S. HRG. 111–902 

TARP FORECLOSURE MITIGATION PROGRAMS 

HEARING 

BEFORE THE

CONGRESSIONAL OVERSIGHT PANEL 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

OCTOBER 27, 2010 

Printed for the use of the Congressional Oversight Panel 

( 


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TARP FORECLOSURE MITIGATION PROGRAMS 


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65–081 2011

S. HRG. 111–902 

TARP FORECLOSURE MITIGATION PROGRAMS 

HEARING 

BEFORE THE

CONGRESSIONAL OVERSIGHT PANEL 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

OCTOBER 27, 2010 

Printed for the use of the Congressional Oversight Panel 

( 


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(II) 

CONGRESSIONAL OVERSIGHT PANEL 

PANEL MEMBERS

THE HONORABLE TED KAUFMAN, Chair 

KENNETH TROSKE

J. MARK MCWATTERS

RICHARD H. NEIMAN

DAMON SILVERS


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(III) 

C O N T E N T S 

Page 

Statement of: 

Opening Statement of Hon. Ted Kaufman, Chairman, Congressional 

Oversight Panel ............................................................................................. 1 

Statement of J. Mark McWatters, Member, Congressional Oversight 

Panel .............................................................................................................. 6 

Statement of Damon Silvers, Deputy Chair, Congressional Oversight 

Panel .............................................................................................................. 13 

Statement of Kenneth R. Troske, Member, Congressional Oversight 

Panel .............................................................................................................. 18 

Statement of Richard H. Neiman, Member, Congressional Oversight 

Panel .............................................................................................................. 22 

Statement of Phyllis Caldwell, Chief, Home Ownership Preservation Office, U.S. Department of the Treasury ........................................................ 26 

Statement of Guy Cecala, CEO and Publisher, Inside Mortgage Finance 

Publications, Inc ............................................................................................ 60 

Statement of Julia Gordon, Senior Policy Counsel, Center for Responsible 

Lending .......................................................................................................... 70 

Statement of Katherine Porter, Professor of Law, University of Iowa 

College of Law ............................................................................................... 108 

Statement of Joseph Evers, Deputy Comptroller for Large Bank Supervision, Office of the Comptroller of the Currency ...................................... 124 

Statement of Faith Schwartz, Senior Advisor, HOPE NOW Alliance ......... 139 


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(1) 

HEARING ON TARP FORECLOSURE 

MITIGATION PROGRAMS 

WEDNESDAY, OCTOBER 27, 2010. 

U.S. CONGRESS, CONGRESSIONAL OVERSIGHT PANEL, Washington, DC. 

The Panel met, pursuant to notice, at 10 a.m. in Room SD–138, 

Dirksen Senate Office Building, Washington, DC, Hon. Ted Kaufman, Chairman of the Panel, presiding. 

Present: Hon. Ted Kaufman [presiding], Mr. Richard H. Neiman, 

Mr. Damon Silvers, Mr. J. Mark McWatters, and Dr. Kenneth R. 

Troske. 

OPENING STATEMENT OF HON. TED KAUFMAN, CHAIRMAN, 

CONGRESSIONAL OVERSIGHT PANEL 

The CHAIRMAN. Good morning. This hearing of the Congressional 

Oversight Panel will now come to order. My name is Ted Kaufman. 

I’m the Chairman of the Congressional Oversight Panel for the 

Troubled Asset Relief Program. We are here today to evaluate the 

progress of Treasury’s foreclosure prevention programs and to examine the impact of recently reported irregularities in the foreclosure process. 

I have always believed that sound oversight must start with an 

understanding of a program’s goals. So let us begin by recalling the 

Administration’s original goal for foreclosure prevention. In February 2009, the President announced an aim to help, and I quote, 

‘‘as many as 3 to 4 million homeowners to modify the terms of their 

mortgage to avoid foreclosure.’’ 

At that time, our economy was on track to experience more than 

8 million foreclosures, so the goal was always modest compared to 

the incredible scale of the problem. Certainly it was modest compared to the boldness shown in rescuing AIG, Fannie Mae, Freddie 

Mac, Bank of America, Citigroup, and the auto companies. Yet 

now, two years later, we can see that even this modest goal will 

not be met. To date, fewer than half a million homeowners have 

received permanent mortgage modifications through Treasury’s 

programs. As many as half of these borrowers will ultimately redefault and lose their homes. 

Recently, as the goal of preventing 3 to 4 million foreclosures has 

appeared increasingly distant, Treasury has redefined its aim. The 

goal now is to offer a temporary mortgage modification to 3 to 4 

million homeowners. Let me repeat that. The goal, Treasury now 

says, is to offer—offer—a temporary mortgage modification to 3 to 

4 million homeowners. 


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The distinction may sound subtle. I don’t think it is. But the difference is vast. Borrowers who are offered temporary modifications 

may not accept. Those who accept may not complete the steps required to receive a permanent modification. Those who receive a 

permanent modification may redefault and lose their homes. At the 

rate that homeowners are falling through these cracks today, 3 million modification offers may translate in some cases to as few as 

100,000 foreclosures prevented. 

For all these reasons, a goal of offering 3 to 4 million modifications is hardly a goal at all. It divorces the program’s measurement 

of success from its ultimate aim, as expressed by the President, to 

keep homeowners in their homes. In many ways it’s like a major 

league batter pledging to swing at every pitch. What matters is not 

how often you swing. What matters is how often you get on base. 

I hope the Treasury takes today’s hearing as an opportunity to 

define in a detailed public way more concrete goals for success in 

foreclosure prevention. Most fundamentally, here are my main 

questions: How many foreclosures must be prevented? What redefault rate can we expect? How many temporary modifications 

will convert to permanent status? Clear answers are critical not 

only for our oversight work, but really, much more importantly, for 

Treasury’s own ability to measure and improve its results. 

I also hope to hear evidence that the foreclosure picture improved dramatically since the Panel last examined the issue. Yet 

all evidence seems to be to the contrary. Of particular concern are 

reports that banks and loan servicers may have rushed their foreclosure process by relying on affidavits, as they say, robo-signed by 

employees with no knowledge of the underlying facts. These reports 

are already undermining investor and homeowner confidence in the 

mortgage market and they threaten to undermine Americans’ fundamental faith in due process. 

If these reports reflect a disregard on the part of banks for legal 

requirements of foreclosure, that alone would be unconscionable. 

Yet it is conceivable that the banks’ problem is even worse, that 

the banks have failed to follow the legal steps necessary to ensure 

clear title. If investors lose confidence in the ability of banks to document their ownership of mortgages, the financial industry could 

suffer staggering losses. The possibility is especially alarming coming so soon after taxpayers spent billions of dollars to bail out these 

very same institutions. 

I do not want to prejudge what we will hear from today’s witnesses, but I must say this. I am concerned. I am concerned in part 

because it is the Panel’s mandate to oversee Treasury’s foreclosure 

programs and the overall stability of the financial system. But 

much more critically, I am concerned because across America our 

mothers and fathers, sons and daughters, are losing their homes. 

I do not pretend that every foreclosure in this country can or 

even should be eliminated. But even so, every foreclosure is clearly 

a tragedy. Every time a family is cast out of their home, their future is cast into doubt, their neighborhood’s home prices plummet, 

and their town’s stability diminishes. The American dream takes a 

step backward. Treasury cannot and should not prevent every foreclosure in this country for sure, but it can and must do far, far better. 


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Before we proceed, I would like to hear from my colleagues. Mr. 

McWatters. 

[The prepared statement of Chairman Kaufman follows:] 


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STATEMENT OF J. MARK MCWATTERS, MEMBER, 

CONGRESSIONAL OVERSIGHT PANEL 

Mr. MCWATTERS. Thank you, Senator. 

Since this Panel last addressed Treasury’s foreclosure mitigation 

programs funded under the TARP, questions have arisen regarding 

the identity of the true legal owners of countless mortgage loans 

that serve as collateral for residential mortgage-backed securities, 

or what are referred to as RMBS, and whether the alleged owners 

may deliver clear title upon foreclosure or other transfer of the 

mortgaged properties. 

Although the securitization trust organized with respect to each 

RMBS should hold clear legal title to the mortgage loans, such assertion is not free from doubt. It is possible that some of these special purpose entities may be divested of their putative ownership 

rights in their mortgage loans are required to incur substantial 

fees and expenses so as to reflect the proper chain of title to the 

promissory notes, mortgage liens, and security interests in accordance with applicable law. 

Investors in RMBS are also beginning to assert that mortgage 

loan originators breached representations and warranties provided 

in their RMBS securitization documents and that the securitization 

trusts and their servicers should undertake to put individual residential mortgage loans back to their loan originators. These investors may also initiate claims against the securitization trusts and 

their sponsors and servicers for breach of contract, failure to comply with applicable law, and fraud. 

Individual mortgage loan borrowers or a class of such borrowers 

may also initiate wrongful foreclosure and other actions against the 

RMBS securitization trusts and their servicers. Such claims may be 

compounded as the rights and obligations of parties to 

collateralized debt obligations and synthetic collateralized debt obligations are considered. 

Since TARP recipients and other financial institutions acted as 

mortgage loan originators, RMBS sponsors and servicers, credit default protection buyers and protection sellers under synthetic 

CDOs, and RMBS and CDO investors, they could suffer substantial 

losses and capital impairment from the exercise of these legal 

rights and remedies. 

Further, since Fannie Mae and Freddie Mac had also acted as 

RMBS sponsors, and given Treasury’s unlimited support for the 

GSEs, Fannie and Freddie may also serve as targets for aggrieved 

RMBS investors and mortgage loan borrowers. 

Conversely, the GSEs, acting on behalf of the RMBS 

securitization trusts that they sponsor, may undertake to put individual residential mortgage loans back to the TARP recipients and 

other financial institutions that originated the loans or perhaps— 

perhaps—cancel the guarantees issued for the benefit of the RMBS 

holders. The enforcement of these rights and remedies would no 

doubt create much uncertainty for TARP recipients and other financial institutions, as well as for the residential mortgage lending 

and RMBS markets. 

These matters are particularly significant since the operating 

costs of many TARP recipients are rising due to commercial and 

consumer loan defaults and foreclosures, while operating revenues 


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remain relatively tepid due to weak loan demand and an overall 

sluggish economy. If—if—another liquidity or solvency crunch follows from these events, it is not inconceivable that the rating agencies may downgrade the credit rating of certain mortgage loan 

originators, RMBS securitization trusts, and investors, and mortgage servicers, which, as noted above, include TARP recipients and 

other financial institutions. This action could adversely affect the 

broader economy. 

I also wish to note that in my view the Administration’s foreclosure mitigation program, including the HAMP and the HARP, 

have failed to provide meaningful relief to distressed homeowners 

and, disappointingly, the Administration has inadvertently created 

a sense of false expectations among millions of homeowners who 

reasonably anticipated that they would have the opportunity to 

modify or refinance their troubled mortgage loans under the HAMP 

and the HARP. 

From my perspective, the best foreclosure mitigation tool is a 

steady job at a fair wage, and not a hodgepodge of government subsidized programs that create and perpetuate moral hazard risks 

and all but establish the government as the implicit guarantee of 

distressed homeowners. 

I question why the taxpayers should subsidize mortgage lenders 

and RMBS participants when it is most often in the best interest 

of such parties to forgive principal—to forgive principal—and to 

modify or refinance troubled mortgage loans without government 

assistance. Why should the taxpayers provide incentives when they 

are not needed or merited? 

As such, I strongly recommend that each mortgage loan holder 

and RMBS investor and servicer work with each of their homeowners in a professional, good faith, transparent, and accountable 

manner to reach an economically reasonable resolution prior to proceeding with a foreclosure remedy. In my view, foreclosure should 

serve as the exception to the rule that only follows from the transparent and objective failure of the parties to modify or refinance a 

troubled mortgage loan pursuant to market-based terms. 

Thank you, and I look forward to our discussion. 

[The prepared statement of Mr. McWatters follows:] 


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The CHAIRMAN. Thank you. 

Mr. Silvers. 

STATEMENT OF DAMON SILVERS, DEPUTY CHAIR, 

CONGRESSIONAL OVERSIGHT PANEL 

Mr. SILVERS. Thank you, Mr. Chairman. 

Good morning. Before I begin with my statement, I just want to 

say that I want to associate myself with the comments of the Chair 

and my colleague Mr. McWatters. I haven’t heard the comments of 

my other colleagues. Perhaps I’ll wish to associate myself with 

them once I’ve heard them. 

Today’s hearing is the fourth that this Panel has held addressing 

the foreclosure crisis. Congress explicitly required in the Emergency Economic Stabilization Act of 2008 that the powers it granted the Treasury Department in the Act be used in part to reduce 

the incidence of foreclosures. In response, the Treasury Department 

in the spring of 2009 created the HAMP program, and since then 

the Treasury has created a number of other programs aimed at reducing foreclosures. I’m pleased to welcome Ms. Caldwell as the director of those programs on behalf of the Treasury Department. 

As I’ve said at every hearing on this subject since this Panel was 

created, foreclosing on a family’s home is not a mere financial 

transaction. It marks a profound financial loss for the family and 

often devastating emotional defeat for the adults in that family, 

psychological trauma and social dislocation for the homeowners’ 

children, falling property values and destabilized communities for 

the homeowners’ neighbors. 

Mass foreclosures are a sure sign of a failing economy and a society that has been unable to provide basic economic security to its 

citizens. Mass foreclosures should no more be encouraged by our 

public officials than should contagious diseases or catastrophic 

floods or organized crime. 

These reasons alone would justify aggressive government action 

to prevent foreclosures in the wake of the housing bubble and the 

epidemic of exploitative lending practices by our financial institutions. But the social impact of foreclosures is not by any means the 

full story of the harm done to our country by the foreclosure epidemic. Mass foreclosures drive down real estate prices. You can see 

that in the price numbers that were announced this week. They 

shrink the wealth of American households, not of the people being 

foreclosed, but of all homeowners. Mass foreclosures weaken consumer confidence, which underlies whether or not our economy will 

recover from the economic crisis. And mass foreclosures, as my fellow panelists and our Chair have mentioned already, threaten the 

solvency of our financial system through their effect on the 

strength of the real estate market. 

Now, it has been clear since the beginning of the financial crisis 

that borrowers, lenders, and the public at large had a profound interest in restructuring loans to enable homeowners who had the 

ability to make lower payments to stay in their homes. By the way, 

for those who are concerned that somehow there’s something morally suspect about restructuring loans, I should note that every day 

on Wall Street people of power and privilege in this society restructure their debt. It is commonplace for everyone but the poor. 


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Yet, as the financial crisis escalated, the banks in their role as 

mortgage servicers simply did not restructure the loans. The Treasury Department created HAMP, offering $50 billion in incentives 

for the banks to restructure the loans. And yet, a year and a half 

later we have only 467,000 permanent modifications, genuine 

restructurings, compared to 7 million homeowners in the process of 

foreclosure. 

Let me note—and perhaps this is a slightly different emphasis 

than my fellow panelists who have spoken before—that I think that 

helping 467,000 families avoid foreclosure is a good thing. In fact, 

it’s a very good thing. It’s substantially better than not helping 

them. But it does not appear by any means, by any measure, to be 

good enough. 

Now we have learned that the foreclosure process itself and our 

system of property law is cracking under the strain of the bubble 

and the bust in residential real estate markets. There appears to 

be strong evidence, being investigated by 50 states attorneys general and a Federal task force, that servicer banks have improperly 

executed and filed with the courts a large number of affidavits in 

the pursuit of foreclosures. Worse yet, since the affidavit revelations, evidence has mounted that there are substantive problems 

with the liens that support significant numbers of securitized mortgages. 

Today I hope we can shed light on whether 467,000 permanent 

modifications plus another 20,000 or so a month is the best we can 

hope for from HAMP. In particular, I am puzzled and mystified as 

to why one community group that I am familiar with, NACA, with 

a budget of less than $20 million, less than a thousandth of the 

budget of HAMP, can process 20,000 people a week in one city 

seeking mortgage modifications, whereas we get permanent modifications on an annual number of 20,000 a year across the whole 

country from HAMP. 

By the way, I’ve seen the community group NACA do this. I’ve 

watched 20,000 people come through the Washington Convention 

Center not six blocks from here in a week. So I don’t understand 

what is going on here. 

Secondly, I would like to know whether HAMP has paid out 

money to servicers to ensure that they did not foreclose on homeowners in situations where the servicer did not actually have a 

valid lien or had filed a false affidavit with a court. Further, I 

would like to know what plans the Treasury Department has for 

finding out whether this sort of thing has occurred and whether 

public moneys have been paid out effectively under false pretenses 

or based on false affidavits. 

Finally, I would like to know what plans the Treasury Department and the OCC on our next panel have for dealing with the possibility that either the major servicer banks will be held liable for 

their failures to properly service $7 trillion in mortgages or that 

the collateral for significant amounts of mortgage loans will turn 

out to be invalid. These possibilities would appear to present systemic risks of the type that TARP was enacted to address, and in 

particular would appear to have grave consequences for the very 

institutions that TARP initially capitalized and who were allowed 

to exit TARP on the theory that they were now healthy. 


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This hearing involves some of the most important issues facing 

our country today. I look forward to the witnesses’ testimony. Mr. 

Chairman, I thank you for your indulgence. 

[The prepared statement of Mr. Silvers follows:] 


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The CHAIRMAN. Thank you. 

Dr. Troske. 

STATEMENT OF KENNETH R. TROSKE, MEMBER, 

CONGRESSIONAL OVERSIGHT PANEL 

Dr. TROSKE. Thank you, Senator Kaufman. 

So the issue before us today, foreclosures and the government’s 

efforts to mitigate foreclosures, remains, obviously, quite contentious and fraught with strong feelings among the people debating 

this issue and making policy. However, when considering the effectiveness of programs designed to mitigate foreclosures, in my opinion, it is important to keep in mind that one of the primary goals 

and one of the goals I believe of the original legislation is to return 

the economy to a place where it can begin to grow at a pace that 

helps everyone currently in distress. 

Certainly all of us would like to return to a world where we have 

steadily rising home prices, low unemployment rates, and an economy that is growing at 4 to 5 percent per year. However, this is 

not the world we currently live in. Instead, we are in an economy 

where housing prices nationwide have fallen by 14 percent from 

their peak, where prices in the largest metropolitan areas have 

fallen by almost one-third, and annual existing home sales have 

plunged by over 40 percent. 

Without a doubt, the housing market has been in disequilibrium 

for several years, even before the recent discoveries of problems 

with foreclosures. The important question is what are the best policies for helping the housing market return to stability? Because 

until we achieve stability in the housing market, the economy will 

continue to limp along at 1 to 2 percent growth per year and unemployment will remain unacceptably high. 

One of the main problems in the housing market is that during 

the 2004 to 2006 period many people borrowed money to purchase 

houses or took out home equity loans predicated on the belief that 

housing prices would continue to rise. As long as home values kept 

rising, homeowners and other investors could refinance these loans 

at lower rates based on the accumulation of equity. When housing 

prices started to decline, many of these people were left with homes 

that were valued at less than the amount they owed. They were 

unable to refinance their loans and face loan payments that are beyond their means. The question is, what can we do about this problem now? 

One of the government’s responses, the Federal Government’s responses, is the program that we’re focusing on today, the Home Affordable Modification Program, or HAMP. This program is presumably designed to help what Treasury refers to as ‘‘at-risk borrowers’’ stay in their homes. The questions we are grappling with 

at this hearing are whether the program is effective and how the 

program affects the broader economy. 

HAMP works by reducing the monthly mortgage payments of 

borrowers through capitalization of arrears, a term extension of forbearance, and/or a reduction of interest rates or principal for up to 

five years. Then the program ends and the interest rates can 

gradually return to the prevailing rate in place at the time the 

modification was made. 


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Given the structure of the program, it seems unlikely that borrowers, especially those with negative equity, will be able to keep 

their homes, unless we see dramatic improvements in the housing 

market, which seems unlikely at this point. The median borrower 

in the program has monthly debt payments equal to 80 percent of 

their income and it is hard to imagine any government program 

putting a significant dent in this number. This program is focused 

on borrowers who can’t make their monthly payments, even though 

they are currently employed and not underwater, this despite evidence from researchers at the Federal Reserve Banks of Atlanta 

and Boston showing that helping workers who have experienced 

temporary shocks, such as losing their jobs, is much more likely to 

result in the owners keeping their home. In the end, it appears 

that for most participants HAMP will only postpone the inevitable. 

So what would be the downside if all HAMP does is postpone 

foreclosures for a few years? Well, as my fellow panelist Mark 

McWatters has pointed out in an earlier Panel report, despite all 

the attention they have received, homeowners with mortgages were 

not the only group hurt by the financial crisis. Millions of homeowners who didn’t have mortgages saw the value of their homes 

plummet, and this was devastating for those who were going to use 

the equity in their home to finance their retirement. Millions of 

others saw the value of their retirement savings decline significantly and families lost substantial amounts in their children’s college savings accounts. 

For all of these people, relief will only come once the economy 

starts growing again. That growth will only occur once the housing 

market is stabilized and that stability will not develop until people 

move out of homes with mortgages that they cannot afford and into 

housing they can afford. So to the extent that HAMP simply kicks 

the foreclosure can down the road, it ends up hurting all of these 

people who are desperate for the economy to start growing again 

so that their lives can return to normal. 

I want to be clear. I recognize that some borrowers may have 

been misled into taking out loans they could not afford, and to the 

extent that people were defrauded, the perpetrators need to be 

prosecuted. I also recognize that there have been serious mistakes 

and perhaps fraud committed by servicers and lenders in the lending and foreclosure process, and any illegal activity on the part of 

banks needs to be fully prosecuted. Finally, I recognize the tremendous pain that accompanies any foreclosure. Homelessness is devastating for families and needs to be avoided whenever possible. 

However, there is $30 billion allocated to HAMP and I believe we 

need to ask whether it could be used more effectively to help all 

homeowners in need move towards stable and more economically 

appropriate housing arrangements. In other words, perhaps we 

need to start examining whether HAMP is a program that will 

bring stability to the housing market so that the economy can start 

growing again. I am hopeful that our discussion today can assist 

us with this evaluation. 

[The prepared statement of Dr. Troske follows:] 


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The CHAIRMAN. Thank you. 

Superintendent Neiman. 

STATEMENT OF RICHARD H. NEIMAN, MEMBER, 

CONGRESSIONAL OVERSIGHT PANEL 

Mr. NEIMAN. Thank you, Mr. Chairman. 

Ms. Caldwell, you and the Department of the Treasury deserve 

substantial credit for pushing an industry toward mortgage modifications and preventing avoidable foreclosures in a standardized 

format when the industry itself failed to appropriately act. In this 

way, Treasury’s HAMP program has shown great potential. Thanks 

to your work, we have a new industry standard that has kept more 

people in their homes than otherwise would have been able, certainly more than HAMP’s monthly reports demonstrate on their 

own. 

But to be frank, it’s been a major disappointment that the public 

and this Panel have no way of meaningfully measuring success pertaining to the alternative non-HAMP mortgage modifications that 

Treasury points to in defense of HAMP. The available sources of 

data are simply inadequate for anyone to meaningfully assess performance among servicers or determine that these proprietary 

modifications are indeed helping, successfully helping, people. In 

addition, the current reports do not provide the public an effective 

means to assess performance among servicers or to serve as an effective supervisory tool. 

HAMP’s metrics on their own—and people in Treasury have publicly stated this—have fallen fall short of our hopes. We now have 

nearly 700,000 families who have been kicked out of HAMP’s trial 

modifications, many of whom may be worse off, despite the fact 

that they were making timely monthly payments for many, many 

months. Even worse, these 700,000 families far exceed the 500,000 

families who remain in the program with permanent modifications. 

The future also looks somewhat bleak. The number of new homeowners entering the program each month is now near its lowest 

point, and there have been more than enough redefaults after a 

long-term modification has successfully occurred to raise serous 

questions. 

Now, this may be our last hearing on Treasury’s foreclosure mitigation initiatives, so it is not just critical that we help the public 

fully understand HAMP’s success and failures, but we must also 

get to the bottom of the biggest question: Is HAMP really the best 

the government can do to demonstrate a way forward? 

Ms. Caldwell, for whom I have the greatest respect, knows better 

than anyone that unemployment and deep negative equity have 

been driving foreclosures in a manner that HAMP simply cannot 

address. And these forces will continue to hit families hard. Treasury announced several new unemployment and negative equity initiatives in response. But again, it is disappointing that six months 

later the public still has no meaningful way to ascertain how these 

new initiatives are performing. 

As a final matter, I intend to explore with all our witnesses the 

issue of confidence. Given many of the mortgage servicers’ poor 

track records of errors, including losing homeowners’ submitted 

documents, how do we continue to look homeowners in the eye and 


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ask them to continue to work with their servicers, given the latest 

news pertaining to faulty documents and fraudulent affidavits? The 

servicers at a minimum now have even a higher burden of proof 

in demonstrating that they are serious about their stated efforts to 

work with American families. 

I am grateful to you for being here today and I want to thank 

you and highlight not just your public service at Treasury, Ms. 

Caldwell, but throughout a long career of work for the underserved. 

I also very much look forward to speaking with our other five 

knowledgeable witnesses today and look forward to our question 

and answer session. 

Thank you. 

[The prepared statement of Mr. Neiman follows:] 


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The CHAIRMAN. Thank you. 

I am pleased to welcome, genuinely pleased to welcome, our first 

witness, Phyllis Caldwell, the Chief of the Department of the 

Treasury’s Office of Home Ownership Preservation. Ms. Caldwell, 

thank you for joining us and thank you for your truly great public 

service. 

We’ll ask you to keep your oral testimony to five minutes so that 

we’ll have adequate time for questions. Your complete written 

statement will be printed in the official record of the hearing. 

Please proceed with your testimony. 

STATEMENT OF PHYLLIS CALDWELL, CHIEF, HOME OWNERSHIP PRESERVATION OFFICE, U.S. DEPARTMENT OF THE 

TREASURY 

Ms. CALDWELL. Chairman Kaufman and members of the Congressional Oversight Panel: Thank you for the opportunity to testify before you today on progress the Administration is making on 

helping responsible homeowners stay in their homes and stabilizing the housing market. 

My opening remarks will focus on three things: one, the Administration’s response to recently reported problems in the foreclosure 

process; two, efforts that Treasury is taking to ensure servicer compliance with HAMP guidelines; and three, a look at the impact the 

HAMP program has had to date. 

There are three key points on the recently reported foreclosure 

process problems. First, we expect banks to follow the laws. Any 

bank that hasn’t done so should be held accountable and should 

take prompt action to correct its mistakes. The Administration supports the efforts of the 50 state attorneys general in their investigations of foreclosure irregularities and reviews by the Department of 

Justice and other Federal agencies. 

Second, we have been working closely with the broad range of 

Federal agencies and with the state attorneys general to get to the 

bottom of these problems as quickly as possible. Last Wednesday, 

Secretaries Donovan and Geithner met with representatives from 

ten different Federal and regulatory agencies for the latest in a series of meetings to coordinate reviews on this issue. These state 

and Federal agencies and regulators are requiring major banks to 

look at their servicing across the board, not just on this issue. 

Third, there have been recent calls for a national moratorium 

and I’d like to address that. An important part of assuring longer 

term stability in the market is to enable properties to be resold to 

families who can afford to purchase them. President Obama has 

said that we can’t stop every foreclosure and he’s right. But we are 

making progress. 

I’d like to now turn to the relationship of these foreclosure problems to the Administration’s Making Home Affordable program, of 

which HAMP is a part. HAMP is intended to help eligible homeowners before they are in foreclosure. HAMP does not require a judicial process for homeowners to receive a modification, nor does it 

require affidavits to be filed with the courts. Therefore, HAMP is 

not directly affected by the robo-signers or false affidavits with 

state courts. 


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Under HAMP guidelines, participating servicers must evaluate 

all eligible homeowners for HAMP modification prior to referring 

them to foreclosure. Should a homeowner not qualify for HAMP or 

if the homeowner falls out of HAMP or cancels the modification, 

participating servicers are required to evaluate that homeowner for 

alternative foreclosure prevention programs, such as one of the 

servicers’ proprietary modifications or even the Administration’s 

short sale program. 

If all of these efforts are unsuccessful, HAMP servicers may not 

proceed to foreclosure unless they have issued a written certification to their foreclosure attorney or trustee stating that all avoidable loss mitigation alternatives have been exhausted a non-foreclosure option could not be reached. Only after these steps are 

taken and the certification is delivered may the foreclosure process 

proceed. 

To date, HAMP has achieved three critical goals. It has provided 

immediate relief to struggling homeowners; it has used taxpayer 

resources efficiently; and it has helped transform the way the entire mortgage servicing industry operates. HAMP established a universal affordability standard, a 31 percent debt to income ratio. 

More than 460,000 homeowners who are currently in permanent 

modifications have experienced a 36 percent median reduction in 

their mortgage payments, or more than $500 per month. 

In the year following initiation of HAMP, home retention strategies changed dramatically. In the first quarter of 2009, nearly half 

of mortgage modifications increased borrowers’ payments or left 

their payments unchanged. By the second quarter of 2010, 90 percent of mortgage modifications lowered payments for the borrower. 

This means homeowners are receiving better solutions. 

HAMP uses taxpayer resources efficiently. HAMP’s pay-for-success design utilizes a trial period to ensure that taxpayer-funded 

incentives are used only to support homeowners who are committed 

to staying in their homes and making monthly payments. 

While the housing market is showing signs of stabilization, it 

still remains fragile and too many homeowners are suffering. The 

nature of this crisis has changed and we will continue to focus our 

efforts on stabilizing the housing market and preventing avoidable 

foreclosures. 

Thank you and I look forward to taking your questions. 

[The prepared statement of Ms. Caldwell follows:] 


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The CHAIRMAN. Thank you, Ms. Caldwell. 

HAMP—I’m trying to get at some of these hard objectives. I 

think it’s hard to do oversight and I think it’s definitely hard, as 

I said in my statement, to run a Department if you don’t have some 

hard objectives. Realizing that you don’t always make the hard objectives, but, just like when John Kennedy said we’d get to the 

Moon by the end of the decade, it worked out. So I think it’s hard 

objectives. 

So one of my concerns is HAMP was announced 18 months ago. 

How much now do you think you’re going to spend on the HAMP 

program? 

Ms. CALDWELL. For the HAMP program, we currently have $29 

billion in TARP funds allocated to the Making Home Affordable 

program, which includes HAMP’s financial funding first lien modifications, the second lien modifications, and some of the enhancements for principal reduction, as well as a little bit for the FHA 

short refinance program. So it’s really all of the housing programs. 

The CHAIRMAN. $29 billion? 

Ms. CALDWELL. $29 billion. 

The CHAIRMAN. And how many foreclosures do you think you’ll 

be preventing? 

Ms. CALDWELL. Our goal still remains to help up to 3 to 4 million 

homeowners avoid foreclosure, and we continue to expand and enhance the programs to respond to the changing housing crisis. So 

our programs targeting unemployment and negative equity are just 

under way and we continue to focus our efforts on making sure we 

reach as many homeowners as possible. 

The CHAIRMAN. What was this 3 to 4 million offers that I’ve read 

in some of the testimony from Treasury, that the objective of the 

program was to make 3 to 4 million offers? 

Ms. CALDWELL. I think, as you said, there is an objective. The 

GAO in its August 2009 report also confirmed that the goal is offers. And while we at Treasury agree that offers do not always 

translate into modifications, and while we can measure the offers 

because that is something we control, we also measure how many 

of those offers are accepted, and then how many of those offers perform, and for those that don’t perform, where they go. Then we 

learn from those and continue to expand our programs, with the 

still overall objective of assisting 3 to 4 million people avoid foreclosure. 

The CHAIRMAN. Great. And what’s your forecast for redefaults 

over a 5-year period? 

Ms. CALDWELL. It’s still very early to tell. We’ve had very few 

modifications in the program for more than a year. Early indications are that HAMP modifications will perform better than historical modifications, which have been 60, 75 percent redefault. In the 

permanent modifications in HAMP at 9 months, over 90 percent of 

homeowners still remain in the program. So the data is young, but 

early signs indicate the same. The OCC–OTS metrics report also 

confirmed that HAMP modifications are performing well and attribute it to the trial period program that makes sure homeowners 

are committed to staying in the home, the collection of documentation, and the 31 percent affordability standard. 


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The CHAIRMAN. Do you have any projection on what the default 

rate will be? 

Ms. CALDWELL. No, we don’t. Again, we are watching it very 

closely, but early signs are that HAMP modifications will perform 

well. 

The CHAIRMAN. I’d recommend you try to come up with some 

kind of an objective for where you’re shooting for. You’ve got a lot 

of data on it now. So I’m looking forward to what the redefault rate 

is. 

How many temporary modifications do you think become permanent modifications? 

Ms. CALDWELL. During the first year of the program, less than 

40 percent of temporary modifications became permanent. But that 

was because, in response to the crisis, we gave servicers the ability 

to offer homeowners a trial modification and then submit documentation. Those servicers that collected documentation up front 

experienced conversion rates to permanent modification in the 75 

to 80 percent range. 

Beginning in June, Treasury’s program requires upfront documentation so we expect that trial modifications will slow, but the 

conversions for permanent will be much, much higher. 

The CHAIRMAN. How do you think the widespread problems with 

foreclosure documents will impact on the stability of our financial 

markets? 

Ms. CALDWELL. That’s something we’re following closely. At this 

point in time there is no evidence that there is a systemic risk to 

the financial system. But we are making sure that, one, in our programs focused on foreclosure prevention, that servicers are doing 

everything that they are supposed to do. Second, we are making 

sure that we’re coordinating with agencies across the Federal Government and the state and local attorneys general to make sure 

that those servicers that are breaking the law are held accountable. 

And three, we’re very closely monitoring any of the litigation risk 

to see if there is any systemic threat. But at this point there’s no 

indication that there is. 

The CHAIRMAN. Thank you. 

Mr. McWatters. 

Mr. MCWATTERS. Thank you, Senator. 

And thank you, Ms. Caldwell, for appearing here today. When 

you consider these factors—the foreclosure documentation irregularities, that’s one. Two is the failure of some securitization sponsors to assign, properly assign, notes and to record transfers of 

mortgage and deeds of trust in accordance with applicable law; 

that’s number two. As well as the exercise of the put rights by 

securitization trusts to force the mortgage loan originators to in effect buy back the loans. And given that a lot of those mortgage loan 

originators are TARP recipients, other financial institutions, is 

Treasury concerned, given these three factors, and particularly the 

put rights—and that’s an emerging thing particularly now that the 

RMBS investors are beginning to coordinate their efforts and file 

lawsuits and the like—is Treasury concerned that any of the large, 

‘‘too big to fail’’ financial institutions may experience a solvency or 

liquidity or a capital crisis over the next few years? 


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Ms. CALDWELL. Thank you for the question. As I said earlier, 

we’re still very early in this issue and are monitoring it closely. I 

think, as you suggested in the question, there are really three separate issues. In terms of the robo-signing, the documentation issue, 

that is one that we are following closely and we are anticipating 

that servicers will do what they need to do and fix those problems, 

and where they have not been following the law be held accountable. 

The second one that you discussed, the litigation. While I’m not 

a lawyer, and I don’t want to go through all the legal structure, it 

is something as a practitioner that has been in the industry for a 

long time and the courts are used to dealing with that, and they 

will continue to deal with that. It’s certainly, because of the affidavit issue, increased in visibility. But it’s not a new issue in the 

market. But it is one that we are following very, very closely. 

Then third, the put-back risk on the large financial institutions. 

Again, we are looking at the situation very, very closely and will 

be following the institutions to make sure. But at this point there 

is no evidence of a systemic risk. 

Mr. MCWATTERS Is this being discussed within Treasury? I 

mean, there was a lawsuit I think filed the other day, a put-back 

right of $47 billion to a Bank of America loan. That was one. That 

was one lawsuit. I suspect there will be many, many more to come. 

I believe in one of the other—on panel two, one of the panelists 

I think projected there were something like $2.8 trillion of 

subprime loans, and that even if a relatively small percentage of 

those are put back and the banks have to buy them back at face, 

this could be a substantial problem. 

Also, considering that this is not just a one-shot deal. I mean, 

when a mortgage is originated and put in an RMBS it may be multiplied through synthetic CDOs. So you may have the synthetic 

CDO problems also going back to the banks. 

So it sounds like Treasury as of today has not done even a back 

of the envelope sketch as to what the potential put-back rights 

could be to the TARP financial institutions. 

Ms. CALDWELL. Let me just say that at Treasury we are monitoring this situation daily. The news continues to have a wide 

range of projections and numbers, so I’m not prepared to say that 

there is a particular scenario. But it is something that Treasury is 

working closely with all of the Federal agencies involved with these 

institutions, including the regulators and including the reporting 

agencies, to make sure that the risks are appropriately disclosed 

and measured and that we have a better understanding of what 

the potential risks could be. But it is something that we’re monitoring daily. 

Mr. MCWATTERS Okay. I would certainly encourage you to do 

that. 

One of the problems is the inability of some of these 

securitization trusts to deal with the local land title records, in 

other words to properly endorse notes and to assign deeds of trust 

and mortgages. So I ask you this: When an American homeowner 

sits down at the kitchen table to write the monthly mortgage 

check, how does that homeowner know that he or she is paying the 

correct lender? 


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Ms. CALDWELL. That’s a very important question, and I think it’s 

important to separate the legal framework of the mortgage 

securitization process versus the steps that individual servicers are 

taking to make sure they follow the law. As I said earlier, we have 

a group of Federal agencies and state attorneys general in with 

these entities making sure that they are following the law, and 

those entities that are not following the law should and will be held 

accountable. 

So again, it’s important to separate the legal structure from what 

is actually happening. 

Mr. MCWATTERS. Okay, thank you. My time is up, but I’ll just 

make one quick comment. There are courts, state courts, which 

have held the MER System, the Mortgage Electronic Registration 

System, which I know Fannie and Freddie uses, and others, to simply not work. So the deeds of trust and the mortgages assigned 

under those, under MERS, doesn’t work. Endorsement of the notes, 

unless it was done in accordance with applicable state law, doesn’t 

work also, and that can create a problem. 

Thank you. 

The CHAIRMAN. Thank you. 

Mr. Silvers. 

Mr. SILVERS. Ms. Caldwell, I would like to continue to pursue 

Mr. McWatters’ train of thought. I’m concerned about Treasury 

making representations categorically that you don’t see a systemic 

risk. Let me walk you through exactly why. 

Mr. McWatters referred to a demand letter sent by a number of 

bondholders, including the Federal Reserve Bank of New York, one 

of the institutions I believe that is encompassed by your list of regulators and the like that Treasury coordinates with. You’re familiar 

with that letter? 

Ms. CALDWELL: Yes, I am. 

Mr. SILVERS. All right. That letter asks for $47 billion of mortgages to be—of mortgage-backed securities to be repurchased at 

par. Do you know what those mortgages are currently carried— 

what those bonds, the market value of those bonds today? 

Ms. CALDWELL. At this point, I’m not prepared to comment on 

pending litigation. 

Mr. SILVERS. Okay, fine. Let me tell you what the Fed says 

they’re worth. The Fed tells us they’re worth 50 cents on the dollar. 

So if the Fed’s request of Bank of America is honored, Bank of 

America, assuming they are carrying these bonds—assuming when 

they buy them back they mark them to market, Bank of America 

will take a $23 billion loss. 

The Federal Reserve further informs us that there is nothing 

particularly unique about that particular set of mortgage-backed 

securities, meaning they have not been chosen because they’re particularly bad. They believe they are of a common quality with the 

rest of Bank of America’s underwritten mortgage-backed securities. 

There are $2 trillion of Bank of America’s underwritten mortgagebacked securities. 

Five such deals, five such requests, if honored, to Bank of America, will amount to more than the current market capitalization of 

Bank of America, which is $115 billion. 


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Now, do you wish to retract your statement that there is no systemic risk in this situation? And the word is ‘‘risk,’’ not ‘‘certainty,’’ 

but ‘‘risk.’’ I would urge you to do so, because these things can be 

embarrassing later. 

Ms. CALDWELL. My statement, as I said earlier, is that it is still 

early. We’re working very closely with 11 regulatory and Federal 

agencies. We are watching this every day. And that at this stage 

there appears to be no evidence of a systemic risk. But again, it 

is early, and it is something we are monitoring daily. 

Mr. SILVERS. Let me suggest to you that the ‘‘it is still early’’ is 

a perfectly acceptable position. The notion that there is no—is it 

your position that Bank of America honoring five of these things 

would not present a systemic risk? Five of these requests, the first 

of which has been made by the Federal Reserve. Is Bank of America not systemically significant? 

Ms. CALDWELL. At this point I’m not prepared to comment on a 

particular institution, but I think as we look at the put-back risk, 

the litigation involved, the severity and the probability, and the 

time that it would take to go through these, those are all important 

factors to be considered in looking at the risk. And again just to 

reaffirm, we didn’t say there was no risk. We said there didn’t appear to be evidence of a major systemic risk. 

Mr. SILVERS. I hope that if we come—if the Treasury comes back 

to us and is discussing whether or not we need to deploy further 

public funds to rescue Bank of America or such other institutions 

as might be affected by these events, that we get a similar kind of 

indifference to their fate after it’s too late, because it strikes me 

that, in light of the mathematics I’ve gone through with you, it is 

not a plausible position that there is no systemic risk here. 

I want to take up two other statements you made that I think 

are just simply not plausible. The first is, you suggest at the beginning of your statement—and I can’t quote it because my memory’s 

not that good, but you suggested that it is a good thing that more 

homes be put on the market as a result of foreclosure. Is that the 

Administration’s position? 

Ms. CALDWELL. When you look at the current market for sale, 

close to—— 

Mr. SILVERS. Do we want more homes put on the market right 

now, as prices are falling? 

Ms. CALDWELL. We want homes to be sold to homeowners that 

can afford them and stay in them. 

Mr. SILVERS. That’s not my question. My question is do we want 

to increase the inventory right now in the marketplace and drive 

down home prices? Is that the public position? Is that the position 

of the Administration as to what is good for our country right now? 

Ms. CALDWELL. I think the position is we want houses to be sold 

to homeowners that can afford them. 

Mr. SILVERS. But do we want more or less? I’m asking you a binary question: More houses on the market right now, less houses 

on the market right now? 

Ms. CALDWELL. I would just say that if you have a home, whether it’s in inventory for sale in the market—— 

Mr. SILVERS. You’re not answering my question. Yes or no? More 

or less? 


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Ms. CALDWELL. We need to have the homes on the market to go 

through and be resold to homeowners who can purchase them and 

afford to stay in them and stabilize neighborhoods. Many of the 

homes that are in REO are vacant and that hurts the neighborhood. 

Mr. SILVERS. You still haven’t answered my question. 

You still haven’t answered my question. Do we want to drive 

housing prices down? Are we so concerned at ensuring that the 

banks don’t have to write these loans down that we would rather 

drive housing prices down? 

Ms. CALDWELL. Again—— 

Mr. SILVERS. How can it possibly be the position of the United 

States Government that it is in the national interest to drive down 

housing prices? 

Thank you. 

The CHAIRMAN. Thank you. 

Dr. Troske. 

Dr. TROSKE. I’m going to change gears a little bit, and not because I’m not concerned about the issues that my fellow panelists 

have raised, but I think they’ve raised them quite strongly and I 

have other concerns about the program I’d like to explore. 

Your stated goals, at least the goals that you’ve been willing to 

articulate, are that you’d like HAMP to help 3 to 4 million borrowers, and ‘‘help’’ you’re defining now is even people just entering 

temporary modifications. 1.2, 1.3 million people have entered temporary modifications so far, I think. Many of these people entered 

the HAMP program when about 150,000 borrowers a month were 

entering the program. Currently I think we’re at the rate of about 

20,000 to 30,000 a month are entering the program. The program’s 

got about 24 months to run. 

If my math is correct, we’re at 1.2 million. We’re getting about 

20 to 30,000 more a month for 24 months. We’re not going to get 

to 2 million. So can you tell me how you’re going to judge it a success if we’re not even going to make the minimum standard that 

you’ve already articulated as one of the goals, given the rate that 

people are entering the program? 

Ms. CALDWELL. That’s a question we talk about very regularly in 

my office. The numbers that you stated are correct about the first 

lien modification. If you look back on what HAMP was started to 

address, it was unaffordable payments resulting from a reset of 

mortgage rates. As the crisis has moved to unemployment and 

principal reduction, our programs have changed. So the numbers 

that you’re discussing relate to the first lien modification. In addition to that, we have the unemployment forbearance program, 

which became effective in August. We have a partnership with the 

FHA program on a refinance program that became effective in September, that allows principal reduction and refinance into an FHA 

mortgage. We also have additional incentives for principal reduction along with the Hardest Hit Fund initiative. 

So we have to look across all of those programs and respond to 

a changing housing market in our efforts to reach 3 to 4 million. 

Dr. TROSKE. I guess originally your goals were stated for the 

HAMP program, and these are other programs that are outside the 

HAMP program; am I mistaken about that? So you’re sort of saying 


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as we add more things we can sort of—presumably, we’re trying to 

help additional people. The goal we set for the HAMP program, 

sort of we lower that? 

So I guess, what’s your goal for the HAMP program, the modifications that are running through the traditional HAMP program? 

Is it no longer 3 to 4 million? Is it lower than that now? 

Ms. CALDWELL. The other programs, the add-on programs for unemployment and principal reduction, are in fact part of the HAMP 

program. They’re ways that we have adapted the HAMP program 

to change with the economy. The one program I mentioned that is 

not officially part of HAMP is our help for the hardest-hit markets, 

where we took $7.6 billion out of the HAMP allocation and moved 

it over to enable state housing finance agencies to provide tailored 

assistance to unemployed homeowners and work with principal reduction in those markets. 

Dr. TROSKE. Another question. You talked about redefaults and 

I think you correctly stated that it’s still early. But let me ask you 

about, so the permanent modification under these programs is for 

5 years. It’s not permanent. It’s a 5–year modification. And when 

that 5-year period is up, borrowers return to their previous payment levels. 

Presumably, if something hasn’t changed in the housing market, 

like a significant increase in prices, at least back to 2006 levels, 

these are going to be borrowers who are still seriously underwater, 

with rates that have reset, back to making payments that they 

can’t currently afford. So why do we think in 5 years they’re going 

to be able to afford the payments that they can’t afford now? 

What’s going to change between now and 5 years that’s going to 

result in something close to a success, that’s not going to produce 

an enormous increase in redefaults when they reset in 5 years? 

Ms. CALDWELL. Thank you. Let me first just make a clarification 

to the permanent modification and the reset. After 5 years, the 

rates adjust to the current rate, the current Freddie Mac rate. So 

while there will be some adjustment up from 2 percent, it will be 

an adjustment up to rates that are still consistent with today’s historic low rates. 

In terms of the 5 years, the homeowner has gotten some additional principal reduction because of the amortization at a very low 

rate. So they have paid down more principal than they otherwise 

would have. In addition, homeowners that stay current on their 

HAMP modification receive $1,000 a year in principal reduction, or 

$5,000 over the 5-year period, which is some meaningful principal 

reduction at certain house values. 

Then there is time for the employment situation or other hardship in that family’s circumstance to improve, and certainly over 60 

percent of homeowners in HAMP permanent modifications have 

had either a reduction in wage or loss of a job of one of the wage 

earners. 

Dr. TROSKE. Thank you. 

The CHAIRMAN. Thank you. 

Superintendent Neiman. 

Mr. NEIMAN. Thank you. 

Ms. Caldwell, as I stated in my opening, Treasury often in its defense of HAMP, defense of the success of HAMP, refers to the sigVerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081

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nificant number of non-HAMP proprietary modifications. Year to 

date there have probably been more than twice as many nonHAMP mods as HAMP mods. And while it’s positive that these borrowers are not currently in foreclosure, questions still remain on 

the sustainability of these proprietary mods and whether homeowners are actually better off. 

The quarterly OCC and OTS reports on the issue and the HOPE 

NOW reports are a step forward. But we really do need to know 

more information about the specific terms of these proprietary 

mods in order to compare them among servicers as well as to serve 

as an effective supervisory tool. Will Treasury or HOPE NOW be 

providing additional data with respect to non-HAMP mods? 

Ms. CALDWELL. Thank you. This is something that you and I 

have both discussed and something that we spend a lot of time 

thinking about within Treasury. In terms of the HAMP contracts 

with servicers, our contractual relationship with the servicers goes 

to those modifications where we’re paying taxpayer incentives. We 

don’t have supervisory authority over those modifications outside of 

HAMP. 

But because we are very focused on what happens and very concerned about that, we have asked HAMP servicers, the large ones, 

to participate in a monthly survey about what happens to homeowners that are either not approved and not accepted for HAMP, 

and what happens to homeowners who are in a trial modification 

that gets cancelled. And we do publish those results. 

In addition, we work very closely with HOPE NOW and with 

OCC–OTS metrics to try and use that as a validator or a reality 

check for what we’re getting in the survey data. But we have no 

contractual authority over those. 

Mr. NEIMAN. So I’ve been going over in the last few days the various reports issued by Treasury in your monthly reports, HOPE 

NOW in their monthly reports, and the OTS in their quarterly reports. And though each of these reports continues to expand, it is 

still not that easy for the public, nor for the Oversight Panel, or 

for Congress to really assess the effectiveness of these proprietary 

mods. 

In fact, in many cases in the OCC report you cannot understand 

what the actual terms are of some of those monthly modifications. 

There’s often groupings of all modifications and then HAMP modifications, so that the numbers are not always broken out for proprietary, non-HAMP mods, in order to determine whether these reductions—are they for 1 year, 2 years, and to understand the impact 

of these mods, do they include lump sum payments for late fees? 

How sustainable are these really in the interests of the borrower? 

Ms. CALDWELL. Again, we share that concern and are committed 

to transparency in the HAMP program. We expanded our survey 

in the spring to include the disposition. As we continue to follow 

this issue, we continue to expand our survey requirements of the 

servicers, because we do recognize that within HAMP we have contractual relationships with servicers that are regulated by a number of different agencies, and this is one place where we can try 

to put it all together. 

Mr. NEIMAN. I think we all support those provisions in the Treasury’s monthly report that breaks down performance by servicers. 


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What you don’t see is that in the OCC report. So it is not—it cannot provide the public a means to distinguish servicers’ performance with respect to proprietary mods. 

Would you support a greater ability for the OCC to provide a 

breakdown by servicer with respect to proprietary mods? 

Ms. CALDWELL. I really can speak just for the Treasury programs 

and just say that we are very committed to transparency and we 

continue, as you know, to expand the reports every month and put 

demands on servicers for more information, such that they would 

almost say it’s overload on reporting. So we are committed. 

Mr. NEIMAN. So because of the gaps, because your reports are 

only with those servicers that have contracted, because the OCC 

only covers 65 percent of the market, because HOPE NOW is also 

a survey, would you support the need or recognize the need for a 

national reporting requirement for mortgage performance data 

similar to what banks are required to provide in mortgage origination under HMDA? 

Ms. CALDWELL. We support transparency in the mortgage modification business to make sure that the taxpayer dollars are going 

to servicers for programs that are meeting guidelines and following 

all applicable laws. 

Mr. NEIMAN. Thank you, and I obviously intend to follow up with 

the members on the next panel. 

Thanks. 

The CHAIRMAN. Great. Now we start a second round of questions. 

Can you tell us how many second liens have been modified or extinguished through the relevant programs? 

Ms. CALDWELL. If I understand your question, you want to know 

the second liens modified through all the relevant programs? 

The CHAIRMAN. Right. 

Ms. CALDWELL. That data we don’t have for all the financial institutions. We’re beginning to collect data on the Treasury program’s second lien modification program, which is an enhancement 

to HAMP, that has the major servicers and some others. Again, we 

don’t have data to report yet as the program really got started at 

the beginning of October, but we will be reporting that. 

The CHAIRMAN. So you’ll send that to us as soon as you get that? 

Ms. CALDWELL. We will be putting it in our public report when 

we have the data. 

The CHAIRMAN. What about the reluctance of some financial institutions to extinguish second liens because they’re carried on the 

books at 90 percent of value? 

Ms. CALDWELL. That particular thing we hear a lot. The impact 

of second liens in the modification market is something that we’re 

very, very concerned about. It was why we put together the second 

lien program in HAMP, which addresses something that we hear 

from second lienholders about—it’s current and they may not know 

when a first mortgage is modified. So that program has a platform 

that matches the first and second, and then the second lienholder 

has to write it down. 

In addition, as part of our program for refinance into FHA we 

offer incentives to reduce the second lien to enable the first homeowner to refinance. So while we don’t mandate second lien 

writedowns, we’re indifferent to it in the first lien program and we 


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try to provide incentives as best we can to encourage second lien 

reductions to have more sustainable mortgages. 

The CHAIRMAN. But you talked in the beginning, and I think 

you’re right, in terms of your model, that HAMP is a model, and 

one of the big things you did is set out a new standard. I mean, 

isn’t it pretty standard in the industry that you write down the second liens first and then move to the first liens? 

Ms. CALDWELL. From a lien priority standpoint, that should be 

the way it operates, yes. 

The CHAIRMAN. So really shouldn’t we be, as a model, be putting 

the emphasis on that, so that people aren’t carrying the second 

liens at 90 percent? It seems to me the only reason they’re carrying 

the second liens is because they don’t want to write them down because they’re carrying them at 90 percent of value and they’re 

worth nowhere near 90 percent of value. 

Ms. CALDWELL. Right, and they continue to be current. I think 

that’s a very important piece of the program—making sure those 

firsts and seconds are matched. 

The CHAIRMAN. In your testimony you say every person in a temporary modification is getting significant benefit. Can you kind of 

explain that? Because if a temporary modification fails, then the 

person has to pay the money back, right? So what is the benefit, 

the significant benefit, of every person who’s in a temporary modification? 

Ms. CALDWELL. Let me first talk about the permanent modifications. Now, beginning June 1st, homeowners provide upfront documentation and the homeowner is expected to convert to a permanent modification. The only reason to not convert would be failure 

to make payments. So they are getting a second chance to qualify. 

If you go back to where we were at the beginning of the program, 

there was a huge backlog of homeowners who were severely delinquent on their mortgages, struggling to find their servicer, and 

struggling to get a modification. By coming into the HAMP program, what those homeowners got was an immediate reduction in 

their payments and an opportunity for additional time to figure out 

if staying in the home was going to be a sustainable solution for 

them or to make other living arrangements. So it bought time. 

The CHAIRMAN. To follow up on Mr. Silvers’ question, GMAC still has $17.2 billion in taxpayer funds and has been involved in the 

document irregularities. What’s Treasury doing to ensure that financial institutions supported by the taxpayers are not acting improperly? 

Ms. CALDWELL. Thanks. As I know this Panel knows very clearly, 

Treasury has an investment in GMAC, but is not on the board or 

management. But immediately upon learning of the alleged robosigning issues, we were in touch with management at GMAC, and 

continue to be in touch with them regularly. They have reported 

back, at least at this point, that other than the time to correct 

some of those documentation problems, which they are doing 

promptly, they don’t see a major risk in their system. But we are 

again watching that very, very closely and take it very seriously. 

The CHAIRMAN. So you’re not sending anyone out to actually find 

out whether they hold the mortgages, and some of the stories we’ve 

heard about the robo-signing, that they actually have the mortgage 


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that they think they have or that MERS has the mortgages for 

GMAC, or any kind of physical followup on the fact that there are 

mortgages out there, do they actually have the mortgages and they 

actually have title to the land that they are trying to foreclose on? 

Ms. CALDWELL. At this point, we are supporting all of the agencies that are doing investigations of those servicers, including the 

GSEs, and are monitoring closely and will take followup action 

when there are facts that we get from those reviews. 

The CHAIRMAN. So there really is no—Treasury is not doing anything independently to determine that mortgages modified under 

HAMP have all necessary loan documentation and a clear chain of 

title? You’re just taking the word of the people, of the folks, the 

banks and financial institutions you’re dealing with, that they do 

have loan documentation and a clear chain of title? 

I think it’s important for all these other people to look into it, 

but it seems to me that these are programs where Treasury has a 

direct involvement in this as an organization. They’re actually involved in the thing, and this seems to me to be a pretty critical 

part of the process. 

Ms. CALDWELL. That is an important issue and something that, 

at least at this point in time, we’re looking at the foreclosure prevention process separate from the actual foreclosure sale process. 

To modify a mortgage, there is not a need to have clear title. You 

need information from the note, but you don’t need a physical note 

to modify a mortgage. 

So the focus of the HAMP program is to make sure that homeowners stay in their home and don’t go to foreclosure sale. But to 

the extent that is not successful and that goes through, we certainly expect all HAMP participating servicers to follow the law. 

The CHAIRMAN. Thank you. 

Mr. McWatters. 

Mr. MCWATTERS. Thank you, Senator. 

Ms. Caldwell, let’s say I want to buy a house, and the house is 

foreclosed. How do I know that when I buy that house I will receive 

good legal title to that house? I mean, there are all sorts of questions about whether or not the securitization trust or the servicer 

can deliver good legal title. How do I know? 

Ms. CALDWELL. Homeowners buying a house get title insurance. 

I think one of the things that we’re very concerned about in the 

overall recovery of the housing market is making sure that homeowners have trust in the system and continue to buy homes and 

don’t have a lack of trust in that, because, certainly reading the 

news, homeowners would have reason to be concerned. 

Mr. MCWATTERS. Right. You anticipated my next question. Are 

title insurance companies issuing clean mortgagor and mortgagee 

title insurance policies today where the property liens are recorded 

under the MERS system? 

Ms. CALDWELL. I think we have to separate the MERS system, 

which certainly has a lot of discussion in court, from how servicers 

are following the processes under MERS. To the extent a home has 

gone through foreclosure, whether it’s foreclosed with the physical 

note or foreclosed with a judge, the judge has granted title and the 

title has been insured, the homeowner should be able to purchase 

the home and have title insurance. 


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Again, as I said earlier in my testimony, I’m aware of the litigation around MERS. It’s still in the lower courts. So I can’t really 

wade down for what will be the outcome, but certainly we’re watching the uncertainty in the market that could be attributed to 

MERS. 

Mr. MCWATTERS. I read somewhere in the paper that one of the 

‘‘too big to fail’’ institutions went to title insurance companies who 

were balking on issuing title insurance policies and said: Hey, we’ll 

indemnify you. Well, if a ‘‘too big to fail’’ indemnifies and it blows 

up, guess who pays for it? We have TARP II, unless Dodd-Frank 

liquidates them, which is not a good answer to anyone. 

So I think this thing is, as you said, is in play, but it’s a little 

bit frightening. 

Speaking of frightening, I’ll move on to Fannie and Freddie, who 

are also co-owners of MERS and apparently did billions of dollars 

of securitizations based upon MERS. So surely someone at Fannie 

and Freddie thought about MERS. I mean, what diligence did they 

do? Did Fannie and Freddie receive legal opinions, and if they did 

could we see those legal opinions, as to the efficacy of the MERS 

program? 

Ms. CALDWELL. I can’t testify to what Fannie and Freddie did in 

terms of MERS, but can just say that MERS has been a part of 

the mortgage securitization system for a long time. There have 

been a lot of legal cases on it. 

Mr. MCWATTERS. Let me ask this question. Is it the opinion of 

the Department of Treasury that the MERS system works to deliver good legal title to property, that it properly allows notes to be 

endorsed, it allows for the proper assignment of mortgages and 

deeds of trust? 

Ms. CALDWELL. This is something that we’re still continuing to 

dig deeper on. But at this early stage, it does not appear to be a 

fundamental legal structural risk or issue with MERS, but rather 

how MERS is used based on the different state and local laws governing the real estate transactions across the country. So there’s 

still more work to be done there. 

Mr. MCWATTERS. Okay. Let’s say that I’m a CEO of a ‘‘too big 

to fail’’ and I’ve made a lot of second mortgage loans. And I know 

that people are encouraging me to write those off, and if I do my 

capital’s going to be impaired and I’m going to book a substantial 

loss and I’m going to be hurt, maybe put out of business. 

So my response to people who ask me to write them off is to say: 

You know, they may be out of the money today, but in another year 

or 2 years I expect the housing market will recover; and maybe I’m 

out of the market today, but maybe I get 40 cents on the dollar in 

2 years. So if I write them off today, then my shareholders are 

going to sue me because they go to the same economists and the 

economists tell them also, in 2 years you’re going to get 40 cents 

on the dollar. 

What do I do? I’m just not sure what to do. 

Ms. CALDWELL. You summarized the reason why principal forgiveness is one of the most complicated parts of the mortgage modification business, because once you take it you lose that opportunity to get it back. 


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In the principal reduction alternative that we have under HAMP, 

we require servicers to run two net present value calculations, one 

with principal reduction, one without. And in those cases where it 

is net present value positive to reduce principal, we think there is 

a justification there for reducing it. 

Mr. MCWATTERS. What if I say to you, yeah, okay, I’ll write these 

things down. That may start solving a lot of problems. But I want 

an equity kicker here. So if this house turns around, appreciates 

in value over the next 2, 3, 4, 5 years, I get a piece of that. In fact, 

we’re going to share that equity appreciation three ways. We’re 

going to give some of it to me because I wrote it off. We’re going 

to give some of it to Treasury because Treasury expended taxpayer 

funds. And we’re going to give a substantial portion of it to the borrower because I want to keep the borrower interested in staying in 

the house and making the payments, keeping the house up and the 

neighborhood up. 

Is there a problem with that approach? 

Ms. CALDWELL. There is not. In fact, the principal reduction alternative under HAMP does not prohibit shared appreciation. I 

think at this point in time I’m not sure the servicing industry has 

capacity to administer shared appreciation, but it’s not something 

that is prohibited, and we put the guidance out with the expectation that that could be something that changes in the marketplace. 

Mr. MCWATTERS. Okay. What I can say to them, it’s a one-page 

document. It’s not a big deal. 

Okay, thanks. 

The CHAIRMAN. Thank you. 

Mr. Silvers. 

Mr. SILVERS. Ms. Caldwell, I want to explore very briefly this 

question of the relevance of irregularities in the title system to 

HAMP. It’s my understanding—I accept your testimony earlier 

that, of course, you’re not in foreclosure when you get HAMP assistance. But HAMP does make payments to servicers, correct, up 

front? Isn’t there an assumption that that servicer is representing 

someone with a good lien? Why would we make the payment if that 

wasn’t true? 

Ms. CALDWELL. There certainly is the assumption that the 

servicer is following the laws, because that’s required in the contract. If we learn something after the fact that contradicts that, we 

do have the ability to go in and claw back the incentive. 

Mr. SILVERS. So my question in my opening statement was, how 

do we know, in light of all of the discussions—and I think Mr. 

McWatters has ably summarized what the issues are, and the 

chairman has as well. How do we know that we’re not—and in 

light of all the state law issues that you mentioned a moment 

ago—how do we know that people who don’t have good liens aren’t 

getting public money essentially under the false pretense that they 

have a good lien? 

Ms. CALDWELL. Again, we don’t. Our focus at this point has been 

on making—— 

Mr. SILVERS. Okay. So that’s the—hold it. That’s the issue. The 

issue that I would hope the Treasury would be diligent about looking into is trying to answer. You say no, we don’t. I think that’s 


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fair enough. These are very complicated questions. The data is 

huge, the legal issues vary from state to state. 

In view of the fact that what’s potentially at play is servicers and 

banks getting public money under false pretenses, we ought to try 

to figure out whether that’s true or not. I take from your answer 

that you’re looking into it. 

Ms. CALDWELL. Right, I would agree. 

Mr. SILVERS. I would hope that that clarifies the fact that there 

is a relevance between the irregularities and the HAMP. We’ve 

identified it here. I look forward to hearing what you find. 

Let me shift then from there to something that I’m very supportive of Treasury’s direction. I want to hear more about how you 

intend to do it. I gather from your opening statement and from 

your response to my fellow panelists’ questions that you want to 

expand the reach of Treasury’s mortgage foreclosure mitigation 

programs, that you feel the current numbers of permanent mods 

and the like should be expanded, that you want to reach the unemployed and be of greater assistance there, and so forth. Did I hear 

you correctly? 

Ms. CALDWELL. Yes. 

Mr. SILVERS. What do you see as the major obstacles to doing 

that? What do you see? Are we having difficulty reaching and involving people in these programs? 

Ms. CALDWELL. I think there are a few points we can say about 

unemployment. One is it differs across markets, and HAMP is a 

national, one-size-fits-all program. So one of the changes that we 

made to respond to the local nature of unemployment was the 

Hardest Hit Fund, so that different states could create programs 

to better target the unemployed in their own market. So one is just 

making sure we can tailor programs to local market conditions. 

Second is outreach. Struggling homeowners are scared. They’re 

getting bills, not sure who to respond to, who to call. So we do run 

outreach events. We’ve had 40 across the country in the last year 

to reach homeowners. 

Mr. SILVERS. How many people have attended your outreach 

events? 

Ms. CALDWELL. I don’t have the number offhand, but I’d estimate 

in the 30,000 range. 

Mr. SILVERS. Are you familiar with the Neighborhood Assistance 

Corporation of America, called ‘‘NACA,’’ that I referred to earlier? 

Ms. CALDWELL. I am. 

Mr. SILVERS. They have represented in a letter to us, to our 

Panel, which I will introduce into the record, that in 23 outreach 

events of theirs they have had approximately 700,000 people attend. Do you have any reason to doubt that that’s true? 

Ms. CALDWELL. I don’t have any reason to doubt, but I’m not familiar with all of them. 

Mr. SILVERS. No, I understand. So can we learn something from 

that? Is there a way that we can—that Treasury, with its vast resources, can get to that level of participation? I’m not talking about 

the back end about outcomes, but just getting people in the door. 

Ms. CALDWELL. I think we work with a number of housing counselors and state and local mediators, including NACA, to figure out 


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the best way to have outreach to homeowners. Certainly NACA 

mods, where eligible, can get HAMP incentives. 

Mr. SILVERS. I’m actually not so much focused on the mods, but 

I’m focused on the intake. You said 30,000 people for all of your 

events around the country. NACA got more than that to a single 

event in D.C. a few weeks ago. I visited that event. I saw 5,000 

people at the Convention Center on a Friday night at 10:00 o’clock 

at night. 

Surely we can learn something from them, if nothing else, how 

to get people in the door. 

Anyway, my time has expired. Thank you. 

The CHAIRMAN. Thank you. 

Dr. Troske. 

Dr. TROSKE. Thank you, Senator. 

So help me here about something I still don’t understand about 

the program, and I’m still relatively—I was not involved in the last 

report. But my understanding is if the NPV model shows that the 

net difference between the modified mortgage and the original 

mortgage is positive, this suggests that it’s in the best interests of 

the borrowers and the lenders to modify the mortgage. 

If that’s the case, why do we have to pay them to do it? Why do 

we have to pay people to do something that seemingly is in their 

best interest? What’s preventing them from doing it on their own? 

Ms. CALDWELL. That’s a very important question. Two things to 

think about there. One, on the HAMP program, part of the incentives for servicers is actually compensation for moving to an affordability standard and certain protocols that required a full change 

in their business model. So it is compensation for things that they 

have had to do in a different way. 

Second, within the HAMP program there are some cases where 

the investor incentives are an important piece of the modification 

being NPV positive. 

Dr. TROSKE. So let me—the first question—your first response 

was that there seem to be things apparently outside the NPV 

model. The NPV model is not taking into account the costs of 

changing the business model, so you have to pay them because the 

NPV model doesn’t include all the costs. Is that a way of interpreting what you just said? 

Ms. CALDWELL. No. When you look back at the beginning of the 

program, again, HAMP is a voluntary program, getting the 

servicers, the investors, and the homeowners to the table and to 

change the business model to do that required some incentives. 

Even with those incentives, there was some doubt that servicers 

would sign up, and indeed it took a full year to get close to 100 

non-GSE servicers signed up for HAMP, even with those incentives. 

Dr. TROSKE. So let me build on that a little. So much of your 

claim about the success of HAMP has been that it set a standard, 

that you’ve changed the way people are doing business in this market. We can discuss it, but find, I’ll give that to you, great. You’ve 

set a new standard. You’ve shown servicers there’s a better way of 

doing business. 

Why do you need to keep doing anything? What are you accomplishing now that you’ve set a standard, everybody recognizes the 


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standard? Great, fantastic. They’re now free to live by the standard, recognize the benefits from the standard, go to town. So why 

do we still need Treasury involved in this once you’ve set the 

standard? 

Ms. CALDWELL. The HAMP program does a couple of important 

things. One, because servicers that participate in HAMP are required to evaluate homeowners first for HAMP, it keeps a consistency across the industry in terms of at least where homeowners are 

evaluated first. 

Second, as this Panel has pointed out certainly to Treasury a 

number of times, there’s inconsistency in reporting across a number of different servicing entities, and during a time of crisis 

HAMP provides a standard platform on which other modifications 

can be based. 

Dr. TROSKE. But again, once the standard platform is established, once you’ve established that platform, I’m still struggling to 

understand what is there left to do? You’ve established it. Now everybody knows what they should be doing. Everybody should be 

doing it Treasury says. 

Ms. CALDWELL. I think that for the first lien program, certainly 

we can talk about the change in the industry standard. It’s important, again as you’ve pointed out, that there is the unemployment 

program that is still new in Treasury. There is the entire platform 

for how short sales and deeds in lieu of foreclosure are handled, 

that are still operating under HAMP. 

So having that standard platform can change a number of things 

beyond first lien modifications. 

Dr. TROSKE. Let me—I want to build on a little bit of my fellow 

panelist Mr. Neiman’s question. In her written testimony—and we 

haven’t heard it yet, but—Julia Gordon claims that HAMP trial 

modifications make borrowers who do not move into permanent 

modifications worse off, because they are reported as being delinquent to credit bureaus and have late fees and interest continues 

to accumulate, resulting in larger arrears due at the end of the 

trial modification program. 

So she—you’ve said that it makes them better off. She says it 

makes them worse off. Is she right, and what’s the difference between what she’s claiming and what you’re claiming? 

Ms. CALDWELL. Again, when we talk about the trial modifications, I think it’s important to refer to early on in the program 

where people could come in without documentation and just call up 

and get immediate payment relief. When I’m talking about being 

better off, I’m talking about program-wide, on the whole, having 

that many homeowners at that time in crisis receive immediate assistance and get time was an overall benefit. 

Certainly when you provide time to a large number of people, 

there are going to be cases where individuals say: You know, if I 

knew it was going to be bad news, I’d rather have the bad news 

now. We do hear of those cases and we take them seriously and 

it’s very troubling. But when you look at the million homeowners 

that got immediate relief last year at the time of the crisis, on balance I think it’s the right thing. 

Dr. TROSKE. Thank you. 

The CHAIRMAN. Thank you. 


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Superintendent Neiman. 

Mr. NEIMAN. I’d like to kind of follow up on your discussion with 

Damon regarding your unemployment programs, because I think 

even in your opening testimony you acknowledge that unemployment is really going to be, particularly going forward, a driving 

force in driving foreclosures. 

I saw it up close when I, on behalf of the Panel, joined your outreach forum in Atlanta. And in talking to both counselors and individual borrowers, it was clear that there were many individuals 

there who were in financial difficulty with their mortgage because 

of unemployment or underemployment. 

You referenced the Treasury’s unemployment program, which 

provides 3 months of forbearance. When will we be seeing—how do 

you contemplate providing data to assess the results of that program? 

Ms. CALDWELL. Again, that program became effective in August 

and we will be incorporating data into the public report once it’s 

available and validated. 

Mr. NEIMAN. So recognizing that many of the individuals I spoke 

to there were out of work for 6 to 12 months, behind on their mortgage payments for similar terms, who’s the population that this 3- 

month forbearance is intended to help? 

Ms. CALDWELL. A couple things to think about. It’s a very important issue, unemployment, in terms of the modification. I think 

first and foremost, as was said earlier on the Panel, you need a job 

to pay the mortgage. So unemployment forbearance is really intended to provide temporary assistance for unemployed to enable 

them to find a job. 

Mr. NEIMAN. So people who are just unemployed and expect to 

find a job within these 3 to 6 months? 

Ms. CALDWELL. The national unemployment program in HAMP 

provides a minimum of 3 months. Servicers can go longer, as long 

as they want, but it’s a minimum of 3 months. Many go up to 6 

months. 

So it’s expected that some will not find a job and may end up in 

a short sale or something that results in not being in the home. 

Some may become quickly reemployed and become current on their 

payment and had some benefit. Some may become reemployed at 

a lower income level and be eligible for HAMP. 

Again, that’s a one-size national program. In those markets, 18 

states and the District of Columbia, with higher than average unemployment rate, we have tailored programs where each of the 

housing finance agencies can do something that works in their 

market, and those include anything from the HFA targeting certain 

professions that have been hardest hit and sharing the mortgage 

payment, to some combining them with job counseling and retraining. 

Mr. NEIMAN. We look forward to the data on the success of that 

program. 

In my remaining minutes, I want to shift over to the web portal, 

because this is something that we have talked about for a long 

time at the Panel and have been urging Treasury to get that web 

portal up and running so that there is an effective means for borVerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00065 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081

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rowers and housing counselors to reach servicers in order to facilitate the approval process. 

Can you give me some indications as to where it stands, how 

many borrowers, how many loans are being processed through the 

portal? 

Mr. NEIMAN. Home loan port. 

Ms. CALDWELL. Home loan port. 

Again, I can’t testify to Home loan port’s specific performance, 

but just say that we at Treasury are very supportive of the Home 

loan port that’s run by the HOPE NOW Alliance and think it’s a 

very important step to not only automate the document collection 

process, but also to involve counselors who can help assemble those 

document packages. 

So we are very supportive of that effort. In addition, as we’ve 

streamlined the documentation within Treasury, we’ve tried to 

make sure all of our forms are available to be downloaded on the 

web on our MakingHomeAffordable.gov website. 

Mr. NEIMAN. Will Treasury be using that system or using—or its 

agents, compliance agents, using the system to test for compliance, 

to reach out to borrowers, to try to identify areas of concern? 

My understanding is it’s not currently available for access by regulators. 

Ms. CALDWELL. I’ll follow up on that. 

Mr. NEIMAN. You follow up. Our compliance is really focused on 

the documentation issues more broadly across all of the channels, 

whether it’s Loan port or mail. 

My time has expired. 

The CHAIRMAN. Thank you. 

Thank you, Ms. Caldwell, for your testimony. Again, thank you 

for your service. 

Will the second panel please come forward. 

[Pause.] 

The CHAIRMAN. Thank you. This panel is made up of: Faith 

Schwartz, Senior Advisor for the mortgage industry’s HOPE NOW 

Alliance; Joseph Evers, Deputy Comptroller of the Large Bank Supervision, Office of the Comptroller of the Currency; Katherine Porter, Professor of Law, University of Iowa College of Law; Julia Gordon, Senior Policy Counsel, Center for Responsible Lending; and 

Mr. Guy Cecala, CEO and Publisher of Inside Mortgage Finance. 

Let’s start with you, Mr. Cecala. 

STATEMENT OF GUY CECALA, CEO AND PUBLISHER, INSIDE 

MORTGAGE FINANCE PUBLICATIONS, INC. 

Mr. CECALA. Thank you, Mr. Chairman and members of the 

Panel, for inviting me to speak today. My name is Guy Cecala. I’m 

the CEO of Inside Mortgage Finance, a specialized information 

firm that publishes a variety of products related to the residential 

mortgage market and its key players. We are not affiliated with 

any lenders per se or consumers. We’re kind of just objective observers of the facts. 

Any opinions expressed today are my personal opinions and don’t 

represent the views of Inside Mortgage Finance or any of its publications. 


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In my written testimony, I think I’ve responded to just about 

every one of the questions you guys have asked. But I’ll summarize 

some major points from that testimony. What I’d really like to do 

is provide a reality check on what’s going on in the mortgage market, because I think sometimes that gets lost. 

First of all, the mortgage industry is really divided into two separate businesses. One is the production side and one is the servicing 

side. Briefly, I’ll talk about the production side. There’s good news 

and bad news when we look at the production side of the mortgage 

business these days. The good news is that long-term mortgage 

rates are extremely low and there’s a plentiful supply of mortgages 

to borrowers who have good credit and down payments. The bad 

news is about 90 percent of all the mortgage funding is coming 

from the government and not a lot of people qualify for that government funding. 

What little private sector activity there is is pretty much relegated to home equity and high-balance jumbo mortgage lending, 

or basically places the government doesn’t have any activity. 

To make matters worse, we seem stuck in a world where most 

mortgage funding will continue to come from the government. 

There is currently no secondary market or investor demand for 

mortgages or mortgage-backed securities that don’t carry a guarantee from the U.S. government. As a result, private lenders really 

can’t compete with the government for mortgage customers. 

But we also seem to be afraid to reduce the government’s massive support of the mortgage market, for fear of disrupting a very 

fragile housing market. So it pretty much leaves us in a state of 

limbo. 

Unfortunately, matters are probably worse in the mortgage servicing business. I think to talk about the success or failure of recent 

mortgage modification efforts or the scope of current foreclosure 

problems, it’s really necessary to look at the massive problems we 

are attempting to deal with. 

Between 2005 and 2007, which is really the housing boom peak 

period and the mortgage boom peak period of the last few years, 

about one-third of the $8.5 trillion mortgages that were made, or 

roughly 13 million loans, could broadly be characterized as nonprime. These loans were made to subprime borrowers, those with 

little or no documentation, those with low or no down payment, or 

those that had some other high risk of default characteristic. 

It is these groups of mortgages that made up the bulk of mortgage defaults and foreclosures that we’ve seen over the last 3 

years. Add to this mix the fact that nearly one-third of the homes 

sold during the 3-year boom period were sold to investors or people 

buying second homes. Now factor in the impact of high unemployment and the sharp nationwide drop in home values, and you get 

a pretty good idea of the scope of the problems we are facing. 

It is literally a perfect storm of mortgage problems that are very 

difficult to resolve with loan modifications or any other foreclosure 

avoidance measure. Right now we have a situation where the average borrower facing foreclosure is somewhere around a year and a 

half behind on their mortgage payments. By traditional mortgage 

industry standards, 6 months is the point of no return. 


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I won’t go into the HAMP numbers. You guys seem to know it 

very well and have gone over in terms of it. Needless to say, the 

number of HAMP modifications or even overall loan modifications 

have been dwarfed by the number of increases in defaulted mortgages and foreclosures over the past year. 

The record high problems in the mortgage market have and continue to take their toll on the housing market. Last month 48 percent of the home purchase transactions in this country involved 

distressed properties, namely foreclosures or short sales involving 

properties headed for foreclosures. That was up from 45 percent a 

year earlier. 

Meanwhile, the ongoing flood of problem mortgages and efforts 

to consider modifications on a loan by loan basis have severely 

taxed the mortgage servicing industry, used to dealing with onequarter of the current level of defaults and foreclosures. Is it a surprise mortgage servicers and their agents have been overwhelmed 

or that some shortcuts have been taken with foreclosures to deal 

with the backlog of severely defaulted borrowers? No, it isn’t surprising, and unfortunately it’s a development that can only slow 

down a housing recovery that is moving at a snail’s pace if it is 

moving at all. 

Thank you. 

[The prepared statement of Mr. Cecala follows:] 


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The CHAIRMAN. Ms. Gordon. 

STATEMENT OF JULIA GORDON, SENIOR POLICY COUNSEL, 

CENTER FOR RESPONSIBLE LENDING 

Ms. GORDON. Good morning, Chairman Kaufman and members 

of the Panel. Thank you so much for inviting me to address you 

today. I serve as Senior Policy Counsel at the Center for Responsible Lending, a nonprofit research and policy organization dedicated to protecting home ownership and curbing abusive financial 

practices. 

As we’re here today, mortgage servicers are in the process of 

foreclosing on over 2 million families. About 3 million or so more 

are just weeks away from receiving a notice of default. Over the 

next several years, the toxic combination of high unemployment 

and underwater loans could mean a stunning total of more than 31 

million foreclosures. 

African-American and Latino families are much more likely than 

whites to lose their homes, and we estimate that communities of 

color will lose over $360 billion worth of wealth. 

So far, our major government response to this crisis has been 

HAMP. HAMP, as we’ve discussed today, has fallen far short of its 

initial goals and even left families who did not convert to a permanent modification worse off than they were before. Relatively few 

new trials are starting each month now, replaced by a trend of 

servicers moving their modification activities outside of HAMP, 

where there’s little transparency or accountability. 

The principal reductions we need are not happening in HAMP 

and they’re not really happening out of HAMP either, except in 

some small portfolios, usually ones that were marked down upon 

acquisition. 

The real problem is that servicers need to foreclose quickly and 

in volume in order to make money. That’s why people get foreclosed on even when they’re in the middle of being reviewed for 

other solutions. That’s also led to this utterly unacceptable but routine practice of falsifying court documents when it’s too expensive 

or in some cases impossible to conduct the process legally. 

It’s increasingly clear that one incomplete payment or one accounting mistake can land you on an apparently unstoppable conveyor belt to eviction. 

The crisis didn’t need to be this bad. If government had acted 

quickly and forcefully at the beginning we could have significantly 

limited the damage. But instead our government believed servicers’ 

early assurances that they would handle the crisis on their own. 

When that turned out to be wrong, we provided legislative tools 

such as the investor’s safe harbor, we added financial incentives 

through HAMP and related programs, we cajoled and begged and 

threatened. None of those strategies have worked. It’s quite clear 

that servicers will not do what needs to be done unless someone 

makes them do it. 

The fact is the HAMP program has never had the tools it really 

needed to succeed. A key part of the original Administration foreclosure prevention plan was to involve the bankruptcy courts, who 

serve as our nation’s comprehensive resolution authority when debt 

goes bad. The failed subprime lenders got bankruptcy protection. 


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So did Lehman Brothers. Bankruptcy courts can modify mortgages 

on vacation homes, farms, commercial properties, even yachts. But 

because they’re barred from saving the family home, homeowners 

had no alternative but to rely on the voluntary assistance of the 

servicers, and servicers had no real incentive to change doing business as usual. 

Those bankruptcy laws should be changed. In the meantime, let’s 

broaden and enforce a commonsense practice requiring servicers to 

review all loans for alternatives to foreclosure, either loan modifications when that makes financial sense or short sales and deed in 

lieu. Congress and state legislatures, the Administration, the banking regulators, and law enforcement officials all have lots of tools 

available to do this. In fact, the so-called mandatory loss mitigation 

standard already is supposed to be in place in the governmentbacked housing programs. 

To make it work in practice, though, homeowners need a chance 

to stop their foreclosures if their case hasn’t been properly reviewed. In many cases homeowners will need access to legal help. 

Congress should appropriate the $35 million authorized in the 

Dodd-Frank Act for that purpose. While that’s a very small amount 

compared to what will be spent on the battalions of corporate lawyers for the other side, it will make a real meaningful difference 

for the many homeowners who can’t afford an attorney. 

We also recommend that the banking regulators use all their supervisory and enforcement powers to let servicers know they can 

no longer fly under the regulatory radar. This is a perfect opportunity for the Consumer Financial Protection Bureau to show what 

a difference it can make when an agency focuses squarely on eliminating practices such as a predatory servicing now taking place. 

There’s no silver bullet strategy to fix every mortgage and not 

every foreclosure is avoidable. But even one unnecessary foreclosure is devastating to that family and their neighbors, and multiple unnecessary foreclosures are devastating to all of us. Once 

and for all, let’s make sure the system works, both for families and 

for those who invest in our economy. 

Thank you for your time and I look forward to your questions. 

[The prepared statement of Ms. Gordon follows:] 


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The CHAIRMAN. Thank you. 

Professor Porter. 

STATEMENT OF KATHERINE PORTER, PROFESSOR OF LAW, 

UNIVERSITY OF IOWA COLLEGE OF LAW 

Ms. PORTER. My name is Katherine Porter. I’m a law professor 

who does research on consumer credit, consumer protection, regulation, and mortgage servicing. 

In the last month, allegations about serious and widespread legal 

errors in the foreclosure process triggered moratoriums by a few of 

the nation’s largest servicers. These moratoriums and the misbehavior that led to them are only the most recent and the most 

visible symptoms of a chronically sick industry. In 2007, almost exactly 3 years ago, I released an empirical study showing that 40 

percent of the mortgage companies’ paperwork in bankruptcy cases 

did not include a copy of the note, despite a clear legal requirement 

that it be included. 

Sadly, the problems we are hearing about today are largely duplicative of those that I and others have described for several years 

now. To summarize, the key problems with the foreclosure process 

are: First, that the mortgage servicing industry is a high-volume, 

cost-cutting industry. It relies on staff with insufficient training. It 

provides weak oversight of that staff. It operates with inadequate 

quality control checks and it is not transparent about its profit 

structure and affiliations with related entities. 

These problems are at the heart of the robo-signing scandal. That 

practice is entirely consistent with the industry’s business model 

and standard of ethics. Robo-signing erodes confidence in the rule 

of law in this country. 

Second, the paperwork on the troubled securitized loans often 

does not seem to comply with legal requirements. The primary concerns are: first, that some paperwork is missing, evidenced by the 

increasing use of lost note affidavits to try to remedy past mistakes; and two, that some transfers of loans simply did not occur 

or were not properly conducted. The proliferation of assignments in 

blank, the widespread use of MERS that eroded the public property 

records, and confusion about the location of the physical paper for 

these loans all expose the industry to attack from investors and 

from homeowners. 

At the core is whether the securitization trust has the standing 

to foreclose and whether the investors have been defrauded. Contrary to what Ms. Caldwell suggested, I do think that good title is 

a requirement to do an effective loan modification. I think parties 

can’t legally agree to override and alter the rights of a party that’s 

not at the table. 

The third problem is a sort of melange of miscellaneous problems 

we’ve seen in the servicing industry, including most primarily the 

bloating of homeowners’ accounts with bogus or suspect default 

fees and the continuing difficulty that the servicers are having in 

sweeping under the rug the fact that the originations of these loans 

were themselves not documented correctly and did not meet the 

underwriting standards for the securitization. 

If these practices are allowed to continue unchecked, I think 

we’re going to see several kinds of harm. I think an increasing 


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number of homeowners will challenge their foreclosures in court. I 

think there will be class actions by homeowners if problems are 

identified that exist across an entire pool of securitized loans. And 

I think in non-judicial foreclosure states we’re going to see intense 

public frustration about the lack of access to a court to adjudicate 

these problems. 

Second, I think investors will sue mortgage companies to force 

them, to try to force them to buy back the loans. One cannot easily 

put the genie back in the bottle with regard to litigation, notwithstanding the servicers’ protestations that everything is basically all 

right. 

The banks’ argument that the foreclosures are not faulty because 

the homeowner is in default should be given zero weight. Regardless of whether a homeowner cannot pay, the mortgage company 

must comply with the relevant laws to exercise their rights. Due 

process does not bend in the wind. It is a fundamental principle 

that protects all Americans, consumers and businesses, as they invoke the law to their aid. 

Finally, I think regulators will have to devote substantial resources to investigating problems with faulty foreclosures. I think 

it’s crucial that the government investigation be transparent. 

American taxpayers need to be shown in concrete terms that the 

Dodd-Frank Act will change how regulators intend to carry out 

their promises about consumer protection. 

[The prepared statement of Ms. Porter follows:] 


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The CHAIRMAN. Thank you. 

Mr. Evers. 

STATEMENT OF JOSEPH EVERS, DEPUTY COMPTROLLER FOR 

LARGE BANK SUPERVISION, OFFICE OF THE COMPTROLLER 

OF THE CURRENCY 

Mr. EVERS. Chairman Kaufman and members of the Congressional Oversight Panel: My name is Joe Evers. I’m a Deputy Comptroller and National Bank Examiner in the Large Bank Supervision Division of the Office of the Comptroller of the Currency. In 

this role, I oversee the collection, analysis, and reporting of data we 

collect from national banks relating to the performance of first lien 

residential mortgages. 

I appreciate the opportunity to share insights that this data provides us on mortgage modification activities. Consistent with the 

Panel’s letter of invitation, my written testimony includes data and 

charts from the most recent mortgage metrics report that demonstrate the trends we are seeing pertaining to loan modifications 

and delinquencies on loan modifications for mortgages serviced by 

the largest national banks and Federally regulated thrifts. 

Beginning in 2008, the OCC began collecting mortgage loan-level 

data from the largest banks it supervises and publishing this information in quarterly metrics reports. The most recent report, published last month, reflects data at the end of June 2010 and represents almost 34 million first lien mortgage loans or 65 percent of 

all first lien mortgages outstanding in the country, totaling nearly 

$6 trillion in outstanding balances. 

Early in the mortgage crisis, servicers were generally relying on 

traditional methods to assist borrowers who were facing financial 

hardship, typically various informal payment plans that allowed a 

borrower to defer his or her mortgage payment for a period of time. 

These types of plans, which were previously successful in normal 

economic times, gave delinquent borrowers experiencing temporary 

financial problems a chance to catch up on making their loan payments. 

However, as the mortgage crisis deepened and the number of delinquent borrowers increased to unprecedented levels, it became 

clear that more formal and permanent modifications would be 

needed. The OCC’s mortgage metrics data provided factual evidence that loan modifications completed in 2008 were experiencing 

high redefault rates. As a result of those high redefault rates, the 

OCC directed the largest national banks to implement programs 

designed to achieve more sustainable modifications. 

Today servicers are using a combination of actions to achieve 

more affordable and sustainable modifications. When taking these 

actions, mortgage servicers are taking into account both the needs 

of borrowers and the rights and interests of investors. 

Our mortgage metrics report provides data on how modification 

actions affect the borrower’s monthly payment and how the modifications perform over time. This allows us to evaluate the effects 

that certain modifications may have on long-term sustainability. 

Over the past several quarters, we have seen the servicers offering more sustainable modifications. Modifications that lower 

monthly principal and interest payments now represent over 90 


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percent of all modifications provided. Modifications made during 

the second quarter of 2010 reduced monthly payments by an average of $427. This resulted in a 62 percent reduction in the average 

monthly payment from a year ago. 

Further, 56 percent of the modifications made during the second 

quarter reduced the borrower’s monthly payment by 20 percent or 

more, representing an average saving to the borrower of $698 a 

month. 

Our data also illustrates the rate at which previously modified 

loans become delinquent or redefault. This is a useful metric to 

gauge the payment sustainability of loan modifications, identify unsafe and unsound loan mitigation practices such as loss deferral, 

and determine loan loss reserves. 

Our data show that, while all modifications experience redefaults, more recent modifications have performed better than 

early modifications. As well, modifications that result in lower 

monthly payments consistently perform better over time than those 

that increase payments or leave payments unchanged, and that 

better performance directly correlates to the amount of payment reduction. 

In conclusion, following our directive to large national bank 

servicers to make more sustainable modifications, our data show 

that servicers have adjusted their programs to provide meaningful 

reductions in borrowers’ monthly mortgage payments. These actions are resulting in more sustainable modifications and fewer redefaults. 

Thank you for the opportunity to appear today. I will be happy 

to answer questions. 

[The prepared statement of Mr. Evers follows:] 


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The CHAIRMAN. Thank you. 

Ms. Schwartz. 

STATEMENT OF FAITH SCHWARTZ, SENIOR ADVISOR, HOPE 

NOW ALLIANCE 

Ms. SCHWARTZ. Chairman Kaufman and member of the Panel, 

members of the Panel: Thank you for having me here today. My 

name is Faith Schwartz and I’m currently a Senior Advisor to the 

HOPE NOW Alliance and HOPE LoanPort. 

HOPE NOW was formed in 2007 to expand and coordinate the 

industry response in the private sector and nonprofit counseling 

sector to reach borrowers at risk, counsel borrowers at risk, and 

work toward alternatives to foreclosure. We’ve supported the 

Homeowner’s HOPE Hotline, 888–995–HOPE, which has to date 

manned over 4 million calls, which operates 24 hours a day, 7 days 

a week, and is supported by over 600 housing counselors, HUD-approved counseling agencies. 

The HOPE NOW outreach events for homeowners have held over 

90 events across the country in at-risk markets, with up to 75,000 

families who’ve come through. While it doesn’t mirror the hundreds 

of thousands through other outreach events that they’ve attracted, 

it’s very targeted outreach and doesn’t just offer help to anyone 

who wants to talk to their servicer. So they’re 60 days or later past 

due or non-contact borrowers. In fact, 30 to 40 percent of the borrowers who still come to these events have never contacted their 

servicer. 

We also support HOPE LoanPort, a neutral and independent 

web-based system that addresses the issue of loan documentation 

and allows for uniform intake of an application for all types of loan 

modifications, which allows the stakeholders to see the same information in a secure manner. This portal delivers a completed loan 

application package to the servicer which is actionable, with the 

ability to message back and forth until a final decision has been 

made. 

Currently, 14 nationwide servicers have adopted and signed onto 

the portal, one mortgage insurer, a few state housing agencies, and 

320 housing counseling agencies across the country in 48 states. 

We welcome more endorsement and use of this portal. 

HOPE NOW also, as you know, has collected data across the industry for 3 years every month to report on loss mitigation results. 

In August, we know that year to date we have 874,000 non-HAMP 

mods that were made. We know year to date that HAMP modifications are 429,000, and we know that year to date foreclosure sales 

are 775,000 sales. 

The points and takeaways from some of the data points are as 

follows. Loan modifications combined far exceed that of loan sales 

to foreclosure. It’s important to note the interventions are working 

and should continue. 

The vast majority of the non-HAMP modifications, much like Mr. 

Evers has spoken to, in August 91 percent of them had a lower 

principal and interest payment, and we know that that’s far better 

than it was a year or 2 ago. 

I was asked to speak to the merits of HAMP and some of the detraction from it. Let me say I quite agree, it’s very integral and imVerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00145 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081

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portant that the government step forward to put a protocol in place 

for modifications, and that this protocol would have been very difficult to get into place otherwise. I am here to tell you, I’ve been 

3 years on this project and it’s been a good step forward. 

The first most important contribution of HAMP is that all 

servicers that signed up for HAMP must review all homeowners for 

eligibility. The HAMP process offers homeowners a first line of defense to avoid foreclosure. 

Second is the importance of the HAMP waterfall. Investors, 

servicers, lenders, nonprofits, and homeowners have a uniform map 

of activity that is necessary to ensure delinquent homeowners who 

seek help are being considered for a solution prior to foreclosure. 

HAMP offers uniformity of approach which is fair and systematic, 

and it’s an approach for all homeowners at risk. That’s important 

for fair lending and other attributes. 

There are many challenges around HAMP and I’ll cite just a few 

of them that have been addressed by Treasury. But these challenges have impacted some of the uptake from the program. Clearly, there are a lot of changes as it was being rolled out. This is a 

complex effort and those changes had to require retraining, hiring 

of staff, changing of legacy systems that are outdated, and so execution made it difficult quickly. 

It’s a complex program. Definitions are unclear investor to investor. GSEs don’t agree with Treasury or FHA on what imminent default would be. There are differences on principal writedown attributions. Back-end consumer debt—while we are addressing the 

first lien and made it an easier process to go through, there’s a 

broader debt issue in the country, not just first liens, second liens, 

and consumer debt, and that’s been cited today. 

Honestly, just lack of uniformity for all the mod processes. If you 

wanted a cookie-cutter approach, it would be a lot easier if everyone would accept the same processes, documents, etcetera. Again, 

the servicers have legacy systems. They have to train and get 

things in process. 

Also, affordability and eligibility. Everyone thought that 31 percent was an awfully good and aggressive start, because after years 

of looking at the front-end debt ratio, some of which were very 

high, 31 percent seemed aggressive. Yet, many of these borrowers 

come in under 31 percent; they don’t qualify, and in theory they’d 

go to foreclosure. So lots of people don’t qualify because they’re 

under 31 percent, but yet they’re having trouble staying in their 

home. 

High vacancy rate. 30 percent of the market, vacant homes, investor properties. Those don’t qualify and it’s hard to get people to 

contact if they’re not in their homes. So when you look at the uptake of HAMP, you need to accommodate for some of the foreclosures going through that people aren’t on the other side of the 

conversation. 

I do think all of us can do a better job to communicate to the 

public, to policymakers, to stakeholders, about what the process is 

and what the options are for all borrowers, whether it’s HAMP or 

non-HAMP. I believe a lot of the non-HAMP activity is very positive and huge progress has been made versus a couple of years ago. 


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You’ve asked me to speak a little bit about the current documentation issues in the market. First of all, remember—— 

The CHAIRMAN. Can you finish, please? 

Ms. SCHWARTZ. Pardon me? 

The CHAIRMAN. Can you bring it to a close shortly? 

Ms. SCHWARTZ. Pardon me? 

The CHAIRMAN. Bring it to a close shortly? 

Ms. SCHWARTZ. Yes. 

The CHAIRMAN. Thank you. 

Ms. SCHWARTZ. So the market issues are such that HOPE NOW 

works on the pre-foreclosure process, and I think all the stakeholders do agree no borrower should go to foreclosure without due 

process and a thorough review of all alternatives to foreclosure. 

That said, I’m confident the companies are working through their 

documentation issues to execute that. 

Thank you. 

[The prepared statement of Ms. Schwartz follows:] 


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The CHAIRMAN. Thank you very much. I thank the panel. 

I’d like to ask a question to all the panel members. That is, based 

on the fact the President said 3 to 4 million homes saved from foreclosure was a realistic objective for HAMP, what do you think the 

realistic objectives are for HAMP? I start with Ms. Schwartz. 

Ms. SCHWARTZ. Well, I think if you look at HAMP and then nonHAMP solutions you’re already at about 1.3 million modifications 

to date this year. That’s combined. So if you look at an annual rate, 

you can hit that if you give the Treasury some credit for the protocols someplace. 

The CHAIRMAN. At the end of the program—we’re just getting 

started with the program—what do you think? Is it a realistic objective at the end of the program, after we’re finished? 

Ms. SCHWARTZ. For the mod program? 

The CHAIRMAN. Yes, for the mod program, the modification program, number of homes protected from foreclosure. 

Ms. SCHWARTZ. Well, I think we do have systems and protocols 

in place and NPV tests that now are used across the market to look 

at foreclosure versus a modification that were not in place probably 

4 years ago in any systematic way. So hopefully the systems in 

place will stay and the regulators will I’m sure work with the 

banks and the investor community to keep things moving. 

The CHAIRMAN. Mr. Evers. 

Mr. EVERS. That’s really a policy question I don’t have a real 

clear view on. All I can tell you is that over the last five quarters 

there have been 902,000 mods completed, both HAMP and proprietary. That compares to about 670,000 completed foreclosures. So 

yes, I agree with Faith that you have to look at what’s happening 

with HAMP and the proprietary mods to get a better sense of how 

many borrowers are being helped. 

The CHAIRMAN. Professor Porter. 

Ms. PORTER. I apologize in advance, but I’m going to turn your 

question a little bit and say that what concerns me is that what 

I’m hearing is that we’ve gotten up to speed with HAMP slowly, 

we’re making progress. It took 3 years, it took 2 years, it took— 

what does that timeframe and that gigantic learning curve mean 

for whether the servicers are going to be able to address the kinds 

of procedural defects that we’re hearing about now in anything remotely approaching a timely and effective fashion. 

The CHAIRMAN. Ms. Gordon. 

Ms. GORDON. Realistic objectives for HAMP. First of all, what we 

need to do is fix HAMP, not end it. HAMP’s the only thing we’ve 

got out there right now and if we take that away we go backward 

in time to a very dark place. 

The concept of the NPV test has been a very useful one to get 

out and it serves as a great benchmark for Federal legislation or 

for states to work on incorporating it into the requirements for 

foreclosure. There is lots of use for this. I’ve provided in my written 

testimony what one might charitably call an exhaustive list of ways 

in which we could fix HAMP and make it work better. But until 

we’ve got something better in place, let’s fix it and not get rid of 

it. We need much better programs in place. We need mandatory 

programs, and to the extent possible we need third party involvement to make sure everything is going as it should. 


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The CHAIRMAN. Mr. Cecala. 

Mr. CECALA. The simple answer is I think the HAMP goals are 

unrealistic, given the program restrictions and the types of troubled borrowers we’re dealing with. If there’s any good news, I think 

it’s extremely unlikely that TARP or your Panel will see anywhere 

near $30 billion spent on this program. My understanding is in the 

first year and a half about $400 million has been spent in terms 

of incentives paid out. I think that gives you a realistic expectation 

on, if we continue on the current path, what we’re going to spend. 

The CHAIRMAN. Thank you. 

The next question is, can you comment on the impact you think 

these foreclosure problems will have on the mortgage market? 

Mr. CECALA. Obviously, that’s a real tough question to answer. 

There are a couple different areas we’re looking at, you have to 

look at the foreclosure problem. One of them is just the issue of 

what is the liability in terms of servicers improperly foreclosing on 

a property. The mortgage industry’s response is that these are paperwork problems, we can clean it up, worst case we just refile the 

paperwork and we get to the same point, maybe in 2 or 3 months. 

Obviously, the states attorneys general and other regulators are 

looking at whether laws were actually violated. That brings up the 

question of legal action for criminal behavior or whatever else. 

That’s kind of hard to quantify, too. 

The other issue, of course, is the lawsuits that are surfacing now 

regarding mortgage securities and mortgage securities investments. 

Those are kind of interesting to monitor because those lawsuits 

have been pending out there just on different reasons in the past. 

The latest reason is to go after them because of foreclosure paperwork. 

I’ve been covering this industry and the mortgage security industry for 25 years. I’m not aware of any successful litigation involving 

procedures, foreclosure procedures that have been violated, that 

would require a lender to buy back a loan. 

The CHAIRMAN. Thank you. I’m going to hold the rest of them 

until my next set of questions. 

Mr. McWatters. 

Mr. MCWATTERS. Thank you, Senator. Mr. Cecala, in your opening statement you said there were $8.5 

trillion of new residential mortgages made between 2005 and 2007, 

and that about a third of those were subprime, with documentation 

problems, around 2.8 or so. There are a lot of lawsuits out there 

that are beginning and they’re not based solely upon foreclosure 

issues. They’re based upon straight-up misrepresentations and 

warranties, underwriting that was misrepresented when the 

securitization trust bought those, and the securitization trusts and 

their investors are undertaking to put those back. 

What is your estimate, do you have an estimate, of what of that $2.8 trillion will be put back to the loan originators? 

Mr. CECALA. I think it’s important to identify what the size of 

the universe we’re really talking about now. 

Mr. MCWATTERS. Okay. 

Mr. CECALA. There’s approximately $6 trillion worth of mortgage securities outstanding. $1.5 trillion is what we call non-agency 

mortgage securities. The rest are basically guaranteed or insured 


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by Ginnie Mae, Fannie Mae, or Freddie Mac. So that really means 

we’re talking about a universe of $1.5 trillion. 

You’re right, there’s been litigation from day one. A disproportionate amount of that volume has involved subprime, Alt-A mortgages, mortgages with a lot of default characteristics, and clearly 

they’ve performed a lot worse than anyone expected. The normal 

recourse that the mortgage industry uses is to require buybacks on 

those loans, and they go right at the mortgage originator. If a mortgage originator originates a loan that goes bad in 6 months, they’re 

required to buy back the loans. 

What we saw is that process actually began in 2006. By 2008, 

basically all the major subprime mortgage originators in this country were put out of business. What we’ve got left are major banks 

that acquired subprime loans, either through servicing or through 

some other capacity. 

Bank of America was one of the few major mortgage lenders out 

there that steered away from the subprime market. Nevertheless, 

it’s the target of all the litigation out there? Why is that? First of 

all, they’re the largest bank and they’ve got a lot of money, so that 

helps. 

But also the reason is they, for better or for worse, acquired 

Countrywide Financial, which was the largest subprime lender, 

and basically inherited the largest subprime mortgage portfolio 

that they are trying to deal with now. 

Mr. MCWATTERS. Right. And as those loans moved into 

securitization pools, BofA or Countrywide may have re-upped the 

representations and warranties that were made by the subprime 

lenders, because someone’s going to have to do that or you wouldn’t 

take it. 

Also, I’m not sure why you excluded Freddie and Fannie. I mean, 

they were huge securitizers. If they took loans, mortgage loans, 

under misrepresentation, why shouldn’t Freddie and Fannie—in 

fact, I think they are beginning to exercise their rights to put back 

their loans to the mortgage originators. 

Mr. CECALA. They are. Currently Fannie and Freddie are requiring mortgage repurchases by the major banks and mortgage 

servicers to the tune of about $2 billion a quarter. They clearly 

have the most clout because they’re still in business and if you 

don’t play ball with Fannie and Freddie they’ll cut you out of new 

business. So that is where most of the action is going on in terms 

of repurchases, and Fannie and Freddie have been very aggressive 

at pursuing it. But they’re getting pushback from the mortgage industry, too. 

The most pushback you see is in the non-agency area, because 

the parties are not around anymore who originally committed the 

crime, such as it is, and you have no leverage over the lenders 

other than legal action. 

Mr. MCWATTERS. Will, in your view, this present a systemic 

problem, meaning a lot of TARP recipients that are going to have 

to buy back loans? 

Mr. CECALA. That’s been a problem that’s been going on for 2 or 

3 years. Is the amount of buybacks going to increase significantly? 

My personal opinion is not. It’ll be managed and spread out over 

time. However, if these non-agency security litigation claims, parVerDate Mar 15 2010 02:49 Mar 24, 2011 Jkt 065081 PO 00000 Frm 00164 Fmt 6633 Sfmt 6602 E:\HR\OC\A081.XXX A081

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ticularly the more recent ones involving foreclosures, gain traction, 

that’s certainly going to increase the liability and that’s something 

really we haven’t factored into the system. 

Mr. MCWATTERS. Well, one new development is that the investors in RMBS are beginning to recognize one another and work in 

concert, and they are suing the securitization sponsors and the 

securitization trusts and the servicers to force them to put back 

loans, which they’ve been unwilling to do so far, perhaps because 

of conflict of interest issues and otherwise. 

How do you see that changing it? 

Mr. CECALA. Well, as I pointed out, it’s been very unsuccessful 

to date. There are a lot of people who are requiring mortgage repurchases, but they’re not non-agency security investors. Mortgage 

insurance companies, Fannie Mae and Freddie Mac, they’ve been 

very successful. The investors in non-agency securities haven’t 

been, for a variety of reasons, as I indicated. One, the original offending party is no longer around. They’re going after people who 

acquired other ones, and it’s hard to make a legal claim that Bank 

of America is really liable for the quality of loans someone made 

3 years earlier. 

Mr. MCWATTERS. Yes, but if Bank of America put those loans 

into a securitization trust and re-upped the representations and 

warranties, they’re on the hook the same. 

Also, I’ve read that there’s an increased use of statistical sampling, as opposed to having to prove each individual loan was misrepresented, to do a statistical analysis of the pool and if it’s significant then put the whole pool back. 

Okay, my time is up. 

The CHAIRMAN. Thank you. 

Mr. Silvers. 

Mr. SILVERS. Thank you. 

Mr. Cecala or anyone, any other member of the panel: In view 

of the exchange, Mr. Cecala, you just had with Mr. McWatters, I 

remain just deeply puzzled by what the Federal Reserve Bank of 

New York is up to. Do you have a theory, or do any other members 

of the panel have a theory as to why, in view of—if I take your remarks of a few moments ago, why the Federal Reserve Bank of 

New York is asserting the sorts of claims that we were just discussing? 

Mr. CECALA. I’ll take a quick shot at that. The Federal Reserve 

Board of New York inherited a bunch of non-agency mortgage security investments as a result of the merger of JPMorgan Chase, 

Bear Stearns is the most obvious one. Part of the agreement required the Federal Reserve Board of New York, or effectively the 

government, to take over the worst assets, because no bank wanted 

to acquire those bad ones. 

So basically the Federal Reserve Board of New York’s in the position of having acquired a sizable amount of these bad assets and, 

in representing the government’s interests, would like to get any 

possible money they can get out of anybody who does—so they basically helped lead that effort to reclaim losses that those investors— 

that doesn’t mean they’ve got a great claim, but that’s the motivation behind it. 


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Mr. SILVERS. Well, they appear to have a good enough claim to 

put their name behind it, which is a nontrivial thing in terms of 

the Fed. 

Other members of the panel have a theory about what’s going on 

here? 

[No response.] 

Mr. SILVERS. Okay. Secondly, I just want to—Mr. Evers, I know 

that your testimony is limited to matters of data. If you were in 

the room when I was discussing with Ms. Caldwell Bank of America’s finances, did I make any mistakes in that analysis? 

Mr. EVERS. I heard parts of it. What we’re doing is we’re working 

with our banks to assess that put-back risk and basically make 

sure it’s properly dimensioned, and that the banks have the reserves for that. We’re making sure that they do a very full, complete analysis of that. 

Mr. SILVERS. How many $47 billion buybacks of 50 cents on the 

dollar securities could Bank of America do before it blows through 

its capital? 

Mr. EVERS. Well—— 

Mr. SILVERS. Isn’t that a mathematical question, not a policy 

question? 

Mr. EVERS. Yes, you could do the numbers. 

Mr. SILVERS. You could run the numbers. It’s not ten, right? 

Mr. EVERS. Right. 

Mr. SILVERS. It’s less than ten. 

Mr. EVERS. Right. 

Mr. SILVERS. It’s probably less than five before you guys would 

be pulling the fire alarms. 

Mr. EVERS. Like I said, the banks have to assess, fully assess 

and dimension the risk here. We’re making sure that they do that. 

I don’t know whether the estimates thrown out there in terms of 

exposure—— 

Mr. SILVERS. I understand that. I just wanted to make sure I 

wasn’t making any mathematical mistakes. 

Now, we have heard in this hearing I think from different members of our panel and from different witnesses two kinds of stories 

about what is in the public interest here broadly with respect to 

what to do about the very large number, somewhere between, I’ve 

heard, 7 million and 13 million homes and families, homeowners, 

that are facing foreclosure, what outcome we want. 

I think there are two stories that have been put out there. One 

is kind of the thing that Andrew Mellon said early in the Great Depression, which is liquidate everything, let’s get these homes out of 

the hands of the homeowners and into the hands of the banks and 

sold onto the markets as fast as we possibly can. The second theory 

is—and one can look back at how Andrew Mellon’s advice worked 

out for him and Mr. Hoover. 

But then we can look at the other sort of basic inclination, which 

is to try to keep as many people as possible in their homes and 

keep those homes off the market. 

Those are the two sort of basic ideas in play here. In view of 

what we know about housing prices, housing prices’ effect on consumer demand, basic supply and demand dynamics, which of these 


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ideas is right? Which is in the national interest? I ask any member 

of the panel to respond. 

Mr. CECALA. I’ll start out responding. There’s no question that to 

resolve the housing crisis, such as it is, you have to eliminate or 

reduce the number of distressed properties out there. The question 

is just the timeframe of doing it. It would be painful, there is no 

question, to try to burn through all the foreclosures as quickly as 

possible, get over the foreclosure mess in 2 or 3 years, but recover. 

Worst case is you take action that drags it out for 5, 10 years. 

Mr. SILVERS. You didn’t listen to my question. My question is, is 

it a better idea to throw people out of their homes and put the 

homes on the market or is it a better idea to try to keep them in 

the homes paying something? Which is better for the economy? 

Which is better for housing prices? Which is better for the viability 

of the financial system? Which course is better for the country, not 

if we’re going to take one course should we do it slow or fast, but 

which course is better? 

Ms. GORDON. I’m happy to provide a straight answer to that. It 

is better to save the homes. We’re talking—let’s not conflate two 

things. What we want to do is keep homes from being sold in foreclosure. Once the homes are sold in foreclosure and the family is 

gone, you want a family living back in them. I in many cases would 

like to see the original family get to buy that home right back at 

the same price that they kicked them out for, that they wouldn’t 

reduce their principal to to prevent the costs of foreclosure in the 

first place. 

But before you get to the foreclosure sale, we should be doing 

every single thing we can do to keep people in their homes. Once 

that sale is over, putting Humpty Dumpty back together again is 

very, very difficult. But before the foreclosure starts, we’ve got lots 

of options to prevent it. 

Mr. SILVERS. My time has expired. Thank you. 

The CHAIRMAN. Dr. Troske. 

Dr. TROSKE. Thank you. 

I have a question for I guess several of you, and maybe I’ll start 

with you, Mr. Cecala. Several of you in your written statements indicated that you felt that the rules under HAMP were sort of inappropriate, that they were overly onerous and didn’t address the 

problem directly, and also indicated that HAMP rules may be pushing servicers to modify mortgages outside of HAMP. 

Could you sort of respond, do you think the rules of HAMP are 

appropriate, and if not what do you think we should do to be modifying them? 

Mr. CECALA. Well, one of the significant things we’ve seen with 

the HAMP program—particularly it was an unintentional test of 

it—was when the program was launched you saw a lot of people 

who were put in trial modifications without having their paperwork 

checked or whatever else. One of the most significant, I think, results of that is a lot of the borrowers were able to make the payments at the reduced amount, but later were kicked out of the program because they couldn’t meet the paperwork requirements. 

Keep in mind, going back to what I said before, we’ve got a huge 

number of borrowers who’ve got loans out there with no paperwork, 

no documentation of income, and now we’re asking them to produce 


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tax returns and other things to qualify for a HAMP modification. 

I think that makes it very, very hard. 

There are some other things. Talk about the present value test; 

I think that’s a good idea, but it basically favors people who are 

under water on their mortgage. There are a number of borrowers 

that I know who’ve come to me and said they had equity in their 

home and that immediately almost disqualifies them for HAMP, 

because you can certainly get a lot more out of them with a foreclosure than you can with a loan modification. 

There are some basic flaws in the program that I think discourage a lot of people and end up in rejections. 

Dr. TROSKE. Ms. Gordon, would you like to—care to address the 

question? 

Ms. GORDON. Complexity is never our friend, and with the kind 

of business model that the servicers have, having relied on them 

alone to take on the task of reunderwriting all of these mortgages, 

we didn’t do the necessary things to make sure they staffed up and 

increased capacity in a way to make that happen right. 

Now, I do want to point out that actually, particularly for people 

who used nonprofit housing counselors or attorneys, many of those 

borrowers in fact submitted all of their documentation at the beginning of their trial modification, but the servicer just didn’t necessarily want to bother to look at it or wasn’t quite sure what to 

do with it. 

So in my written testimony I give a lot of reasons why I think 

there have been problems with HAMP. But ultimately the problem 

is we’re offering carrots and apples and oranges, but we’ve got no 

stick. And there are so many different cross-cutting incentives in 

the system right now, so many entities are wearing two or three 

different hats. It’s just very difficult to untangle without involving 

neutral third parties in some way. 

Dr. TROSKE. Ms. Schwartz, I’d like to hear your response. 

Ms. SCHWARTZ. Sure. Well, it’s my view that, while onerous, 

these are taxpayer dollars and if they don’t qualify, and if there’s 

a like solution outside of HAMP, which is happening, we shouldn’t 

necessarily say that’s a bad thing. People that don’t qualify for 

HAMP could go to foreclosure. 

If the person wants to stay in their home, has the capacity to 

stay in their home, the servicer can accommodate that and the investor. Modifications outside of HAMP are a good thing and they 

are not with the use of taxpayer dollars. 

So I think it’s a complicated issue and I would say the lost documentation, we also recognized that and that’s why we developed a 

safe and secure way for counselors to be involved in the process. 

I really like the third party help for that borrower, to have a trusted solution and an adviser to work with as they submit things, and 

you know they won’t get lost through an electronic system. 

Dr. TROSKE. Mr. Evers, I have a question for you. You talk about 

mortgages that involve a larger reduction in payment. Do you 

know, for those modifications, what the average increase in payments is going to be when the permanent modification ends in a 

5-year period? Are they going to look—so the payment goes down 

by $500 or $600. How much is it going to go up? 


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You’ve looked at these numbers. Can you speculate a little, what 

you think is going to happen at that point? 

Mr. EVERS. Well, the mods are a permanent change in contractual terms. So those reductions in payment are permanent. So 

you’re expecting the borrower to have lower payments. 

So when you look at HAMP, you’re seeing a greater reduction in 

payment—— 

Dr. TROSKE. But the reduction is only for—at some point it 

resets. It may not reset all the way, but those payments are going 

to go up. A previous witness did testify that at the end of that period the interest rate is going to reset to whatever the Fannie Mae 

interest rate at the time is. Presumably, they’re making higher 

payments at that time. Is that not true? 

Mr. EVERS. What we’re tracking right now is basically the contractual change in payment and we’re basically saying at the time 

of the mod that it’s being done, we’re comparing what the payment 

was before and after the mod, and we’re doing that for HAMP 

mods and we’re doing it for proprietary mods. 

What we haven’t done is looked out further, 5, 7 years, or 10 

years. 

Dr. TROSKE. Is it possible? That seems like something worth 

doing to me. I guess I would encourage you to do that. 

Mr. EVERS. It’s something we could look at. 

Dr. TROSKE. Thanks. 

The CHAIRMAN. Thank you. 

Superintendent Neiman. 

Mr. NEIMAN. Thank you. 

I’d like to direct my first questions to our national bank regulator, Mr. Evers, and to our industry representative, Ms. Schwartz. 

You probably heard my dialogue with Ms. Caldwell around the sustainability of proprietary mods. I also want to point out that Ms. 

Caldwell has remained for this portion of the panel, and I want to 

commend her for that, because we’ve often asked Treasury representatives to stay for the second panel and it has not been a 

practice in the past. So I think it is very helpful for her, and we 

appreciate that, listening to this round of dialogues. 

You may also have heard Ms. Gordon, who shared my concerns 

that borrowers in proprietary mods may be worse off than they 

were before. So my question really goes to the data, and do you 

share our frustrations in being able to assess the actual sustainability of the proprietary mods? Though you point in certain sections that proprietary mods, we understand the reduction in payments may be half of what they are for HAMP mods, we still don’t 

even know the terms of those modifications. 

In a HAMP mod, we know that those reduced payments will be 

for the existence of the trial mod, 5 years. We don’t know the reduction in the HAMP mod and for what term. 

How comfortable are you and how can we improve these reports 

so that we really can get our arms around the sustainability of 

these proprietary mods? Mr. Evers. 

Mr. EVERS. That’s a great question. It’s something we’ve looked 

at, so we’ve been trying to track that for the HAMP as well as the 

proprietary. In the second quarter report, where we’re at right now 

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prietary. We also reported the redefault rate for a HAMP mod 

versus a non-HAMP mod, and the HAMP mod redefault rate is half 

of what it is for a proprietary mod. 

Mr. NEIMAN. Ms. Schwartz. 

Ms. SCHWARTZ. Yes. I think it’s an excellent question and one 

that we need to address. We’ve been attempting to track, in addition to how many loans have a lower principal and interest payment, which is a good step forward. We’ve asked for, are they at 

5 years duration and at 10 percent or more a reduced payment, so 

that you feel that affordability, and you can measure that as well. 

We’re looking at redefaults. We’ve been working for a couple of 

months to collect that, and it’s probably this month or next we’ll 

be able to start reporting that. 

All the government agencies have looked to us to try to collect 

that, and I’ve worked with the servicers to do so. 

Mr. NEIMAN. Mr. Evers, could you share our interest in getting 

that performance data by servicer, so that we can actually compare 

performance among servicers as well as, I assume, provide a more 

effective supervisory tool for regulators? 

Mr. EVERS. We can cut the data just about any way possible. We 

can do it by—— 

Mr. NEIMAN. Is there a reason that you are not sharing that information by servicer in the public reports? 

Mr. EVERS. It’s confidential supervisory information. 

Mr. NEIMAN. Why do you feel that that is supervisory information, where the information of simply factual data included in the 

Treasury’s monthly reports do not present similar issues? 

Mr. EVERS. Well, we’re collecting our data directly from our institutions. We’re collecting loan-level data and we’re using that data 

as part of the supervisory process. So under our legal authority, we 

deem it to be confidential supervisory information, and our policy 

approach has been to disclose aggregate data, but not individual 

bank-specific data. 

Mr. NEIMAN. And you are using that information with respect to 

supervisory responsibilities? 

Mr. EVERS. Right. So for example, in my testimony, when we saw 

high redefault rates, we calculated that for each of the reporting 

institutions and we criticized each of them using their data and 

said: Here’s your redefault rate, fix these redefault rates, put in 

mod programs. 

Mr. NEIMAN. Thank you. 

Picking up on this, we in New York have for the first time registering mortgage loan servicers. We now have oversight responsibilities. We’ve adopted duties of care, business conduct rules that 

are enforceable, including the requirement, the authority, to receive quarterly data regarding not only the mandatory modification 

efforts, but also performance data. 

Our ability is limited because of the visitorial powers, that we 

would be restricted in receiving data from national banks. I also assume the industry would not necessarily like to see different reporting structures among 50 states, even though we do believe that 

this is a model that can be adopted either nationally or at the 

CFPB level. 


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Would the industry support a national reporting requirement for 

mortgage performance data? 

Ms. SCHWARTZ. I have not spoken to—for that specific question, 

I couldn’t comment on it. But I do believe there is some call in the 

Dodd-Frank bill to have a loss mitigation database created. So I 

thought that might be happening. 

Mr. NEIMAN. Thank you. 

The CHAIRMAN. Thank you. 

Ms. Gordon, to continue on my other question, what do you think 

the present foreclosure problems—the present foreclosure problems 

have on HAMP? I mean, the problems with the robo-letters and the 

rest? 

Ms. GORDON. The problems with the robo-signing and whatever 

title problems they are, these aren’t a technical problem. Also, just 

to set the record straight, these are not allegations. This is stuff 

we now know. 

But what it is, it’s symptomatic of problems throughout the servicing industry. What’s interesting, Mr. Silvers before used the term 

‘‘pull the fire alarms.’’ The fire alarms only seem to get pulled 

around here when the bank solvency is threatened, when it’s that 

kind of systemic threat. When it’s the systemic threat to the American people, when we could have a quarter of homeowners with 

mortgages lose their homes, that seems to me to be worth a few 

fire alarms. 

The problems we’re seeing now just demonstrate how broken the 

system. These problems I don’t think—they’re not a cause. They’re 

a symptom of a broken system. 

The CHAIRMAN. Professor Porter. 

Ms. PORTER. I echo that, the symptom of a broken system. I 

think any foreclosure relief program that permits servicers to craft 

the system around their choices, their preferences for how to deal 

with homeowners, is going to fail largely. So I think the leading 

problem—one of the leading problems with HAMP from the very 

beginning that we’ve seen Treasury try to peel back is putting the 

servicers front and center in charge and saying, you steer the ship 

and we’ll just sit, we’ll be the coxswain in the boat and every once 

in a while we’ll shout something at you. 

I think that’s a real problem. The other thing I’m concerned 

about is in the talk from Mr. Silvers about how do we get people 

to these events, how do we do outreach. I’m very concerned that 

homeowners are terribly discouraged by HAMP. There’s this whole 

pool of people who’ve tried and failed, or who had the lost paperwork, friends and neighbors who’ve had that experience. There’s 

sort of a community contagion effect here. 

Even as things improve, there’s a big lag in getting the word 

back out. So I’m a little concerned that the result of that is we have 

people who are not coming into a HAMP program that might be 

improved and instead their new plan is that they’re going to sue 

in court and they’re going to prove the chain of title, and they don’t 

have the legal capacity to do that and, with all due respect to our 

court system, they don’t have the legal capacity, without a lot of 

struggle, to litigate those things. 


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So I’m concerned that people are clinging to a life raft. There’s 

sort of no good life raft, so they’re looking from one to the other 

and they’re falling and they’re drowning in between. 

The CHAIRMAN. Thank you. 

Mr. McWatters. 

Mr. MCWATTERS. Thank you. 

You know, I come at this problem as a corporate lawyer, M and 

A lawyer, tax lawyer. When I look at it, I’m sort of mystified, because if someone came in my office and—to take off our foreclosure 

mitigation hat and just think about a workout deal, someone comes 

in and says, yeah, I paid $250,000 for something, it’s worth 

$150,000 today, there’s a second lien on it of 50 and a first lien of 

200. What do I do? 

The first thing I’d ask them: Is it non-recourse debt? And if it’s 

non-recourse debt, I have an answer. If they say—then I would ask 

them, if it’s recourse debt and they say yes, it’s recourse, but I’m 

broke. Okay, now we have the facts. 

In a commercial setting, what you would do is you would write 

the loan down to 150. You wouldn’t fool around. You would just 

write it down to 150, because, guess what, that’s what the property 

is worth if you foreclose and nobody’s going to pay a dime over 150. 

So you go to economic reality, 150. 

Now, first lien, first and second lienholders are not chumps. 

They’re going to say: Well, what if the market turns? Okay, I’ll give 

you an equity kicker. You give them an equity kicker. And the second lien mortgage, what you should do is write them down to zero. 

You can’t write them down to zero. They’re going to extort something out of you, right? They have a seat at the table. You give 

them 10 cents on the dollar, you give them 20 cents on the dollar, 

you make them happy, you give them an equity kicker, you write 

it down. 

The second thing you do is you refinance the loan to a market 

rate of interest, not 7 percent, not one of these ridiculous adjustable rate things which people can’t pay. You take it down to a 3.75, 

4 percent, risk-adjusted, 30-year fixed rate. 

Okay, what am I missing? Why doesn’t that work in this environment? Yes, Ms. Schwartz. 

Ms. SCHWARTZ. Well, you have investor contracts that won’t let 

you write down mortgages. You have Fannie Mae, Freddie Mac, 

and FHA who won’t allow for a writedown like that. 

Mr. MCWATTERS. Well, those rules need to be changed. Someone 

needs to talk to them. 

Ms. SCHWARTZ. The NPV test requires something north of what 

it’s worth, and those workouts then take that into consideration. 

One thing this program has done through HAMP and others is target affordability. It’s not negative equity per se. So 2 percent, 40 

years, gets you that $500 payment, versus just writing off the full 

amount. 

Mr. MCWATTERS. So you’re saying there are rules that would inhibit a commonsense market-oriented response? 

Ms. SCHWARTZ. Of course. 

Mr. MCWATTERS. Oh, that’s encouraging. 

Anyone else? 


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Ms. PORTER. I would say that what you described—I’m a bankruptcy lawyer, so what you described—— 

Mr. MCWATTERS. I’m trying to keep everyone out of bankruptcy 

here. I’m trying to cut a deal. 

Ms. PORTER. Right. But the idea is, what you described is exactly 

right and exactly consistent with where parties get to when they 

don’t want to go into bankruptcy court because they know that’s 

exactly the deal the judge is going to get them. 

Mr. MCWATTERS. Of course. 

Ms. PORTER. So the point here is that if you like what you described and you think it makes sense, and I do, and the servicers 

aren’t doing it, because they’re the intermediary—in your negotiation, you weren’t negotiating with someone that hung up on you, 

that you had to call—I don’t know what your calling is like at your 

law firm, but—— 

Mr. MCWATTERS. I’ve been hung up on a few times, yes. 

Ms. PORTER. But the basic idea is that it wasn’t this intermediary that had a profit center and had misaligned incentives and 

was inept, frankly. 

Mr. MCWATTERS. I would tell them that’s a personal problem. 

They cut that deal back in 2004. I’m sorry they cut a bad deal. But 

guess what, if that deal had turned out to be a really good deal, 

do you think they would be calling Secretary Geithner and saying, 

hey, we made a whole bunch of dough, we want to give you some 

more? No, they would keep every dime of it. So they should live 

with the downside, too. 

Ms. PORTER. I agree, and I think this is one of the reasons that 

we have pushed and pushed for cramdown, is our sense is that 

servicers will not reach the rational conclusion that you’re talking 

about, and that negative equity—while affordability is important, 

so is negative equity. And because they won’t get there on their 

own, we need this system to force them. And bankruptcy courts in 

my view are not the perfect system for this. I have concerns about 

putting more families into bankruptcy, but the point that Ms. Gordon raised about we need a stick—these people have gorged themselves on a buffet of carrots and they’re still not doing what we 

want them to do, and so we need something stronger, I think. 

Mr. MCWATTERS. I’m way over my time. Thank you. 

The CHAIRMAN. Mr. Silvers. 

Mr. SILVERS. I just want to get a couple relevant pieces of data 

on the table. 

Mr. Evers or other panel members: The prior testimony today 

was that there have been 600,000 actual foreclosures this year. Do 

we know what portion of those were on homes whose mortgages 

were held by Fannie, Freddie, or another agency, as opposed to 

what percentage were in the private label market? 

Mr. EVERS. I don’t have that data available. I may be able to follow up with you. 

Mr. SILVERS. If you could please follow up with us. 

Does anyone have a guess roughly, I mean in orders of magnitude? 

Mr. CECALA. Sure. It’s got to be close to half, and particularly if 

you thrown in FHA and VA, or the whole government. 

Mr. SILVERS. The whole government. 


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Mr. CECALA. The whole government share of the market is 60 

percent. Even assuming the mortgages perform better than, let’s 

say, non-agency mortgages, it’s got to be close to half. So the answer is Fannie Mae, Freddie Mac, FHA, VA have a large role in 

terms of controlling those foreclosures. 

Mr. SILVERS. Ms. Gordon, you think that’s correct, that it’s close 

to half? I would have thought, given what we’ve heard about the 

relative balance of quality, that it would not be. 

Ms. GORDON. You know, I don’t know, but I’m pretty sure someone in my office does, and I can get back to you. But I think there’s 

no doubt that some of the foreclosures happening are agency loans. 

Mr. SILVERS. Oh, yes. Just the percentages. 

Mr. Evers, I think you probably have the definitive information 

on this. If you could provide the Panel with it, that would be very 

helpful. 

Secondly, Mr. Evers, in your testimony, in your written testimony, I believe you said that approximately 2 percent of mods both 

under HAMP and private mods—and Ms. Schwartz can comment— 

2 percent involved principal reductions; is that correct? 

Mr. EVERS. Correct. 

Mr. SILVERS. Ms. Schwartz, does that make sense to you? Does 

that sound right, in thinking about, say, the press release that’s in 

your testimony—— 

Ms. SCHWARTZ. Yes. 

Mr. SILVERS [continuing]. And the breadth of what your members 

are doing? 

Ms. Schwartz. Well, I think I don’t have distinct knowledge of 

the 2 percent, but early indications show that we know investor 

roles—and of course, the HAMP waterfall is rates, term, and then 

principal forbearance or deferral as the three tools, until the market has a standard NPV test that includes the principal writedown 

first, which is coming, I believe, through Treasury. We can then see 

a little more activity under that, where applicable. 

Mr. SILVERS. If there’s any more data on that, I’d appreciate it. 

I have a final question for the panel. I think one could characterize the testimony and the remarks of my fellow Panel members, 

particularly Mr. McWatters’ remarks, which I fully agree with, just 

a few moments ago, that we are faced with a choice here. We can 

either have a rational resolution to the foreclosure crisis or we can 

preserve the capital structure of the banks. We can’t do both. 

Which should we do? 

Ms. SCHWARTZ. I think we can do both. 

Mr. SILVERS. I’m not surprised. 

Any other panel members? 

Ms. GORDON. I’m not sure. I think that we can—I think either 

way, down the road we can’t—these homes are worth what they’re 

worth. No matter what anybody’s carrying them on their books at, 

we can’t—we’re not going to change that, and in fact the best hope 

we have of changing that is fixing the foreclosure crisis and stopping this death spiral that the housing sector is in. 

So if we do that right, maybe we can help make the banks’ books 

hew closer to reality. If we do neither, everybody can lose their 

home and then the banks are going to lose all the money anyway. 


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Mr. SILVERS. My time is up. But, not surprisingly, you appear to 

favor keeping people in homes and perhaps having to deal with the 

bank balance sheets as a result. 

Ms. GORDON. Yes. 

Ms. PORTER. Can I just say one more thing? If the banks got 

their deleveraging—we had too much leverage. 

Everybody was overleveraged, families and the banks. They got 

their chance to dump some of their bad stuff on the Fed of New 

York, and they got their chance to get an infusion of cash. 

Mr. SILVERS. But the Fed wants it back. 

Ms. PORTER. Yes, I know. 

But the point is, the American family is still very highly leveraged. We’re still at a point of debt for most families that is unprecedented in the history of America. Even with their making a little 

more saving, their not using as much credit card, they’re still really 

vulnerable going forward. That long-term affects the ability of the 

financial sector to be stable and be profitable. 

So there’s some benefit to getting the homeowners’ positions. 

There’s pain in the short term for the banks, but if your whole base 

or pool to lend to is highly risky and highly unstable, you’ll just 

keep running the risk of more blowups, of more very poor lending. 

Mr. SILVERS. Thank you. 

The CHAIRMAN. Thank you. 

Dr. Troske. 

Dr. TROSKE. So I’d like to sort of preface my question a little, and 

I’m actually going to answer the question that my fellow panelist 

Mr. Silvers asked before, since I’m always happy to answer his 

questions, to the previous witness, because I’m actually an economist and I understand a little bit about supply and demand, and 

I also understand a little bit about dynamics and the growth of the 

economy over time. 

Mr. Silvers is exactly correct. If we push a lot of homes on the 

market, prices will go down, unequivocally. Now, why would that 

be a rational policy for a government to do? Because, of course, 

there are tradeoffs. As people have noted, we are at a point 

where—we’re at a point. We’re at a point where house prices are 

worth less than they were. Banks need to write that off, and of 

course people need to write that off as well. 

But again, the point I made before is, well, is that there are lots 

of actors in this economy, many of whom were hurt and any of 

whom will only recover when the economy begins to grow again. 

And there is a tradeoff. There is a tradeoff between the short-term 

growth, taking losses in the short term, for the potential of a 

quicker long-term growth in the long run. Part of what we’re looking for is what’s the best way to get to the long-term solution, a 

solution in which we have people in affordable housing situations. 

So, Ms. Gordon, you seem to be the one that was willing to address this question before, so I guess I’ll ask you again, or I’ll ask 

you to expand on what you thought. Should we not take any of the 

rest of the actors in the economy’s well-being into consideration 

when thinking about this tradeoff ? Because we are where we are, 

and the question is—part of the question should be how we got 

here and we need to address the issues that got us here. But the 


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other question is how do we move forward in a way that gets us 

back to a growing economy as quickly as possible. 

Ms. GORDON. I don’t want us to be posing false choices here. 

There are foreclosures that are unavoidable. What we need to do 

is figure out a reliable way to separate out the ones that are avoidable from the ones that are not avoidable. We do not have that reliable way right now. That is the system in which the public has lost 

confidence and now the buyers have lost confidence, and we are in 

a pickle as a result. 

Foreclosures that are unavoidable, I completely agree, let’s do 

them. Let’s get that home resold, hopefully to someone in the community and get some of these communities rebuilt. For the ones 

that are unavoidable, where, as Mr. McWatters has pointed out, it 

just makes no sense to go through these very costly foreclosures 

when both the investor and the homeowner end up worse off. 

I mean, I’m not an economist, but I’m pretty sure that’s not an 

optimal scenario there. 

Dr. TROSKE. As an economist, I’ll agree with you 100 percent. 

What Mr. McWatters said is entirely correct. If it’s in the interests 

of the borrower and the lender to modify the mortgage, that should 

be done, and we shouldn’t have rules that prevent that from occurring. 

Ms. SCHWARTZ. And that is what we—we want that to happen 

in all of those situations. 

Dr. TROSKE. Thank you. 

The CHAIRMAN. Superintendent Neiman. 

Mr. NEIMAN. Thank you. 

One of the main frustrations with HAMP has been regarding 

issues around lost documents and delays in decisioning. That’s why 

I’ve been so strongly interested in a web portal, the Hope LoanPort 

that Ms. Schwartz is an executive on. What is the level of usage? 

When are we going to begin seeing data regarding access and volumes of mortgages and counselors and borrowers who are using the 

system? 

Ms. SCHWARTZ. It’s a great question. We just left our pilot phase 

in June of this year and signed on some of the nation’s largest 

servicers over the summer, which is what you need to get the volume. And of course, you need housing counselors to help direct that 

volume, and we’ve worked with NeighborWorks America and HUD 

to help endorse the system for counselors across the country. 

We have thousands of loans now on it that have entered the system. 

Mr. NEIMAN. Thousands meaning? 

Ms. SCHWARTZ. Up to 6,000. 

Mr. NEIMAN. 6,000. 

Ms. SCHWARTZ. What’s most important is that we tested it thoroughly, and you should know that it was banks and counselors that 

developed it together and that accommodated each other’s requests 

on how it could work for statusing of loans. We have good agreement among the banks and the counselors on how to operate and 

tell each other what’s going on in a more timely manner and kind 

of guidelines of that sort. 

So we’re working very closely with the community groups, counseling groups, as well as the banks and servicers. 


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Mr. NEIMAN. Plans for direct access by borrowers? 

Ms. SCHWARTZ. We’d like to see that happen. We do have—one 

of the state housing agencies already has direct access through the 

tool to borrowers and we’d like to see that more broadly offered, 

and we’ll offer it to counselors directly, to have direct borrower access. 

We think third parties should be helpful to the borrower in that 

document retrieval and scanning to make sure it all works well. 

But we believe it’s a fine way to go. 

Mr. NEIMAN. So my last question is also directed to you. You 

heard Mr. Evers talk about the limitations on sharing data regarding proprietary mods based on supervisory considerations, something I certainly know something about. However, the same restraints would not apply to the industry itself to voluntarily share 

that information to the public on performance data by servicer. 

Ms. SCHWARTZ. You know, we went through a long process to get 

all the servicers to agree to share data. One of the constraints I 

have is I don’t see anyone’s individual data. I just have the aggregate information. I would leave it up to the regulators and the supervisors to work with you on bank by bank and servicer by 

servicer. We’re here to kind of tell you the results otherwise. 

Mr. NEIMAN. Well, ideally, Treasury and HOPE NOW and the 

regulators, if they can find a way to share the servicers—I see Ms. 

Gordon. How important do you think getting that data out is? 

Ms. GORDON. You know, our goal is to make evidence-based policy, and when you can’t see the evidence that makes it harder. 

We’ve been particularly frustrated by the fact that we have yet to 

see the public release of the loan-level HAMP data, which has been 

promised for months and months and months. The people at my organization who do the research using this data really, really need 

it. 

Mr. NEIMAN. Thank you. 

My time has expired. 

The CHAIRMAN. Well, thank you very much. Thank the panel 

very much. The record will be open for a week for any further questions the Panel members want to raise. 

I also want to thank Ms. Caldwell for staying behind. I thought 

this was an excellent panel and I think we all learned a lot from 

it. 

So thank you, and with that the hearing is adjourned. 

[Whereupon, at 12:53 p.m., the hearing was adjourned.] 


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