congress to cut funding one 

way or another to various third party organizations and the negotiations that took place in the lead up to these settlements. 

Mr. GOODLATTE. You do understand that the Constitution very 

specifically provides in Article 1 that no money shall be drawn from 

the Treasury but in consequence of appropriations made by law. 

And when you make a settlement and you require funds to be paid 

as part of a fine, a settlement, those funds are deposited into the 
30 

Treasury. And if you make a decision to divert some of those funds 

before they ever get into the Treasury, we have very serious questions about whether you are attempting, through the Department 

of Justice, to fulfill the function of the Congress to appropriate 

funds. 

So please explain to us why you think the framers thought this 

was so important and your personal view of its role in the separation of powers. 

Mr. GRABER. Mr. Chairman, the way these settlements were 

structured was that certain funds, namely the civil penalties, were 

deposited directly into the Treasury. These were the record civil 

FIRREA penalties that were obtained—— 

Mr. GOODLATTE. Well, we understand that. 

Mr. GRABER. Right. The—— 

Mr. GOODLATTE. But other funds, which could have been a part 

of that settlement, said it is one lump sum and it goes into the 

Treasury. Instead it said pay us this money, and we order you to 

pay other money to other people. 

Mr. GRABER. Right. So the other components to the settlement, 

in particular the monies that you are referring to that would go to 

the HUD approved counseling agencies, those funds were never diverted. They were a separate part of the settlements. There was 

the civil penalty component of the settlements. There are other 

components of the settlements, and then there is this small portion 

relating to the counseling agencies. 

Mr. GOODLATTE. ‘‘Small’’ is a relative term when you are talking 

about $150 million, right? 

Mr. GRABER. I am sorry? 

Mr. GOODLATTE. I said ‘‘small’’ is a relative term when you are 

talking $150 million. 

Mr. GRABER. Well, the $150 million is—— 

Mr. GOODLATTE. It is a lot of money to most people. I do not 

know how many thousands of additional people that were ostensibly being protected by this whole prosecution that would have 

been receiving additional direct help if the funding had gone into 

the Treasury as opposed to elsewhere. 

But first and foremost, once it went into the Treasury, then the 

elected representatives of the people would get to decide the most 

appropriate way to use those funds. It might be to reduce the $18 

trillion debt of our country. It would make a small dent in that. 

There are lots of different things that could be done with that 

money if it had not been, I would argue, appropriated by the Department of Justice to go to places where the Congress had already 

made decisions that funding did not need to go in its larger fund. 

But the bottom line is get us the documents. If you want to assert what your position as to how this came down, get us the documents that show us what communications were made and how that 

was done, and get them to us expeditiously. Thank you, Mr. Chairman. 

Mr. GRABER. Thank you. 

Mr. MARINO. Thank you. The Chair now recognizes the Ranking 

Member of the full Committee, the gentleman from Michigan, Congressman Conyers. 
31 

Mr. CONYERS. Thank you, Mr. Chairman, and welcome, Mr. 

Graber. Would you please describe the fraudulent conduct of 

JPMorgan, Citigroup, Bank of America, that gave rise to settlement agreements? How does this conduct directly relate to the 

mortgage foreclosure crisis? 

Mr. GRABER. Thank you, Congressman. The Department conducted extensive investigations in the lead-up to each of these settlements. And as outlined more fully in the statement of facts that 

accompanied each of the settlements, the Department’s investigations revealed, generally speaking, that with respect to each of the 

financial institutions, these financial institutions made a variety of 

representations to RMBS investors, in particular that the securities 

that were collateralizing the—excuse me—the mortgages that were 

collateralizing the securities were underwritten generally in accordance with underwriting guidelines, that folks could repay the mortgages that were being taken out, that the income was verified or 

the income was accurately stated on the loan applications. They 

made a variety of representations like that. 

The Department’s investigations revealed that the banks received information at the time of the securitization that was inconsistent with those representations. That information put them on 

notice that the representations were false, and investors were 

never told of that information either. So, as I said, those allegations are—those facts, I should say, are laid out in more detail in 

the statements of facts. But that is in general what the Department’s investigations revealed. 

Mr. CONYERS. Thank you. Now, do you recall what the total minimum requirement for donations to HUD-approved housing counseling agencies under the Bank of America and Citigroup settlements were? 

Mr. GRABER. Yes. I believe that in the Citigroup settlement, the 

minimum to which you are referring is approximately $10 million, 

and in the Bank of America settlement it is $20 million. And in 

each of those cases—I believe I have the math right—it works out 

to less than 1/10th of 1 percent of the total settlements. 

Mr. CONYERS. Okay, thanks. Now, have any of the settling banks 

donated any funds to third party groups under the terms of the 

agreements? 

Mr. GRABER. Based on the monitor reports that have come out 

to date, it is my understanding that no money has been directed 

to third party organizations under the terms of these settlements. 

Mr. CONYERS. Now, how rigorous is the approval process for 

HUD-approved housing counseling agencies? Discuss with us 

whether there are auditing requirements for these agencies and 

whether they may be terminated for failing to meet these standards. 

Mr. GRABER. So the list of HUD-approved counseling agencies is 

a list that has been developed and is maintained by HUD. It is not 

the Department’s list, and it is my understanding that it is a congressionally mandated list. It has existed in one form or another 

since, I believe, 1968. And my understanding is that there is oversight, and there is an auditing process that the Department of 

Housing and Urban Development maintains. And I also understand 
32 

that if there is a failure to comply with the requirements, with 

HUD’s requirements, that they can be removed from the list. 

Mr. CONYERS. Thank you. What benefits do HUD-approved housing counselors and State-based legal aid organizations provide to 

assist consumers? 

Mr. GRABER. My understanding is that they provide very valuable assistance to homeowners. You know, it is my understanding 

that these HUD-approved counseling agencies provide foreclosure 

assistance. They provide assistance to homeowners to repay their 

loans and to navigate the loan modification process. 

You know, folks around the country have, you know, suffered a 

lot dealing with, you know, independent third parties who have 

perpetrated loan modification scams and that type of thing. With 

these HUD-approved counseling agencies, because they go through 

such a rigorous process and they are subject to oversight, there is 

much less of a chance of something like that happening. 

Mr. CONYERS. Mr. Chairman, I have three additional questions 

I would ask him to respond to very briefly, please. 

Mr. MARINO. Without objection. 

Mr. CONYERS. Thank you, sir. Does the Justice Department have 

any control or discretion regarding the distribution of funds to 

third party organizations? 

Mr. GRABER. No, we do not. As I stated previously, the banks are 

required to choose which organization off the list of HUD-approved 

counseling agencies they will direct funds to. That list, as far as I 

know, consists of hundreds and hundreds of organizations. Some of 

them are Catholic Charities affiliated with dioceses around the 

country, Christian legal service organizations, Jewish charities, 

and many, many other non-profit organizations. It is up to the 

bank to decide which organization to which they will direct funds. 

Mr. CONYERS. Let me quickly ask these two questions. Do any 

third party organizations have any influence or discretion regarding the use of funds donated through the settlement agreements? 

Mr. GRABER. My understanding is that they are required to use 

the funds as outlined in the settlement agreement. So the extent 

any third party organization receives funds through these settlements, they will be required to use them for foreclosure assistance 

or other forms of housing assistance. And it will be the job of the 

monitor to ensure that those terms are complied with. 

Mr. CONYERS. Thank you. And finally, please discuss the role of 

independent monitors in verifying that banks meet their consumer 

relief obligations. 

Mr. GRABER. So each one of these settlements includes a monitor. 

In JPMorgan, the monitor is Joe Smith, and in Citigroup it is Tom 

Perrelli, and in the Bank of America settlement it is Eric Green. 

And it is the job of the monitor to ensure that all terms of the settlement are complied with. And more specifically, as the banks fulfill their obligations under the consumer relief component of the 

settlements, they will report their progress to the monitors. And 

then it is the job of the monitors to actually, you know, audit and 

then give credit under the settlement agreement to each of the 

banks. 
33 

So if a bank were to, you know, provide funding or take steps 

that were inconsistent with the agreement, the monitor would then 

have the power to not credit those dollars that go out the door. 

Mr. CONYERS. Thank you, Mr. Chairman, for your generosity 

with time. 

Mr. MARINO. Thank you. Now, I am going to ask some questions, 

Mr. Graber. First of all, if you could, I want to understand the genesis of what is going on with this program, and I want to understand the precise mandatory donation provisions in Citibank and 

American settlements. And could you tell me, first of all, who told 

you or who was the highest Ranking Member at DOJ involved in 

making mandatory donation settlements? 

Mr. GRABER. Thank you, Mr. Chairman. Each of these settlements was the result of a very long, complex, and arduous negotiation. And there were dozens and dozens of officials from the Department of Justice—— 

Mr. MARINO. But there had to be an individual from Department 

of Justice that said this is the route we are going. Who was that? 

Mr. GRABER. So if I may, with respect to each of these settlements, when you are talking about the specific terms that were 

contained in these settlements, I do not think it is fair to say that 

any single individual was responsible for deciding, you know, 

whether to go one way or another. 

Mr. MARINO. Sir, I disagree with you. I worked at Justice, okay? 

I was a U.S. attorney. Someone always gave a subordinate direction on what to do. It was either done through face-to-face communication, email, or direct letter. Now, someone had to come up and 

say who gave the order to do this. Now, do you know what that 

is? 

Mr. GRABER. I am not aware of any direct order. 

Mr. MARINO. Would you not ask how your authority was granted? Did you not ask under what circumstances am I permitted to 

pursue this? 

Mr. GRABER. So with respect to the consumer relief component 

of these settlements, there was a team of, I would say, a dozen or 

more—— 

Mr. MARINO. Did the DAG know about this? 

Mr. GRABER. These settlements were approved at the highest levels of the Department. 

Mr. MARINO. The Attorney General? 

Mr. GRABER. The Attorney General is familiar with these settlements, and he—— 

Mr. MARINO. Okay. Was anyone at the White House involved in 

these discussions? 

Mr. GRABER. I am not aware of anyone at the White House being 

involved in these negotiations in the lead-up to these settlements. 

Mr. MARINO. I am assuming that you are personally not aware. 

Have you heard of anyone at the White House being involved in 

these? 

Mr. GRABER. I am personally not aware of anyone at the White 

House being involved. I never heard of anyone at the White House 

being involved. And I would be very surprised to learn if anyone 

at the White House was involved or, you know, had any communications with people at the Department of Justice about these set-
34 

tlements because that would be contrary to the protocols of the Department of Justice. 

Mr. MARINO. Were there any outside groups that participated in 

these discussions for mandatory donations? 

Mr. GRABER. There was no outside third party group. There was 

no non-profit or, you know, charitable organization that participated in any way in these negotiations. 

Mr. MARINO. Are you familiar with the EPA guidelines, and settlements with third party payments are common with EPA. Are 

you familiar with those guidelines that EPA has? 

Mr. GRABER. I am sorry. Could you repeat that? 

Mr. MARINO. Yes. Settlements with third party payment terms 

are most common in an environmental context. Are you aware of 

those guidelines? 

Mr. GRABER. I have heard of them. I am not particularly familiar 

with them. 

Mr. MARINO. Okay. What guidelines, if you can sum it up for me 

in 15 seconds, do you follow under this program? 

Mr. GRABER. These settlements, and the Department has very 

clear authority to compromise claims on behalf of the United 

States, and that is what occurred here. The Department sought the 

appropriate internal guidance in the lead-up to these settlements. 

Mr. MARINO. But you know of no guidelines. Let me give you an 

example. You know, the mitigation percentage according to environmental procedures should not exceed 80 percent of the SEP 

costs with two exceptions. For small businesses, maybe set as high 

as 100 percent, and for SEP costs, maybe set as high as 100 percent. Are you familiar with any of these guidelines that should be 

followed? 

Mr. GRABER. Well, those are guidelines that I believe apply to environmental settlements. These are not environmental settlements. 

Mr. MARINO. I understand. I understand that clearly, but they 

are guidelines. As the Chairman said, we are talking about millions of dollars to be handed out. And there are indications that the 

Justice Department is just picking and choosing. Now, the issue is 

not if it is a left-leaning group. It may be. The issue is someone 

at Justice, someone, as you said, at the highest levels is picking 

and choosing who should get this money. And it is usually to organizations that may consult with people after they have lost their 

house, but it has nothing to do with those that are in mortgage 

foreclosure on how to help those individuals. So could you please, 

what say you about that? 

Mr. GRABER. Thank you, Mr. Chairman. I understand the concern. The Department did not want to be in the position of picking 

and choosing who may or may not receive funds with respect to 

this component of the consumer relief provisions in these settlements. And that is why we, you know, decided that it would be 

best to use a preexisting list that contains hundreds and hundreds 

of organizations. 

Mr. MARINO. I understand the list. The list is not the issue. The 

issue is someone makes the decision to whom that goes. Someone 

has communication from the Justice Department, at least I believe, 

with the banks as to here is a list of names, or here are a couple 

of names on who the donations can be made to. 
35 

But let me read you something, a letter dated May 14th of 2008 

from Mark Filip, Deputy Attorney General. ‘‘Plea agreements, deferred prosecution agreements, non-prosecution agreements, and 

extraordinary restitution.’’ There is a lot here. I want to do this on 

the record if there is no objection. But here is the line that is important. ‘‘Apart from the limited circumstances described below, 

this practice is restricted because it can create actual or perceived 

conflicts of interest and/or other ethical issues.’’ 

And this is why we are holding this hearing today. As the Chairman said, perhaps if we would have received the documents that 

we requested a long time ago, maybe you would not be here today. 

But it has been customary from the Justice Department to drag 

things out for not only 6 months, but over a year. So the taxpayers 

have a right to know where hundreds of millions of dollars are 

going, and if someone is cherry picking left wing organizations or 

right wing organizations to hand out this money. 

I see my time has expired, so now I am going to ask the gentleman from New York, Mr. Jeffries? 

Mr. JEFFRIES. Thank you, Mr. Chairman. Let me also thank the 

distinguished Ranking Member of the entire Committee. Mr. 

Graber, in 2008 our economy collapsed, correct? 

Mr. GRABER. Yes. Well, there was certainly a very severe financial crisis that began around 2008. 

Mr. JEFFRIES. Right. In fact, it was the worst economic crisis that 

this country has experienced since the Great Depression, correct? 

Mr. GRABER. I would agree with that. 

Mr. JEFFRIES. And millions of Americans lost their homes as a 

result of this financial collapse. Is that correct? 

Mr. GRABER. That is correct. 

Mr. JEFFRIES. Okay. And this collapse was in large measure triggered by the reckless behavior of some financial institutions engaged in the mortgage-backed securities market, correct? 

Mr. GRABER. I would agree that that was a contributing factor. 

Mr. JEFFRIES. Right. I think economists who are in any way objective about what happened have indicated that that was a large 

part of the economic trauma that this country experienced, in fact 

is an extraordinary experience. We are discussing an ordinary remedy to deal with what was an extraordinary experience. And so, I 

am not quite clear what the controversy is. 

But in response to this economic collapse, the Department of Justice initiated these lawsuits against financial institutes who were 

in part responsible for this economic trauma, correct? 

Mr. GRABER. I think that is correct. I mean, in light of what occurred, you know, and what occurred in the RMBS market and in 

the broader economy in general, that was certainly a significant 

contributing factor to the Department’s decision to allocate resources to pursue these investigations, yes. 

Mr. JEFFRIES. Now, we are discussing settlements against three 

major financial institutions where an extraordinary amount of 

money was secured as a result of the behavior that was conducted, 

true? 

Mr. GRABER. I would agree with that. 

Mr. JEFFRIES. And can you give me that number again? 
36 

Mr. GRABER. The Department has secured over $36.6 billion 

through the three settlements that are being discussed today. 

Mr. JEFFRIES. And is it fair to say that the overwhelming majority of this money secured by the Department of Justice independent of any congressional action—I am not aware of Members 

of Congress participating in the litigation—that the overwhelming 

majority of this funding went to direct consumer relief for everyday 

Americans who were harmed by the behavior of these financial institutions triggering the economic collapse, correct? The overwhelming majority went to everyday Americans. Is that true? 

Mr. GRABER. I would say, yes, that the vast majority of the monies that have been recovered through these settlements have either 

gone to civil FIRREA penalties and to consumer relief, and the vast 

majority of that consumer relief—I would say actually all of it—is 

going to provide some measure of relief to homeowners who have 

suffered as a result of the financial crisis. 

Mr. JEFFRIES. Okay. Let me enter into the record, with the distinguished Chairman’s approval and unanimous consent, if that be 

issued, a statement by the Center for American Progress dated 

February 12, 2015. 

Mr. MARINO. Without objection. 

[The information referred to follows:] 
37 
38 
39 
40 
41 

Mr. JEFFRIES. Thank you. Now, is it in fact the case that with 

respect to the Bank of America and Citigroup settlements, only .3 

percent of the settlement funds were to be directed toward housing 

counseling? Is that true? 

Mr. GRABER. That sounds about right. 

Mr. JEFFRIES. Okay. And there is some dispute I gather as to 

whether this housing counseling is of benefit to the American people. But there are over a million homes that are still in foreclosure 

in America right now, correct? 

Mr. GRABER. Yes. I do not have the precise numbers, but that 

sounds correct. 

Mr. JEFFRIES. Okay. And is it true that of those who go through 

the National Foreclosure Mitigation Counseling Program, they are 

3 times more likely to receive a loan modification? Does that sound 

right to you? 

Mr. GRABER. That does sound right to me. It is my understanding that the folks who utilize the services of organizations 

that are on the HUD-approved counseling list are far more likely 

to stay in their home and are less likely to default. 

Mr. JEFFRIES. And 70 percent, in fact, of individuals who go 

through counseling will stay on track in terms of their payment, a 

far greater number than those who do not receive this type of counseling. So I just want to thank the Department of Justice for the 

tremendous work you have done in securing these robust settlements, holding these financial institutions responsible for the collapse of our economy and triggering the Great Recession accountable, and for diverting some of the money legally to these organizations providing a good service. And I yield back. 

Mr. MARINO. Thank you, Mr. Jeffries. The Chair now recognizes 

the gentleman from Texas, Congressman Ratcliffe. 

Mr. RATCLIFFE. Thank you, Mr. Chairman. Mr. Graber, how long 

have you been at the Justice Department? 

Mr. GRABER. I have been at the Justice Department since May 

of 2009. 

Mr. RATCLIFFE. All right. I was there for a number of years as 

well along with the Chairman. I had the great opportunity to serve 

as a line level prosecutor and later as a U.S. attorney for the Eastern District of Texas. Chairman Goodlatte mentioned earlier the 

United States Attorney Manual that I was obligated to follow, and 

the obligations created under that manual to avoid any actual or 

perceived conflicts of interest in settlements. 

And, in fact, is it not true that everyone at the Department of 

Justice—you, when I was there, the Attorney General—we all take 

an oath to remain decidedly apolitical in the enforcement and administration of the Department mission? 

Mr. GRABER. Absolutely. 

Mr. RATCLIFFE. All right. Now, La Raza, which was mentioned 

earlier by the gentleman from Michigan, which describes itself as 

one of the largest advocacy groups in this country, that is a decidedly political group. Would you agree with me? 

Mr. GRABER. I am aware of La Raza generally. I am aware that 

they, especially in the lead-up to these hearings, I am now aware 

that they engage in political activities. 
42 

Mr. RATCLIFFE. Well, how does the direction of settlement funds 

or making settlement funds available to decidedly political groups 

like La Raza mesh with the Department of Justice’s mission? 

Mr. GRABER. Thank you, Congressman. As I indicated previously, 

under the terms of these settlements, the Department of Justice 

does not direct any monies to any specific organizations on the 

HUD-approved—— 

Mr. RATCLIFFE. But it makes them available. 

Mr. GRABER. I am sorry? 

Mr. RATCLIFFE. But it makes them available. 

Mr. GRABER. Anyone who is on the list would be available under 

the terms of the agreement. The Catholic Charities that I mentioned earlier, Christian Legal Services, Jewish charities, the organizations that you mentioned, if they are on the list, all of those 

organizations—I believe there are hundreds of them—would be 

available. And it will be up to the financial institutions to determine which one of those organizations on the list will receive any 

funding. 

Mr. RATCLIFFE. Does it concern you at all the appearance of impropriety in requiring banks under this settlement to make settlement funds available to activist groups? 

Mr. GRABER. Thank you, Congressman. Look, I understand the 

concern, and that concern is why the Department did not want to 

be in the business of picking and choosing any specific organization 

that would receive funding under the terms of the settlements. Instead, the Department thought it best to use a preexisting list, the 

HUD-approved counseling list. This is a congressionally mandated 

list that has existed for decades, and there are hundreds and hundreds of organizations on that list, and to leave it within the discretion of the financial institutions to choose which one of those organizations on the list to direct funds to. 

Mr. RATCLIFFE. Well, Mr. Graber, that is the problem. The Department should not be making those decisions. The Department’s 

mission is to enforce the Constitution, correct? 

Mr. GRABER. I would agree with that. 

Mr. RATCLIFFE. Okay. And the Constitution provides that ‘‘no 

money shall be drawn from the Treasury but in consequence of appropriations made by law.’’ Congress makes the laws, correct? 

Mr. GRABER. That is correct. 

Mr. RATCLIFFE. All right. And you certainly respect the separation of powers that our Constitution provides, right? 

Mr. GRABER. Absolutely. 

Mr. RATCLIFFE. All right. And you think that the Department of 

Justice should remain in the business of enforcing the laws, not 

making laws. 

Mr. GRABER. I would agree with that, and I would say that, you 

know, these settlements are an example of the Department’s vigorous enforcement of the laws. 

Mr. RATCLIFFE. All right. Well, we will just have to disagree 

about that. I will yield my time back. 

Mr. MARINO. Thank you, Congressman. Okay. The Chair now 

recognizes the gentleman from Michigan, Congressman Trott. 

Mr. TROTT. Thank you, Mr. Chairman. I appreciate your testimony. You know, it looks and smells a little bit like a slush fund. 
43 

And I guess the critical question for me is when the settlements 

were reached with Citi, Chase, and B of A, how did they get access 

to the list for non-profits? 

Mr. GRABER. I am sorry. Could you repeat that question? 

Mr. TROTT. How did the financial institutions, they were just 

handed a list of the non-profits that were eligible for the money? 

Mr. GRABER. I believe the HUD-approved counseling list is publicly available. It is on the website, and through the course of negotiations it was agreed that the parties would utilize that list. 

Mr. TROTT. Okay. So you can state unequivocally that no attorney at Justice, the monitors of these settlements, none of those 

folks suggested at any time to B of A, Citi, or Chase that within 

this list of approved counseling agencies, there is any kind of preferred group. That is the critical question, is it not? I mean, if there 

was a preferred group, then we are talking about a slush fund, 

would you not agree? 

Mr. GRABER. That is a perfectly fair question, and I am not 

aware of, and I would be shocked to learn, if any financial institution was ever directed to utilize any specific organization on the 

list. I am not aware of that at all. 

Mr. TROTT. So you can understand with that apprehension why 

the documents that Chairman Goodlatte is looking for are so critical to this discussion. Would you agree that that would resolve 

this question, would it not? 

Mr. GRABER. Well, I am aware of the request, and as I stated, 

our response is in process. 

Mr. TROTT. Mr. Chairman, one of the things we need to do is we 

need to get folks in from B of A, Chase, and Citi and ask them 

when you got this settlement and you started picking who was 

going to get involved in the non-profit world, how did you make 

that decision. And if someone there contradicts what you have said, 

then this whole discussion is over. It is a game, set, match, and it 

is a slush fund. 

Now, if the Justice Department thought that this money for the 

non-profits was so productive, and some of it is. I have dealt with 

non-profits in the housing counseling world for many years. Some 

of them do a great job. Some of them do no service to the borrower 

who needs that help. But if they thought it was so productive, why 

would they not just recommend that the President’s budget allocate 

more money to HUD for the non-profits, and that would be consistent with the Constitution? And why would they have to have 

part of the settlement that the money is directed this way? 

Mr. GRABER. Well, Mr. Congressman, I cannot speak to any decision with respect to the President’s budget. What I can say is that 

through the course of the negotiations leading up to these settlements, we thought that directed funds to these types of organizations that provide housing counseling, and foreclosure mitigation, 

foreclosure prevention services, was a valuable part of the overall 

consumer relief package. You know, if through these settlements 

folks utilize the services provided by these housing counseling 

agencies and folks are able to stay in their homes, that is a good 

thing, and that is something that we hope can be achieved through 

these settlements. 
44 

Mr. TROTT. But there was another way to accomplish that, which 

is to have the money come into Treasury and recommend that the 

money be allocated accordingly in the President’s budget. That 

would have accomplished the same result, would you not agree, 

and be consistent with our Constitution? 

Mr. GRABER. Well, you know, that may be one hypothetical situation where funds could be allocated to third party groups, but—— 

Mr. TROTT. Well, the budget allocates money to non-profits under 

the HUD grants, so more funding in that area would have accomplished the same result. 

Mr. GRABER. Mr. Chairman, I would agree with you that Congress could certainly allocate funds to these counseling agencies. 

Mr. TROTT. I appreciate it. Next question. Why would there be 

a 2-to-1 credit? You know, in my experience, you have a borrower 

that has a $70,000 mortgage. The property when they bought it 

was worth $100,000. Now it is under water to the tune of $50,000. 

It is a very difficult loan modification to accomplish without some 

loan balance relief. Why not allocate it differently? Instead of 2-to1 in terms of favoring potential slush fund abuses, allocate it 2-to1 to the borrower and give credit to Bank of America twice for 

every dollar they allocate to help some borrower that has got a loan 

balance that is workable. 

Mr. GRABER. So the crediting mechanisms in these settlements 

reflect a variety of factors, one of the most important of which is 

the relative expense of the various forms of consumer relief to the 

banks. So the reason that there is a 2-to-1 crediting on the direct 

donations provision that we have been discussing is because that 

form of relief compared to modifications of assets already on the 

books of the financial institutions, those directed donations are 

very, very expensive for the financial institutions. 

It is my understanding—I cannot speak for the banks—but it is 

my understanding that the modifications of underwater loans, the 

type that you just mentioned, those types of modifications are far 

less expensive to the banks than the directed donations provision. 

Mr. TROTT. Thank you, sir. 

Mr. MARINO. The gentleman’s time has expired. The Chair recognizes now the gentleman from Georgia, Congressman Collins. 

Mr. COLLINS. Thank you, Mr. Chairman, and good to see you 

there leading us in this Committee now. There are several things 

that confuse me, Mr. Graber, as we have been starting this. One, 

it is interesting you have been asked several times about, you 

know, the chain of command, and where the orders come from, and 

how did this get in here. Let me make sure. The DOJ, you all actually negotiated these settlements, correct? 

Mr. GRABER. Yes. 

Mr. COLLINS. Okay. Well, I am glad we are at least starting on 

this foundational level here. So somebody had to know something 

that was going on on the direction of these settlements, correct? I 

am beginning to believe, and judging by what you had said earlier, 

it was like there was a group. It is almost like maybe we will walk 

down the hall of the DOJ and say, hey, we are going to a settlement discussion, who wants to throw in some information. Somebody had to have been giving some direction here, and to be honest, 

your answers are not clear. 
45 

Let us just start here. The JPMorgan settlement did not have the 

mandatory donation provision, correct? 

Mr. GRABER. That is correct. 

Mr. COLLINS. Okay. But yet Citi and Bank of America did, correct? 

Mr. GRABER. That is correct. 

Mr. COLLINS. Let me ask you this. Why did you decide to depart 

from the previous precedent or precedents of previous agreements 

that came under the Bush Administration that provided that only 

money left over after all consumer injury had been redressed could 

go to third party groups? 

Mr. GRABER. I am sorry. Could you repeat the question? 

Mr. COLLINS. Previous precedent was that only money left over 

after all injury or redress was there could that be then redressed 

to a third party group. Who made the change in that decision, or 

is this another group decision that really nobody knows? 

Mr. GRABER. So as I stated previously, I am not aware of any direct order or any specific, you know, decision by an individual to 

go with the mandatory minimum provision. I was—— 

Mr. COLLINS. So where did it come from? Was it just a kumbaya 

moment in the negotiations? And I am not trying to be funny here, 

but, I mean, I have sat through negotiations. I am attorney. I have 

sat through many negotiations. You have sat through many negotiations. At some point in time something had to give here. Something had to be interjected into the process to say, hey, here is a 

good idea, or, hey, here is a bad idea. Where did that come from? 

Mr. GRABER. So as I stated earlier, there was a team, which consisted of a dozen or more officials from Department of Justice, and 

HUD, and other folks from the government, who were responsible 

for negotiating the consumer relief provisions. On any given day 

they were discussing dozens and dozens of details in each of these 

settlements. It is my understanding that—— 

Mr. COLLINS. Did Department of Justice bring this up, did HUD 

bring this up, or did the banks bring this up? How did it get 

brought up? 

Mr. GRABER. If I may, it is my understanding at a certain point, 

you know, the team determined that it was the best course of action to put in the mandatory minimum provision. It is not my understanding that there was any decision—— 

Mr. COLLINS. Mr. Graber, look, I have a minute 40 left in my 

conversation here. 

Mr. GRABER. I am sorry? 

Mr. COLLINS. I have a little over a minute left, a minute and a 

half. We are not going to run the ball out here. At this point in 

time, someone at the table, because it was not the JPMorgan. 

Somebody at the table, either DOJ, HUD, this wonderfully amorphous group that you keep talking about, somebody ought to say, 

well, let us put a minimum in here or let us send these to third 

parties. Was that DOJ’s idea? Was it HUD’s idea? Where did it 

come from? And I am going to stop right here. If you tell me about 

this amorphous group, everybody having a good idea again, then 

just say I do not know. I am giving you a chance. 

Mr. GRABER. I do not know—— 

Mr. COLLINS. Thank you. 
46 

Mr. GRABER [continuing]. If there was any specific individual 

who, you know, who brought it up first—— 

Mr. COLLINS. And if was your idea, take credit for it. I mean, this 

is amazing. Let us go about it real quickly, 47 seconds left. I want 

to switch. The monitoring process you talked about, it only deals 

with the banks, okay? And we talk about the banks, making sure 

that they live up to their agreements and their end of this. DOJ 

does not have any monitors in place to ensure that if these monies 

go to intended groups that they are actually using it for the purposes stated. Is that not a concern of DOJ in making these agreements, that they would go to third party groups, but your monitors 

only monitor the bank that they gave them the money, no that the 

intended result was going to happen. 

Mr. GRABER. Actually it is my understanding that the monitor 

will actually oversee the use of these funds by third parties—— 

Mr. COLLINS. But that was not your earlier testimony. Your earlier testimony was that the monitors were to monitor the banks, 

that the money went to where it was supposed to go, and they 

would do the audit to make sure they got the money so they could 

get properly credited in that process. And also any research that 

we have done is that there is no DOJ monitoring to do that for the 

third party groups. 

Mr. GRABER. Absolutely. The monitor will oversee the allocation 

of the funds from the banks, including allocation under these provisions to third parties. And it is my understanding that if the third 

parties were to use the funds in a way that is inconsistent with the 

terms of the agreement, the monitor would be responsible for catching that. And the monitor would not credit the bank for the funds 

that went out the door on that. 

Mr. COLLINS. But, again, that is contradictory to some of your 

testimony. With that, Mr. Chairman, there are many, many questions here left to go. But with that, I yield back. 

Mr. MARINO. Thank you, Congressman. The Chair now recognizes the gentleman from Michigan, Congressman Bishop. 

Mr. BISHOP. Thank you, Mr. Chairman. Thank you, Mr. Graber, 

for your testimony. Is it the practice of the Department of Justice 

to send one person to a hearing like this? 

Mr. GRABER. I could not tell you the answer to that. It is the 

practice today certainly. 

Mr. BISHOP. It just seems to me that the gravity, the weight of 

what we are talking about today would require that you would 

send some of your folks over. It is frustrating to sit here and hear 

‘‘I do not know’’ over and over and over again on questions that, 

very frankly, should be answered, you know, off the top of your 

head. On some of these issues I am sure there are folks that have 

direct understanding and knowledge of these issues, and it is 

frightening as a citizen to sit here. It is angering as a Member to 

sit here and hear this banter back and forth and hear very important questions, and not get specific answers. The answer should 

never be ‘‘I do not know.’’ 

I noted in your testimony, and as a former prosecutor myself, I 

consider this laudable because I do believe that prosecutors have 

a responsibility to stand up on behalf of victims. You indicated in 

your testimony that the DOJ was securing relief that ‘‘likely could 
47 

not have been ordered by the court even if the government had prevailed at trial.’’ Was that your statement? 

Mr. GRABER. That is correct. 

Mr. BISHOP. I think that is wonderful that the Department of 

Justice has that kind of resolute interest in making sure they secure, you know, the proper level of relief for each one of its consumers. But does that not scare you a little bit or should it not 

scare us a little bit to think that the Department of Justice has 

that ability to secure that kind of justice outside the court system 

over and beyond what we would have at trial, for example? 

Mr. GRABER. Thank you, Congressman. The settlements that we 

entered into here, namely pre-litigation, out of court settlement, is 

very much consistent with the Department’s authority to compromise claims on behalf of the United States. And the Department 

enters into settlements like this all the time, every day, in fact. So 

I do not think there is anything unusual about that. 

Mr. BISHOP. It is not unusual for the DOJ to have more authority 

than someone else would have in a regular court proceeding? 

Mr. GRABER. Well, no, I would not necessarily agree with that. 

I just think that the fact that this settlement occurred out of court, 

you know, prior to litigation is consistent with the Department’s 

authority, and is, quite frankly, typical. And I would also say that 

it is not unusual for parties to reach agreements to compromise 

claims that contemplate forms of relief that may not have been 

able to be awarded by a court. 

Mr. BISHOP. So it is the very threat of the DOJ, the heavy hand 

of government, to come in that could probably extract a better concession, a better settlement than you could in court. I mean, that 

is a rather imposing threat to level on someone, is it not? 

Mr. GRABER. I would say that we do not know what a court may 

or may not have done if we had decided to litigate these cases. 

Mr. BISHOP. All right. The Bank of America settlement, just 

switching gears here. The Bank of America settlement requires the 

bank to set aside $490 million to cover potential consumer tax liability. Was that something that the DOJ suggested? 

Mr. GRABER. Yes, I believe that that was something that the Department suggested and certainly the Department supported. 

Mr. BISHOP. Did the DOJ also want a similar provision in the 

Citi settlement, which was concluded I think just before that, a 

month earlier? 

Mr. GRABER. I do not recall specific discussions about, you know, 

that specific term or a potential term in the course of the Citi negotiations. I should also point out that, look, in the lead-up to these 

settlements, again, I mean, the reality is that there were dozens 

and dozens of officials who were involved. There were dozens, if not 

hundreds, of meetings, sometimes simultaneous meetings. Sitting 

here today, the fact of the matter is that I was not in every one 

of those meetings. 

Mr. BISHOP. Thank you, sir. Yield back. 

Mr. MARINO. Thank you. Deputy Graber, thank you for being 

here. You are excused. And we now call the second panel to today’s 

hearing. Thank you, sir. 

Mr. GRABER. Thank you. 
48 

Mr. MARINO. Before you sit down, could I ask the panel to please 

stand, to raise your right hand? 

Do you swear the testimony that you are about to give is the 

truth, the whole truth, and nothing but the truth, so help you God? 

[A chorus of ayes.] 

Mr. MARINO. Let the record reflect that the witnesses have affirmed their testimony. Thank you, ladies and gentlemen, for being 

here. 

I am going to start with a brief introduction of our panel witnesses and get right to the questions. We are in a hard-pressed 

time to be out of here in about 45 or 50 minutes. 

Mr. Paul Larkin is a senior research fellow and director of the 

Rule of Law Initiative Project for the Heritage Foundation, specializing in countering abuse of Federal criminal law. Mr. Larkin 

worked at the U.S. Department of Justice as an assistant to the Solicitor General and as a counsel in the Criminal Division’s Organized Crime and Racketeering Section. During his time at the Environmental Protection Agency, he was a special agent and an acting director for the Criminal Enforcement Branch. Mr. Larkin also 

served as counsel to the Senate Judiciary Committee and was the 

chief of the Crime Unit under panel chairman, the Honorable Orrin 

Hatch. 

Throughout his 25 years of practice, Mr. Larkin has argued before the Supreme Court in 27 cases. He is a graduate of Stanford 

Law School and a former law clerk for Judge Robert H. Bork on 

the U.S. Court of Appeals for the D.C. Circuit. Welcome, sir. 

Mr. Ted Frank has won millions of dollars for consumers and 

shareholders through the non-profit Center of Class Action Fairness, which he founded in 2009. Mr. Frank has argued and won 

several landmark appellate cases protecting consumers from unfair 

class action settlements. His work in this area has been profiled by, 

among others, the Wall Street Journal, Forbes, the National Law 

Review, the ABA Journal, and The American Lawyer. He has testified before Federal and State legislative subcommittees multiple 

times about class action conflicts of interests and settlements and 

about legislative victim compensation programs. 

Mr. Frank is a graduate of the University of Chicago Law School 

and a former law clerk to the Honorable Frank H. Easterbrook of 

the U.S. Court of Appeals for the 7th Circuit. Welcome, sir. 

Mr. FRANK. Thank you. 

Mr. MARINO. Ms. Mrose is the CEO of Compass Films of New 

York LLC. Her work focuses on the housing industry and the interaction between government, banks, housing advocates, and the 

economy. Her experience includes co-hosting a talk radio program 

and research on regulations issued by the Department of Housing 

and Urban Development. 

Ms. Mrose is a graduate of Tufts University’s Fletcher School of 

Law and Diplomacy, and welcome, ma’am. 

Ms. MROSE. Thank you. 

Mr. MARINO. And I am sorry, Professor White, but I do not have 

your background. If someone gives it to me at some point I will 

read it. I apologize for it for not being here, but I do want to welcome you, and thank you for being here today, and we will get to 
49 

your background when it is handed to me. I see it is right here. 

Thank you. 

Professor Alan White joined the faculty of CUNY School of Law 

in 2012. He teaches consumer law, commercial law, bankruptcy, 

comparative private law, and contracts. The latter was not my favorite in law school. He is a nationally recognized expert on credit 

regulation in the residential mortgage market. Professor White is 

a past member of the Federal Reserve Board’s Consumer Advisory 

Council, a member of the American Law Institute, and is currently 

serving as reporter for the Uniform Law Commission’s Project on 

a residential real estate foreclosure statute. 

He is quoted frequently in the national media, including the New 

York Times, the Wall Street Journal, and the Washington Post in 

connection with his research on the foreclosure crisis. He has published a number of research papers and articles on housing credit 

and consumer law issues, and has testified before Congress and at 

Federal agency hearings on the foreclosure crisis bankruptcy reform and predatory mortgage lending. 

Before becoming a full-time teacher, Professor White was a supervising attorney at the North Philadelphia office of Community 

Legal Services, Inc., and was also a fellow and consultant with the 

National Consumer Law Center in Boston, and an adjunct professor with Temple University Law School and Drake University 

School of Law. His legal services practice includes representation 

of low income consumers in mortgage foreclosures, class actions, 

bankruptcies, student loan disputes, and real estate matters. 

Mr. White received his B.S. from the Massachusetts Institute of 

Technology and his J.D. from the New York University School of 

Law. Welcome, sir. 

Mr. WHITE. Thank you. 

Mr. MARINO. Each witness’ written statement will be entered 

into the record in its entirety. I ask that each witness summarize 

his or her testimony in 5 minutes or less. And to help you with 

staying within that time, you see the lights in front of you. If the 

light switches from green to yellow, it means you have a minute 

left, and when it gets to red I will politely tap here to give you an 

indication if you would please wrap up. 

The Chair now recognizes Mr. Larkin for his opening statement. 

Sir? 

TESTIMONY OF PAUL J. LARKIN, JR., SENIOR LEGAL RESEARCH FELLOW, EDWIN MEESE III CENTER FOR LEGAL 

AND JUDICIAL STUDIES, THE HERITAGE FOUNDATION, 

WASHINGTON, DC 

Mr. LARKIN. Mr. Chairman, Ranking—— 

Mr. MARINO. The microphone in front of you, you have to push 

the button there, and the light should come on. 

Mr. LARKIN. My mistake. Sorry. 

Mr. MARINO. That is quite all right. I do it. 

Mr. LARKIN. Mr. Chairman, Mr. Ranking Member, it seems to be 

common ground that if these checks that were due to the United 

States were actually deposited in the Treasury, the Justice Department would lack any authority to require that they then be turned 

over to anyone else. Not only would they not have possession of the 
50 

check, the law—that is, the Constitution as well as the Anti-Deficiency Act and the Miscellaneous Receipts Act—would prohibit the 

Department of Justice from handing out this money. 

So the only dispute is whether the Justice Department can engage in the same result simply by directing the bank to do it. In 

other words, once the Department has deposited the check, they 

could not give the money to these groups. So instead, what the Department has done is tell the bank do not give me the check. Give 

the check to these private parties. 

Now, if you want to understand this, flip the facts around. Suppose this were a settlement and the Department was paying the 

banks. The lawyer, who is handling the case for the banks, could 

not tell the Department do not write all of the checks to me. Write 

some of the checks to a charity of my choosing or a charity of your 

choosing. The lawyer for a client cannot give away the money that 

belongs to the client, and in this case, the Department represents 

the United States, and they are not allowed to give away money 

that belongs to the United States unless there is express statutory 

authority to do it, and there is none here. 

What aggravates this problem even more is that you have these 

sorts of settlements gradually coming into wider and wider use 

ever since the Anderson case was resolved with everyone being a 

loser. Why is that a problem? Because oftentimes there is no judicial involvement whatsoever. These agreements often are a means 

of disposing not of charges or a lawsuit that has already filed. They 

are a means often of disposing of charges or a lawsuit before any 

are filed. So there is no judicial involvement whatsoever. You have 

an agreement entirely between the lawyers for the United States 

and the lawyers for other parties. And in this agreement they are 

trying to engage in what is for all intents and purposes a sham 

transaction to avoid depositing all of the money that is due to the 

taxpayers of the United States into the account that the Treasury 

maintains, that Congress thereafter can decide how it will be 

spent. 

After all, Article 1 says that no appropriations can be made—or 

excuse me—no money can be taken from the Treasury except pursuant to an appropriation. It is designed to prevent the President 

from using the Treasury as if it were his own personal account. 

Only Congress can authorize him to spend that money. When the 

money then comes into the government, the Miscellaneous Receipts 

Act requires that it be deposited into the Treasury with a few exceptions, none of which are applicable to housing cases or the ones 

we have here. 

Once the money is then deposited, it is up to the elected members to decide how to spend it. If they want to give it to these organizations, that is perfectly proper. When I worked for Senator 

Hatch, the Judiciary Committee worked on legislation to authorize 

money to be given to the Boys and Girls Clubs. Why? Because the 

Committee thought that would advance the welfare of the Nation, 

but only if the Committee had authorized it and then the appropriators had appropriated the money could that be done. 

And it does not matter whether this is done in a Democratic or 

Republican Administration. As my paper and the paper by the 

Chamber of Commerce point out, Republicans have done this be-
51 

fore, and when they did, they were just as wrong. And it does not 

matter that the money goes to an organization that may be a valuable mechanism for disposing of funds. It does not matter if it goes 

to Catholic Charities. It does not matter if it goes to any Christian 

organization. It does not matter if it goes to any organization whatsoever. If it is an organization that is not authorized by Congress 

to receive the money, the expenditure is impermissible. 

The same ethics rules should apply to government lawyers in 

this context that would apply to private parties. They act on behalf 

of the United States. In so doing, they are not allowed to make 

their own decisions. And by the way, if you want to find out who 

made this decision, I would start by looking at the two agreements 

because if you look at the two agreements, what you will see is that 

they were signed for the United States by Tony West, the Associate 

Attorney General, who is the number three person in the Department. 

So in all likelihood, he knew what these provisions were. And 

given the size of this, unless he was irresponsible, he also brought 

that to the attention of his superiors in the Department. You do 

not enter into an agreement like this without telling your boss 

what you are about to do. 

I am glad to answer any questions you may have. 

[The prepared statement of Mr. Larkin follows:] 
52 
53 
54 
55 
56 
57 
58 
59 
60 
61 
62 
63 
64 
65 
66 
67 
68 
69 

Mr. MARINO. Thank you, sir. 

Mr. Frank? 

TESTIMONY OF THEODORE H. FRANK, FOUNDER, 

CENTER FOR CLASS ACTION FAIRNESS, WASHINGTON, DC 

Mr. FRANK. Thank you, Mr. Chairman, Mr. Ranking Member—— 

Mr. MARINO. You want to push that button. 

Mr. FRANK. Thank you, Mr. Chairman, Mr. Ranking Member, 

and the Committee for having me here. I am the head of the nonprofit public interest law firm, Center for Class Action Fairness, 

but I do not speak on their behalf today. However, my experience 

with the center is with civil litigation in class action settlements 

that raise very similar issues where class counsel breached their fiduciary duty to their clients and tried to divert money to third 

party charities rather than to the purportedly injured plaintiffs in 

a class action. 

So, for example, 5 weeks ago we won a case in the 8th Circuit 

involving Bank of America shareholders where class counsel for the 

shareholders, instead of distributing $2.7 million of leftover money 

to the shareholders, decided that he wanted to write a big check 

to the local Legal Aid Society and have a ceremony of the big check 

where he would get his picture in the paper. That might be nice 

for the attorney who has more gratitude from his local charity than 

from shareholders getting a few dollars each, but it is a breach of 

their fiduciary duty, and we got that diversion overturned. 

We won another case in the 9th Circuit, Nachshin v. AOK, where 

the lawyers tried to give money to the judge’s husband’s charity. 

These are real conflicts of interest. They are real problems, and 

courts have been stepping in. Most notably, Chief Justice Roberts 

indicated the need for this in the Merrick v. Lane case, 134 S. Ct., 

page 8. 

The problem is even more egregious in the prosecution context 

for the reasons Mr. Larkin has just demonstrated, but I would like 

to raise some other issues. These settlements are being discussed 

as providing $7 billion of consumer relief or $2.5 billion of consumer relief. But when you get into the weeds of the agreements 

in Annex Number 2, you see these $2 or $1 credits, $3 credits, as 

much as $3.75 per dollar credits. And as a result, you are not talking about a diversion of $150 million. You are talking about the Department of Justice getting credit for ‘‘$7 billion of consumer relief,’’ but, in fact, the banks will be paying billions of dollars less 

in order to funnel money to the Department of Justice’s preferred 

recipients. 

Now, again, as Mr. Larkin said, it may be some of these recipients are good. They may not be. But at the end of the day, the Justice Department does not have the authority to do that except by 

bypassing the Treasury through these settlement agreements, and 

the bypassing has other legal consequences. For example, in Chapter 45 of the Code of Federal Regulations, when the Federal Government gives money to legal aid societies, as this settlement requires, there are a lot of strings attached to that Federal money. 

The legal aid societies can only use it in certain ways. 

This settlement bypasses those congressional restrictions or 

these Federal legal regulations and restrictions. And, again, the 
70 

monitor will not be overseeing this. The monitor is only determining whether the bank has given the money that they are supposed to give. 

Other problems. In effect, DOJ is creating housing policy, Treasury policy, and in many ways, overriding existing policies of the 

Treasury Department and the Housing Department without any 

oversight from Congress or otherwise. So there is credit being given 

for loan modifications that do not satisfy the Treasury Department’s HAMP requirements. Now, there are disputes over whether 

or not HAMP is effective, but what is clear is if you loosen those 

requirements, it is going to be less effective than the existing 

Treasury Department program. But the DOJ is now creating its 

own loan modification program without the regulatory expertise to 

do so, and with potentially adverse public policy results. 

There is another provision in the Bank of America settlements 

in Section 2.A of the Annex, menu item 2.A of the Annex. Bank of 

America gets a $10,000 credit for providing first-time home buyers 

of lower/moderate income a loan. Now, there are two possibilities 

there. One, these are financially viable loans that Bank of America 

would be happy to make anyway, in which case it is completely illusory relief. They are just going to get a $10,000 offset to what is 

supposed to be consumer relief. Or these are not financially viable 

loans, but the DOJ is distorting the market for loans to encourage 

yet more loans for mortgages that potential low and moderate income people cannot actually afford. And that is how we got into 

this mess in the first place. 

I welcome your questions. 

[The prepared statement of Mr. Frank follows:] 
71 
72 
73 
74 
75 
76 
77 
78 
79 
80 
81 
82 
83 
84 
85 

Mr. MARINO. Thank you, sir. 

Ms. Mrose? Am I pronouncing that right? 

TESTIMONY OF CORNELIA MROSE, CEO, 

COMPASS FILMS OF NEW YORK LLC, WESTCHESTER, NY 

Ms. MROSE. Hello. 

Mr. MARINO. Hello. 

Ms. MROSE. Thank you. 

Mr. MARINO. Am I pronouncing your name correctly—— 

Ms. MROSE. Yes, that is perfect. 

Mr. MARINO. Mrose? 

Ms. MROSE. That was perfect. 

Mr. MARINO. Thank you. 

Ms. MROSE. Thank you for inviting me. As the Chairman already 

said, my firm, Compass Films of New York, is going—well, you did 

not say that. But I am the CEO of the Compass Films of New York, 

and I am making a film about the true causes of the financial crisis, and how the real culprits are doubling down. And in order to 

do that, I went and interviewed various people. One of them was 

the former CEO of BB&T, John Allison. And I want to start off by 

reading you the answer that he gave to me when I asked him the 

following question. 

So my question to John Allison was this: ‘‘Did BB&T make loans 

it would not have made otherwise in order to keep a good or excellent CRA rating,’’ and ‘‘Was BB&T pressured by community activists to make subprime loans or to pledge money for future loans to 

what they called underserved areas?’’ ‘‘Did you have any direct contact with activist groups?’’ And his answer was this. ‘‘BB&T did 

make high risk low income loans to meet CRA requirements, and 

we were pressured to make subprime loans and pledge money by 

activist groups. All banks paid bribes to CRA groups. I had direct 

contact with them.’’ 

I am quoting this because it sheds light on the enormous power 

and the political influence on a vast left-leaning non-profit network 

that exists in the United States today. And I do not have much 

time, but I am going to focus on this left-leaning network in my 

3 minutes remaining. You can read the details in my prepared 

comments. 

First of all, I would like to say that in 1960, the government of 

the United States gave very little money to non-profit organizations. That has changed dramatically. The Urban Institute published in 2013 a national survey of non-profit groups. It is an excellent survey. It contains a lot of information. 

In 2012, government in the United States, Federal, State, and 

local, gave $137 billion to non-profit groups. $81 billion of those 

$137 billion went to social service non-profit organizations. These 

are affordable housing groups, legal aid groups, civil rights groups, 

ethnic groups. There were approximate 200,000 contracts and 

grants with about 30,000 of these social service non-profits in 2012. 

On average, six to seven grants and service contracts, non-profit. 

Now, I want to focus on particular group that stands to profit 

from the particular stipulations in the settlement. The name of this 

group is NeighborWorks Orange County. It is a 501(c)(3) tax exempt non-profit organization based in Orange County, California. 
86 

And I am focusing on this one because it is one of these various 

groups that are specified in the settlement, a CDFI HUD-approved 

housing counseling agency, et cetera. 

So NeighborWorks Orange County is a chartered member of 

NeighborWorks America. It is also an affiliate of the National 

Council of La Raza and CLR. It is a HUD certified housing counseling agency. HUD has, by the way, 2,400 of these approved housing counseling agencies in the United States with about 8,000 

housing counselors. 

NeighborWorks Orange County is certified by the U.S. Treasury 

Department as a community development financial institution, a 

CDFI. The Treasury Department provides funds to CDFIs through 

various programs, and it is also a community development corporation, a CDC. All these special organizations are listed in the settlement. 

How much money did Orange County receive in 2012? It received 

$3.8 million from the government, from the Federal, State government. It received more money in the past. In 2010 it got around 

$8 million, and in 2009 it received around $5 million. Not all of the 

money that NeighborWorks Orange County received came from 

government entities. Some of it came from taxpayers. And if you 

look at who gives money to this non-profit, you see that most of 

these enterprises are banks, so all the big banks. Citibank is there, 

and Bank of America is there, and Chase, and Wells Fargo, and 

many other banks, which means that a very small percentage, 3.4 

percent, of its money came from private business. 94.6 percent 

came from taxpayers. 

This is quite typical. When you look at such non-profit organizations that many banks contribute to such groups. Why? It is basically protection money. They give to groups that are certified and 

approved by government agencies. It is an attempt to buy protection against being singled out for punishment by the Department 

of Justice. 

Mr. MARINO. Ms. Mrose, could you wrap up—— 

Ms. MROSE. Oh, yes. 

Mr. MARINO [continuing]. Because your full statement will be 

made part of the record. 

Ms. MROSE. Yes, I certainly will. So I wanted to talk about, and 

I will not have time to do that, but just briefly. NeighborWorks Orange County, what does it really do? It has 26 employees. And 

what are they doing? Is it useful to the American citizens, the work 

they are doing? No. They are basically navigating the various Federal and State government programs designed to let people buy a 

house who cannot really afford to do so. 

So there are example programs like ‘‘Making Home Affordable,’’ 

which is an official program of the Department of the Treasury and 

HUD, or, of course, HARP, or Keep Your Home California, a program of CalHFA Mortgage Assistance Corporation. That is also a 

non-profit organization that receives Federal funds, et cetera, et 

cetera. 

Now, you might ask yourself is that a good use of taxpayers’ 

money? Does it really make sense for these 26 employees to spend 

navigating the labyrinth of government, easy credit access pro-
87 

grams that are also financed by taxpayers all in order to let buy 

houses that they cannot afford. 

Mr. MARINO. Okay, Ms. Mrose, we are running out of time here. 

So you will be able to address some of those in questions that you 

are asked, if you do not mind, please. 

Ms. MROSE. Thank you. 

[The prepared statement of Mr. Mrose follows:] 
88 

Prepared Statement of Cornelia Mrose, CEO, 

Compass Films of New York LLC 
89 
90 
91 
92 

Mr. MARINO. Professor White? 

TESTIMONY OF ALAN M. WHITE, PROFESSOR OF LAW, 

CUNY SCHOOL OF LAW, NEW YORK, NY 

Mr. WHITE. Thank you, Mr. Chair, and Mr. Ranking Member, 

Members of the Committee for the invitation to testify today. As 

you mentioned, I have a great deal of experience doing research on 

the mortgage market and on the foreclosure crisis. And I did want 

to mention that for 24 years I represented low income homeowners 

in foreclosure cases in Philadelphia, Pennsylvania. 

I make a number of points in my written testimony. I would like 

to just focus my 5 minutes on two points about legal aid organizations and housing counselors. And to say, first of all, that directing 

money to these groups is an effective and perhaps the most effective way of remedying the injury that the Federal lawsuits were 

designed to remedy. That is, to compensate both homeowner consumers and as well investors who lost billions, possibly trillions, of 

dollars as a result of the fraud that is the subject of the lawsuits. 

The second point I want to make is about the accountability of 

legal aid and housing counseling agencies because I have both personal and professional knowledge about that. So let me first talk 

about effectiveness. There is considerable empirical research, and 

I cite it, that demonstrates that having a housing counselor or a 

legal aid lawyer, for example, for the Delaware couple that the 

Chairman mentioned earlier, will greatly increase the chances of a 

successful workout with the bank, so that a thousand or two spent 

on a housing counselor or a legal aid lawyer can save the homeowner’s home and prevent a loss that is typically going to run in 

the hundreds of thousands of dollars for the bank and for the investors. And I do not think there is really any controversy about 

that. 

I would also like to say that most of the housing counseling agencies are not these activist groups that we hear about. For example, 

I believe in Williamsport, Pennsylvania, the primary housing counselor is Consumer Credit Counseling of Northeast Pennsylvania, an 

organization I am a little bit familiar with because of some foreclosure crises that occurred in the Poconos while I was practicing. 

The consumer credit counseling agencies were set up originally 

funded by the banks to advise consumers on how to deal with unmanageable credit card debt. And after the foreclosure crisis, they 

began to get into the business of helping people navigate their way 

through the very difficult process of workouts with banks. So the 

consumer credit counseling services, some of the faith-based organizations, veterans groups. There are lots and lots of groups that are 

both very effective at this work and that I think if Bank of America 

and Citibank choose to fund them and to avoid activist groups, 

they can certainly do that. 

On the accountability point, there have been some settlements at 

the State level. State attorneys general have done things similar to 

what Justice has done with this settlement in directing funds to 

legal aid and housing counseling networks. And I spoke with somebody I know who helps to administer the New York Attorney General’s program, and she assures me that every contract with every 
93 

housing counselor and every legal aid agency specifies exactly what 

they can and cannot do with the funds. 

And, of course, we do not know what Bank of America or 

Citibank’s contracts with whoever they choose to fund are going to 

provide. But there is every expectation that they are going to restrict the use of the funds to the activities specified in the settlement. And I can tell you from experience that those kinds of nonprofits, housing counselors, and legal aid organizations do detailed 

cost accounting. 

We kept time records in which we accounted for every 10 minutes of every hour and specified what activity we were engaged in, 

and which funding source was paying for that activity. And I can 

certainly assure you that if we violated the terms not only of government funding at the Federal or State level, but even private 

funding from foundations, our auditors would point that out, and 

we would have a problem. And the housing counseling agencies 

typically operate on that model. They are very carefully overseen 

and audited. 

Part of the difficulty with this hearing is we do not really know 

exactly how the banks are going to administer these programs. And 

as far as I know, I do not think they have gotten very far. From 

everything I have heard from inquiring, they have not actually 

picked who the groups are going to be and how they are going to 

administer the funds. It is a relatively small portion obviously of 

the programs they have to implement. But I have every expectation 

that the banks will establish the same kind of contractual restrictions that we have seen in other settlements. And so, so the idea 

that a small amount of money is going to be misdirected toward political activism seems to me unlikely in the extreme. 

So I did want to focus on the counseling agencies on the legal aid 

providers because I think that a lot of the publicity about this issue 

has really been unfortunate in mischaracterizing who they are and 

what they do. And they are, as I say, an extremely effective and 

useful means of remedying the wrong that these lawsuits were intended to remedy. 

So with that, I will answer any questions you might have. 

[The prepared statement of Mr. White follows:] 
94 
95 
96 
97 
98 
99 
100 

Mr. MARINO. Thank you, sir. I am going to start out by asking 

my 5 minutes of questions. I will start with Professor White. I do 

not know if it is coincidental that you used my hometown in Williamsport, Pennsylvania or if that is where you knew I came from? 

Mr. WHITE. That is not a total coincidence. I grew up in State 

College. 

Mr. MARINO. Nevertheless, I agree with just about everything 

you said. I think the agencies, what they are designed for are good. 

But it should be focusing on people who are in the process of losing 

their homes and not handling issues where people have already 

lost their homes unfortunately, and it perhaps should have been 

done that way to begin with. And you say, well, we do not know 

yet. That is exactly what we do not know. 

DoJ will not turn over any information that we have asked for 

concerning who, what, where, and when. Where does this money 

come from and how is it spent? And you are right. Legal aid, which 

I have dealt with as a district attorney and even as a U.S. attorney, these people do a great job in defending those that cannot afford it, but they are very regimented. And my good friends on the 

other side and you have even stated to a certain degree that we 

are only talking about a little bit of money. I do not care if it is 

a thousand dollars. It is still taxpayers’ money that has to be accounted for. 

But you know what the issue is here, Professor? The issue is 

Congress appropriates, not the Justice Department. And the Justice Department has taken this on itself to determine how these 

settlements are going to be made. I do not agree with the 2-for-1 

for the 3-for-1 credit. This all boils down to who has the authority 

to appropriate, and it is Congress. And what say you, sir? 

Mr. WHITE. Well, I guess I would say I respectfully disagree with 

a couple of your points. 

Mr. MARINO. Well, let us start ticking them off. 

Mr. WHITE. As far as the constitutional issue about appropriations, that is not really my specialty. I will say I do teach remedies, 

and the idea that—— 

Mr. MARINO. It is one of my specialties because I pay a lot of attention to it. And so, the Constitution is very clear. I think some 

of my colleagues agree with me that unless we specifically state by 

statute, nobody, not the executive branch, not the judicial branch, 

has a right to appropriate money. Do you disagree with that, sir? 

Mr. WHITE. I do not think that is a characterization of what the 

Justice Department is doing here. I do not think they are appropriating taxpayer funds. I think they are—— 

Mr. MARINO. Well, they are using extortion to make banks—— 

Mr. WHITE. If I could continue—— 

Mr. MARINO [continuing]. Appropriate funds to left-leaning organizations. Now, there is no accounting at this point as to how this 

money is being appropriated, whether Justice hands it out or they 

tell a bank to hand it out a certain way. So what would be your 

recommendation as to how we can account for this? What is wrong 

with this process, turning the money over to the Treasury, the 

Treasury then allocating that money through legislation that we in 

Congress can legislate, and follow, and have oversight on it? Now 

what is wrong with that process, sir? 
101 

Mr. WHITE. I would be totally in favor of Congress appropriating 

more funds for housing counseling and legal services. 

Mr. MARINO. So they are not doing that, though. 

Mr. WHITE. Listen—— 

Mr. MARINO. Pardon me? 

Mr. WHITE. With all due respect, those two approaches are not 

mutually exclusive. Negotiating remedies for victims in lawsuits 

and Congress appropriating funding for similar activity, those are 

both—— 

Mr. MARINO. Congress has not appropriated the funding on this 

specific issue. These agencies also receive money through HUD, so 

in addition there is a double dip there. So, I am sorry, I do not 

agree with you that this is a legitimate way to establish appropriation. Show me a statute where it says that the Justice Department 

has the authority to negotiate with banks that they can give money 

to left-leaning organizations. 

Mr. WHITE. Well—— 

Mr. MARINO. You cannot do that, sir. 

Mr. WHITE. That is a compound question. I would object—— 

Mr. MARINO. Well, you are an attorney. You are a professor. You 

should be answer. I am sure you have compound questions on your 

law school exams. 

Mr. WHITE. They are not left-leaning organizations, first of all. 

Secondly, the Justice Department is not, as I understand it, proposing to appropriate any taxpayer funds. They are simply negotiating restitutionary relief, which State attorneys general and the 

Justice Department does all the time. Not only do you seek an 

award of fines that are paid to the Treasury, but you seek restitution to be paid to the victims of the misconduct. 

Mr. MARINO. Exactly right, sir. And as a U.S. attorney, I did the 

same thing on the criminal side and on the civil side. And whether 

there is a violation on the criminal side or whether there is a 

breach of the civil side, the restitution, the fines, are taxpayer dollars. 

Mr. Larkin, you have heard the answers by Mr. White. What say 

you? 

Mr. LARKIN. You can only give out—my apology. You can only 

give out money in restitution if there is a statute that authorizes 

you to give out money in restitution. If the Department is working 

in a criminal case where there is statutory authority to see that 

victims of crime receive some type of financial compensation, and 

the Department does it best to make sure that victims get that 

compensation, the Department is acting within the law. 

But if the Department is owed a check by a private party, the 

law requires that that check be deposited into the Federal Treasury, and if there is no statute that allows them to negotiate a restitution agreement or any type of agreement with a civil defendant 

or a criminal defendant, the Department cannot do that. 

Mr. MARINO. Thank you, sir. My time has expired, and now I recognize the gentleman from Michigan, the Ranking Member, Mr. 

Conyers. 

Mr. CONYERS. Thank you, Mr. Chairman. I ask unanimous consent to place into the record the Congressional Research Service 
102 

memo on the principles associated with monetary relief provided as 

part of financially related legal settlements. 

Mr. MARINO. Without objection. 

[The information referred to follows:] 
103 
104 
105 
106 
107 
108 
109 
110 
111 

Mr. CONYERS. I welcome the witnesses, and I am delighted to ask 

the first question to Mr. White to comment if he can on some of 

the remarks of Mr. Larkin that we have noted here, that the donations under settlement agreements are rife with opportunities for 

political cronyism, that settlement agreements circumvent the constitutional process for appropriating taxpayer dollars, and a few 

others. But were you disturbed or in less than full agreement with 

some of those remarks, Mr. White? Professor White? 

Mr. WHITE. I am sorry. Would you mind repeating the question? 

Mr. CONYERS. Well, I was just going over some of our first witness’, Mr. Larkin, comments that I wanted to see if you were bothered by any of them as I was. 

Mr. WHITE. Well, I certainly disagree. I guess on the constitutional point, I think where I could see a reasonable debate, to Mr. 

Frank’s point, about particular cy pres remedies. But the general 

concept that in settling litigation you try and compensate the victims of the harm and you figure out the most effective and direct 

way of doing that, that is a completely uncontroversial principle. So 

I just think it is very farfetched to characterize the Justice Department’s settlement here as appropriating taxpayer dollars. 

And as far as money being directed to favor groups or to left 

wing groups, I mean, I just do not understand the factual basis for 

that when it is the banks. And I am curious to know why we did 

not ask the lawyers for the banks to come and tell us what they 

are going to do with the money because it is really up to them. 

Mr. CONYERS. Are foreclosing banks, Professor White, usually 

represented by counsel? Can homeowners in a foreclosure generally 

afford counsel even? 

Mr. WHITE. No, it is a serious problem, and there has been research about that as well. There is a study by the Brennan Institute for Justice on the number of homeowners who have legal counsel in foreclosure, and it is far too few obviously. It is also the case 

that there are many homeowners, like the couple in Delaware that 

was mentioned earlier, who try and deal with the banks without 

help from either housing counselors or legal aid lawyers. 

And the evidence is very clear that you get a better result not 

just for the homeowner, but for the bank and the investor when 

you can either get an agreeable workout where the borrower pays 

off their loan perhaps at a lower interest rate or even where the 

homeowner has to surrender their house, sell it in a short sale, 

give a deed in lieu. All of those scenarios facilitated by those nonprofits is going to save hundreds of thousands for each homeowner 

and for the investors in that mortgage loan. So it is just an extremely effective way to use these funds to try and compensate the 

victims of the financial fraud. 

Mr. CONYERS. Mr. Larkin, could I ask you about the Justice Department testimony that it is the banks, not the Department, who 

choose how to allocate their settlement donations? Do you think 

that is an accurate evaluation? 

Mr. LARKIN. It may be accurate, but it is utterly immaterial. I 

say ‘‘may’’ because I do not have all of the agreements here. But 

I do know if you looked at Title 18, Section 2, you will see that it 

addresses this problem. It defines principals under the criminal 

law. If a particular individual takes an act himself, he or she is a 
112 

principal, and if it is a crime, that person is responsible. If an individual forces somebody else to do the act rather than do it him or 

herself, the first person is still responsible. 

You cannot evade responsibility by getting somebody else to do 

your work for you. If you force somebody else to do it, you are responsible, and that is what is happening here. The Department is 

just telling private lawyers and private parties not to give all the 

money to the United States. They are telling them to give some of 

it to parties who Congress has not authorized to receive taxpayer 

funds. And it does not matter who that is. I do not care. No one 

is allowed to receive it unless Congress has authorized it. 

Mr. CONYERS. Okay, thank you, sir. One more question, Mr. 

Larkin. You state that NeighborWorks of America funds a network 

of left wing community organizers in the mold of ACORN. I am a 

little offended by that. Do you know that NeighborWorks is chartered by Congress? 

Mr. LARKIN. Sir, I think if you look you will see I did not say 

that. I quoted Investor’s Business Daily as saying that. I did not 

say that. Investor’s Business Daily made that statement, and I just 

quoted from what they said in my piece. And the problem there is 

even if it is not true that there is anything with ACORN, even if 

it is not true there is anything wrong with any of these organizations, they raise the appearance of impropriety. And Congress 

should be concerned about the appearance of impropriety as well 

as the fact of impropriety. 

And it does not matter whether it is a Republican or Democratic 

Administration. No Administration should be free to give out 

money that the Congress has not authorized someone to receive. 

Mr. CONYERS. Thank you very much. Let me ask Professor White 

about the research consistently demonstrating that foreclosure prevention counseling produces better results for homeowners who are 

facing foreclosure or in it, and are 70 percent more likely to remain 

current after receiving a modification in the National Foreclosure 

Mitigation Counseling Program, who are 3 times more likely than 

non-counseled homeowners to receive a loan modification. Does 

that comport with your experience? 

Mr. WHITE. Yes, absolutely, and there is more than one study 

that has demonstrated that. And I think it is important to keep in 

mind that we still have over 2 million families who are either seriously delinquent or in foreclosure now, and there are a lot of preventable foreclosures that could be prevented. 

And coming back to some points made to the Chair about the 

level of appropriation, I mean, there are plenty of reasons that 

Congress needs to be careful about how much is appropriated for 

various functions. But the fact is, in my view, both the legal service 

organizations representing homeowners and the housing counselors 

could effectively use more money than they are receiving from all 

sources, from private, State, Federal. They are underfunded. 

Mr. CONYERS. Thank you so much. My time has expired. I thank 

you all. 

Mr. MARINO. Ms. Mrose, you stated in your opening that you had 

a discussion with a Mr. Allison. 

Ms. MROSE. That is correct. 
113 

Mr. MARINO. Was that a personal discussion that you had, or 

was that information relayed to you? 

Ms. MROSE. That was a filmed interview that lasted an hour, and 

he released it for the public because we are going to use excerpts 

from it in the film. 

Mr. MARINO. Okay. And I am assuming you are continuing to 

interview people. Have you interviewed other lending institutions 

to this point? 

Ms. MROSE. I have not interviewed other lending institutions. I 

interviewed Peter Wallison and—— 

Mr. MARINO. And what does he do? 

Ms. MROSE. Peter Wallison is at the American Enterprise Institute, and he was one of the commissioners of the Financial Crisis 

Inquiry Commission. 

Mr. MARINO. Have you requested to interview people at lending 

institutions, and have they refused to talk to you? 

Ms. MROSE. We are going to do that, and I am looking forward 

to that. 

Mr. MARINO. First of all, before I ask another question, I would 

like to enter a document in the record. It is United States Environmental Protection Agency, and it is a memorandum concerning 

guidelines. And I just want to cite a section from here, and then 

the full document will be made a part of the record. 

[The information referred to follows:] 
114 
115 
116 
117 
118 
119 

Mr. MARINO. ‘‘Cash donations to third parties are not permissible. Defendants/respondents may not simply make a cash payment to third party conducting a project without retaining full responsibility for the implementation or completion of the project as 

this appears to violate the MRA,’’ and that is the Miscellaneous Relief Act. 

Mr. Frank, what is wrong with having guidelines to explain how 

taxpayer dollars, or fines, or restitution should be appropriated? 

Mr. FRANK. Well, the guidelines should be implemented by Congress given that the executive branch does not have the authority 

to allocate money. But I think guidelines are a good thing and are 

a good way to avoid the potential conflicts of interest when the executive branch bleeds into the separation of powers by structuring 

settlements this way. 

Mr. MARINO. Mr. Conyers? 

Mr. CONYERS. Would you yield? Thank you, sir. Mr. Frank, in 

your written testimony, sir, you describe the Justice Department as 

having unfettered power to structure settlements. Were the settling 

banks represented by counsel in those settlement negotiations? 

Were the banks under any coercion to settle as opposed to litigating? And could a Federal court award consumer relief provisions 

had these cases been litigated? What are your thoughts about that, 

sir? 

Mr. FRANK. Those are multiple issues. 

Mr. CONYERS. Yes. 

Mr. FRANK. But certainly the defendants were represented at the 

settlement table, and it is not clear that they did not get one over 

on the Justice Department here by getting the illusion of $7 billion 

that might end up costing them $2 or $3 billion. With respect to 

whether this could happen in a court, I do not believe FIRREA, the 

underlying statute where the allocations were made here, would 

authorize this sort of particular relief if it was litigated to judgment, whether a court would approve a settlement involving these 

third party transactions. 

Well, what district courts do is not always what is particularly 

legal, especially in the settlement context where they are trying to 

get cases off of their dockets. And that is the experience I have had 

in the civil context. 

Mr. CONYERS. Let me ask you, did the Justice Department settlements with Citigroup of Bank of America involve, in your view, 

class action lawsuits in any fashion? 

Mr. FRANK. No, those were not class action lawsuits, but the underlying principles are the same principles. 

Mr. CONYERS. Good. Thank you, Mr. Chairman. I yield back any 

time I may have. 

Mr. MARINO. As I said earlier, we are pressed for time to get out 

of this room. I do want to thank all of you for being here and testifying. I wish we could have another hour or two of hearing from 

you. Maybe in the future we will have that opportunity. And this 

concludes today’s hearing, and, again, thank you for attending. 

And without objection, all Members will have 5 legislative days 

to submit additional written questions to the witnesses or additional materials for the record. 

This hearing is adjourned. 
120 

[Whereupon, at 12:37 p.m., the Subcommittee was adjourned.] 
(121) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD
122 

Response to Questions for the Record from Geoffrey Graber, Deputy Associate Attorney General and Director, RMBS Working Group of the Financial Fraud Enforcement Task Force, U.S. Department of Justice, Washington, DC 
123 
124 
125 
126 

f 
127 

Response to Questions for the Record from Alan M. White, 

Professor of Law, CUNY School of Law, New York, NY 
128 
129 
130 

f 
131 
132 
133 
134 
135 
136 
137 

f 
138 
139 
140 
141 
142 
143 
144 
145 

Æ