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USING FHA FOR HOUSING STABILIZATION

AND HOMEOWNERSHIP RETENTION, PART II

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

APRIL 10, 2008

Printed for the use of the Committee on Financial Services

Serial No. 110–104

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

C O N T E N T S 

Page 

Hearing held on: 

April 10, 2008 ................................................................................................... 1

Appendix: 

April 10, 2008 ................................................................................................... 49

WITNESSES 

THURSDAY, APRIL 10, 2008

Burrola, Victor, Director, Homeownership Network, National Council of La 

Raza ....................................................................................................................... 32

Crowley, Sheila, MSW, Ph.D., President, National Low Income Housing Coalition ........................................................................................................................ 29

Fenty, Hon. Adrian M., Mayor, District of Columbia ........................................... 9

Garver, Doug, Executive Director, Ohio Housing Finance Agency, on behalf 

of the National Council of State Housing Agencies (NCSHA) .......................... 25

Goodman, Hon. Oscar B., Mayor, City of Las Vegas ............................................ 13

Lizarraga, David C., Chairman, United States Hispanic Chamber of Commerce (USHCC) .................................................................................................... 27

Menino, Hon. Thomas M., Mayor, City of Boston ................................................. 10

O’Malley, Hon. Martin, Governor, State of Maryland .......................................... 7

Shelton, Hilary O., Director, NAACP Washington Bureau .................................. 31

APPENDIX 

Prepared statements: 

Bachus, Hon. Spencer ...................................................................................... 50

Carson, Hon. Andre .......................................................................................... 54

Velazquez, Hon. Nydia M. ............................................................................... 56

Burrola, Victor .................................................................................................. 57

Crowley, Sheila ................................................................................................. 65

Fenty, Hon. Adrian M. ..................................................................................... 72

Garver, Doug ..................................................................................................... 76

Goodman, Hon. Oscar B. .................................................................................. 83

Lizarraga, David C. .......................................................................................... 86

Menino, Hon. Thomas M. ................................................................................. 90

O’Malley, Hon. Martin ..................................................................................... 94

Shelton, Hilary O. ............................................................................................. 101

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Frank, Hon. Barney: 

Letter from Mayor Ronald O. Loveridge, dated March 10, 2008 .................. 106

Letter from the members of the National Foreclosure Prevention and 

Neighborhood Stabilization Task Force, dated April 7, 2008 .................... 107

Letter to Hon. Christopher Dodd, Hon. Barney Frank, Hon. Richard 

Shelby, and Hon. Spencer Bachus from the National Governors Association, dated April 3, 2008 .......................................................................... 108

Letter from the National League of Cities, dated March 7, 2008 ................ 110

Statement on behalf of the National Multi Housing Council and the 

National Apartment Association .................................................................. 114

Article from The New York Times, entitled, ‘‘In U.S., Metal Theft Plagues 

Troubled Neighborhoods,’’ dated April 8, 2008 ........................................... 119

Letter to President Bush, Hon. Nancy Pelosi, and Hon. Harry Reid from 

Hon. Deval Patrick, Governor of Massachusetts, dated April 3, 2008 ..... 121

Page

IV

Frank, Hon. Barney—Continued

Letter to Hon. Christopher Dodd from PIMCO, dated April 9, 2008 ........... 124

Statement of the United States Conference of Mayors, the National Association of Counties, the National Association of Local Housing Agencies, 

and the National Community Development Association, dated April 

9, 2008 ............................................................................................................ 126

Various items relating to Boston’s Anti-Foreclosure Campaign, submitted 

by Mayor Menino .......................................................................................... 130

(1)

USING FHA FOR HOUSING STABILIZATION 

AND HOMEOWNERSHIP RETENTION, PART II 

Thursday, April 10, 2008

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The committee met, pursuant to notice, at 10:03 a.m., in room 

2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. 

Members present: Representatives Frank, Waters, Velazquez, 

Watt, Moore, Clay, Lynch, Miller of North Carolina, Green, Cleaver, Davis of Tennessee, Hodes, Ellison, Klein, Wilson, Perlmutter, 

Foster, Carson; Pryce, Manzullo, Biggert, Miller of California, 

Capito, Hensarling, Brown-Waite, Marchant, and Heller. 

The CHAIRMAN. The hearing will come to order. This is the second day of hearings on what we hope will be our response to the 

ongoing foreclosure crisis. I would point out again, and I want to 

underline this, questions have been raised as we approach this 

about the phenomenon which is, I think oddly, known as ‘‘moral 

hazard.’’ That does not appear to me to be a good use of the 

English language, but it is the fear that if you alleviate current 

problems, you will somehow reduce the barrier to people repeating 

that behavior. 

One of the things I want to stress is that this committee last 

year, and then the whole House, pursuant to our recommendation, 

adopted legislation that will govern the mortgage business going 

forward. Our main protection against a repetition of the behavior 

that has led to the current crisis is a law that we hope will be enacted—and we hope the Senate will act—that will legally prevent 

a lot of what happened. So when we talk about diminishing the 

moral hazard aspect, we are not relying simply on people’s experience; we are going to make it illegal. 

I should also add that even if everything we are now proposing 

goes through, even if what the Administration has proposed, which 

is an expansion of efforts to help, if we do all that, it is hard for 

me to think that anybody who has gone through this, either as a 

lender or a borrower or a servicer, is going to say, ‘‘Gee, that was 

fun. I’m going to get on line and buy another ticket.’’ I think the 

inherent difficulties of the experience—we are alleviating people’s 

difficulties. We are not making anybody whole. 

With that, I want to just thank our panel. We are here today to 

talk about Title 3 of the bill, and I will tell people that we don’t 

know at this point what the legislative next steps will be. The Senate, as Members know and others, has acted on some pieces of a 

2

housing plan, a response. The Administration has a position. We 

put one bill together. It has three titles. I do not know whether it 

will be done as one bill, two bills, or as two or one bills as part 

of an overall package. That is something that the leaderships are 

now discussing. 

The Treasury Department has weighed in, as people might know, 

urging that, for instance, the bill that this committee passed on the 

government-sponsored enterprises be made part of an overall package, because as the Treasury Department correctly points out, it 

has been the general decision to rely more on the Federal Home 

Loan Banks, Fannie Mae, and Freddie Mac, in the current situation, and the Treasury feels, I think quite correctly, that we should 

enhance the regulation as we do this. Necessity has required that 

they be given more authority, but we think that there ought to be 

more regulatory authority, including provisions for rental housing, 

which we added to the bill. 

So, I can’t tell people exactly what form the leaderships are going 

to settle on in moving forward, but we do plan to go forward. This 

particular piece is very important. I was reading Tuesday’s New 

York Times yesterday—I was a little behind—and this was the 

story in the business section: ‘‘Metal scrappers have attacked 

churches and ransacked homes in this Midwestern city, leaving entire neighborhoods uninhabitable.’’ This is from Cleveland. 

Vacant property, substantially due to foreclosure, is a serious 

problem for cities in particular, property that once paid taxes to 

support the services our constituents need in increasing amounts 

have been transformed into consumers of tax revenues. Mayors 

have to send police officers, firefighters. The fire marshal of the 

State of Massachusetts told us that he has done a study which 

shows that vacant properties—not surprising, but it’s always interesting to have it confirmed—are a serious source of fires and a 

major drain on fire departments. So you have the cities being given 

fewer revenues and more needs. It is of course also the case that 

foreclosed property detracts from those people in the neighborhood 

who are trying to keep up their property. 

One of the issues we have is, well, why are you helping out some 

of these people who imprudently borrowed? The answer is the people who suffer when there is a foreclosure are not simply those 

whose homes are foreclosed, although they suffer the greatest, but 

people down the block and people across the street suffer as well 

with a deterioration both in the quality of life and the value of that 

property, and then the municipalities suffer and the States suffer 

because of the revenue losses. 

So we have proposed legislation that would provide funds to our 

units of local government and we are going to be working on ways 

so that it goes through the States but with a requirement that 

there be cooperation with the cities. We are looking at numbers 

now. What we hope to do is give this money out in a formula 

which, as nearly as we can achieve, reflects the amount of foreclosed property. To that extent, if we are successful, it would be 

like other countercyclical fiscal programs. It would gets the money 

by definition to where the need is. People who do not have foreclosed property will not get any funds under this. It will go to 

where the need is. 

3

We believe that putting a dent in the overhang of foreclosed 

property is important economically, socially, and in other ways. 

And we are open to conversations with those who administer the 

State and local governments about how best to do it. So we have 

a governor and three mayors, and we had asked for others. 

Let me say, we do have a letter, which I will ask unanimous consent to put in the record. I actually have a number of things to put 

in, but I ask unanimous consent to put into the record the letter 

from the Governors Association signed by—I don’t have the exact 

name—one Democratic governor and one Republican governor on 

behalf of the whole Governors Association in a bipartisan way endorsing this idea. 

Obviously, we have details to work out, but the Governors Association has supported it. Obviously, we have mayors who are interested in it, and that is what we hope to work out. 

It is my expectation that the committee will be voting on this on 

the 23rd of April, giving us basically 2 weeks from today’s hearing, 

and hopefully, we will be able to do some of this on the Floor. 

Are there any further requests for opening statements? I know 

the gentleman from New Hampshire had a statement. The ranking 

member of the Housing Subcommittee will be here at some point 

and will—oh, I didn’t see my colleague, the chairwoman of the subcommittee, the gentlewoman from California, is here. 

Ms. WATERS. Thank you very much, Mr. Chairman. I thank you 

for convening this second day of hearings. As I mentioned yesterday, I have personally witnessed block after block of foreclosed 

properties when I visited cities such as Cleveland, Detroit, and 

some areas of California. It is now crystal clear that any sound 

strategy for providing further stimulus to the ailing economy must 

include making Federal resources available for State and local government in partnership with nonprofits to purchase these properties and either resell them or operate them as affordable rental 

housing. 

I feel strongly enough about certain issues that needed to be addressed in any such stimulus that I too introduced H.R. 5678, the 

Neighborhood Rescue and Stabilization Act. However, I am very 

pleased, Mr. Chairman, that your staff has been working with my 

staff, and you have included in your draft many of the concerns 

that I addressed in H.R. 5678. They have been working over the 

past few days, and they have particularly worked on the provisions 

of the draft that proposed solutions by way of loans and grants to 

addressed the foreclosed properties dilemma. 

I am happy to report that I understand the next version of the 

proposal will include some key changes that I strongly endorse and 

that I had again included in my legislation. In particular, I am 

pleased that we will move to deeper income targeting. I believe 

strongly that any substantial investment of Federal resources in 

the homeownership and rental housing stock of communities must 

take into account the housing needs of very-low- and extremelylow-income families; that is, those earning below 50 percent of area 

median income and 30 percent of area median income, respectively. 

These poorest households face a double whammy in the current 

crisis. Thanks to the push by the Administration and subprime 

lenders to increase homeownership at all costs, more such houseVerDate 0ct 09 2002 12:18 Jun 23, 2008 Jkt 042716 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\42716.TXT TERRIE
4

holds are homeowners than ever before, 11.2 million nationwide, 

and 1 million in California alone. They are at great risk of foreclosure given their low capacity to withstand a financial disruption 

such as an interest rate reset. Not only that, extremely-low-income 

renters now face increased competition for an inadequate supply of 

affordable housing from slightly higher-income households who 

have been foreclosed upon. 

In addition, some renters are facing eviction when, through no 

fault of their own, the homes they have rented enter foreclosure. 

Accordingly, I am pleased that the new version of the bill will require that fully one-quarter of authorized funds will target verylow-income households, and half of that amount must be targeted 

to extremely-low-income households. 

I am also cognizant of the fact that it is a financing challenge 

to serve very-low- and extremely-low-income households. Additionally, the foreclosed and abandoned property aspect of the current 

economic crisis is filled with uncertainty, given that many of these 

properties are located in communities with rapidly shifting and 

sometimes nearly impossible-to-determine market values. 

For these reasons, I have strongly advocated for providing as 

much assistance as possible in the form of grants, rather than 

loans that have an uncertain prospect of being repaid. Therefore, 

I am also happy that you have included increasing the grant portion of the bill from $2.5 billion to $5 billion, fully half of the authorized assistance. 

Finally, I share the chairman’s concern that Federal resources 

devoted to revitalizing foreclosed and abandoned properties should 

be invested in a coordinated and effective fashion. This said, it is 

a mistake to ignore the substantial capacity that exists in the governments of our Nation’s largest cities, a point on which I suspect 

our first witness panel will concur. That is why H.R. 5678 proposed 

to distribute funds not just to States, but to large cities as well. 

I understand, Mr. Chairman, that you will be modifying the current proposal to include funding of the country’s 25 largest cities, 

which I think is a great approach. The key point is that we in this 

committee must move quickly to get consensus on a proposal that 

provides substantial targeted resources rapidly to State and local 

governments with the capacity to administer them effectively. This 

is because we already know that we are in for some tough negotiations with the Senate on their more modest proposal in this area. 

I appreciate your willingness to listen to the concerns of your 

members, Mr. Chairman, and I thank you for including already in 

your draft some of those ideas that I attempted to address in H.R. 

5678. I thank you, and I yield back the balance of my time. 

The CHAIRMAN. I thank the gentlewoman. Let me at this point 

just read the list of people inserts: 

We have a letter from the National Governors Association to the 

chair and ranking members of the two committees in the House 

and the Senate supporting this concept and making suggestions 

about how to do it. It is signed in support of this by Governor 

Granholm of Michigan, who is the chair of the Economic Development and Commerce Committee and a Democrat, Governor Rounds 

of South Dakota, who is the vice chair of the Economic DevelopVerDate 0ct 09 2002 12:18 Jun 23, 2008 Jkt 042716 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\42716.TXT TERRIE
5

ment and Commerce Committee and a Republican, and it is on behalf of the National Governors Association. 

In addition, there is a letter from the League of Cities signed by 

Joe Davis, the alderman from Milwaukee who is chair of the National League of Cities Committee and National Model Development Committee in support of this. The Governor of Massachusetts, the mayor of Riverside, California, and the National Foreclosure Prevention and Stabilization Task Force, which endorses 

both yesterday’s bill and today’s, again, with specific suggestions. 

And that is a coalition which includes the Community Development 

Financial Institutions Coalition Enterprise, the Housing Assistance 

Council, the Housing Partnership Network, the Local Initiative 

Support Corporation, the National Alliance of Community Economic Development Associations, the Community Land Trust Network, the National Housing Institute, Housing Conference, and 

NeighborWorks Association. 

I would note that our colleague from California, Ms. Sanchez, 

Ms. Loretta Sanchez, had specifically talked about the importance 

of them, and asked that they be able to participate in this hearing. 

We also have the National Vacant Properties Campaign; that is 

probably an organization that didn’t exist a few years ago, the National Vacant Properties Campaign, and we hope to put it out of 

business. And finally, Smart Growth America. 

These will be, without objection, put into the record. 

The gentlewoman from West Virginia, the ranking member of the 

Housing Subcommittee, is now recognized. 

Mrs. CAPITO. Thank you, Mr. Chairman, and I thank all the witnesses for coming today on a very important issue on the recent 

mortgage crisis and steps that we might take to address the impact 

on individual homeowners, the mortgage industry, and our economy in general. 

The Center for Responsible Lending estimates 2.2 million Americans with subprime loans will lose their homes. The Mortgage 

Bankers Association reports that 550,000 homeowners with 

subprime loans began a foreclosure process in 2007. Clearly, we’re 

facing difficult economic times, and the housing market, which was 

the engine driving this country’s robust economic growth, is now a 

major factor in the economic downturn. 

While I understand that many feel an urgency to move quickly 

on this legislation that will address the current mortgage crisis, I 

want to caution my colleagues on how important it is to make sure 

that we understand the consequences of our actions, and that we 

do it right. There is certainly enough editorial comment on both 

sides of the issues, some urging quick action, others making the 

case that action would only further prolong the current mortgage 

crisis and exacerbate the problems. It’s difficult to know how best 

to proceed. 

Several weeks ago, much of the attention pertaining to the mortgage crisis was focused on the potential resets and the ability of 

homeowners holding these loans to continue making their payments after the reset. Recent reductions in interest rates have 

made those resets less of a problem. Today the focus is more on 

those homeowners who are underwater, families living in homes 

6

that are worthless due to declining markets and the current mortgage on their home. 

The change in focus serves to highlight the importance of being 

deliberate and cautious before taking action that may only exacerbate the crisis and weaken our economy. I have been very pleased 

to hear of the progress that has been made on both FHA modernization—although I would like to get that bill out of conference 

and onto the Floor—as well as a discussion of potential expansions 

of FHA Secure programs that have been created to assist homeowners with mortgages that have reset and are now having trouble 

making their payments. We must have a modernized FHA in order 

to properly respond to the current housing troubles as well as avoid 

future problems. 

There have been efforts to expand the pool of homeowners. Ranking Member Biggert and I recently wrote to FHA Commissioner 

Montgomery, who was here yesterday, urging the Administration 

to implement administrative changes, which he has said they are 

going to do and willing to do, and I look forward to learning more 

about the progress of this program. 

Whatever action this committee takes, we must be careful not to 

expose the taxpayers to undue risk when responding to the troubles in the housing market. Two programs that are already in 

place, HOPE NOW and FHA Secure, have helped over a million 

homeowners stabilize their mortgages by working with all involved 

in the process. I’d like to again thank Chairman Frank for holding 

this hearing and I look forward to the testimony of our witnesses. 

I yield back. 

The CHAIRMAN. The gentleman from New Hampshire had asked 

for time. 

Mr. HODES. Thank you, Mr. Chairman. Thank you for holding 

this important hearing, and for taking a principled lead in an effort 

to provide relief for the foreclosure crisis and for keeping working 

families in their homes. 

Yesterday this committee heard from the regulators and economists. We heard from Administration officials who expressed reservations about Chairman Frank’s proposed legislation, and the 

White House has even weighed in against relief for homeowners. 

Yet the Federal Reserve has no qualms about lending Wall Street 

$30 billion. I don’t necessarily think that is a bad thing, but if 

there is money for Wall Street, there surely has to be money for 

Main Street. 

Many of my constituents are wondering whether Congress will 

act to help the folks who need help with their homes. Too often this 

Administration has advocated and adopted economic policies based 

on a top-down model. The lax regulatory environment over the past 

years, the tax policies we have seen, have led us in part to the crisis we are facing today, and working families and middle-class families are suffering as a result. 

In my home State of New Hampshire, it is projected that 4,300 

homes will be foreclosed by 2009. You can drive through neighborhoods in Manchester, Concord, and Nashua and see street after 

street with numbers of bank-owned sales and foreclosed signs on 

properties. There is a crisis out there, and it takes a toll on families, on neighborhoods, and on State and local budgets. As the 

7

chairman’s remarks suggest, every foreclosure is like throwing a 

boulder into a pond; you get big ripples and bad effects. 

So I look forward to today’s testimony from our distinguished 

panel, whom I thank for being here. Today’s testimony will highlight the true human cost of the foreclosure crisis when we hear 

about the impact it is having on local and State leaders. This input 

is important to understand how this committee should and must 

move forward as expeditiously as possible to provide relief for this 

crisis. 

Thank you, Mr. Chairman. I yield back. 

The CHAIRMAN. Are there any further opening statements? If not, 

we will go to our panel, and we will begin with Governor O’Malley. 

STATEMENT OF THE HONORABLE MARTIN O’MALLEY, 

GOVERNOR, STATE OF MARYLAND 

Governor O’MALLEY. Mr. Chairman, thank you very much for the 

privilege of being able to testify before your committee. Ranking 

Member Capito and the distinguished members of the committee, 

thank you for inviting me here today, and thank you also for your 

leadership on this looming crisis that is threatening to undermine 

the very strength and stability of America’s middle class and therefore the security of our shared economic future. 

The legislation I testify in support of today is critical to making 

progress in the face of this challenge. Mr. Chairman, over the last 

7 years, we have seen an effort by some at the Federal level to do 

away with regulators, to create what the Congressman described as 

that lax regulatory environment, and now we see the results. 

Subprime mortgages, communities being preyed upon, and an unprecedented foreclosure crisis that threatens to undermine the 

strength of our middle class and the security of our shared economic future. 

Government in fact actually can play a critical role in getting us 

out of this calamity and sparing countless thousands of families 

and neighborhoods the sort of damage that results from foreclosures. This, I might add, is why the work of this committee is 

so important. In Maryland, Mr. Chairman, we actually license loan 

servicers. We recognize that everyone loses when there is a foreclosure—lenders, borrowers, neighbors, communities, and so forth. 

So last summer we brought all of the various stakeholders to the 

table and assembled a task force that included consumer advocates, 

lenders, housing counselors, and representatives from government. 

And out of their recommendations came something that the 

Washington Post referred to as the most sweeping legislative package yet enacted, and under our new laws in Maryland, families, 

prospectively anyway, will have more time to avert foreclosure, 

lenders will have more accountability, and future borrowers will be 

less likely to get into unsustainable mortgages. 

In addition, we have new tools for going after those who prey on 

our most vulnerable citizens. But most of those benefits are prospective in nature. We still have a challenge with tens of thousands 

of families who are facing foreclosure now. So as an additional part 

of our strategy, we have been working with lenders to create products for which both government and private lenders share the risks 

associated with refinancing the loans of defaulted borrowers. 

8

We are exploring ways to bring banks to the table as well. We 

have also created a program called Bridge to HOPE, which offers 

small, no-interest loans of up to $15,000 to help at-risk homeowners refinance and save their homes. 

While all of these initiatives represent steady progress at the 

State level, our ultimate success depends on a successful partnership with our Federal Government playing an indispensable and 

critical role in this partnership. The legislation at hand is that important role, and I wanted to offer just a couple of thoughts on key 

provisions. 

Number one, I strongly support language that would authorize 

$200 million per year for housing counseling. These sort of mitigation originators, if you will, who can work with homeowners to help 

them get the lenders on the phone. Federal funding for these 

servicers is already helping us produce some results in Maryland. 

Funding from the National Foreclosure Mitigation Program has allowed our State to expand our nonprofit network and significantly 

increase the number of homeowners we assist. 

Number two, we believe the provisions regarding the acquisition 

and rehabilitation of foreclosed properties would help prevent vibrant neighborhoods, or neighborhoods that are starting to come 

back, from becoming vacant neighborhoods. This funding would not 

amount to a bailout, as some have suggested, but rather it would 

allow States and cities to target resources to save neighborhoods 

before they become blighted, and to allow us to mitigate the damage that is being done also to tens of thousands of homeowners. 

I would like to also recommend that some of these funds in these 

provisions be made available to bridge funding programs like our 

Bridge to HOPE program in Maryland. 

Mr. Chairman, whatever our efforts to date in Maryland, our 

Achilles heel is this, that we lack right now the resources that 

could be targeted in reasonable ways, in timely ways to mitigate 

the damage that is being done by a rising tide of foreclosures that 

is affecting some of our neighborhoods more disproportionately 

than others. Homeownership is the cornerstone of the American 

Dream. It is a pathway into the middle class for so many who 

dream of building better lives for themselves and for their families. 

To lose even one home is a tragedy. To lose hundreds of thousands 

is a threat to the strength and the vitality of America’s middle 

class and to the security of our shared economic future. 

I thank you for your leadership. These resources are critical to 

us in the States and our cities, and we thank you for inviting our 

input in this important matter today. 

[The prepared statement of Governor O’Malley can be found on 

page 94 of the appendix.] 

The CHAIRMAN. It always seemed to be a little presumptuous for 

us to welcome the Mayor of our host city. He is the one who should 

welcome us. And Mayor, we thank you for coming here as the 

Mayor of the City that hosts us and isn’t always adequately recognized for that. Thank you for your testimony. 

9

STATEMENT OF THE HONORABLE ADRIAN M. FENTY, MAYOR, 

DISTRICT OF COLUMBIA 

Mayor FENTY. Thank you very much, Mr. Chairman, and members of the Committee on Financial Services. Thanks for inviting 

all of us to testify today on your proposal to reduce foreclosures affecting people in communities throughout the Nation. 

You have no doubt heard from countless housing and economic 

experts as you have crafted the legislation we are discussing today, 

but my fellow mayors and former mayor and I are here today because at its core, this issue is not about numbers. It’s not even 

about mortgages or interest rates. It’s about people. Shelter is a 

basic human need, and my Administration hears every day from 

residents right here in our Nation’s capital who need our help to 

keep their homes. 

So I would like to express my full support for your FHA Housing 

Stabilization and Homeownership Retention Act of 2008, and to 

discuss some of the ways the bill would positively impact the people of the District of Columbia, as well as the entire Nation. 

We must move quickly to shore up our national economy. We 

know that the effects of the subprime lending crisis have gone beyond housing to affect the economy as a whole. Here in the District, we are somewhat fortunate because the recent increase in 

foreclosures has been relatively modest, but the potential impact on 

our economic wellbeing is still significant. The ripple effect of foreclosures has been a tighter credit environment and declines in real 

property values. This is of great concern to me and other local 

elected officials. 

An October of 2007 Joint Economic Committee report projected 

that there will be approximately 1.3 million foreclosures and a loss 

of housing wealth of more than $103 billion through the end of 

2009 caused by the spill-over effects of foreclosures. 

As of last fall, residents of the District had more than 11,000 outstanding subprime loans and had experienced almost 2,000 

subprime foreclosures. While this is a fairly low rate in comparison 

to many States, the subprime lending crisis has still affected us 

quite severely through loss in home values, neighboring property 

values, and property tax revenues totalling over $257 million. In 

addition, we cannot know how many of the 9,000 remaining 

subprime loans in the District will end up in foreclosure. 

Our local government offers a dedicated mortgage default and potential foreclosure counseling to clients who have fallen behind in 

their mortgage payments. As demand for this type of individual 

counseling has increased over the past year, some counselors have 

increased their services in response by providing specific foreclosure prevention ‘‘clinics’’ that are advertised in the community. 

Your legislation would help District residents by offering direct 

assistance to homeowners in foreclosure and providing us with additional resources to support our existing affordable housing programs, especially those that use vacant or foreclosed properties. 

The legislation would also slow the rate of foreclosures regionally 

and nationally along with their potentially devastating ripple effects. 

In the District, we have two homebuyer assistance programs—

the Housing Purchase Assistance Program (HPAP) and the EmVerDate 0ct 09 2002 12:18 Jun 23, 2008 Jkt 042716 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\42716.TXT TERRIE
10

ployer Assisted Housing Program (EAHP). We have found that 

first-time homebuyers who took part in these programs have not 

fallen victim to the current mortgage foreclosure crisis at the same 

levels as other jurisdictions. We believe this is because all participants go through a comprehensive homebuyer training program. 

Also, the loan processors for these programs evaluate the borrower’s entire home financing package. 

Still for other residents of the District who are not first-time 

homebuyers or have purchased their homes without government 

assistance, the expanded HFA refinance options provided in this 

bill would be a helpful addition. We still have many people living 

under the weight of subprime mortgages, and in danger of mortgage foreclosure. 

The bill’s proposed Loans and Grants program also would be of 

tremendous assistance to the District. The scarcity of affordable 

housing has been a crisis for some time in our City. We have recognized the need for a funding tool such as this one to address the 

current market conditions and create the potential for new affordable housing development. 

In the District’s Fiscal Year 2009 budget, we proposed purchasing vacant land and buildings, including foreclosed properties, 

for affordable housing. The local funding that we proposed would 

allow the City to purchase up to 75 such single-family properties. 

The Federal funding proposed in your legislation would allow us to 

significantly expand our efforts to restore foreclosed properties to 

productive use. 

The proposed Loans and Grants program would also support existing programs at the D.C. Housing and Finance Agency, including 

workforce housing assistance, simplified financing for developers of 

affordable housing, and below-market rate mortgages for families. 

In conclusion, Chairman Frank and committee members, I have 

often said that the future of this country lies in its cities. It is in 

the Nation’s cities that you will find models of diversity, sustainability, and productivity. For our cities to thrive, we must protect 

the residents who live in them. Thus, I want to thank you in advance for your efforts to get this legislation passed, and I would be 

happy to answer any questions. 

[The prepared statement of Mayor Fenty can be found on page 

72 of the appendix.] 

The CHAIRMAN. Thank you, Mr. Mayor. 

Our next witness is the Mayor of the City of Boston. I am particularly pleased that he is here, because there are people in greater Boston who are not always able to distinguish between us, so 

having us both in the same room at the same time, I think, will 

therefore be very useful. 

Mr. Mayor? 

STATEMENT OF THE HONORABLE THOMAS M. MENINO, 

MAYOR, CITY OF BOSTON 

Mayor MENINO. Thank you. I think that is so true. 

Members of this committee, thank you for having us here today. 

I also recognize my Congressman, Congressman Lynch, for all the 

great work he does for our City every day. 

11

You have asked that I focus my remarks on Section III of the 

Act, which provides loans and grants for States for foreclosure mitigation and relief. This important legislation comes none too soon. 

Boston’s foreclosure rate is 2.5 percent. For people who complete 

our classes and receive our financial help, it is even lower, less 

than 1 percent. Despite our successful programs, every day we see 

how the meltdown of our financial system is affecting the lives of 

people who live in our neighborhoods and call Boston home. 

Last year, lenders foreclosed on 700 homes, more than 3 times 

the level foreclosed the year before. By the end of 2008, we project 

another 1,000 foreclosures; one foreclosure is one too many. 

We have 250,000 homes in our City. Approximately one-half of 

one percent of this housing stock was foreclosed on, representing 

1,200 housing units. This may not seem significant, but here is the 

problem: Our foreclosures are concentrated in the poorest neighborhoods of our City. They are located where thousands of hard-working people have scraped together money to buy homes through the 

City’s programs. They are located in neighborhoods where the City 

and its partners have invested millions of dollars in State and Federal resources to produce high-quality, affordable rental units. 

So even though our numbers are relatively low, the impact is 

huge, and not just for the families who are being foreclosed on. 

There are problems for people who live next to the boarded-up foreclosed buildings—buildings that can quickly become un-boarded, 

and provide opportunities for drug dealers, chop shops, prostitutes, 

and other illegal activities. We have worked too hard to make these 

neighborhoods into thriving places to live and work. 

We can do better. We must do better. This brings me to the legislation. There is one thing I want to leave you with today, and it 

is this—a sense of urgency. We must act now. 

At the local level, I see the impact of these foreclosures. I know 

that anyone who takes a look at a street of foreclosed properties 

comes away with the same feelings I do, frustration and impatience. We want to take immediate action before more families lose 

their homes, their sense of security and hope, and before more 

properties become vacant. The people who live in these neighborhoods see the property values decline and crime increase. 

I have some specific comments about Section III. I know that you 

will consider my remarks in the spirit which I raise them—to make 

this legislation the best it can be. 

Section III ties funding to the number of foreclosures Statewide 

as a share of foreclosures nationally. Some States like Massachusetts, which have relatively few foreclosures, have cities like Boston, with concentrated foreclosure activities. I urge you to look at 

the formula with this in mind, design it so that high-impact pockets of foreclosure receive resources and assistance. 

In general, I believe the focus on States seems to be misplaced. 

Target the resources and the response to what is happening. Cities 

and mayors in particular are the ones dealing with this foreclosure 

crisis every day. 

My understanding is that States will develop their plans and 

that funding comes once the plans are approved. Remember Homeland Security. Think how long it will take for States to get the information from cities like Boston, from smaller communities, then 

12

accumulate them and digest the information. We can’t afford to 

wait. 

We have proven tools and processes that work. I urge you to consider utilizing the CDBG allocation process, where larger cities 

with the capacity can develop their own plans, have States work 

with communities that do not have local capacity. I strongly urge 

you to provide direct funding to cities like Boston. 

I want to focus now on the reality of foreclosures—dealing with 

the servicers. My comments are based on our experiences in purchasing foreclosed property in the Hendry Street neighborhood of 

Boston. We have two 3-deckers and two other 3-deckers that have 

been converted to condos, for a total of 12 units. We also have 

plans to purchase additional houses. 

I strongly urge you to think about the mechanics of buying from 

the servicers. Otherwise, the legislative goals will not be achieved, 

and our neighborhoods will continue to be plagued by these properties. Dealing with the servicers and their Realtors is extremely 

time-consuming. Realtors have no authority, and must get 

servicers’ approval to sell. Servicers are overwhelmed with the 

number of properties they own, and I question whether, at a national level, they have the capacity to move with the speed this legislation envisions. 

In some cases, servicers don’t even know whether properties have 

completed the foreclosure process, so they are selling without having the right to sell. We were successful in Boston because I established relationships with some of the servicers beforehand. 

So I just—I know my time is up, and I would like to say that 

this is an issue that faces us in our cities. The key to this issue—

I had a meeting last week, I brought the servicers in to work with 

us on potential foreclosed property. And when we had them faceto-face, we were able to work out a lot of these deals. 

But if you have any legislation here that is going to bring or send 

monies back to our localities, it has to go through the cities, because—with all due respect to my government friend here, if they 

go to the State, it takes a long while to come up with formulas. We 

need this money locally. 

Thank you for your time, and also I want to leave a thought, this 

thought, as this committee continues to address housing and credit 

issues: Will you make sure that lenders continue to meet the CRA 

obligations in the new lending environment? This includes access 

to credit and being part of the rebuilding of communities that will 

get us past this crisis. 

Thank you for allowing me to testify this morning. 

[The prepared statement of Mayor Menino can be found on page 

90 of the appendix.] 

The CHAIRMAN. It looked like your former mayoral colleague 

wanted to respond briefly. 

Governor O’MALLEY. As a point of personal privilege, once a 

mayor, always a mayor. And I agree with a great amount of what 

Mayor Menino— 

The CHAIRMAN. Well, I appreciate that and I will say this—and 

people in Boston will tell you—that when it comes to the phrase, 

‘‘Once a mayor, always a mayor,’’ they do believe that Mayor 

Menino has taken that as his motto. 

13

[Laughter] 

Mayor MENINO. I also have—I’m pretty sure he’d like to have 

all— 

The CHAIRMAN. We will put that into the record. We are also 

very pleased to have Mayor Goodman of Las Vegas. Mr. Mayor, 

please go ahead. 

STATEMENT OF THE HONORABLE OSCAR B. GOODMAN, 

MAYOR, CITY OF LAS VEGAS 

Mayor GOODMAN. Thank you very much, Mr. Chairman, and distinguished members of the committee. I am honored to appear before you this morning to discuss issues of national importance as 

well as a pressing need in my City. 

Of course, I adopt the pertinent comments of those who preceded 

me this morning, but this is an issue that not only affects people, 

as everybody recognizes, but also affects the way cities conduct 

their business as a result of this crisis. 

Las Vegas is a City of 625,000 persons situated in Clark County, 

Nevada, which has a population of 1,900,000. It is the largest city 

in Clark County, and we have been very fortunate in our area to 

be a community that has grown phenomenally in the past 10 years, 

not only in size, but also as far as an unprecedented prosperity. 

We are building tens of thousands hotel rooms, and what that 

does is it gives people a reason to want to come to Las Vegas and 

to that area, in order to find the American dream. We have about 

6,000 people a month who come into our community, and they all 

want to partake in what makes America a very special place—they 

want to buy a home. 

It got to a point about 3 or 4 years ago that they were standing 

in line, getting lottery numbers, and sleeping out overnight in 

order to buy homes. There was a crisis in that there weren’t 

enough homes to satisfy the needs of those who were moving into 

our community. Now just the opposite has taken place, and this 

feeling of perhaps invincibility that we had experienced is no longer 

with us, and we recognize that we have a tremendous issue in trying to address our needs, not only as far as taking care of the people who find themselves in this very difficult spot, but also in running government. 

Clark County is experiencing over 90 percent of the foreclosures 

in the State. They have tripled from 2006 to 2007; we have gone 

from 20,000 foreclosures to 60,000 foreclosures, and 60 percent of 

our homes are experiencing negative equity. Property values—and 

you can imagine this—people taking their hard-earned money, as 

mentioned before, have dropped in Las Vegas by 20 percent, and 

nearly half of the homes currently on the market are due to foreclosures. 

This has had a devastating effect on the way we look at our communities and our neighborhoods. I remember when I was first 

elected, the definition for blight was a broken window. And now 

blight is defined in vacant homes in neighborhoods, and this has 

resulted in increased crime, deteriorating property conditions—nobody is there to take care of the homes—and undue pressures on 

the City to provide services as far as code enforcement is concerned. Our fire department is overtaxed as well as our police force 

14

in addressing these issues. And I think perhaps the worst thing is 

that families are at risk of becoming homeless. Homelessness had 

been an issue before foreclosures; now it is an issue that faces us 

every single day. 

There is also the issue of the loss of tax revenue as far as State 

and local government. Construction represents 10 to 12 percent of 

our local economy, and the issues created by slumping new and resale home sales, foreclosure sales, and post subprime lending, credit crunch have impacted all of the major revenue sources of the 

city, such as property tax, sales tax, real estate transfer tax, license 

revenues, and that results unfortunately in budget cuts. We had a 

deficit of $20 million in our budget this year. We have had to tighten our belt. And the worst of it is, for the first time in our memory, 

we had to lay off some of our employees as a result of this situation. 

So I applaud the efforts of the chairman and those who are in 

support of this particular legislation. It is going to not only help us 

as far as the foreclosures, but I think in some ways, some good 

could come out of the bad in the sense that the $10 billion which 

is proposed for cities to purchase and rehabilitate vacant, foreclosed 

homes in order to get people into them as soon as possible will go 

to satisfy issues of affordable housing, which we face every single 

day in our communities. 

I would join my colleagues in suggesting that the monies come 

directly to the municipalities for distribution rather than be filtered 

through the State. We have had a history with that kind of filtering, with Homeland Security funds that we don’t believe that 

the funds reach us quickly enough, and this is a matter that has 

to be addressed immediately. 

So I applaud everybody on the committee for bringing this muchneeded legislation forward and for your commitment to dealing 

with this foreclosure crisis. 

[The prepared statement of Mayor Goodman can be found on 

page 83 of the appendix.] 

The CHAIRMAN. Thank you, Mayor. Let me say that I am going 

to set a good example here. We have another large turnout of this 

very large committee reflecting the interest in this subject, so we 

are going to hold everybody, myself included, to 5 minutes. If there 

is a question pending, a witness will be allowed to answer it, but 

we are going to stick to the 5-minute rule. 

Governor O’Malley, let me ask you, and we were discussing this 

earlier, I have been struck—and it is obviously related to the foreclosure issue—by the questions we have had about the ability or 

willingness of servicers, who are so critical here, to help. 

We are going to be putting, I hope, a number of programs, and 

even, you know, the Administration yesterday announced a program that is more aggressive than we have seen—but a lot depends 

on, as I said, the ability and the willingness of the servicers to 

move here. And I just would be interested in your—what has your 

experience—Maryland has laws on servicers and a lot of other 

places don’t—been with the servicers in trying to get these issues 

resolved? If you want to have members of your staff join you, we 

could accommodate that. 

15

Governor O’MALLEY. Sure. I’m joined to my right by Secretary 

Tom Perez, from our Department of Labor Licensing and Regulation, who chaired the task force that resulted in the legislation that 

we passed in Maryland. We found that the loan servicers were willing to come to the table and help us work on the legislation, moving forward prospectively. 

What we have not found is the same willingness to renegotiate 

the loans that they have the power to renegotiate, so homeowners 

can stay in their homes, making their payments on a monthly basis 

for a sustainable mortgage. And it has been very frustrating to us. 

We’re trying to come up with new products. This legislation 

would help us, but there has been some considerable foot-dragging 

when it comes to actually renegotiating the terms of some of these 

mortgages, and taking the write-down, if you will. And I suspect 

that they’re probably waiting for something to happen here before 

they’re more amenable to that. 

May I ask, Secretary Perez, do you want to— 

The CHAIRMAN. Yes. Without objection, I want to ask him if he— 

Secretary PEREZ. Good morning, Mr. Chairman. The most important data point I learned in our meetings with servicers—and we 

have had two lengthy ones—is they told us that 75 percent of the 

people in distress that they are dealing with, under the terms of 

their contracts with investors, they have substantial discretion to 

modify the terms of the loan. 

My initial hypothesis was that the reason we had so few meaningful modifications was that the contracts were preventing modification. That’s simply not true. And so I think the explanation of 

why we have such a wide gulf—Moody’s did a study showing that 

something like 2 percent of people in distress were having meaningful modification. So there is a gulf between action and words, 

and I think the capacity exists, the legal authority exists to modify. 

It’s a matter of will, and— 

The CHAIRMAN. Well, I appreciate that. Mayor Menino made a 

point that hadn’t occurred to us before, which in some cases is a 

capacity, not a legal authority, but an actual technical capacity. 

And I am more and more convinced from what we have heard that 

we probably will want to ask the servicers to come in and meet 

with us in a more relaxed setting and see how we can be more 

helpful. 

Mr. Mayor? 

Mayor MENINO. Yes, Mr. Chairman. Last December, I brought 

seven of the servicers into my office, and I told them we need to 

work together. Just 2 weeks ago, we had a fair, a housing fair, with 

anyone who was in danger of foreclosure. We had the servicers 

there and the folks in danger of foreclosure. We worked out many 

deals between the servicers and the folks who had a mortgage that 

was in danger of foreclosure. 

This was the first time they ever met. You know, it’s not diala-number, press one for this. They sat face-to-face. Let me tell you, 

it was very successful Saturday. 

The CHAIRMAN. I appreciate it. I think we are going to be following up on this. 

I am going to give back some time now, so we can speed this up. 

The gentlewoman from Illinois, the former ranking member of the 

16

Housing Subcommittee, and current ranking member of the Financial Institutions Subcommittee. 

Mrs. BIGGERT. Thank you, Mr. Chairman. Thank you for holding this hearing. The bill includes $10 billion in loans and grants to let 

State and local governments buy out foreclosed properties, and sell 

them, and then Mayor Goodman suggested that maybe we should 

look at doing this through CDBG instead of the housing finance 

agencies. I would like to get a comment from the other mayors and 

the former mayor, who might have a difference of opinion, being 

now the governor. But which of these methods do you think we 

should look at, Mayor Menino? 

Mayor MENINO. I would like to see it used, the CDBG formula 

that has worked for so many years, and it comes directly to the 

city, and we’re able to parcel it out to the folks who need it the 

most. I always find that in all due respect to my colleague, when 

he sends it up to the State, there’s all kinds of bureaucracy, and 

they take 12 percent for administrative costs and all that. It goes 

directly to your locality, where you’re able to dole it out to the people who need it as quickly as possible, because there’s an urgency 

we have in our city and in many cities in America today. 

Mrs. BIGGERT. Now I might just put a caveat in here that this is $10 billion and I don’t know how U.S. taxpayers will react to the 

cost of this to them. But I just want to get it on the record, the 

difference. So, Mayor Fenty? 

Mayor FENTY. I would say both are good, first of all, but if given 

a preference definitely CDBG dollars, given the amount of flexibility that would give to municipalities, especially around the foreclosure areas. So, glad to put that on the record. 

Mrs. BIGGERT. Do you see too that the State sometimes—well, of 

course you don’t have a State, do you? So you don’t have to worry 

about that? 

Mayor FENTY. That is another hearing. 

[Laughter] 

Mayor FENTY. But I think I empathize with everyone who says 

you want to be nimble, and we have to move fast. So I understand 

what the mayors are saying. 

Mrs. BIGGERT. Thank you. Governor O’Malley? 

Governor O’MALLEY. Yes, Congresswoman. You know, regardless 

of what that formula is, I think what all of us agree upon is that 

it should be flexible and should allow us to get the dollars to where 

they can do the most good, namely to the people who are suffering 

the most. 

So if there’s some sort of—in our State, for example, I mean if 

you look at us Statewide, one, we have 1 out of every 500 homes 

that are going through some sort of foreclosure event. If you look 

at one county in particular, Prince George’s, the ratio is 1 in 72, 

so we would want to target those dollars to where the problems actually exist. I would have no problem in making sure that some 

goes directly to the cities. I think cities generally—large cities generally do a much quicker and better job, quite frankly, of getting 

dollars to the problem. And that can’t be debated. 

However, there are counties that might not be in line but are 

also suffering. So I think that’s why the formula of trying to target 

it to where the foreclosure events are actually happening is the 

17

way to go. If it were strictly CDBG, you might have dollars going 

to places that are not necessarily impacted as greatly as others are 

by the number of foreclosures. 

Mrs. BIGGERT. Thank you. Mayor Goodman, would you like to 

add anything to that? 

Mayor GOODMAN. No. I believe that the position that we have asserted is probably the most expeditious way to have the monies 

placed in the hands of those who need it the most. And one of the 

I think pleasing aspects of the proposed legislation, and it’s in response to $10 billion being spent of taxpayer money, is much of this 

proposal provides that if there is a sale of the property, that the 

money will be recompensed. And I think that is something that the 

American public would be happy to hear. But in the meantime, 

we’re taking care of a very serious issue. 

Mrs. BIGGERT. And then, just quickly, you know, the—are you 

cutting me off? 

The CHAIRMAN. No. I don’t know what that was. 

[Sound system crackling. Laughter] 

Mrs. BIGGERT. The Senate bill temporarily lifts the Federal cap 

on tax-exempt State-issued mortgage revenue bonds. So this would 

allow States to use investor-raised funds to help owners refinance. 

Governor O’Malley, do you think that this is a good idea? 

Governor O’MALLEY. I think it’s a great idea. I mean that has 

been our Achille’s heel so far. Like some of the other mayors at the 

table, we were able to get loan servicers together, and we were able 

to do a little better job of matching up the nonprofits that were 

overwhelmed with homeowners trying to reach somebody besides 

the 1–800 numbers and the push buttons. 

So we’ve done a slightly better job at that. What we have yet to 

accomplish, though, and what this could help us accomplish, is to 

create that pool of dollars that would allow us to refinance homes, 

refinance mortgages, so that we can keep people in their homes. 

That’s not possible everywhere, but for a lot of homeowners, that 

little bit of help could be the thing that preserves the block, preserves the neighborhoods, and that’s why this could be very helpful. 

Our Achilles’ so far, our Achilles’ heel in our mitigation efforts 

has been the inability to come up with those funds that can go directly to helping homeowners and save neighborhoods. 

Mrs. BIGGERT. Thank you. I yield back. 

The CHAIRMAN. I thank the gentlewoman. We will now turn to 

the gentlewoman from California, the chair of the Housing Subcommittee, whom I think you will find anticipated some of the 

issues that were raised by some of the mayors, not surprisingly 

given her involvement in the City of Los Angeles. Ms. Waters? 

Ms. WATERS. Thank you very much, Mr. Chairman. I am extremely pleased that we have this panel of mayors and individuals 

who really understand what it takes to deal with this foreclosure 

crisis in their cities. And the recommendations that you have made 

are consistent with some of the information that had been shared 

with me and therefore the draft discussion of the bill does not include all of the additional modifications that we have made. As you 

know, or perhaps should know by now, we are up from $10 billion 

to $15 billion. We have a 50/50 arrangement with $7.5 billion in 

18

zero interest loans and $7.5 billion in grants. Prior to that, it was 

a 75/25 loan-to-grant ratio. Also, we are making sure in this bill 

that we have direct funds to cities; States must direct funds to the 

25 most populous in the Nation. Also, the 50 percent of the grant 

money targeted to those at below 50 percent AMI, with 50 percent 

of the grant money targeted to those at or below 30 percent AMI, 

States can obtain a waiver but the latter requirement only no deeper target in the discussion draft. I guess what I am trying to share 

with you is we did anticipate some of the needs of the cities, and 

we have tried to make those—include those in the bill and of 

course this hearing today may provide us with some additional information. But I think certainly direct funding to the cities, more 

money, will give you better control over how to deal with the problem. 

The CHAIRMAN. The gentlewoman from West Virginia, the ranking member of the Housing Subcommittee. Mr. Mayor, you know 

you have been joined by your colleague from Nevada, one of the 

newer members of our committee, and we are glad to have the gentleman from Nevada, Mr. Heller, with us. Ms. Capito? 

Mrs. CAPITO. Thank you, Mr. Chairman. I would like to ask the 

governor about one of the programs that you mentioned that is 

fairly new, Bridge to HOPE, where you give deferred loans to help 

people. Are you getting much action on this? I know it is fairly 

new. Are people accessing this? I am thinking on the one hand that 

sounds great, on the other hand, I am thinking if you are already 

having trouble meeting more obligations, taking on another loan, 

is that a challenge, and how have you worked through that? 

Governor O’MALLEY. It has been slow going, it has been difficult. 

We have a number that we put out. We are going to be doing a 

lot more outreach to people and making them aware of this. Here 

is the Catch-22 that we found ourselves encountering, it was that 

there were some people who could in fact—who might be able to 

refinance and get into a more sustainable loan but only after they 

became current on the loan for which they were behind. So, of 

course, if they were current on the mortgage that they had fallen 

behind on, they would not need to refinance in the first place. So 

this Bridge to HOPE loan does not help everyone. There are some 

homes that cannot be saved but it is our hope that there will be 

some people in that delta, if you will, that if they were to become 

current, could go forward. 

There are other issues involving credit ratings and the like as 

underwriting standards become tougher that we are also overcoming. We have not had as many people taking advantage of it 

as we would have hoped. 

Mrs. CAPITO. Thank you. Mayor Fenty, it is a beautiful city and 

I am privileged to be working here. I have a question on your firsttime homebuyer tax credit. 

The CHAIRMAN. If the gentlewoman would yield? 

Mrs. CAPITO. Yes. 

The CHAIRMAN. Mayor Fenty pointed out, as we all know, when 

something happens in your home district, you are not as available 

as if you went a couple of hundred miles away since then nobody 

can bother you. The mayor is here and he does have to leave at 

11 a.m., so if that is the case, Mayor. 

19

Mayor FENTY. Probably no later than 11:15. 

The CHAIRMAN. Okay, well we can finish this question. When you 

have to leave, please feel free to do so. 

Mayor FENTY. Thank you, Mr. Chairman. 

Mrs. CAPITO. Thank you. I am interested in the $7,000 tax credit 

for first-time homebuyers. I believe the Ways and Means Committee yesterday passed something similar. Are you finding that is 

increasing first-time homeownership for first-time homebuyers? 

What kind of effect is that having on the housing market in D.C.? 

Mayor FENTY. Well, it has had a fabulous effect over time. It 

started, I think, as a $5,000 home credit, and what we find with 

that program, as with so many others, is that the price of real estate is going up and it just needs to be increased, so the more 

money that we can put into it, the more we will get at this problem. 

I think one of the number one things that we would just like to 

emphasize is that the money that would go directly to foreclosure 

relief and mitigation in this legislation is extremely important. We 

have so many either abandoned or neglected properties in the District of Columbia—you probably read a lot about it in the Washington Post—that the ability to take those dollars and then pump 

them back into either abandoned or vacant properties or properties 

that have been foreclosed on and then make them into affordable 

housing. That is where we really see the big problem in cities like 

Washington, D.C. 

Mrs. CAPITO. Thank you. And one final question for the Mayor 

of Las Vegas: You mentioned in your testimony that property values have dropped in Las Vegas by 20 percent? 

Mayor GOODMAN. Twenty percent and new home sales have 

dropped 49 percent from last year to this year. The banks are selling the foreclosed homes at 35 to 50 percent below the peak levels 

that they were in 2004. 

Mrs. CAPITO. Do you expect that—in what way do you think this 

kind of legislation, the proposal that we are talking about today, 

could stabilize housing prices? Do you think that is going to have 

an effect or what are you looking at long term, obviously you cannot recoup 20 percent right off the bat? 

Mayor GOODMAN. Not right off the bat. We are very optimistic. 

I do not want to have a cloud of pessimism over how we look at 

our future in Las Vegas. So we are usually the first ones to come 

back from a recession based on the nature of our economy, and 

these homes will regain their value some day. The prediction perhaps is that markets are going to come back in about 2 years. 

What I am looking for is relief right now to make sure that those 

persons who are in homes that have foreclosure issues will be able 

to stay in those homes so that they do not hit the streets and become homeless. And we have some very affluent parts of our community at this point where I am advised, surprisingly to me, that 

they are looking for food baskets because of the nature of the economy. So I think it is a very tenuous time in our history as a country and certainly in our community because we have rode the crest, 

so to speak, and this is the first time we are looking at hard times. 

Mrs. CAPITO. Thank you and just a final comment. I really appreciate your perspectives as mayors, and with the governor being a 

20

former mayor, as I look at my own State of West Virginia, we have 

a very low foreclosure rate of 47 percent, which we are very proud 

of, but there is an area, it is actually close to the Washington, D.C. 

metropolitan area, Shepherdstown, Martinsburg area, where a 

more targeted view or helping hand would be most appropriate 

rather than generalizing so it tends to get diluted a lot if it has to 

go through the filter of the State. But I thank you all very much. 

I yield back. 

The CHAIRMAN. Well, I thank the gentlewoman for those remarks. I just hope that—there are people who tend to be somewhat 

cynical of hearings but this is an example I think of an issue upon 

which we are focusing more. The gentleman from North Carolina? 

Mr. WATT. Thank you, Mr. Chairman. I want to take the 4 or 5 

minutes to say that I agree with the concerns that have been 

raised about the specifics of the bill, getting them targeted more 

specifically to local communities and particular areas even in local 

communities, so the input from the panel has been good. I would 

just say that in a speech that I made to local housing authority 

people a couple of weeks ago, I raised the prospect that we could 

take the lemons that we have here and make some lemonade out 

of them, the lemons being chronic homelessness and the 

unaffordability of housing. This crisis has had the effect of making 

housing available if we use it for the purpose of addressing homelessness and the unavailability of affordable housing. And we could 

take this and turn it into something that could have some positive 

impacts in our communities if the funding were there, about the 

same time our chairman was out actually putting the mechanism 

in place to authorize such a program and propose that the funding 

in fact be made available for this purpose. So we have some opportunities here, given the substantial reductions in housing values 

now that have taken place, and the substantial availability of housing to do some things if we will take advantage of it. And I am 

hopeful that we can pass this bill and create the mechanism to 

make it easier to turn those lemons into lemonade, at least in some 

cases. 

So with that, Mr. Chairman, I will yield back. I don’t have any 

questions. 

The CHAIRMAN. I thank the gentleman. We have a couple of votes 

and we should be back in a half hour or so. Mr. Mayor, Mayor 

Fenty, thank you for joining us. And if the other panelists can wait, 

we will be back shortly and there is a lot of interest in this, and 

we will finish this up and we will get to our next panel. So the 

committee will be in recess, and I urge the Members to come back. 

There are three votes, two 5-minute votes after this one. 

[Recess] 

The CHAIRMAN. We will reconvene. I regret—I was not informed 

that we had a swearing-in of a newly-elected Member, which delayed us, and I regret that because I appreciate your time. We will 

begin the questioning with the gentleman from North Carolina, Mr. 

Miller, who has been as active in trying to deal with the subprime 

crisis as any Member of Congress and in fact, had he been listened 

to several years ago, we would not have had one. So the gentleman 

from North Carolina? 

21

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Chairman. I 

have questions about a concern for adverse selections but they are 

not the same concerns about adverse selection you have heard from 

over there or that have been expressed from over there. There is 

no doubt that the problem that we have now was not caused by 

lenders trying too hard to make homeownership possible for people 

who would not otherwise qualify for traditional mortgages. The 

problem we have now was caused by predatory loans, loans that 

were designed to strip equity from homeowners as housing values 

appreciated. 

When I first came to Congress 5 years ago, subprime loans were 

about 8 percent of all mortgages. And the features that made most 

of them subprime did bear some kind of actuarial relationship to 

the risk, the greater risk that the borrower posed, although even 

back then, I think Freddie Mac estimated that 25 percent of 

subprime borrowers qualified for prime loans. In 2006–2007, the 

period that is causing our current problems, subprime loans 

jumped to 28 percent of all mortgages. And according to the Wall 

Street Journal, 55 percent of the borrowers in subprime loans 

qualified for prime loans. Ninety percent, 89 to 93 percent of those 

loans had an adjustable rate with a quick adjustment after just 2 

or 3 years, usually a jump from about 7 percent, not really all that 

much of a bargain in the first place, and the increased premium 

might be 30 to 50 percent. That was typical. Seventy percent had 

prepayment penalties. Those were loans that were obviously designed not to be paid, to become unpayable so that the borrower 

would have to come back and refinance, to have to borrow again 

and would have to pay a prepayment penalty to get out of the last 

loan, to have to pay points and fees to get into the next loan. They 

would never own their home outright. And if they stayed in that 

cycle for very long, they would lose their home. 

The most catastrophic have been those who have lost to foreclosure. Mrs. Capito said 2.2 million would lose their homes, now 

that is how many will lose their homes to foreclosure. That is how 

many people will be escorted from their home by the sheriff after 

a judicial sale of their home, but there are millions more who have 

still been victims of abusive lending practices, parasitic lending 

practices. If people still have some equity in their home, they can 

still sell their home, they do not have to have it foreclosed, they 

can get out, and in fact we have already seen the homeownership 

rate decline from what it was 3 years ago by about 1.4 percent. 

From 69.2 in the fourth quarter of 2004 to 67.8 in the fourth quarter of last year. When the numbers come out for the first quarter 

later this month, it will show a further decline in the second quarter, the third quarter, the fourth quarter, it will continue to decline. And those are families who have had their homes foreclosed 

and families who were able to get out by selling their home, but 

they have still lost their homes. 

In addition, and particularly since 55 percent of the people qualified for prime loans, there are a lot of people whose economic circumstances were not so fragile and they were able to refinance, 

and they have kept their home but they lost a big piece of the equity in their home of their life savings, their net worth, when they 

did it because of the loan that they were in. 

22

All the industry has been willing to do to this point has been voluntary. And all they have volunteered to do, when you look closely, 

has been to modify the mortgages where they knew they were not 

going to get paid, and they only agreed to modify the loans to take 

the most that they could possibly calculate they would get paid, a 

very careful calculation of how much they could possibly get paid 

and then that is what they agreed to take. And they announced 

this with great fanfare as if they expected a humanitarian award 

for it. 

I have no doubt that the loans that they will voluntarily sell will 

be the biggest problem for them, although they are taking a haircut, they are not going to sell us, the government, those loans unless they are pretty sure that they are going to come out better by 

selling those loans to us than they would if they kept them on their 

books. 

Now, there are a lot of other loans where they are still enforcing 

prepayment penalties. They are still taking the most they can. 

They are not modifying unless they have to. Should we agree to 

buy the worst loans without any expectation about the other loans? 

Should there be some link between buying these loans, the ones 

that they voluntarily sell to us at a discount, and how they act with 

respect to the other predatory loans that are still destroying the finances, taking the net worth of middle-class families. 

The CHAIRMAN. Let me just say in fairness to the witnesses, they 

were asked to testify about the piece about buying the foreclosed 

property, not the piece that we had the hearing on yesterday. 

These are specifically local officials, here to talk about buying foreclosed property, but if anyone wants to comment, please go ahead. 

Governor O’MALLEY. I will just say generally that I think that 

anything that you can do to put pressure on the servicers, on the 

lenders, to mitigate the damage that is being done would be helpful. We have not seen the degree of flexibility that should be given 

the magnitude of this crisis. I am not sure exactly what the reason 

for that is, but anything you can do to push them towards that 

would be helpful. 

Mayor MENINO. Mr. Chairman, in the last several months, I have 

had some success dealing with the servicers. Initially, I brought 

them into my office and had a conversation with them about the 

magnitude of the problem, and we agreed at that time to have an 

event at one of our areas of the City to bring all the servicers in 

who are there, six of them, and the people who had mortgages. And 

during the course of the day, we were able to re-write a lot of those 

mortgages. If you saw some of those documents, that people who 

are making $60,000 have $4,000 a month in mortgages, and how 

that was going to increase in 2 years, it was a disgrace how those 

mortgages were written. They were able to re-negotiate some of 

them. I hear the chairman is going to bring the servicers in, and 

I think you have to also get the banks to put some pressure on the 

servicers to come to the table, and I think you will get some reaction from the servicers as you move forward. 

The CHAIRMAN. The gentleman from Nevada? 

Mr. HELLER. Thank you very much, Mr. Chairman. I appreciate 

your bringing this bill forward. I truly do believe that there is a 

government role in solving this particular problem, I am just not 

23

sure what it is today as we go through this piece of legislation. And 

I want to thank the panel for being here today, I truly do appreciate your input and it is very helpful in determining what direction we ought to go on this. But I would like to direct my questions 

towards the Mayor of Las Vegas, Mayor Goodman. As I look at 

some of these statistics that you have in your community, for example, and tell me if what you understand this is accurate. I know 

the first one is and that is averaging one foreclosure for every 154 

households in Nevada. I know the national average is one in 555. 

But in Clark County, is it true that nearly one in 20 homes is in 

foreclosure? 

Mayor GOODMAN. I would say at least that. 

Mr. HELLER. One in 20 homes? 

Mayor GOODMAN. Yes, Mr. Chairman. 

Mr. HELLER. Also, more than 4,000 homeowners owe their lenders more than the current value of their property, is that an accurate assessment? 

Mayor GOODMAN. Those are accurate statistics. 

Mr. HELLER. Because I am also aware that in Washoe County, 

foreclosures increased exponentially last year; 14 percent of the 

area’s active homes for sale in December 2007 were bank-owned 

homes. So the problem is not just in southern Nevada, obviously 

it is Statewide? 

Mayor GOODMAN. It is a Statewide problem, however because the 

bulk of the population is in the South and Clark County and Las 

Vegas, the problem is that much more exacerbated. 

Mr. HELLER. Mayor, let me tell you what I think is part of the 

problem, and I do not think that we could have reduced to zero the 

problems that we have in Nevada, but what I am concerned 

about—and as I mentioned earlier, I think there is a government 

role in this as far as oversight is concerned. My concern is about 

10 years ago, I worked with David Goldwater on a piece of legislation that would have put the mortgage industry under the Securities Act. If we would have done that 10 years ago, and I am not 

asking you to respond to this because it is probably a pretty broad 

question, but feel free to respond if you want to, that is fine, but 

I do believe that our mortgage industry was very tight-lipped, there 

was not enough sunshine in the process. 

If you would have put the mortgage industry under the Securities Act, like most States, if not all States, except for the State of 

Nevada, what you have the ability to do is for a division in that 

office, the Securities Division, going once every 3 years to go audit 

the books to find out what kind of lending is in fact actually happening. And that was not happening in Southern Nevada nor anywhere else in the State of Nevada, that there was an agency that 

overlooked and was able to come in unannounced, audit these 

books, and determine what kind of lending practices were going on 

and whether or not the actual borrowers had all the information 

that they needed to make a decision. Are you aware of any pattern 

of this? 

Mayor GOODMAN. Mr. Chairman, I do not believe that there is 

any oversight into those practices. As much as takes place in a fast 

growing State like Nevada, and particularly a fast growing area of 

Las Vegas, one of our biggest problems is to regulate the activity 

24

that takes place in our community. We just went through, as you 

know, a horrible experience with an endoscopy clinic, and we were 

criticized as not having appropriate supervision and oversight into 

that, and that happens in a lot of areas in our State. Would it have 

been caught? Perhaps had we had those kind of reporting requirements as you would under securities but there is no guarantee 

even under that set of circumstances or that scenario— 

Mr. HELLER. Right. 

Mayor GOODMAN. —that it would have been picked up. 

Mr. HELLER. Yes, I do not think we could have zeroed it out but 

I will tell you that these— 

Mayor GOODMAN. No, with all due respect, I do not think anybody saw it coming. That is the problem. If we saw it coming, then 

I could fault us, but it sort of happened overnight. I was sitting in 

a casino with one of the casino owners, who was talking about borrowing $250 million for an improvement to that casino, and he had 

been advised that day what had happened as far as the subprime 

was concerned and without blinking an eye, he said, ‘‘That is the 

end of that project.’’ That is how quickly it happened. And, unfortunately, something we have not talked about today, and I think the 

record should at least reflect some of this, this certainly is not a 

quick fix no matter what is happening here. The effects are going 

to linger for a substantial period of time. 

One of the areas that concerns me greatly is that somebody 

might receive assistance under this bill who has already had an adverse report concerning their credit, which will stay with them for 

an indefinite period of time because of their inability to have met 

the payments on their mortgages to this date. And that seems to 

me to be a penalty that is unwarranted, particularly for the owneroccupied people who are involved. 

Mr. HELLER. Yes, well, I will tell you, Mayor, I was concerned 

10 years ago. 

The CHAIRMAN. We will have to finish up this comment. We are 

over time too. Finish the comment, if you wish. 

Mr. HELLER. Okay, but I was concerned 10 years ago about the 

lending practices in the State of Nevada, and I think at the time 

I called it the ‘‘ultimate Ponzi scheme’’ that we were seeing in the 

State of Nevada. So I will yield back and ask questions later. 

The CHAIRMAN. Thank you. We will have another panel. Mayor 

Goodman, I know you have to leave, so you leave when you have 

to. And, Mayor Menino, if any of our three officials, can you stay 

any longer any of you, or do you all have to leave? 

Mayor GOODMAN. Unfortunately, Mr. Chairman, I have to catch 

a plane. 

The CHAIRMAN. Well, go ahead. 

Mayor GOODMAN. I am going to have to leave. I want to thank 

you very much for giving us the privilege of appearing here. 

The CHAIRMAN. You are welcome. Mayor Menino? 

Mayor MENINO. Mr. Chairman, I have to catch a plane also back 

to the city. 

The CHAIRMAN. Governor? 

Governor O’MALLEY. I have to catch a rocket back to Annapolis, 

Mr. Chairman. 

[Laughter] 

25

The CHAIRMAN. We will have a second panel. Let me say to my 

colleagues, I regret that we were held up by the swearing-in, so I 

am going to excuse this panel and the next panel will come in. We 

will begin the questioning of the next panel where we left off on 

this one, so my colleagues who have just come in will be the first 

to question. The panel is excused. 

As the next panel comes forward, I would ask unanimous consent 

to put into the record a letter dated April 9th from William Gross, 

who is the co-chief investment officer and Muhammad Arian, who 

is the co-chief investment officer from PIMCO, in support of the 

concept that we talked about yesterday. So without objection, that 

will be made a part of the record. It is a letter to Senator Dodd, 

which we will put in the record on this issue. 

And for our next panel, our representatives of business and advocacy and public agencies that deal directly with the housing crisis, 

we will begin with Mr. Doug Garver, who is executive director of 

the Ohio Housing Finance Agency. 

Mr. Garver? 

STATEMENT OF DOUG GARVER, EXECUTIVE DIRECTOR, OHIO 

HOUSING FINANCE AGENCY, ON BEHALF OF THE NATIONAL 

COUNCIL OF STATE HOUSING AGENCIES (NCSHA) 

Mr. GARVER. Chairman Frank, Ranking Member Bachus, and 

members of the committee, thank you for the opportunity to testify 

on behalf of the National Council of State Housing Agencies in support of your Economic, Mortgage and Housing Rescue bill. NCSHA 

is grateful to you, Mr. Chairman, for this important legislation and 

for all you are doing to soften the impact of today’s housing crisis 

on working families, communities, the housing market, and the 

economy. This legislation will help keep families in their homes 

and put foreclosed properties back into productive use. 

NCSHA represents the housing finance agencies of the 50 States, 

the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. 

State HFAs issue tax-exempt housing bonds and allocate the LowIncome Housing Tax Credit to finance affordable homes in every 

State. More than a dozen HFAs have established mortgage refinancing programs to help homeowners at serious risk of foreclosure 

hold onto their homes. I testified before this committee last year 

on Ohio’s Opportunity Loan Refinance Program. 

OHFA and other HFAs have experienced disappointingly little 

volume under these programs. Many troubled homeowners simply 

cannot refinance their mortgages because they are too far behind 

on their current mortgage payments, have weak credit, or have 

outstanding mortgage obligations that exceed the value of their 

homes. I can tell you from our experience in Ohio that unfortunately, many people confront a combination of these challenges. 

Your legislation’s FHA Homeownership Retention Mortgage Program would help lower some of these hurdles. 

NCHA suggests the committee consider the following modification to the legislation’s FHA Refinancing Program to encourage 

lender participation and potentially help a broader spectrum of 

homeowners. We recommend you permit higher loan to value ratio 

mortgages to encourage more lenders to participate by offering 

them greater loan payoffs. We also suggest you expand the number 

26

of eligible mortgages by including loans originated before 2005. 

Lenders in many States, including Ohio, began originating 

subprime mortgages in significant numbers as early as 2001. 

Before troubled homeowners can be helped, they must be reached 

and educated about their options. State HFAs are doing their part 

to assist homeowners facing mortgage payment difficulties by conducting Statewide outreach campaigns and providing foreclosure 

mitigation counseling. For example, NeighborWorks, through last 

year’s congressional appropriation, awarded $39 million to 32 

HFAs, including OHFA. NCHA strongly supports the $200 million 

in loss mitigation counseling funds this bill authorizes for both this 

year and next and urges its quick appropriation. 

Sadly, despite the best efforts of State HFAs and others to help 

troubled homeowners keep their homes, many will still lose theirs. 

Foreclosure rates are up significantly and are still rising in many 

parts of the country. State HFAs, partnering with local communities and nonprofit groups, are working aggressively to turn this 

foreclosed property crisis into an opportunity for low- and moderate-income working families. In Ohio, our board’s multi-family 

committee just yesterday gave us the green light to move forward 

with a pilot program making up to $4.5 million available in agency 

funds and State housing trust fund monies to six neighborhoods in 

Cleveland, the epicenter of the foreclosure crisis, as you have 

noted, Mr. Frank, and the Nation. 

This is yet another example of State, city, and local nonprofit organizations working together to build a stronger Ohio. However, 

our funds and those of other HFAs are inadequate to deal with the 

huge scope of the foreclosure problem. Your legislation’s proposed 

State Loan and Grant Program would significantly strengthen and 

expand State HFA initiatives in this key area. Based on our experience with similar programs, State HFAs believe it is important for 

Congress to understand, however, that the full repayment of these 

loans in the short term, and even possibly over the long run, may 

not always be possible. Continued home price depreciation and 

high rehabilitation costs will likely make it difficult in some cases 

to re-sell properties for what States and their local partners may 

need to pay for them. We are seeing that firsthand in the initiative 

we are looking at in Cleveland. 

We are concerned the bill’s purchase price limit will constrain 

the program from serving people who really need help and stabilizing economically integrated neighborhoods. We suggest you increase this limit to at least conform with the Mortgage Revenue 

Bond Program. 

Finally, we understand the bill requires 6 months of payments 

before insurance endorsement for new loans with total debt to income ratios greater than 40 percent. Delaying endorsement for new 

mortgages will make it much more difficult for HFAs to include 

them and their bond-financed mortgage programs, we recommend 

you permit flexible underwriting standards without the 6-month 

delay. 

Mr. Chairman, thank you again for the opportunity to testify in 

support of this important legislation. 

[The prepared statement of Mr. Garver can be found on page 76 

of the appendix.] 

27

The CHAIRMAN. Thank you. Next, we have Mr. David Lizarraga, 

who is chairman of the United States Hispanic Chamber of Commerce. The gentlewoman from California would like to introduce 

Mr. Lizarraga. 

Ms. WATERS. Thank you for an opportunity to introduce Mr. 

David Lizarraga. He is founder of the one of the biggest CDCs in 

the country, TELACU. He now services at the Hispanic Chamber 

of Commerce. He has long been involved in providing housing opportunities for low- and moderate-income people, and I would like 

to welcome him, and I thank him for coming. 

STATEMENT OF DAVID C. LIZARRAGA, CHAIRMAN, UNITED 

STATES HISPANIC CHAMBER OF COMMERCE (USHCC) 

Mr. LIZARRAGA. Thank you very much. Chairman Frank, Ranking Member Bachus, Congresswoman Maxine Waters, and members of the committee, good afternoon. My name is David 

Lizarraga, and I am the chairman of the United States Hispanic 

Chamber of Commerce. The USHCC represents the interests of 2.5 

million Hispanic entrepreneurs in this country today. We are honored to be invited to share our views on the housing market with 

the committee, and in particular its impact on the economy and 

what can be done to cushion the negative impact of this economic 

downturn. 

As a business organization, the USHCC believes in a free market, but the magnitude of this situation is so great and the impact 

so severe that we believe that the market cannot correct itself 

without seriously jeopardizing our economy. 

In representing both entrepreneurs and the Hispanic community, 

we see a convergence of interest: Underserved communities and 

small businesses are some of the biggest losers in the current market crisis. The fact is that the home is often the first substantive 

asset held by members of underserved communities such as ours. 

Therefore, foreclosures and losses in home value constitute a loss 

and perhaps the only substantial asset contributing to the net 

worth of most members of our Hispanic community. This results in 

a lack of equity to pay our retirement or our children’s college education. Also, the results of lack of collateral for business loans, even 

SBA loans, and a general decline in the financial stability and security of our community are really, really impacting us. 

In this regard, we are also very concerned that this crisis is deeply affecting small and minority business owners who use their 

home equity to secure loans to help finance the establishment or 

expansion of their businesses. Unlike many corporations that are 

outsourcing jobs to foreign countries, our small businesses are the 

largest employers and job creators in the United States today. 

Many of these small and minority business owners are now in 

jeopardy as a result of rapidly cascading home values. In light of 

this situation, and in order to further improve the relief of this legislation, we believe it is critical for the committee to take into full 

consideration the needs of these borrowers who have subordinated 

debt secured by their homes. 

Earlier this year, the United States Hispanic Chamber of Commerce called for further economic stimulus and investment in order 

to reverse the downward course of our economy and bring us back 

28

to economic growth and stability. While as a national business 

membership organization, we are inclined to push for less regulation in the economy, we recognize that our Nation is facing extraordinary circumstances that require extraordinary measures. This is 

why we now support Federal legislation, such as the chairman’s 

draft FHA Housing Stabilization and Homeownership Retention 

Act, in order to bring stability to our economy. In addition to the 

other provisions in the bill, we support the chairman’s proposal to 

provide $10 billion in loans and grants for the purchase and rehabilitation of vacant foreclosed homes. 

With regard to the 25 percent State relief and mitigation grants 

program, we fully support your proposed initiative as critically 

needed. Additionally, adding a sentence to foster private sector leverage of these proposed funds for the purchase of foreclosed and 

vacant properties will result in long-term benefits for our underserved communities across the Nation. 

While testifying today as chairman of our membership organization, I also preside over one of America’s oldest, largest, and most 

successful community development corporations, TELACU. In 

many of our activities, we have worked together with lenders, insurance companies, local small- and minority-owned businesses, 

government agencies at all levels, and many others to advance private/public partnerships that have dramatically altered the economic dynamics in many low- and moderate-income communities. 

These partnerships have helped to revitalize urban neighborhoods 

and rural areas by creating vibrant hubs of economic activity and 

thousands upon thousands of jobs, homes and small- and minorityowned enterprises. My written testimony attempts to address how 

such partnerships can be useful in the current crisis and its aftermath. 

We welcome the opportunity to work with you, Mr. Chairman, 

and the committee to help ensure that States receiving grant and 

loan assistance under this proposed program will have incentives 

to foster these same types of private/public partnerships, resulting 

in a $10 billion program being leveraged to serve a need that is actually many tens of billions of dollars. 

In conclusion, the United States Hispanic Chamber of Commerce 

lends its support to the chairman’s proposal as a means to bring 

stability to our shaken housing and credit markets, and we also appreciate your consideration of our recommendations as you further 

deliberate on this legislation. Thank you again for inviting our organization here today. 

[The prepared statement of Mr. Lizarraga can be found on page 

86 of the appendix.] 

The CHAIRMAN. Thank you, Mr. Lizarraga. Let me make it explicit that what we had the hearing on yesterday and today, the 

two parts of this, is explicitly and deliberately labeled a discussion 

draft. We will probably be introducing something next week that 

we will be marking-up 2 weeks from now, and all the witnesses are 

people whose opinions we value, and so this is very much something where we will be taking these recommendations into account. 

Our next witness is a familiar and welcome witness before the 

committee in the very important issue of housing for people with 

29

low income, Sheila Crowley, who is president of the National Low 

Income Housing Coalition. 

STATEMENT OF SHEILA CROWLEY, MSW, PH.D., PRESIDENT, 

NATIONAL LOW INCOME HOUSING COALITION 

Ms. CROWLEY. Thank you, Mr. Chairman. Chairman Frank, 

Ranking Member Capito, and Chairwoman Waters, thank you very 

much for the opportunity to testify today. The major concerns of 

the National Low Income Housing Coalition in this foreclosure crisis are with the fate of low-income families and with the fate of 

renters. The lower a household’s income, of course, the less able it 

is to cope in the face of foreclosure. And renters who have the misfortune of having landlords who lose their property to foreclosure 

are the completely blameless victims in this catastrophe. 

Unfortunately, the data on income of families affected by foreclosure are not collected in any public form that makes examination easy, but we do have some indicators, which I have detailed 

in my written testimony. These data support the numerous news 

reports that renters are a significant portion of families who are 

losing their homes due to foreclosure. We are using the working estimate at this point of 40 percent of the people who are evicted are 

renters. 

The data also support reports from local service providers that 

very-low- and extremely-low-income families are a significant portion of those who are losing their homes. A working estimate for 

very-low-income, is 50 percent of the families are in that category 

and for extremely-low-income, it is 20 percent. 

The first policy implication of this information is the need to provide better protection for renters. There is considerable variation 

from State to State on the rights of renters when the owners of 

their homes lose their properties to foreclosure. Some States have 

enacted tenant protection laws that give tenants a reasonable time 

to relocate, others have not. I received a report just this week from 

two families in Alaska who became homeless after losing the homes 

they had rented due to foreclosure with just 7 days notice. Although renter protection language was included in H.R. 3915, 

which has already passed the House, this provision would only be 

applicable if the mortgage on the rented property was entered into 

after enactment. Current tenants should be protected as well, and 

we urge you to take up this issue. 

Another top public policy objective should be to prevent homelessness due to foreclosure. Lower-income families faced with eviction lack the resources to transition to new living arrangements. 

They may not have the immediate funds to pay for moving expenses or security deposits. Homelessness is highly traumatic for 

families who experience it and it is much more costly than the 

modest amount of assistance needed to prevent it. We recommend 

a one-time supplemental appropriation of $300 million to the 

Emergency Food and Shelter Program to provide direct financial 

assistance to be used solely for housing-related assistance needed 

to prevent homelessness in connection with foreclosure. Our proposal would provide $3,000 in assistance for 100,000 families. It 

would seem to be the least we could do—$30 billion for Bear 

Stearns, $3,000 for a low-income family. 

30

In regard to Title 3 of the proposed legislation, we have previously submitted to Chairman Frank several recommendations to 

strengthen this provision. Giving States and cities the ability to 

buy foreclosed homes and put them back into service makes good 

sense. However, the program should be designed to address the 

most pervasive and longstanding housing problem of every community, the well-documented shortage of affordable rental housing. 

Thanks to Mr. Watt for pointing that out in his opening statement. 

Nationwide, there are just 38 rental homes that are available 

and affordable for every 100 extremely-low-income families. As Ms. 

Waters noted, the competition for affordable rental homes is intensifying as families who have lost their homes to foreclosure flood 

the rental housing market. We need to expand the supply of affordable rental housing so that the people at the bottom of the wage 

and income ladder will not be squeezed out of the housing market 

altogether. Therefore, we recommend that at least 25 percent of the 

proposed $15 billion in grants and loans be for the benefit of verylow- and extremely-low-income households. We are delighted with 

Ms. Waters’ announcement earlier that agreement had been 

reached. We also urge that the use of these grants and loans minimally not result in a net loss of rental housing units in any jurisdiction that receives this assistance. 

Let me close with a plea for balance. There is plenty of blame 

to go around for the U.S. mortgage foreclosure crisis, including 

those who have uncritically proclaimed homeownership as the 

idealized form of housing tenure in the United States. The rhetoric 

on homeownership in a political era that favored an unregulated 

market created a fertile environment for risky and unscrupulous 

lending practices to flourish. A social environment saturated with 

messages that have propelled low-income people to seek homeownership at all costs has also delivered the corollary message that 

rental housing is inferior. 

The interventions that you devise for this immediate crisis 

should not be for the purpose of just restoring the status quo. The 

U.S. housing market is in desperate need of re-balancing. Purchase 

prices need to make financial sense. Cost and incomes need to be 

more in sync. Homes need to be reasonably sized and better for the 

environment. Communities need to make sure that housing stock, 

including rental housing, matches the needs of the people who live 

there. Tax policy needs to reward moderation, not excess. And 

housing needs to be understood more as the place where one is 

sheltered and carries out family life and less as a financial asset. 

I urge you to use this galvanizing moment that has the potential 

of producing significant policy changes to lead the way to more balanced housing policy and a more balanced housing market. 

Thank you very much for your consideration of my remarks. 

[The prepared statement of Ms. Crowley can be found on page 65 

of the appendix.] 

The CHAIRMAN. Next, another welcome, frequent witness before 

this committee on important issues, Hilary Shelton, who is the director of the Washington Bureau of the NAACP. 

31

STATEMENT OF HILARY O. SHELTON, DIRECTOR, NAACP 

WASHINGTON BUREAU 

Mr. SHELTON. Thank you, Mr. Chairman. Good afternoon. As you 

mentioned, my name is Hilary Shelton, and I am director of the 

NAACP’s Washington Bureau. 

I am here today to express our strong support for the draft legislation spearheaded by Chairman Frank, which would enable the 

Federal Government to help troubled homeowners save their 

homes. This proposal is especially important to the NAACP since 

a disproportionate number of subprime loans, which are at the 

heart of the massive wave of foreclosures that our Nation is currently facing, were made to African Americans and other racial and 

ethnic minorities. 

The NAACP firmly believes there is so much the Federal Government can do and should do to address the current foreclosure crisis. 

First, we fell it is incumbent upon the Federal Government to help 

families facing foreclosure to be able to stay in their homes, which 

I believe is the intent of this legislation. Homeownership makes the 

neighborhoods safer and encourages community investment, provides financial security, and improves the lives of families by helping to provide a safe, secure, and stable home environment. By enabling the Federal Government to ensure and guarantee refinanced, sustainable, and affordable mortgages, Congress and the 

Administration will be assuring homeowners, as well as the American public, that families are as important to lawmakers as large 

corporations and financial institutions. 

In addition to helping consumers, the NAACP also considers the 

proposal before us a win for lenders. Although they must, under 

Chairman Frank’s plan, take a diminished return on the properties, they are no longer responsible for the foreclosed properties 

and are assured of getting some return on their investment. 

Finally, such an action, as proposed by Chairman Frank, would 

also help the national economy, which is currently suffering tremendously because of the foreclosure crisis. 

A second step which the NAACP believes is imperative for the 

Congress to take is to pass substantive legislation to put an end 

once and for all to predatory lending. For decades, predatory lenders have targeted African Americans and other racial and ethnic 

minorities and the elderly through steering and other immoral 

practices with dubious products that contain prepayment penalties, 

the so-called exploding ARMs, and the list goes on and on. In fact, 

according to the Center for Responsible Lending, more than 52 percent of homes purchase loans made to African Americans in 2006 

were subprime. 

Let’s consider the facts for a moment. Among subprime loans 

made in 2005 and sold to investors, 55 percent went to people with 

credit scores high enough to often qualify for conventional loans 

with far better terms. By the end of 2006, the share of overpriced 

loans rose to 61 percent. As a conservative estimate, one in 10 African-American homeowners who received subprime loans in recent 

years will lose their homes to foreclosure. The subprime market 

has not increased homeownership for the communities of color. In 

fact, subprime loans made between 1998 and 2006 produced a net 

loss of homeownership. In 2004, African-American homeownership 

32

peaked nationally at 49.1 percent but by the end of 2006, it 

dropped 1.2 percentage points to 47.9 percent. The subprime mortgage crisis will drain $213 billion in African-American wealth, the 

greatest loss of wealth in modern in U.S. history. 

A report issued last year by the Center for Responsible Lending 

estimated that one out of every five mortgages that originated during the last 2 years will end in foreclosure. This means that the 

effects of years of predatory lenders targeting African Americans 

and other racial and ethnic minorities will now begin to hurt not 

only the borrowers but also their neighbors and their communities 

as homes are foreclosed upon in record numbers and those numbers will be concentrated in African-American communities and 

other communities with high concentrations of racial and ethnic 

minorities. 

Foreclosures ruin lives, families, and communities and cause economic devastation throughout. For many, homeownership means 

the difference between spending their golden years in either poverty or comfort, yet a predatory mortgage or refinancing can ruin 

all these dreams and more. And for the communities, the foreclosures that will result because of targeted predatory lending can 

mean devastation. One study estimated that for every home that 

is foreclosed on in a given block, the other homeowners on that 

block lose 1.14 percent of their property’s value. 

So I will close by thanking the chairman and the committee for 

your efforts and to reiterate our support for the legislation before 

us. On behalf of the NAACP, we look forward to working with you 

on this proposal and others that will effectively address the foreclosure crisis facing our Nation. Like you, we want to help America’s families stay in their homes. 

Thank you very much, Mr. Chairman. 

[The prepared statement of Mr. Shelton can be found on page 

101 of the appendix.] 

The CHAIRMAN. And finally, Mr. Victor Burrola, who is the director of the Homeownership Network of the National Council of La 

Raza. 

STATEMENT OF VICTOR BURROLA, DIRECTOR, HOMEOWNERSHIP NETWORK, NATIONAL COUNCIL OF LA RAZA 

Mr. BURROLA. Good afternoon. My name is Victor Burrola, and 

I am director of the NCLR Homeownership Network. In this role, 

I oversee our daily activities with 50 housing counseling groups 

across the country. I would like to thank Chairman Frank and 

Ranking Member Capito for inviting me to participate in this 

panel. 

Every day, I hear from our counselors about their battle to save 

the homes of families. Unfortunately, despite their skill and best 

efforts, there are many families they cannot help. We commend you 

on this legislation. For many victims, the programs laid out in the 

bill may be their only hope. 

Today, I would like to share with you five challenges community 

groups are dealing with. I will also share with you our thoughts on 

the proposed legislation, and I will end with recommendations. 

Before I start with the challenges, I would like to share with you 

a recent story from our group in Georgia. They had a family that 

33

recently had their hours cut at the local factory. This should have 

qualified them for a hardship loan modification, one of the easiest 

and least controversial kinds of modifications. The counselors of 

Don Whitfield submitted all the paperwork to the servicer, but the 

company never responded to their request or returned their phone 

calls. When the family was days away from losing their home, the 

servicer finally contacted the agency. Unfortunately, their news 

was not so helpful. They told the family that they did qualify for 

a loan modification, however, because of the late hour, the family 

had to come up with an additional $2,000 in legal fees. The couple 

had already scraped together all of their savings to pay 2 months 

of back payments as required by their modification. Due to the 

servicer delays, the plan became unaffordable. The family lost their 

home through a foreclosure option. 

The story of this Etta family is familiar, and it is what we are 

seeing across the country. Many of our families could afford to pay 

a mortgage if it was affordable. Industry players point to data stating many families in foreclosure never reached out to their 

servicer. It is our experience that most servicers cannot respond to 

the calls quickly enough to avoid foreclosure, even when a family 

is working with a housing counselor. 

I could tell you multiple stories of this kind of malpractice, instead I will turn to the barriers community groups face when serving foreclosure victims. 

First, voluntary loan modification programs are not working. 

Many servicers are relying on short-term payment plans. This is 

just a Band-Aid. The mortgage will be just as unaffordable when 

the extension expires. 

Second, we need more capacity and support. Not only is the demand for our services increasing but so is the demand for related 

services like homeless shelters and legal aid. 

Third, foreclosure rescue scams are competing with legitimate 

housing counseling agencies. Troubled homeowners are easy targets for these scam markets. They charge high fees and make unrealistic promises to save the home from foreclosure. 

Fourth, our neighborhoods are in decline. Communities are 

struggling to keep up with the growing number of vacant homes. 

Many cities not only lack the funding to maintain the properties, 

they also do not have the technical expertise to address the problem. 

And, finally, we are seeing homeownership opportunities dry up. 

We are seriously concerned about the impact the credit crunch will 

have on low-income borrowers. 

In general, we are supportive of the concepts included in the bill. 

In our written statement, we comment on key areas of the bill that 

must be preserved moving forward. 

In the interest of time, I would like to turn to three areas where 

we believe the bill comes up short. First, the lack of capacity to the 

pay standard will not work. In particular, the cut-off date of March 

1, 2008, would leave a significant segment of our community out 

of the program. 

Second, some of the timelines are too tight, for example, the 2-

year sunset in Title III. Certain mortgages are not expected to peak 

34

until the next 2 years, so the need for neighborhood stabilization 

activities will continue for several years past the sunset. 

Third, the bill does not recognize the critical role of neighborhood 

organizations. Community groups specialize in local development 

and preparing families for homeownership. We know that when the 

right tools and partnerships are in place, foreclosures can be 

stopped. 

We look forward to working with the committee and others on 

these issues. 

Allow me to close by making four recommendations: Extend the 

eligibility cutoff date; allow for more flexible timelines; create a set 

aside for local nonprofits; and investigate foreclosure rescue scams. 

Thank you for your time and this opportunity, and I would be 

happy to answer any questions you may have. 

[The prepared statement of Mr. Burrola can be found on page 57 

of the appendix.] 

The CHAIRMAN. I thank the panel. Let me reiterate that this is 

really open, these are the kinds of suggestions we are looking for. 

I would like to say that the last of those is not legislative obviously, 

looking into the scams. The committee has limited investigative resources, but we will be urging others to be doing that. But the substantive suggestions are very much what we are looking for, and 

the gentleman from California has already anticipated some of 

these and other members have, the gentleman from North Carolina, so I think you will see that some of these will be adopted. 

Mr. BURROLA. Thank you. 

The CHAIRMAN. As I announced, I am going to begin where we 

left off, because we were not able to get everybody in the first 

panel, so the first questions will come from the gentleman from 

Georgia. 

Mr. SCOTT. Thank you, Mr. Chairman. Let me start out by first 

of all congratulating you, Mr. Chairman. Our Chairman Frank has 

done an extraordinary job in crafting and coming up with a very, 

very good piece of legislation that hits at the critical and crucial 

need of providing relief for the homeowners and families. 

We recognize fully in this committee that too many homeowners, 

too many American people, millions literally, are just hanging on 

by their fingernails. This, as I said yesterday, is the most critical 

economic crisis since the Depression, and we must not let this generation of Americans down just as Franklin Delano Roosevelt and 

those Members of Congress rose to the occasion to save America. 

Had it not been for that kind of very incisive, well-timed, critical 

public policy of the government getting involved and coming and 

doing what the government is in place to do, and that is to fix a 

very terrible situation. And so I commend you, Mr. Chairman, for 

what you have put forward here, and I want to see, as the chairman just mentioned, how we can even strengthen this bill moving 

forward. 

You know from the arguments from the other side of the aisle 

that this is not going to be an easy challenge. There are philosophical differences just as there were during the Depression, but 

the American people are the final arbiters on this, and they are demanding action. And, as I said before, yesterday, if we move with 

the kind of speed and just total full speed ahead, and in a matter 

35

of hours, we made the decision to bail out Wall Street. And we did 

that, in my estimation, properly. And that was a role that government had to play because I believe world markets would have collapsed from that. And with that same eagerness, with that same 

energy, with that same urgency, we must move to help these homeowners and families. 

So with that, I just wanted to make that comment, Mr. Chairman, because I think you have a good bill here, we are moving forward with it, and we are open to how it can be improved. 

Now, I would like to just ask a few questions. I am concerned 

that we may not be moving fast enough and that this bill might 

need to have some features added to it. I am very concerned about 

any families and homeowners who might fall through the cracks. 

I think we might want to address that because so many of these 

investors that have bought up these mortgages are very hesitant 

to refinance and restructure, and I would like to see if there is 

something in this bill that we can do that can make sure that they 

do not fall through the cracks. I think that there might be also the 

idea, if it gets down to the bankruptcy level, that we may assure 

a bankruptcy judge can have that authorization to demand that 

these mortgages be refinanced and restructured, lowering the principal as well as the interest and taking into consideration what the 

chairman has been saying a long time ago, that we should understand the lowering the property values and the value of that home 

is less than it was when they purchased the mortgage so that we 

have to take that into consideration as well and perhaps have that 

bankruptcy judge be able to make that determination. 

I wanted to just ask, if I may, my time I know is wrapping up, 

and I thought you made some very good points, all of you good 

points, Mr. Shelton and Mr. Burrola. What would you suggest that 

we do to address your three concerns—I think your three concerns 

were the March cutoff date, for example, what date do you think 

would be sufficient for that? The sunset provision, which I think 

you are right because some of these things are going to come 

through in the next 2 or 3 years, how would you apply—how would 

we write in the bill to increase the neighborhood involvement that 

you are talking about? 

Thank you for your patience, Mr. Chairman. 

Mr. BURROLA. We had an internal discussion, and we were proposing that 5 years would be an adequate time to capture the people that we think are going to reset within that 2-year period. And 

that data is from the Credit Suisse. It was a presentation that was 

given to us, and so I would be happy to show that to you so you 

can see that. So the 5-year period, I think, would be an amount of 

time to get a good handle on what is going on in the reset period. 

We also discussed a set-aside for the nonprofits. What we are 

concerned about is that when the money is released, that businesses that are used to doing REOs or large corporations and whatnot may take a lot of the funds, and so we just want to make sure 

that the nonprofits who are dealing with the families on a day-today basis who understand and are impacted because they are in 

the community are able to tap into those funds to help out. 

36

The CHAIRMAN. Thank you. I think we did intend to have a nonprofit requirement in there. We will have to maybe improve its 

specificity. The gentleman from Ohio? 

Mr. WILSON. Thank you, Mr. Chairman. 

The CHAIRMAN. I am sorry, the gentlewoman from Ohio. We have 

to go in order. 

Mr. WILSON. I am sorry. I just heard ‘‘Ohio.’’ 

Ms. PRYCE. Well, thank you, Mr. Chairman, and I thank the gentleman from Ohio. I am sure that many of our concerns are the 

same. And I want to thank the panel for your very thoughtful testimony today. We all agree that much has to be done. I think there 

will not be agreement on everything, but one thing I would like to 

address right now is one thing we do not want to do is make this 

situation worse. And we as a Federal Government oftentimes propose a one-size-fits-all solution, and my State of Ohio and Mr. Wilson’s State of Ohio and Mr. Garver’s State of Ohio perhaps have 

different challenges than the State of California or the State of 

Florida, just to name a few others. So I would like any of you, and 

especially Mr. Garver if you could, to help us understand how the 

formula might work. The Midwest has more moderate median 

home prices. And our committee or the chairman’s mark proposes 

to use the $10 billion for loans and grants to the States and it is 

based on a formula that looks at the State’s percentage of nationwide foreclosure and it is adjusted for the median home price. Now, 

the Senate has a different approach, it takes into consideration a 

number of different things, the number and percentage of home 

foreclosures, the number and percentage of homes financed by 

subprime mortgages, and the number and percentage of homes in 

default or delinquency in each State. I do not know, is this more 

advantageous to the overall picture? I am looking at Rust Belt 

States where I am from, and Mr. Garver or any of you who would 

like to comment on that, do you think the formula should be more 

specific? 

Mr. GARVER. I will take the first shot at that if I could, Congresswoman Pryce. I think it is a good observation on your part, we 

have been living and breathing in Ohio this foreclosure crisis issue 

for years now. And we have our champions, Jim Rokakis, treasurer 

of Cuyahoga County, and many of his cohorts have been dealing 

with this for years. And you travel around our great State and you 

see firsthand the fallout from this whole situation. While most certainly we do not want look a gift horse in the mouth and would 

appreciate any resources that might come to help us work with 

this. As I said in my testimony, we look at it as a partnership. 

The Federal Government, the State government, the local communities, and I know speaking for OHFA and for my colleagues at 

other State HFAs, we drive that partnership all the time. We look 

for that. We know we cannot be the be-all, end-all, but the reality 

is when you look at a State like Ohio, which has been dealing with 

this problem for a long time, you need a bigger snapshot. You need 

to look at things like the number of subprime loans, at foreclosure 

statistics, at default and delinquency statistics to really get a better 

understanding of what is going on on a State-by-State basis, and 

our argument would be obviously that Ohio was hit early and hit 

hard and that this legislation and the assistance that it might proVerDate 0ct 09 2002 12:18 Jun 23, 2008 Jkt 042716 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\42716.TXT TERRIE
37

vide should focus on those States that have really been hit hardest 

and try and direct as much resources so that we can work with our 

counterparts at a local level to really start to address this problem 

and start to bring some sense of stability to neighborhoods, communities, and obviously to help homeowners. 

Ms. PRYCE. Anybody else on the panel want to comment or disagree with Mr. Garver? 

Ms. CROWLEY. Well, I would like to agree. One of the recommendations we have had is to look at a longer period of time in 

terms of the data precisely because States like Ohio have been 

grappling with this for some period of time and so that would reflect that reality if we looked back in time further than is currently 

recommended. 

We also think it is important to make sure in looking at the 

housing stock, that you look at the totality of the housing stock, so 

not just not the median price of single family homes but also multifamily properties. And one of the things that is a variable that we 

are really trying to get a good handle on to show the depth of the 

problem is to look at the difference between the numbers of properties in foreclosure and the number of units of housing that are 

represented by that. What we are finding is that it is a substantially higher number when you look at total homes versus actual 

properties, and we think those should be included in the formula 

as well. 

Ms. PRYCE. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. Mr. Cleaver? 

Mr. CLEAVER. Thank you. I have a couple of questions, the first, 

yesterday, I unfortunately sought to convey to one of our witnesses 

and some of my colleagues the feeling on the part of a lot of people, 

at least maybe I just live in a unique spot in the world, who believe 

that our government, the Federal Government, has a history of and 

continues to provide assistance most readily for those who need it. 

My colleague Mr. Scott’s comment about the bailout of Bear 

Stearns and we did that quickly but there seems to be, at least to 

the little piece of geography that I represent, a tendency of the 

Federal Government to do that. I am wondering if in real worlds 

where you live there is a sentiment that we responded quickly to 

Bear Stearns, and we do a tortoise pace as it relates to the general 

public? 

Mr. BURROLA. I would say so. And you have to understand the 

perspective. You know, like I said, I have calls with our counselors 

all the time, and so when a family is losing their home and they 

see in the paper what’s going on with the financial sector and they 

have a problem just even in getting a response from a servicer at 

times for customer service, and you’re in a tough situation like 

that, you know, of course, there’s a lot of resentment there, so. I 

would say, yes, definitely, you know— 

Mr. CLEAVER. Well, there is a perception— 

Mr. BURROLA. Why is it—yes. Why is it for them, but why not 

for us? 

Mr. SHELTON. And I think— 

Mr. CLEAVER. Mr. Shelton? 

Mr. SHELTON. I would simply add to that that the African American community, walking out of your door and seeing all the For 

38

Sale signs of your neighbors and knowing that your property is depreciating at that rate, it’s incredible to know that what you have 

invested in your home now is actually—the home is actually worth 

much less than you owe on that home, is outrageous. 

But to take it a few steps further, to know that the bailouts that 

are available would allow a restructuring of loans of those who 

need to restructure the loan for their yacht and for their mortgage 

company, their financial institution, but the American family cannot enjoy the same kind of protections is absolutely outrageous. 

You can imagine how Americans feel that they’re not really part 

of the equation, part of the real concern that’s being debated not 

only on Capitol Hill but even in our newscasts and television stations across the country. 

Mr. CLEAVER. Thank you. 

Mr. LIZARRAGA. I would also like, if I may, I would also like to 

add that I agree with Mr. Shelton. One of the things that we see 

is the ability for government to respond very quickly in very unique 

areas, and we’re talking about a national disaster here. This needs 

to be treated as a national disaster, because all the gains that have 

been made over the last 15 or 20 years to get people to build equity, to buy their first home, to get that first ladder of equity building, have been wiped away in just a short period of time. 

And the response that I see from the Administration to this 

issue, very, very quickly, is a response that we need for this issue 

right now. In order to recapture, I guess, the intensity of it, we 

have already lost 1.5 million—have 1.5 million foreclosures not 

even going to be touched by this legislation. There’s another 1.5 

million coming in the next 60 to 90 days, you know, that we’re 

going to be facing as well; 3 million foreclosures in the United 

States is just a huge, huge, huge problem. So it is something that 

our community sees as just a different approach to solving—yes, 

the Bear Stearns issue is an important issue as far as stability of 

our banking community, but our communities, our underserved 

communities and communities throughout the United States are 

being impacted very negatively by this issue. 

Mr. CLEAVER. One of our witnesses yesterday said when I raised 

this issue that—I mentioned that I have a town hall meeting on 

Saturday morning, and I asked for some comfort from him, what 

could I tell the people, and he said to tell them that they need to 

think more deeply about why the government should respond to 

those who run the economy first. That was a gratuitous comment. 

I apologize. 

My final question is, what do we need—what can we do? When 

I look at the statistics that you presented, Mr. Shelton, and the 

same with you, Ms. Crowley, we have people who are losing homes, 

and the problem is going to be that they may never qualify again 

for a home. So, I mean, is there something that you think we can 

do to be of assistance to people who may have lost their life savings 

and then will never, ever achieve the American Dream again? 

Mr. SHELTON. Certainly, options need to take into consideration 

the conditions the American families were in going into the loans, 

as well as the conditions they’re in now, that very well providing 

an opportunity for them to even seek to purchase those homes in 

a restructured manner, that they have just lost. Indeed, the discusVerDate 0ct 09 2002 12:18 Jun 23, 2008 Jkt 042716 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 K:\DOCS\42716.TXT TERRIE
39

sions we’re having even today won’t help those who have actually 

lost their homes at this point, who are finding themselves destitute. So reconsideration and then reorganizing of the process in 

which we assess how American families can actually receive the 

capital, the protection, and the sustainability to be able to own 

those homes throughout. 

And again, going back to the question you asked before, Congressman Cleaver, we felt like when Bear Stearns had a problem, 

the government was willing to write a check. But when the American family had a problem, we got counseling. 

The CHAIRMAN. The gentlewoman from West Virginia. 

Mrs. CAPITO. Thank you. I would like to ask the panel a question. We have appropriated previously in the economic stimulus 

package money for counseling assistance. I know NeighborWorks is 

a big player in this. Can you tell me—but I have heard that the 

money is not quite getting down to the actual assistance and counseling folks in a speedy enough way. Can you tell me the status 

of this from your perspective? And, you know, this bill advocates 

more money for counseling. Are we spending what we have? Is it 

being used in the best possible way that we can? 

Mr. GARVER. Ranking Member Capito, if I could, I’ll speak to it, 

at least from Ohio’s perspective. We received a $3.1 million allocation in the National Foreclosure Mitigation funding, and within 2 

weeks had funding agreements out to 18 counseling agencies. 

Mrs. CAPITO. Could I interrupt you for just a second? 

Mr. GARVER. Sure. 

Mrs. CAPITO. Excuse me. So the money comes from the Federal 

Government to NeighborWorks to you to another entity? 

Mr. GARVER. Yes. 

Mrs. CAPITO. So it passes through twice? 

Mr. GARVER. And the key to that is that we actually applied on 

behalf of 18 nonprofits who didn’t have the capacity to access those 

dollars. So we felt it was critical to develop a Statewide network 

of counseling. 

The CHAIRMAN. Hold up. You applied to whom? 

Mr. GARVER. We applied to NeighborWorks. 

Mrs. CAPITO. So we send the money to NeighborWorks? 

The CHAIRMAN. So the Federal Government sends it to 

NeighborWorks and then the State of Ohio asks to apply to 

NeighborWorks? 

Mr. GARVER. Yes. They had a two-pronged process. Some entities 

got funding directly that had prior capacity and a track record, and 

others that didn’t, in a State as diverse as Ohio and as large as 

Ohio with 11.5 million population, there were gaps in that servicing network. 

The CHAIRMAN. But I think if the gentlewoman would permit me, 

what strikes us is that it goes from the Federal Government to a 

private entity and then the State goes to the private entity. That’s 

the chain that— 

Mrs. CAPITO. Well, what I want to know is, by the time—you 

know, it starts at the Federal Government. By the time it goes to 

the private entity, 10 percent maybe out that way, then it goes 

through Ohio, 10 percent out that way, you have already lost 20 

40

percent of the buying power, you know, if that is in fact the way 

it goes. Could you help me out with that? 

Mr. GARVER. No. We passed—on a pass-through basis. First, I 

will point out that most of the funding did flow directly from HUD. 

But what we— 

Mrs. CAPITO. From HUD to— 

Mr. GARVER. Through NeighborWorks directly to local organizations, but there were also entities that did not have the prior capacity, and we stepped in and said we will help to build that network. 

Mrs. CAPITO. So right now, are those—I’m sorry to interrupt, but 

I am short on time—right now, are those entities, the 18 entities 

that you advocated for, are they—do they have the money and are 

now actually talking face-to-face with people? 

Mr. GARVER. They are—yes. Yes, they are, literally. And I will 

mention one in particular, ESOP, which is a neighborhood-based 

organization in Cleveland, has agreements with I believe it’s 11 

servicers, to literally work out modifications on behalf of homeowners. And they will be receiving significant dollars through our 

participation. 

The other thing I would point out is how important that counseling is, and I’ll speak to it from an HFA perspective. We, obviously, in terms of our mission, work with low- and moderate-income first-time homebuyers. That is our passion, and that is our 

direction. A lot of folks would say there’s risk in that, and there 

is. And yet when you look at the performance of our portfolio, the 

Ohio Housing Finance Agency has seen a tenfold increase in production in the last 4 years in its first-time homebuyer program, 

and that portfolio is performing at our better than prime loans for 

the State of Ohio. And the reason for that is proper underwriting 

standards and an informed buyer. And when you have that combination and put people in a product that is suitable to their economic circumstance, and teach them about the responsibilities of 

homeownership, we believe that those individuals will perform. 

Mrs. CAPITO. And I believe in those goals as well. I’m questioning 

now the different hands. But Mr. Burrola I think wanted to add 

something. 

Mr. BURROLA. Yes. Actually, I just wanted to clarify something. 

The funds came via Congress to NeighborWorks. It didn’t pass 

through HUD whatsoever. And then there were three criteria that 

needed to be met. You either had to be a HUD housing counseling 

intermediary, a NeighborWorks direct organization, or a State 

housing finance authority. If you did not meet that criteria, you 

were not eligible for the funding. 

Mrs. CAPITO. Can you tell me where NeighborWorks is located, 

and does it have offices across the country? 

Mr. BURROLA. Right here in Washington, D.C. 

Mrs. CAPITO. Thank you. 

Mr. BURROLA. The other item, just real quick, just to give you 

some perspective on something that she had stated earlier, we were 

receiving—our housing counseling agencies were receiving 5 to 10 

phone calls a day—or excuse me, a week, in the first quarter before 

the mortgage default started getting a lot of traction, and so we 

41

started—we are anticipating way more calls. And so we were 

understaffed, and there definitely is a need. 

The CHAIRMAN. Let me just add briefly, because I want to move 

on, but I was in Arizona at the request of our colleague, Ed Pastor, 

and one of the things that hadn’t occurred to me was, particularly 

when people were in trouble, that counseling is very labor-intensive. They estimated that if you can do this right for a family, it 

is 20 hours per individual. 

Mrs. CAPITO. Yes. 

The CHAIRMAN. And I think that is one of the things that we 

don’t take fully into account, particularly if it’s post-problem counseling. 

Mrs. CAPITO. Yes. 

The CHAIRMAN. You really need to put a lot of time into it. The 

gentlewoman from New York. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. And I want to take 

this opportunity to thank all the witnesses for your insights in providing information about this issue that is important not only for 

our Nation but particularly for my community and my district back 

in New York. I’m sorry I wasn’t here to listen to the testimony, but 

I was chairing a full committee hearing. 

I would like for any of the witnesses to comment on the following 

statement and question that I’ll be making. Yesterday, we heard 

from regulators about a contraction in the availability of credit to 

mortgage borrowers. In addition, HUD raised concerns about using 

a loan and grant program to turn around foreclosed properties because it will represent, and I quote, ‘‘a clear moral hazard.’’ Mr. 

Montgomery didn’t refer to the bailout of Bear Stearns in the same 

way. So, first, do you agree with Mr. Montgomery’s assertion? And 

second, how do you suggest we encourage vacant home sales to 

avoid neighborhood blight? 

Mr. LIZARRAGA. One of the statements I would like to make, Congresswoman, is that the cooperation and participation of nonprofits 

is going to be significantly important in this process, we believe. 

Certainly we’re going to have to work with the cities in this effort 

through their redevelopment capabilities and also their CBDG capabilities as well. But we’re going to have to put together a capability with nonprofits and provide assistance, underwriting capability with the possibility of bringing together the ability to buy in 

bulk properties that can then be refinanced through this process so 

that we can use out-of-the-box concepts, concepts like maybe rent 

to buy. Keep people in their homes. 

Because the minute somebody leaves their home, as we heard a 

little bit earlier, within 2 weeks, it is vandalized, and it is impacting the community. It becomes a detriment in that block. And we 

used something similar. It was years ago, a HUD program to deal 

with their housing crisis they had at the time, but working through 

nonprofit intermediaries impacted together with this partnership, 

because $30 billion is a lot of money, but I have to tell you something, it has to be leveraged in many, many, many, many ways. 

Ms. VELAZQUEZ. Okay. 

Mr. LIZARRAGA. And I would hope that we would provide the capacity and the capacity building that’s necessary in order to assist 

these nonprofits to impact. 

42

Ms. VELAZQUEZ. Mr. Garver. Thank you. 

Mr. GARVER. He has made some excellent points, and we are 

learning firsthand, and it’s something that we practice, I mentioned the partnership that goes on within Ohio. And most certainly the pilot initiative I mentioned that we are—will be going to 

our board next week to finalize and move forward on, but we’ve 

been working with the City of Cleveland, which has been so devastated by this foreclosure crisis, and the reality is, you have to 

work with the local communities and you have to establish working 

relationship with the nonprofits and then leverage resources, even 

understanding, as the Housing Finance Agency, we could put every 

dime we have—tax credits, reserves, put it all on the table, and we 

couldn’t resolve the problem in Cleveland. 

So you are absolutely correct. You have to pick your targets. You 

have to be strategic and invest in neighborhoods, look for anchor 

projects and start a slow but sure revitalization process. 

Ms. VELAZQUEZ. Thank you. Last Tuesday, the Federal Reserve 

closed the comment period regarding Regulation Z, Truth in Lending. It has come to my attention that, although the Fed’s proposal 

is critical and overdue, it has significant gaps in some areas that 

will render provisions unenforceable or relatively weak. 

For example, in the ability to repay section, they require borrowers suing lenders to prove that lenders exhibited a pattern and 

practice in lending when even State’s law does not raise the bar 

that high. Some New York group submitted comments, and I’m 

wondering if any of you have submitted comments or have any concerns regarding that requirement. 

The CHAIRMAN. This is on the Fed’s subprime under HOEPA. 

Ms. VELAZQUEZ. No? Okay. 

Mr. GARVER. I’m not aware of any. 

Ms. VELAZQUEZ. Thank you very much. 

The CHAIRMAN. The gentleman from Colorado. 

Mr. PERLMUTTER. I have a couple of questions. One is kind of a 

rhetorical question, but do any of you know where this phrase 

‘‘moral hazard’’ ever came from? I mean, I have been involved in 

financial services stuff for 25 years, and until this year, I never 

heard about moral hazard. So, rhetorical question. Maybe the 

chairman knows. 

Also, what is Neighborhood Works? Is that a private contractor? 

Ms. CROWLEY. NeighborWorks America? 

Mr. PERLMUTTER. NeighborWorks. 

Ms. CROWLEY. It is a national organization, with a direct line 

item in the Federal budget. It was previously Neighborhood Reinvestment Corporation, and it has a board composed of the Assistant Secretary for Housing and others. It is a longstanding organization that is well-respected, and I think does a very good job. 

The earlier question about the NeighborWorks grants related to 

housing counseling, I have a list of who got those grants, if anybody is interested in seeing it. 

Mr. PERLMUTTER. But NeighborWorks is a legitimate passthrough from— 

Ms. CROWLEY. Oh, absolutely. 

Mr. PERLMUTTER. Okay. 

43

Ms. CROWLEY. Absolutely. It has had a longstanding relationship 

with groups called Neighborhood Housing Services, which you may 

be familiar with, in lots and lots of communities that do homeownership programs in local neighborhoods. 

Mr. PERLMUTTER. Last question. As we have heard from various 

panels, and especially last year, we talked about the resets that, 

you know, the variable rates were going to reset at some high rates 

which were rates that people couldn’t pay, and that was one problem. Another problem was we had these no doc loans and people 

didn’t have income that justified what they borrowed in the first 

place or at the higher rate maybe. And then finally we have this 

valuation question where now we see property prices drop. 

But the Federal Reserve has taken action to drop interest rates 

which do assist with any resets that occur this year. In counseling 

or working with your members or clients, are you able to take advantage of this drop in the interest rates? 

Mr. GARVER. I think it helps, but the reality is, we certainly saw 

it in our refinance program and in working with nonprofit organizations around the great State of Ohio. The reality is, the vast majority of potential applicants are underwater, either from a debt-toincome basis or a loan devalued. In fact, there are many folks in 

homeownership that you mentioned, no doc and low doc loans, that 

simply shouldn’t have been in that situation. 

Mr. PERLMUTTER. Okay. I yield back. 

The CHAIRMAN. The gentleman from Ohio. 

Mr. WILSON. Thank you, Mr. Chairman. Thank you for your 

leadership on working on this very important issue for the people 

of America and certainly for the State of Ohio. 

My question is to you, Mr. Garver. In your testimony, you said 

that there have been some pretty good innovative things that other 

States are doing, and I’m sure that Ohio is doing them as well. 

Could you hit on some of those for us? 

Mr. GARVER. I would be pleased to do that. Governor Ted Strickland, who obviously is one of your former colleagues, became Governor of Ohio in January of 2007 and fairly shortly after taking office, he established the Foreclosure Prevention Task Force. It was 

very clear the breadth and scope of the problem in Ohio, and that 

task force, which was chaired by Commerce Director Kimberly 

Zurz, was a cross-section of both public and private sector interests, 

industry and so on and so forth, and came up ultimately with I believe 27 recommendations, a number of which are now in the process of being implemented. 

I think the key thing to recognize about this crisis, and we have 

all talked about pointing fingers and looking and what happened 

and who did what, what we know in Ohio is, it is a very complex 

issue and there is not one simple, easy answer to it. It involves 

partnerships. It involves a comprehensive approach to the problem. 

And when I look at what we are doing in Ohio, I will just mention 

a couple of things very quickly. 

First and foremost, outreach. There are a lot of folks who just 

don’t understand what is going on. It has been estimated that 50 

percent of borrowers don’t get in touch with their lender or their 

servicer until it’s too late. And the Ohio Housing Finance Agency 

44

undertook its first Statewide outreach campaign, Take a Second 

Look at your Mortgage, to try and get folks to do something. 

And now the Ohio Department of Commerce and the Department 

of Development are really talking the lead in doing a Statewide 

media campaign. Last week, Governor Strickland signed a compact 

for preserving homeownership with nine servicers that focuses on 

things like helping or having those servicers contact folks so that 

they have plenty of time to do something. 

The willingness to do some large-scale modifications, a number 

of different steps that are really intended to try and move this forward. I believe it is the first compact of its kind in the country, and 

it also—the servicers will be reporting back to the Department of 

Commerce. 

We think counseling is very important. Another thing that we 

think is a relatively new step is mediation. The Ohio Supreme 

Court has started an initiative with 1,100 attorneys around the 

State signing up to provide pro bono services. You know, when a 

foreclosure starts, the servicer or the lender has their legal representation, and unfortunately, the vast majority of homeowners go 

into a foreclosure with no representation, and the State of Ohio has 

now put in place an initiative that will enable homeowners that are 

facing the prospect of foreclosure to have that kind of legal representation. 

And most certainly, we continue to look at our first-time homebuyer program. We consider that to be a foreclosure prevention initiative in and of itself. We use mortgage revenue bonds and put in 

place long-term fixed-rate financing. As I mentioned, our portfolio 

performs as well as prime loans. We believe when you put people 

in the right product, they will in fact repay the loan as long as they 

are educated and know what their responsibilities are. 

Mr. WILSON. May I follow up, Mr. Chairman? Mr. Garver, could 

you give us any indication of the effect that Senate bill 185 has had 

on the State of Ohio? 

Mr. GARVER. I think that’s the predatory lending bill that was 

passed by the legislature. It’s too soon to say, to be able to quantify 

the effects, other than we know they are positive. The unfortunate 

reality is, it wasn’t passed as soon as it could have been. A lot of 

what has transpired in Ohio didn’t have to happen in terms of 

predatory lending and in terms of people being put into products 

that they couldn’t afford. 

We understand there are a number of things that drive foreclosure. Some of those are life events, things like loss of job, a medical situation, a divorce, that type of thing. But the reality is, predatory lending sapped the lifeblood out of a lot of communities and 

a lot of families. And while we think going forward that bill will 

be of great benefit in terms of preventing the kind of irresponsible 

lending that was taking place, the reality is, we have an issue that 

we have to deal with now. 

Mr. WILSON. Thank you. 

The CHAIRMAN. The gentlewoman from California. 

Ms. WATERS. Thank you very much, Mr. Chairman, again, and 

thanks to you for these 2 days of very informative hearings, and 

thanks to all of our panelists who have been so helpful in helping 

us to understand what’s going on in their respective areas and givVerDate 0ct 09 2002 12:18 Jun 23, 2008 Jkt 042716 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 K:\DOCS\42716.TXT TERRIE
45

ing us thoughts about how this bill can be the strongest bill possible. 

Let me just say to our panelists, I am singularly focused on the 

servicers. The servicers emerge as the most important element in 

this foreclosure problem. They are the ones now with the ability to 

do modifications and workouts. They are independent. They are 

owned by banks and other financial institutions who have invested 

in these tranches that have come from the banks and other places. 

And they say that they have a responsibility based on their contract and liability to pursue collecting those mortgages and doing 

the foreclosures. Otherwise, they could be sued. 

So, we are learning a lot about servicers, this unknown entity, 

the kind of entity that’s off the radar screen, again, that emerges 

as so important in all of this. We found out they’re not regulated 

by anybody, and that many of the companies like Countrywide, for 

example, they have their own servicers, but it’s a separate entity 

that’s organized as a part, you know, separate and apart from the 

bank itself. 

They are unregulated by anybody. None of our regulatory agencies could tell us anything about them. We don’t know a lot about 

how much money they make on foreclosures. I’m led now to believe 

that there’s a profit in foreclosures for the servicers. Also, I’m not 

so sure that when we talk about counseling, we’re all talking about 

the same thing. Since I’m focused on servicers, and trying to get 

workouts and modifications, I don’t know if our traditional counselors, the ones who are doing first-time homebuying and helping 

people to figure out how to buy a home and how to be responsible, 

whether they’re the same people that we’re talking about or should 

be talking about to do workouts. 

In order to negotiate with the servicer, you have to know what 

you are talking about. My mitigation bill goes to the heart of that. 

My mitigation bill is controversial because it describes what mitigation should be. Some of these companies and these banks have 

so-called mitigation departments with a telephone number. Nobody’s ever there. I’ve been dialing them. And then I’m finding that 

they contracted them out to India someplace where people, you 

know, can’t talk to you about what you want to talk about. And 

we’re finding out that when some people talk about mitigation, 

they’re talking about extending the loan, etc., etc., but they’re not 

really talking about workouts that will allow people, for example, 

who have gotten into these ARMs, not to have to confront these 

resets in 6 months or a year or 2 years, but would be able to continue, say, for a 5-year period of time or some period of time paying 

the same amount of money that they got into the loan with. 

So we’re defining what mitigation really is. And I have asked my 

staff to take a look at how we regulate these mitigators and these 

so-called mitigation operations. I want you to tell me anything that 

you have learned or that you know about the servicers and about 

their so-called mitigation efforts and whether or not we have 

enough people trained to negotiate with these servicers to actually 

get modifications and loan workouts. 

Mr. BURROLA. I can go ahead and begin. Our counselors are experienced in both P-purchase and mortgage default counseling. 

They attend trainings regularly. You know, I would say at average 

46

they are at about 8 years or so experience. And this is agencies 

that are located throughout the country. 

To understand post mortgage default side, you need to understand the pre-purchase side to help the family. In terms of working 

with the servicers, many have expressed to me that some servicers 

are aggressive, that you’re dealing with a new person each time 

you call, and so the lack of understanding on the family situation 

isn’t there. There has been mentioning that the call centers may 

be from other countries. And it’s kind of set up like call center, so 

you know— 

Ms. WATERS. We know what they are. 

Mr. BURROLA. Right. 

Ms. WATERS. But I want to know how you deal with them and 

what you would suggest for us to be able to get a handle. Otherwise, you’re not going to get any modifications. You’re not going to 

get any real workouts. So we know all of that. We’re learning all 

of that about the servicers. What do you suggest we do to be able 

to regulate and control them? 

Mr. BURROLA. Well, I think the biggest thing is just with the 

training. The counselors, when they’re trained, they’re prepared 

with documents so when they contact the servicer, they know how 

to speak on behalf of the family to not be intimidated by the scenario. 

The CHAIRMAN. Let me—because we’re going to have to rush. 

Any other members want to comment on—one more. 

Mr. LIZARRAGA. Yes. I think that this kind of thinking out of the 

box was somehow we’re going to have to find some way of regulating the servicers. In addition to that, we’re finding that more 

and more the servicers are being owned by banks. You know? 

Banks are acquiring the services. They like the platform. They like 

what they have. 

And so providing maybe some regulation or additional incentive 

to banks to do some type of CRA benefit, to incentivize them, might 

be something you might consider as well. 

The CHAIRMAN. Well, I think that’s very much what we’re talking 

about going forward and the message we are trying to send to the 

servicers is to the extent to which we’ll get cooperation now will 

have some impact on how tightly we think we have to regulate 

them in the future. 

The gentleman from North Carolina, Mr. Miller, will be our last 

questioner on this round, and then the hearing will adjourn. 

Mr. MILLER. Thank you, Mr. Chairman. I regret that I have 

missed some of the questions that you have already had. I think 

my questions are similar to Ms. Waters’, although she’s a California liberal firebrand and I’m a soft-spoken Southern moderate. 

The proposed legislation is entirely voluntary. And industry appears to have volunteered only to do what is in their obvious selfinterest. They’ve only agreed to modify. They’ve only volunteered to 

modify the loans. They know they can’t get paid in full. And they 

can’t really collect for amount of foreclosure because there’s not 

enough equity. And they’ve only agreed to modify just to the extent 

that they can get paid. I don’t think they should get a humanitarian award for that. 

47

And in other loans where the borrowers’ financial circumstances 

are less fragile, which should be most of the subprime loans—since 

55 percent of the people who took out subprime loans in 2006 and 

2007 qualified for prime loans shouldn’t have been in the subprime 

market in the first place—a lot of them can get out. 

A lot of them can sell their house because they do still have some 

equity in their house. They’re not upside down. A lot of them can 

refinance. But they are suffering too. They’re not losing their 

homes to foreclosure but they’re losing their homes because they 

are selling them, or they’re losing a piece of the equity in their 

home because of equity stripping practices. 

Almost everything that we’re doing voluntarily or that would be 

voluntary for industry for whoever holds the mortgage, the mortgagees, servicers, whoever, does not require anything with respect to 

the other mortgages, where someone can pay, can get out, should 

we not find a way to link what we do to help industry to help the 

mortgagees in these circumstances to what they’re doing with respect to all the other mortgages, where they’re doing nothing to 

help people who are still in predatory loans that stripped equity for 

middle-class homeowners? 

[No response] 

Mr. MILLER. Don’t all speak at the same time. What else can we 

do besides what we’re doing? Mr. Shelton, you mentioned in the 

anteroom the bankruptcy legislation. 

Mr. SHELTON. Absolutely. Certainly we need more options for the 

homeowner, the family who is trying to keep their home. And certainly as we’ve discussed, we certainly need to make sure at the 

very least Chapter 13 type solutions are made available to the family, to the individuals who are trying to keep their homes as well. 

We do it for businesses, we do it for other programs. We certainly 

need to do it for all American people. And certainly we would prefer to find incentives certainly to help companies step to the plate 

to do the ethical thing, to do the right thing. But you’re absolutely 

correct. They have not stepped up. They’re basically continuing to 

look for the bottom line profit for themselves in a bailout for themselves. So we would certainly support any option that would help, 

even mandate the involvement of the services industry to provide 

assistance to the American family. 

Finding that solution has been a very difficult one, as you’ve 

seen, and the balance has been very challenging, to say the least. 

Mr. GARVER. I think flexibility is the key, as you have suggested, 

providing the tools to try and help as many folks as possible, knowing that still there will be people that will lose their homes, as they 

are too far gone. So then the question becomes one of we have to 

find alternative housing resources for them. 

And I know one of the things we’re looking at in Ohio, in fact 

in some of these impacted neighborhoods, is stepping in with our 

tax credit programs and other initiatives and doing lease—on the 

floor. 

The CHAIRMAN. Would the gentleman yield? The question that he 

posed is surely becoming more and more important to us. Let me 

invite any of the panelists, it may not have been something you 

came prepared to talk about, but if you want to submit something 

later in writing, this is a topic that is going to engage this comVerDate 0ct 09 2002 12:18 Jun 23, 2008 Jkt 042716 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 K:\DOCS\42716.TXT TERRIE
48

mittee. So drawing on your experiences, in addition to what you 

have to say today, please, we would welcome written comments. 

I’m sorry, the gentleman from North Carolina. 

Mr. MILLER. I was happy to have the Chair’s intervention there. 

Anybody else? Before the light turns red and we go vote? 

Mr. Garver—I think no one thinks that all homeowners are going 

to get saved. A lot of people are going to lose their homes. 

Mr. GARVER. Yes. But I think we have a responsible, then, to 

make the best out of a bad situation and look for other ways to reinvest back into those neighborhoods and give folks alternative 

housing resources. 

The CHAIRMAN. Without objection, I will put into the record a 

statement on behalf of the National Multi-Housing Council, the National Apartment Association, and a joint statement by the Council 

of Mayors, Association of Counties, Association of Local Housing 

Agencies, and the National Committee Development Association, in 

which they express qualified support—and qualified means they 

want it to go to the cities and counties, and not the States. We are 

trying to work out some of kind of sharing there. I think we understand the cities will be primary in many places, but there could be 

problems outside, as came out in the questions, so we are going to 

try and blend those two. 

I thank the witnesses for their testimony, and we certainly remain available for the guests— 

Mr. LIZARRAGA. Mr. Chairman, if I may? I just wanted to take 

the opportunity to thank Congresswoman Waters for introducing 

Neighborhood Rescue and to thank you for incorporating it into the 

bill. I understand that is moving forward, and we really appreciate 

it. 

The CHAIRMAN. Yes. We plan to do that, and many of the suggestions that you made, we have already been talking about. Just for 

your information, this bill will probably be voted on in this committee on the 23rd and 24th of April, so we have a couple of weeks. 

Obviously, we won’t be able to comment on everything, but we are 

moving in that direction. 

The hearing is adjourned. 

[Whereupon, at 1:35 p.m., the hearing was adjourned.] 

(49)

A P P E N D I X

April 10, 2008

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