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S. HRG. 111–317 

PRESERVING HOME OWNERSHIP: PROGRESS 

NEEDED TO PREVENT FORECLOSURES 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING THE STATE OF THE HOUSING MARKET AND THE FEDERAL 

GOVERNMENT’S EFFORTS TO PREVENT FORECLOSURES 

JULY 16, 2009 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html 
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

CHRISTOPHER J. DODD, Connecticut, Chairman 

TIM JOHNSON, South Dakota 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

EVAN BAYH, Indiana 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

RICHARD C. SHELBY, Alabama 

ROBERT F. BENNETT, Utah 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

MEL MARTINEZ, Florida 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

KAY BAILEY HUTCHISON, Texas 

EDWARD SILVERMAN, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director and Counsel 

JONATHAN MILLER, Professional Staff Member 

DEBORAH KATZ, Legislative Fellow 

MARK OESTERLE, Republican Chief Counsel 

JIM JOHNSON, Republican Counsel 

MICHAEL PASSANTE, Professional Staff Member 

DAWN RATLIFF, Chief Clerk 

DEVIN HARTLEY, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)
C O N T E N T S 

THURSDAY, JULY 16, 2009 

Page 

Opening statement of Chairman Dodd .................................................................. 1 

Prepared statement .......................................................................................... 59 

Opening statements, comments, or prepared statement of: 

Senator Shelby .................................................................................................. 3 

Prepared statement ................................................................................... 60 

Senator Johnson ............................................................................................... 60 

WITNESSES 

Herbert M. Allison, Jr., Assistant Secretary for Financial Stability, Department of the Treasury ........................................................................................... 5 

Prepared statement .......................................................................................... 61 

Responses to written questions of: 

Chaiman Dodd ........................................................................................... 250 

Senator Johnson ........................................................................................ 250 

Senator Corker .......................................................................................... 252 

William Apgar, Senior Advisor to the Secretary for Mortgage Finance, Department of Housing and Urban Development ......................................................... 8 

Prepared statement .......................................................................................... 65 

Responses to written questions of: 

Senator Johnson ........................................................................................ 252 

Thomas Perretta, Consumer, State of Connecticut ............................................... 41 

Prepared statement .......................................................................................... 69 

Joan Carty, President and CEO, The Housing Development Fund, Bridgeport, 

Connecticut ........................................................................................................... 43 

Prepared statement .......................................................................................... 70 

Response to written question of: 

Senator Shelby ........................................................................................... 255 

Paul S. Willen, Senior Economist and Policy Advisor, Federal Reserve Bank 

of Boston ............................................................................................................... 44 

Prepared statement .......................................................................................... 73 

Responses to written questions of: 

Senator Shelby ........................................................................................... 255 

Mary Coffin, Head of Mortgage Servicing, Wells Fargo ....................................... 46 

Prepared statement .......................................................................................... 192 

Responses to written questions of: 

Senator Shelby ........................................................................................... 260 

Senators Corker and Vitter ...................................................................... 261 

Curtis Glovier, Managing Director, Fortress Investment Group, on behalf 

of the Mortgage Investors Group Coalition ........................................................ 48 

Prepared statement .......................................................................................... 195 

Responses to written questions of: 

Senator Shelby ........................................................................................... 262 

Allen H. Jones, Default Management Policy Executive, Bank of America ......... 50 

Prepared statement .......................................................................................... 198 

Responses to written questions of: 

Senator Shelby ........................................................................................... 263 

Senators Corker and Vitter ...................................................................... 264 

Diane E. Thompson, of Counsel, National Consumer Law Center, also on 

behalf of National Association of Consumer Advocates .................................... 51 

Prepared statement .......................................................................................... 202 

(III)

(1) 

PRESERVING HOME OWNERSHIP: PROGRESS 

NEEDED TO PREVENT FORECLOSURES 

THURSDAY, JULY 16, 2009 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee convened, pursuant to notice, at 9:34 a.m., in 

room 538, Dirksen Senate Office Building, Senator Christopher J. 

Dodd, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD 

Chairman DODD. The Committee will come to order. We gather 

here this morning to have a hearing on ‘‘Preserving Home Ownership: Progress Needed to Prevent Foreclosures.’’ 

It is almost like Groundhog Day. One of the very first hearings 

I held 2 years ago with my friend Richard Shelby was on this very 

subject matter, back in February of 2007—— 

Senator SHELBY. Two-and-a-half years. 

Chairman DODD.——two-and-a-half years ago now, and we had, 

I don’t know the exact number, something like 30 hearings and so 

forth, a whole series of meetings we conducted over that period of 

time to try and convince people how serious the foreclosure issue 

would be. And here we are, two-and-a-half years later, back at the 

subject matter. 

So I am glad all of us could be here today. I am particularly 

thankful for our witnesses. But I have to be honest with everyone 

who is here this morning. I am frustrated—that is a mild word to 

use—that we even have to hold this hearing at all. This is disgraceful, where we are two-and-a-half years later. 

For over 2 years, this Committee has worked to stem the tide of 

foreclosures in America, Democrats and Republicans, both in the 

Committee, other committees have obviously been involved in it, as 

well. We have heard plans and proposals from the administration. 

We have passed legislation. Many changes have been asked of us 

and we have passed even more legislation. We have received assurance after assurance from the industry. Everyone agrees that the 

crisis in our mortgage market was the catalyst for the broader economic crisis. There were other factors, obviously, but it was the 

major catalyst, and everyone understands that getting out of this 

broader crisis requires that we stabilize our housing market and 

stem the tide of foreclosures in our country. 

So I am hoping that with the stakes this high, somebody can 

begin to explain to us why nothing has changed over the last twoand-a-half years. 
2 

Today, the Associated Press is reporting, I quote, ‘‘The number 

of U.S. households on the verge of losing their homes soared by 

nearly 15 percent in the first half of the year as more people lost 

their jobs and were unable to pay their monthly mortgage bills. 

Over 336,000 households received at least one foreclosure notice in 

June.’’ 

Why am I still reading about lost files, understaffed and undertrained services and hours spent on hold on the telephone? Why 

does the National Foreclosure Mitigation Program tell us that 

homeowners are waiting an average of 6 to 8 weeks—6 to 8 

weeks—for a response? Why are we still reading stories about 

homeowners, community advocates, even our own staffs acting on 

behalf of constituents, shuffled from voice mail to voice mail to 

voice mail to voice mail as they attempt to help people stay in their 

homes? Why are servicers and lenders refusing to accept principal 

reduction so that homeowners can start building equity and get the 

housing market moving again? 

Two years ago, I brought together in this very room banks, lenders, mortgage firms, regulators, consumer groups for a home owner 

or home ownership preservation gathering summit. We all agreed 

upon a statement of principles, which were the following. 

First—and these were everyone agreeing to this. This wasn’t 

something being opposed. There were a number of days meeting to 

determine what these principles ought to be. First, that services 

should attempt to contact subprime borrowers before loans reset in 

order to identify likely defaults early enough for the loan to be 

modified. Second, modifications should be made affordable for the 

long term. And third, servicers should have dedicated teams of professionals to implement these modifications. And finally, we agreed 

that we needed real accountability, a system for measuring the 

progress. 

We were able to come to this agreement because all of us understood that nobody wins, obviously, when a home is foreclosed. Nobody wins, obviously, when a bank has to sell a house at auction 

for less than it would get it if simply were refinanced. And, of 

course, no one wins when a home loses at least $5,000 in value for 

every foreclosure on that city block or street block. And, of course, 

no one wins when foreclosure rates are the single biggest threat to 

economic recovery. 

So what has happened over this period of time and what are we 

doing differently? Today, I want some answers. Foreclosure is not 

an abstract concept. It is a very real pain for American families. 

It is not just the loss of a house, it is the loss of a home. It is the 

anguish of having to uproot your family. It is the sadness of feeling 

that you have let them down, that you no longer have that place 

that they can live in. And it is the terrible heartache caused by the 

violation of the sacred promise that has long defined the American 

middle class in our country, that if you work hard and play by the 

rules, that together we can build something better for you and your 

family. 

Most people in foreclosures work hard and play by the rules. 

They budgeted, they saved, they relied on brokers and lenders, professionals who are supposed to be experts, to help them achieve 

their dream of home ownership. But then someone lost a job. Some-
3 

one got sick. Fifty percent of the foreclosures are caused by health 

care crisis in that family—50 percent of them. So in far too many 

cases, they discover they simply have been cheated, unfortunately. 

Last year, I met a woman named Donna Pierce, a grandmother 

from Bridgeport, Connecticut. By the way, in Bridgeport, Connecticut, there are 5,000 families in that city with subprime mortgages in danger of foreclosure. Donna was assured by her lender 

that she could refinance in 6 months. But he didn’t mention the 

thousands of dollars in penalties that refinancing would cost, penalties she could not afford. 

People like Donna Pierce didn’t deserve to lose their homes. Neither did the 10,000 families that before today ends will receive a 

foreclosure notice in our nation, or the 60,000 families in my home 

State of Connecticut who find themselves in foreclosure over the 

next 4 years. 

So I know I speak for all of us here in this Committee, our colleagues, not just those on the Committee but others in the Senate 

and the House, people all across the country, when I say that I am 

glad to have the support of the administration and the industry in 

our effort to stem this dangerous tide, but a lot more needs to be 

done. What we don’t have is results. So today, we sit here again 

and the American people are demanding to know why. So this 

morning, I hope we are going to get some answers. 

I happen to be one that believes that the idea of principal reduction makes a lot more sense than interest rate reduction. It is all 

about equity—all about equity. If people can increase their equity 

in a home or have an equity and a chance to regain their footing 

in equity, then it seems to me we can do a lot better in this than 

just sitting here monkeying around with interest rates. But that is 

my point of view. I know others have a different point of view on 

that. But nonetheless, that is where I believe we should be going 

with this, rather than the course we are on. 

With that, let me turn to Senator Shelby. 

STATEMENT OF SENATOR RICHARD C. SHELBY 

Senator SHELBY. Thank you, Mr. Chairman. 

Today, the Committee will examine the state of our housing market and the Federal Government’s efforts to prevent foreclosures in 

the midst of what is now the most severe recession in a generation. 

Problems in our housing market have been center stage since the 

start of this crisis, as Senator Dodd just reminded us. Rising default rates on subprime mortgages appear to have triggered the financial crisis nearly 2 years ago. Since then, default rates on all 

classes of mortgages have risen sharply and the precipitous declines in the value of mortgage-backed securities have crippled 

banks and led to the insolvency of Fannie and Freddie. As the 

economy has continued to worsen, millions of Americans have seen 

the value of their homes fall and many have lost or may lose their 

homes to foreclosure. 

In an effort to forestall unnecessary foreclosures, Congress and 

the Obama administration initially devised several programs. 

Nearly 1 year ago, Congress enacted the Hope for Homeowners program. This program aimed to keep homeowners in their homes by 

encouraging lenders and servicers to modify mortgages. Unfortu-
4 

nately, this program has only modified a handful of mortgages. 

While recently enacted changes to the program may help improve 

Hope for Homeowners, it is clear that the program needs a thorough reexamination. 

In many ways, I believe that this hearing could begin to put the 

horse back in front of the cart by undertaking some of the investigative work necessary to properly address the issues surrounding 

the housing market in this country. We have heard many theories 

about the causes of our difficulties. However, my hope is that with 

this hearing, we can bring together verifiable facts which will allow 

us to do our own analysis here. Homeowners in need will be better 

served if we actually identify the root causes of foreclosures and 

craft effective solutions rather than simply implementing policies to 

counteract what we think is the problem. 

As the Committee considers how to prevent foreclosures, I think 

we should begin by determining the following. First, and probably 

most important, is the degree to which escalating default rates can 

be attributed to unscrupulous lenders. If true predatory lending 

was as pervasive as some have argued, we should be able to easily 

document that fact. I must say, however, aside from anecdotal evidence, I don’t think we have yet to see such data. I look forward 

to hearing what the administration believes is the reason for the 

rising default rates and what evidence they cite in support of their 

position. 

The second question we need to ask, I believe, is what is working? Unfortunately, existing modification programs have not been 

very effective. It is important to understand why they have not 

been working as expected and if there is anything we can or should 

do in response here. 

Finally, we should determine whether our policies are building 

the foundations for a stable and sustainable housing market or if 

they are merely delaying the inevitable. I have long criticized our 

housing policy for willfully ignoring long-term financial consequences, especially with respect to the GSEs. Sustainable policies 

must be based on economic realities and facts, not wishful thinking. 

I hope today, as the Chairman has indicated, that we can begin 

to establish some of those facts by examining the research and experiences of our panelists. To the extent that we can clearly determine what caused this crisis, we will then be able to address it 

more effectively and also implement policies to avoid future crises. 

Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator. 

We have got a rather large second panel, so with my colleagues’ 

indulgence, all of your opening statements will be included in the 

record and the like, and if you want to use your time to engage in 

that, that will be available to you, but let me get right to our witnesses, the two first witnesses. 

We are joined here first by two witnesses. Herb Allison is the Assistant Secretary for Financial Stability at the U.S. Treasury. Assistant Secretary Allison has been a leader in the U.S. financial 

markets, both in the public and private sectors, having served in 

top positions at Freddie Mac, TIAA–CREF, and Merrill Lynch. 
5 

William Apgar is the Senior Advisor to the Secretary for Mortgage Finance of the Department of Housing and Urban Development. Previously, he was the Assistant Secretary for Housing. He 

has served in various positions as a lecturer and scholar at the 

Harvard Kennedy School of Government. 

We appreciate both of you being here this morning and we will 

accept your testimony here. Try and keep it down to five or 8 minutes if you can so we can get to the questions. 

Mr. Allison, you are up first. 

STATEMENT OF HERBERT M. ALLISON, JR., ASSISTANT SECRETARY FOR FINANCIAL STABILITY, DEPARTMENT OF THE 

TREASURY 

Mr. ALLISON. Thank you very much, Mr. Chairman. Chairman 

Dodd, Ranking Member Shelby, and members of the Committee, 

thank you for this opportunity to testify about the Treasury Department’s comprehensive initiatives to stabilize the U.S. housing 

market and to support homeowners. I will keep my remarks brief, 

as I have provided a more detailed review of the program’s 

progress and challenges in my written testimony. 

A strong housing market is crucial to our economic recovery. The 

recent crisis in the housing sector has devastated families and communities across the country and is at the center of our financial crisis and economic downturn. Today, I want to outline the steps that 

Treasury and the administration have taken to address this crisis, 

help millions of homeowners, and lay the foundations for economic 

recovery and financial stability. 

This crisis was years in the making, and as a result, millions of 

homeowners have mortgage payments that they are unable to afford. Rising unemployment and recessionary pressures have impaired the ability of many otherwise responsible families to stay 

current on their mortgage payments. The result is that responsible 

homeowners across America are grappling with the possibility of 

foreclosure and displacement. Many analysts project that more 

than six million families could face foreclosure in the next 3 years 

if effective actions are not taken. 

This administration has moved with great speed to aggressively 

confront the economic challenges facing our economy and housing 

market by announcing and implementing an unprecedented mortgage modification program. 

Chairman DODD. Mr. Allison, would you mind moving your 

microphone a little closer to you so we can hear you better? Thank 

you. 

Mr. ALLISON. Thank you. An initiative of this scale has never 

been previously attempted. On March 4, just 2 weeks after the 

President announced the program, the administration, working 

with the banking regulators, Fannie Mae and Freddie Mac, HUD, 

and the Federal Housing Finance Agency, published detailed program guidelines for MHA’s Home Affordable Modification Program, 

or HAMP. 

On April 6, we issued detailed servicer guidance. Today, we have 

27 servicers lined up to participate in MHA. Between loans covered 

by those servicers, as well as Fannie Mae and Freddie Mac, more 
6 

than 85 percent of all mortgage loans in the country are now covered by the program. 

The initiatives include three key components. First, support for 

the Government Sponsored Enterprises, or GSEs. We have committed an additional $200 billion of capital to Fannie Mae and 

Freddie Mac to encourage low mortgage rates and help maintain 

mortgage affordability. 

Second, the Home Affordable Refinance Program, or HARP, expands access to refinancing for families whose homes have lost 

value and whose mortgage payments can be reduced at today’s low 

interest rates. It helps homeowners who are unable to benefit from 

the low interest rates available today because price declines have 

left them with insufficient equity in their homes. We have recently 

expanded the program to help homeowners with mortgages up to 

125 percent of current home value. 

Third, the Home Affordable Modification Program, or HAMP, 

which will provide up to $75 billion to encourage loan modifications 

that will provide sustainable, affordable mortgage payments for 

borrowers. Importantly, HAMP offers incentives to investors, lenders, servicers, and homeowners to encourage mortgage modifications. 

We have recently announced details of additional HAMP program features, including a second lien program, that can provide 

a more affordable solution for borrowers by addressing their total 

mortgage debt; measures to strengthen the Hope for Homeowners 

Program, which provides additional relief for borrowers with mortgage balances greater than the current value of their homes; a foreclosure alternatives program that will provide incentives for short 

sales and deeds in lieu of foreclosure, where borrowers are unable 

to complete the modification process; home price decline protection 

incentives that will encourage more modifications where home 

price declines have been severe. 

Today, I want to highlight some key points of success. Threehundred-twenty-five thousand trial modifications have been offered 

under HAMP. Approximately 160 trial modifications are now underway, and that number is growing every week. While this number is not yet audited, we believe it is reasonably accurate, based 

on our discussions with the GSEs who administer the program. As 

servicers adjust their systems and new reporting capabilities become operational, we will continue to improve the accuracy and 

robustness of the data that we provide to you. 

At this early data, MHA has already been more successful than 

any previous similar program in modifying mortgages for at-risk 

borrowers to sustainably affordable levels and helping to avoid preventable foreclosures. Nonetheless, we recognize that challenges remain in implementing and scaling up the program. We are committed to overcoming those challenges and reaching as many borrowers as possible. 

In particular, we are focused on addressing challenges in three 

key areas: Capacity, transparency, and borrower outreach. We are 

taking a number of steps and working with servicers to expand nationwide capacity to accommodate the number of eligible borrowers 

who can receive assistance through MHA. 
7 

Just last week as part of the Administration’s efforts to expedite 

implementation of HAMP, Secretaries Geithner and Donovan wrote 

to the CEOs of all the servicers currently participating in the program. In this joint letter, they call on the servicers to devote substantially more resources to the program in order for it to fully succeed. They ask that all servicers move rapidly to expand servicing 

capacity and improve the quality of loan modifications. 

Specifically, this will require that servicers add more staff than 

previously planned, expand call center capacities, bolster training 

of representatives, enhance online offerings, send additional mailings to potentially eligible borrowers, and provide a process for borrowers to escalate their concerns about services’ performance. The 

joint letter also requested that each CEO designate a senior liaison 

to attend a program implementation meeting with senior HUD and 

Treasury officials on July 28 to work directly with us in all aspects 

of MHA. 

As Secretary Geithner has noted, we are committed to transparency and better communications in all of Treasury’s programs. 

Accordingly, we are planning to take three additional concrete 

steps in conjunction with the servicer liaison meeting to enhance 

transparency in the program. 

First, by August 4, we will begin publicly reporting servicers’ specific results on a monthly basis. These reports will provide a transparent and public accounting of individual servicer performance by 

detailing the number of trial modification offers extended, the number of trial modifications underway, the number of official modifications offered, and the long-term success of modifications. 

Second, we will work to establish specific operational metrics to 

measure the performance of each servicer. 

Third, in order to minimize the likelihood that borrower applications are overlooked or that applications are inadvertently denied 

a modification, Treasury has also asked Freddie Mac in its role as 

compliant agent to develop a second look process for auditing a 

sample of MHA modification applications that have been denied. 

These additional measures will complement the steps we have already taken to increase transparency, such as expanding the efforts 

of the Federal Government to combat mortgage rescue fraud and 

put scammers on notice that we will not stand by if they prey on 

homeowners seeking help under the program. 

The third challenge we are tackling aggressively is borrower outreach. We are committing significant resources, in partnership with 

the servicers, to reach and inform as many borrowers as possible. 

We have already launched a consumer-focused website, 

www.makinghomeaffordable.gov, with self-assessment tools for borrowers to determine their potential eligibility for the MHA program. This website is in both English and Spanish and has already 

received over 22 million page views. 

We have established a call center where borrowers can reach 

HUD for approved housing counselors who can provide information 

and assistance in applying for the MHA program. 

And working closely with Fannie Mae, we have also launched 

foreclosure prevention workshops and borrower education events in 

areas of the country facing high foreclosure rates. The first out-
8 

reach event was held in Miami and another is taking place today 

in Sacramento. 

Much more must be done. We will continue to work with other 

agencies and the private sector to reach as many families as possible. 

Finally, we recognize that any program seeking to avoid preventable foreclosures has limits, HAMP included. As President Obama 

noted when he launched the program in February, this program 

will not save every home. Even before the current crisis, when 

home prices were declining, there were hundreds of thousands of 

foreclosures a year. Therefore, even if HAMP meets our ambitious 

goals, we should still expect millions of foreclosures over the next 

several years. Some of those foreclosures will affect borrowers who, 

as investors, do not qualify for the program. Others will be borrowers who did not respond to our outreach, and others will be borrowers who bought homes well beyond what they could afford and 

would be unable to make their monthly payment even on a modified loan. 

Nevertheless, for millions of homeowners, HAMP will provide a 

crucial opportunity to stay in their homes. It will bring relief to the 

communities hardest hit by foreclosures. It will provide peace of 

mind to families who have barely managed to stay current in their 

mortgages, who have recently fallen behind in their payments. It 

will help stabilize home prices for all American homeowners, and 

in doing so aid the recovery of the U.S. economy. 

In less than 5 months, including the initial start-up phase, the 

Making Home Affordable Plan has accomplished a great deal and 

helped homeowners across the country. But we know that more is 

required to help American families during this crisis, so we will 

work tirelessly to build on these efforts. 

Sustained recovery of our housing market is vital to achieving financial stability and promoting a broad economic recovery. We look 

forward to working with you to help Americans stay in their 

homes, to restore stability in the U.S. housing market and grow the 

U.S. economy. 

Thank you very much, and I look forward to your questions. 

Chairman DODD. Thank you. 

Mr. Apgar, go ahead. 

STATEMENT OF WILLIAM APGAR, SENIOR ADVISOR TO THE 

SECRETARY FOR MORTGAGE FINANCE, DEPARTMENT OF 

HOUSING AND URBAN DEVELOPMENT 

Mr. APGAR. Chairman Dodd, Ranking Member Shelby, members 

of the Committee, thank you for the opportunity to testify. 

Secretary Allison has already provided you with a summary of 

the Making Home Affordable Program. I will focus my comments 

on the implementation of the Hope for Homeowners Program and 

others administration efforts to provide relief to homeowners and 

neighborhoods suffering from the effects of the foreclosure crisis. 

First of all, I want to commend Chairman Dodd and the other 

members of the Committee for your leadership in passing the Helping Families Save their Homes Act of 2009, signed into law by 

President Obama on May 20 of this year. This legislation makes 
9 

important and much needed improvements to the Hope for Homeowners Program that we are now implementing. 

Due to several obstacles to participation, including steep borrower fees, costs, complex program requirements, and lack of operational flexibility in program design, the original Hope for Homeowners Program only served a handful of distressed owners. These 

legislative improvements that were enacted this year, combined 

with the integration of Hope for Homeowners into the Administration’s Making Home Affordable Program, will help the program, 

Hope for Homeowners, become a less burdensome option for underwater borrowers who are seeking to refinance their home and regain equity in their home. 

Services participating in the Making Home Affordable Program 

will be required to offer the option for Hope for Homeowners refinancing in tandem with a Making Home Affordable modification. 

To ensure proper alignment of incentives, servicers and lenders will 

receive payments in the Hope for Homeowners refinancing option 

similar to those offered to the modification option. Though the 

Hope for Homeowners Program offers substantial benefits to underwater borrowers best served by an increase in equity position in 

their homes, treatment of second liens poses significant challenges 

to the implementation of the program. 

First, the presence of a second lien complicates the execution of 

a mortgage refinance program even under the best of circumstances. Since second liens tend to be held in the portfolio by 

several of the Nation’s largest banking institutions while first liens 

are owned by a wider range of investors, coordinated communication and decisionmaking between these two separate financial interests can be logistically complex. 

Equally challenging is the determination of a fair allocation of 

payments to each of these two distinct investment interests. As you 

know, the basic program requires first lien investors to take a significant write-down in order to restore the borrower to an affordable mortgage with a meaningful level of equity in their home. 

Though initially resistant to the program, many first lien investors 

under the concept of one loss, one time, appear increasingly willing 

to accept the required haircut and execute a clean exit from the 

transaction. 

Unfortunately, the calculation of second lien-holders is more complex. Even in situations where the combined LTVs of the first and 

second liens exceed the market value of the home, second liens may 

have some value. In particular, representatives of banking institutions that hold sizable numbers of second liens on their portfolios 

report that in some situations, borrowers who are delinquent on 

their first lien continue to make payments on their second lien, 

providing some measure of benefit to second lien holders. Of 

course, where the first lien is underwater, once the property moves 

to foreclosure, the second lien is worthless. 

In light of these complex and often conflicting interests, determining the fair compensation system for holders of second liens is 

difficult. In this regard, the July 10 letter to the heads of five bank 

regulators jointly signed by you, Chairman Dodd, and House Financial Services Committee Chairman Frank, is illustrative. In assessing methods used to estimate the value of second liens held on 
10 

the balance sheet of the Nation’s largest bank, the letter expressed 

concern that loss allowance associated with these subordinated 

liens may be insufficient to realistically and accurately reflect their 

value, especially in light of the historically poor performance of 

first lien mortgages and the seriously diminished value of the underlying collateral. The letter goes on to observe that in situations 

where banks are allowed to carry these loans at potentially inflated 

value, they may be reluctant to negotiate the disposition of these 

liens and thus stand in the way of an increasing participation in 

Hope for Homeowners. 

To better understand these issues, HUD and Treasury are now 

working with the OCC and other regulators that supervise the activities of large national banking institutions that hold in portfolio 

the largest share of second liens. We hope these conversations will 

draw on the considerable expertise of the OCC and other regulators 

to help HUD craft an extinguishment schedule that will provide 

fair compensation to the holders of these second liens. 

Finally, HUD and the Administration are also working to implement several other initiatives to expand the reach of foreclosures 

throughout the country. These efforts are described in my written 

testimony and I would be happy to discuss them more at length 

during the question and answer period. 

In conclusion, once again, I would like to thank you for the opportunity to participate in the hearing and I am happy to answer 

any questions that you may have. Thank you. 

Chairman DODD. Thank you very much, both of you. I appreciate 

your being here. 

Obviously, there is a lot of frustration in these numbers we hear 

this morning. We add to it, despite all of the efforts we have all 

made up here trying to put together something that works for people, and obviously we understand that not everyone you are going 

to be able to keep in their homes. I want to raise the issue with 

you about the principal reduction versus the payment reduction approach. 

But I think it is also important to point out that at some point, 

we need to come to conclusions about these. There are people we 

can help. There are people we cannot help. And when those issues 

arise, when you can’t solve that problem, it seems to me then it is 

better to get that property up, get it auctioned off, and get it moving. 

I was listening to some people in my State not long ago who are 

in the real estate business who when they have had—they are not 

selling a lot of new homes, and in fact, some of the sales are foreclosure sales. And when there is a foreclosure sale, people show up 

to acquire the property. So striking that balance between trying to 

help out people we can, and as you point out in your testimony, Mr. 

Allison, there are some situations where we just cannot work it out 

despite the efforts, but you ought to make the effort, it seems to 

me, and then make that conclusion, and if that conclusion is the 

one that something can’t be done, then to move the property along, 

as well. 

But let me get to the first issue, because—— 

[Telephone ringing.] 
11 

Chairman DODD. I suspect that is my 7-year-old daughter. I will 

put that down. Hold on. I apologize for that. 

Let me ask you the question about the principal reduction versus 

the payment affordability approach which the Administration is 

taking. Others, including the Federal Reserve and others, have argued for the principal reduction approach. Now, you point out, Mr. 

Apgar, that the second mortgage issue raises issues, and I want to 

get to that in a minute. But which of those two approaches do you 

believe, Mr. Allison, is a better approach in terms of achieving the 

kind of outcomes we are looking for here and why are we not then 

moving on the principal reduction idea if, in fact, there is a better 

outcome there? 

Mr. ALLISON. Well, we actually are now offering—— 

Chairman DODD. You have got to get your microphone on and 

speak right into it. 

Mr. ALLISON. We actually, Senator, now are offering the Hope for 

Homeowners, which is a principal reduction program—— 

Chairman DODD. Right. 

Mr. ALLISON.——alongside the modifications, and it is important, 

first of all, to make home ownership affordable. And in solving for 

affordability, we are looking at each homeowner, that is the 

servicers are, and what they can afford to pay. There are incentives 

for both the servicer to modify a loan to an affordable level and for 

the homeowner then to make the payments on that modified mortgage loan. 

Chairman DODD. So you agree that the principal reduction is the 

better way to go now? 

Mr. ALLISON. I believe that both ought to be looked at and both 

can be important. What is most important is to make the home affordable now. So the servicer is going to be looking at whatever 

method seems to work best for each individual homeowner. 

Chairman DODD. How do you feel about this, Mr. Apgar? What 

do you think is the better approach? 

Mr. APGAR. I think that the evidence suggests that affordability 

is the key problem that homeowners face, that if you are able to 

get their mortgage payments down to some appropriate share of 

their income—31 percent of DTI is what we use in the program— 

that is the best way to help them maintain—— 

Chairman DODD. Well, I want them to get a better equity position in that home. If their equity position isn’t going to improve, 

how are you going to convince that person to sort of stay, in effect? 

Mr. APGAR. I also understand that folks are deeply underwater, 

or underwater at all and need some additional help, and that is 

where the Hope for Homeowners feature comes in. So again, getting affordability, I think that is the lesson that the FDIC experience demonstrated, that by achieving that 31 percent DTI, they 

could stabilize the family, avoid re-default, and help a large number of people, while at the same time we work on working to extinguish the overhang for people that are underwater. That is the 

Hope for Homeowners promise. 

Chairman DODD. Do you also believe that if there is nothing that 

can be done for people, that we ought to then try to move that 

property? I mean, that is what I mentioned earlier, reaching a deci-
12 

sion—some system in place where you arrive at a conclusion here. 

It seems to me we are sort of drifting. 

Mr. APGAR. Well—— 

Chairman DODD. Weeks go by and there is no resolution. There 

is no conclusion as to whether or not that situation can be resolved 

and the other one cannot, and then deciding on a course of action. 

Mr. ALLISON. Senator, we are going to be beginning to disclose 

on a servicer-by-servicer basis their performance, both how rapidly 

they are resolving issues on behalf of homeowners and how many 

modifications they are making. And we think that that type of disclosure, servicer by servicer, will be important to spurring greater 

activity on their part. 

Chairman DODD. Let me get to the second mortgage issue. A witness on the second panel, an economist from the Federal Reserve 

in Boston, acknowledges that lenders have not been doing modifications over the past months and the modifications they have done 

have more often resulted in increased monthly payments. No surprise, then, that the re-default rates in those cases are very high. 

That is not a terribly enlightening statement, for obvious reasons. 

The homeowner can’t afford the original payment. It is hard to 

see how they would be able to afford an even higher payment. This 

is consistent with findings by many other researchers, by the way, 

not just the Federal Reserve in Boston, including those at the Federal regulatory agencies. 

Mr. Willen, the witness I am talking about, goes on to argue that 

the reason that lenders aren’t doing more modifications is because 

it is—his quote, ‘‘it is simply unprofitable for them to do so.’’ What 

is your view of this conclusion? Do you agree with Mr. Willen? Mr. 

Allison? 

Mr. ALLISON. Chairman Dodd, that information—I believe that 

study was based on past modification efforts. This one is substantially different. This one is geared to major reductions in the payments that homeowners are making. As you correctly pointed out, 

many of those prior modifications actually resulted in higher payments because the foregone previous payments were built into the 

future mortgage payments. 

This approach is the first large-scale modification effort where 

homeowners will see their monthly payments in many cases dramatically reduced So I would submit that the past data, while accurate for those past efforts, does not really apply to the program 

that we are undertaking today. 

Chairman DODD. Well, I hope so. That just doesn’t make any 

sense at all. 

Mr. ALLISON. Right. 

Chairman DODD. My staff has been briefed regarding the errors 

in the Home Affordability Mortgage Program, the so-called HAMP 

program, situations where people have been turned away, where 

upon a second look it turns out that they have been offered a modification. These errors are not uncommon, I am told. Why don’t you 

make the elements that go into the modification decision, all the 

software, the net present value test, and the like public so that the 

foreclosure counselors can make sure people are treated fairly 

across the spectrum? 
13 

That would make people like Joan Carty, by the way, who we are 

going to hear from on the second panel, who I would hope—by the 

way, she is here in town for the day. She is a professional. She does 

an incredible job in Bridgeport, Connecticut, for us, really knows 

these issues. And I asked Joan. She says, ‘‘I need a system. I need 

a reliable, predictable system.’’ This is someone on the ground dealing with a massive amount of problems, and the sense is there is 

no system. There is nothing predictable and reliable about it. 

And when you have got people like Joan Carty out there who are 

feeling frustrated, who are dealing with these issues every day, not 

feeling confident about a system in place where you get answers, 

and so why don’t we make this stuff public so we have more transparency? 

Mr. ALLISON. Mr. Chairman, let me address that in several ways. 

First of all, we will be working with the servicers to develop escalation procedures so that when homeowners believe that there is an 

unnecessary delay or they have a complaint about the way that 

their mortgage is being addressed, they can escalate that complaint 

to higher levels within the servicer. We also have the Hope Now 

website which has escalation procedures. Or they can go on the 

Fannie Mae or Freddie Mac websites. 

Also, as part of this program, Freddie Mac will audit the mortgage modifications to make sure, first of all, that people who are 

qualified for a modification are able to get one, and second, to make 

sure that we aren’t producing modifications for those who are not 

qualified and also looking at people who have been foreclosed on 

to see whether they would have qualified for this and some redress 

should be made. 

Chairman DODD. I would hope, Mr. Allison, it might even today 

at some point—I haven’t asked her to do this, or you, but people 

like Joan and others, that you might spend a little time and hear 

what they are going through on the ground. It isn’t just this 

woman in my State, there are people like her all across the country—and listen to them as to what they need, because they are the 

ones literally struggling every day to try and come to conclusions 

on some of these issues. So I think it would be really worthwhile 

to listen to people every day who are struggling with these systems 

and have to make them work. 

Last and very quickly, because I want to turn to my colleagues, 

is the issue on the second mortgage. Many of the big servicers 

agree to take some reasonable payouts for the second mortgage. 

They hold as the primary obstacle the use of the Hope for Homeowners program. You point out, as has been mentioned here already, the value of the home isn’t even sufficient to cover the first 

mortgage, much less the second. Mr. Glovier in his testimony later 

this morning will point out that only 3 percent of second mortgages 

are current where the first mortgage is in a delinquency. 

Shouldn’t such loans be sold for pennies on the dollar, in many 

ways it seems to me? What has been your experience with this? 

Are the lenders being reasonable? And if so, what can we do to extinguish these loans? That is the major blocking point in a lot of 

these areas, as you point out, Mr. Apgar. What, if anything, can 

be done? Can we do anything? Is there anything that Congress 

needs to do to try and deal with this problem of the second mort-
14 

gage issue, if that is the major obstacle? Can you give me a quick 

answer on this? 

Mr. APGAR. Well, the key is offering fair loans and sorting out— 

fair offers and sorting out the instance where there is some value 

to the second liens and recognizing that and paying fair compensation, while not overpaying by not recognizing as a fact that many 

of these loans are deeply in distress and have limited economic 

value. As I mentioned, we are working with OCC and others with 

the Treasury team to come up with a fair compensation system. We 

have received maybe the initial Hope for Homeowners Program 

maybe didn’t offer enough, especially in those cases where there 

was economic value, and got in the way of us moving forward on 

a wide range, recognizing the fact that in many instances it is pennies on the dollar is the right answer of what to pay for these second liens. 

Mr. ALLISON. Mr. Chairman, to add to Mr. Apgar’s answer, as 

part of the new second lien program that we are rolling out, we 

have already signed up the five banks that together account for 

over 80 percent of the second liens. So they are pledging to work 

to solve for affordability of the second lien alongside the modification of the first lien, and we think this will go a long way to assure 

greater affordability for many more homeowners. 

Chairman DODD. Senator Shelby. 

Senator SHELBY. Thank you, Mr. Chairman. 

Steps to combat fraud—it is my understanding that the Special 

Inspector General for the Troubled Asset Relief Program made a 

number of recommendations to Treasury to address concerns about 

vulnerabilities in the Home Affordable Modification Program Senator Dodd was talking about, the HAMP. Among these recommendations were requiring third-party verified evidence that the 

applicant is residing in the subject property, requiring notarized 

signatures and a thumbprint of each participant, and mandatory 

collection, copying, and retention of copies of identification documents of all participants in the transaction at closing. 

Secretary Allison, what actions has the Department taken to address these specific recommendations? Additionally, describe broader efforts that Treasury is taking to prevent fraud in this program. 

Mr. ALLISON. Yes, sir. Senator, thank you for your question. It 

is a very important issue, making sure that in this program, where 

we are going to be spending a sizable amount of taxpayers’ dollars, 

we are protecting the taxpayer, as well. 

That is one reason why we have been taking quite a bit of time 

and effort to make sure that we have fraud prevention built into 

this program by requiring appropriate verification and also why we 

have appointed Freddie Mac to audit this program, to look for signs 

of mortgage fraud. We have also been working with agencies across 

the government to assure enforcement. Where we find fraud, we 

are going to enforce the laws and the rules of the mortgages to the 

greatest extent possible. 

Senator SHELBY. Mr. Apgar, since Hope for Homeowners was created last year by the Congress, the program, it is my understanding, has only refinanced one mortgage—one. Clearly, this is 

a regrettable policy failure. While recently enacted changes to the 

program will hopefully improve its success rate, it appears that the 
15 

Hope for Homeowners will help far fewer borrowers than the hundreds of thousands that the program sought to help. Why has Hope 

for Homeowners not been more effective? In other words, why the 

failure? 

Mr. APGAR. Well, as I mentioned, the original formulation had 

complex servicer requirements that weren’t standard to the industry and many servicers did not feel it was appropriate to—— 

Senator SHELBY. Explain what you mean. 

Mr. APGAR. Requiring additional borrower certifications. A particular instance was the servicer was required to verify that the 

borrower had not committed mortgage fraud for the last 10 years. 

Many servicers said that they didn’t have the capacity to verify 

that, and so in reform of the program, that particular feature was 

removed. 

In addition, I also believe that at the time, the industry was not 

ready to begin to recognize the depth of the crisis that we are encountering and many first lien investors were not prepared at that 

stage to take the necessary haircuts in order to make the program 

a go. As you know from the discussions of the revitalized Hope for 

Homeowners, that many of the first lien investors are now saying 

we prefer to take a haircut on the mortgage in the context of Hope 

for Homeowners refinancing in order to get a clean exit. What that 

does is give them cash now, minimizes any re-default risk they 

might encounter if they continue to work with that borrower, and 

avoid any further loss in property value should property values 

continue to decline. 

So we think that the Hope for Homeowners now is a program 

that will be embraced by first lien owners and will be more widely 

utilized. 

Senator SHELBY. Without a huge haircut—Senator Dodd was 

talking about reducing it down to something people can pay, realistically afford—aren’t we wasting our time here? In other words, 

as we continue to lose more jobs, the expectations of people making 

higher mortgage payments, that is an illusion, isn’t it? 

Mr. APGAR. I think that any holder of these mortgages that believes that hanging on is a better strategy is a false promise. The 

program isn’t demanding the haircut, the market is demanding the 

haircut. The values of these homes are discounted. The question is, 

what is the best that the investor can realize in terms of, as I said, 

getting a clean exit. Hope for Homeowners for many is the preferred exit strategy because it gets the borrower in a good situation 

and it gets them out of the loan at hopefully a fair approximation 

of the current market value and reduces the foreclosure cost of getting to it. 

Senator SHELBY. But whatever we say or do policywise, or you 

implement the policy, if the market doesn’t respond to it favorably, 

it is not going to work, is it? 

Mr. APGAR. You have to pay attention to the market interest. 

There is no doubt that we have seen a significant decline in housing prices. The housing prices then have made it difficult for the 

owners of these securities, and that is the reality that any program 

has to address. 

Senator SHELBY. Secretary Allison, Treasury earlier this year released information stating that the Home Affordability Mortgage 
16 

Program—I will just call it HAMP—will use $50 billion in TARP 

funds to modify mortgages. It is also my understanding that 

Fannie and Freddie will provide additional money to assist homeowners with loans on their portfolios. 

My question is this. How did Treasury determine the amount of 

funding it would allocate through TARP to drive HAMP initiatives 

and incentives, and to what extent do you think more money may 

be needed than was originally allocated? Second, will you provide 

this Committee with the data and analysis that was used to determine the appropriate levels of funding that might help us understand what road we are going down? 

Mr. ALLISON. Senator, in answer to your last point, we will be 

glad to provide you with the underlying information. I think it is 

important to point out at the outset that this is a pay-for-performance approach. We will pay servicers—most of their payments depend on their performance over time. Also, the incentives for individuals depend on their continuing to pay their new reduced mortgage rates going forward. 

We currently have set aside about $18.6 billion for the first loan 

modifications. We will be setting aside some additional amounts for 

the other programs that we are rolling out toward the end of this 

summer. We have based this on projections about what success 

might mean over time and the goals that have been set for this 

overall 3-year program. But again, I want to point out, this is a 

pay-as-you-go program. 

Senator SHELBY. Mr. Apgar, will you share your data with this 

Committee? 

Mr. APGAR. For sure. 

Senator SHELBY. OK. Last question. Mr. Chairman, thanks for 

your indulgence here. Mr. Apgar, given your role at HUD, you 

must spend a considerable amount of time analyzing what happened in our housing market over the last few years. Could you 

please discuss what you view as the primary reasons for the dramatic uptick in foreclosures as well as the broader cause for the escalation then subsequent deflation of home values? What is your 

view? You are into the depth of this. 

Mr. APGAR. Thank you. Prior to coming to HUD, of course, I 

worked for the Joint Center for Housing Studies and did extensive 

research on the housing foreclosure crisis and so I do have a view, 

both educated by that work and also from my experience now at 

HUD. My sense is that at the core of the problem was aggressive 

mortgage lending fueled by a strong demand for mortgage-backed 

securities on the part of Wall Street investors and others, and that 

in the rush to do these mortgage loans, some of the cautionary 

tales that are common in the mortgage lending business were put 

aside. 

People were placed into mortgages they neither understood nor 

could afford to pay. Prime mortgages, if they didn’t reach the goal, 

were topped off with very risky second liens that took a prime loan 

that looked like it could be secured and turned it into a loan combination with a hundred or plus LTV at the beginning. 

Once those loans began to go bad, of course, the problem just radiated out, and it was the downward pressure on prices that came 
17 

from the foreclosure and delinquencies of these difficult mortgages 

that was the seed that set off the financial crisis. 

Senator SHELBY. It is going to be difficult to deal with, isn’t it? 

Mr. APGAR. Putting Humpty Dumpty back together is a very difficult situation, there is no doubt about that. 

Chairman DODD. Thank you, Senator Shelby. 

Senator Reed. 

Senator REED. Thank you very much, Mr. Chairman. 

Mr. Apgar, your testimony suggests that the Administration is 

exploring a series of programmatic options that can help unemployed workers get the mortgage assistance they need, which suggests perhaps direct assistance to homeowners. There have been a 

couple of proposals. One is simply to avoid going through the 

servicer route and just subsidize individuals so they can pay their 

mortgages—— 

Mr. APGAR. Mm-hmm. 

Senator REED.——or some folks have proposed creating a mechanism where title might pass formally but the individual can stay 

indefinitely as a renter, paying a suitable rental fee. 

Two questions. One, what types of assistance are you thinking 

about, and second, given the record of the difficulty of getting these 

programs going, can we jump start any of these types of programs 

that you are contemplating? 

Mr. APGAR. Well, thank you for your question. We are, in fact, 

exploring other options relative to both unemployment and other 

elements to help keep folks in their home, as you suggest. Of 

course, one of the primary focuses on the unemployment thing is 

to make sure the economy returns to growth and that people don’t 

experience unemployment because we have a growing job sector. 

Extending unemployment benefits can be a direct way of helping 

people tide over and not force the difficulties faced when folks have 

loss of income and therefore can’t pay their mortgages and can’t in 

some instances even qualify for a modification program because 

they don’t have even sufficient income to support a drastically written-down mortgage. 

We are also exploring other options related to how to provide assistance to unemployed folks. Those are in the formative stage. I 

have nothing to report on that. But it is safe to say that unemployment is making the job of doing modifications more difficult and we 

recognize the importance of exploring those issues. 

On keeping people in their homes, there have been a lot of proposals of these so-called fast foreclosures, where the foreclosure 

happens but the homeowner stays in, and we know there are some 

proposals like that, that are being circulated. I get them on a regular basis. And so I just say on that that all proposals that will 

help provide relief to borrowers in their home and deal with the 

negative effects of foreclosures on communities are being explored. 

I wouldn’t say that that set is particularly at the top of the list, 

but that all options are under review because we have to get a program that works. 

Senator REED. Well, thank you very much. I think, as a comment, what is most frustrating, and indeed infuriating to people is 

that we did unprecedented things to help support the largest financial institutions in the country in order to sort of stem what we, 
18 

I think reasonably believed could be a global financial meltdown. 

My perception today is this mortgage crisis is of the same scale in 

terms of threatening our economy and perhaps world recovery, and 

if we don’t take such aggressive action, if we don’t urge all the participants to take such aggressive action, we are not going to be able 

to stabilize the economy and foreclosures and unemployment back 

home are interrelated. We have got to move aggressively on both 

fronts. 

Mr. Allison, again, you indicated that these new programs, revised programs, have resulted in about 325,000 modifications. But 

unfortunately, it seems that the number of foreclosures are accelerating and that even with this improved performance, we are not 

catching up. What is your sense of that? 

Mr. ALLISON. Senator, first of all, let me correct the numbers. I 

was reporting that about 325,000 offers of modifications have been 

issued. The actual number of modifications now in a trial phase is 

about 160,000. It is growing very rapidly. And so as you point out, 

it seems likely that the foreclosure rate will increase, the numbers 

of foreclosures will increase. This program is also ramping up very 

quickly. It is actually only about 10 weeks since the servicers began 

offering this program and we already have 160,000 mortgage modifications in the trial phase and we expect this number to continue 

growing rapidly for some time. 

We are not even stopping there. A number of these servicers are 

just starting to ramp up. We are meeting with them, as I mentioned, late next week, bringing them into Washington to talk 

about how they can further accelerate their programs and how we 

might help them. We are urging them to hire more people, to expand their call centers, to improve their systems. We are also creating—we are working with an outside systems firm that services 

most of the servicers, provides service platforms, so we can get 

streamlined input and keep closer track on the progress that the 

banks are making. 

So even though we are making rapid progress, we think we can 

do even more to accelerate and try to get out in front of this foreclosure problem, to the extent possible. 

Senator REED. Thank you. Thank you, Mr. Chairman. 

Chairman DODD. Thank you very much, Senator Reed. 

Senator Bunning. 

Senator BUNNING. Thank you. Gentlemen, your reports are stunning, to say the least. Most of us who sit at this desk up here have 

watched this crisis from the very beginning. I don’t know how long 

you have been in your jobs, but if you expect me to believe that 

Fannie and Freddie are watching the store when they are 100 percent kind of owned by the Federal Government, you are asking the 

impossible. 

Most of the problems with the economy stem from a law that was 

passed in 1994 when we, the Congress, gave the power to watch 

over mortgages, both banks and mortgage brokers, to the Federal 

Reserve, and for 14 years, not one regulation was written—14 

years. Now, that is a pretty good time. They didn’t do anything, 

zero. And you are sitting here and telling me all these wonderful 

things that you are doing, and I am like Jack Reed. The mortgage 

crisis is escalating, not rescinding. It is escalating. 
19 

We had some numbers today, and Senator Dodd brought them 

out, about foreclosures, but they have projected an additional 1.5 

million foreclosures for just this year, in addition to the ones that 

we already have. So we are not even making a dent. 

So what does that mean? That means for our economy to recover, 

we have got to stop the spiral down and we have got to get credit. 

You can’t get credit if you don’t have a job. I mean, give me a 

break. You are telling me about the programs that you are having 

for people that don’t have jobs. They can’t pay anything unless they 

have saved a lot of money, and then they wouldn’t have a problem 

with their mortgage if they saved a lot of money. We are talking 

about people who live from paycheck to paycheck, and when they 

don’t have a paycheck, they can’t pay a mortgage. So they are going 

to do the best they can to get in and out of a house with the least 

pain to that family. Now, there is going to be pain for everybody 

concerned, including the kids. 

So all those wonderful programs that you are talking about mean 

absolutely nothing to the American people that are still losing their 

houses. You may be stopping, as Mr. Allison said, you have 150,000 

people that you are trying to service out of 300,000-and-some, but 

that doesn’t mean anything because we are losing 350,000 more 

foreclosures this month. 

So give me a break and tell me when you think you can stop the 

bleeding. When? When are these programs that this whole Committee put together and handed you and said, with your help, with 

your input, that these could help the people that were in stress, 

when are you going to stop the bleeding? 

Mr. ALLISON. Senator, we share your sense of urgency. This entire Administration is working very hard to deal with this crisis. 

And as you know, President Obama and the Administration announced and the Congress approved an $800 billion package aimed 

at economic recovery. That money will be expended over the 

next—— 

Senator BUNNING. So you used TARP money instead of the stimulus money? 

Mr. ALLISON. Sir, we are actually using the economic recovery 

package that the government has enacted, and also on top of that 

there is the—— 

Senator BUNNING. Will you please answer my question? 

Mr. ALLISON.——mortgage and homeowner affordability. 

Senator BUNNING. When are you going to stop the bleeding? 

Mr. ALLISON. We are working very hard to accelerate this program. This program has actually been—— 

Senator BUNNING. When do you see the bleeding stop? 

Mr. ALLISON. We are moving as fast as we can to get out in front 

of the problem. We are well aware that there are about 360,000 

foreclosures a month and we expect this program to reduce that 

number—— 

Senator BUNNING. My last question. We just had a meeting with 

Sheila Bair, who is the head of the FDIC. She is a pretty honest 

lady and tells us like it is. She told us that unless something dramatic happens, that we could lose up to 500 more banks—up to. 

She didn’t say that that was the exact number. But that means 

that those people that make mortgages in local places, local com-
20 

munity bankers, bankers who are closest to the people that really 

could help in a foreclosure, will not be there. 

So 500 additional, besides this morning we learned that CIT is 

going to go financially bankrupt and that Citicorp is not far behind. 

Well, Citicorp is part of the solution, according to some of the documents that I have. If they are not there to help, where do we go? 

Where do we go for help? 

Mr. ALLISON. Senator, if I may, we recently, several months ago, 

reopened the capital purchase program for smaller banks in local 

communities. We are also concerned about making sure that lending is available to small companies throughout America. 

Senator BUNNING. Well, it has been a failure. 

Mr. ALLISON. Well, it has actually—we have helped over 600 

banks that were viable banks—— 

Senator BUNNING. But there are 8,000-plus banks, so what about 

the rest of them? 

Mr. ALLISON. We have offered this program to all banks who are 

viable, and so far—and many are already well capitalized. I think 

that one of the issues you are talking about—— 

Senator BUNNING. Thank you for your patience, Mr. Chairman. 

Mr. ALLISON. Yes, sir. 

Chairman DODD. Thank you, Senator. 

Senator Tester. 

Senator TESTER. Thank you, Mr. Chairman. 

I want to express my appreciation for both of you being here 

today. I thank you for that. 

I want to start out by going back to what Senator Shelby had 

talked about in his opening statement and that is about policies 

that result in a stable and sustainable marketplace. I think that 

is ultimately what we all want in the end. I know you could spend 

my entire 5 minutes talking about it, Mr. Allison, but I hope you 

could be as succinct as possible. Do the policies that we have in 

place right now, from your perspective, are they enough? Are they 

adequate to result in a stable and sustainable marketplace in the 

housing industry? 

Mr. ALLISON. Senator, we believe that the actions that we are 

taking can make a material difference, especially for working 

Americans. We are going to be reducing one of their largest monthly expenditures, those who are qualified, by reducing their mortgage payments. We are also offering refinancing approaches to 

many Americans, as well. 

Senator TESTER. I understand that. The question is, have we 

done enough or are we kind of like a mole on an elephant at this 

point? 

Mr. ALLISON. Well, this, as I mentioned in my testimony, Senator, was a problem years in the making. 

Senator TESTER. Yes. 

Mr. ALLISON. It is a huge crisis. 

Senator TESTER. There is no doubt about it. 

Mr. ALLISON. We all appreciate that. We are taking what we 

think are well thought through, deliberate, and aggressive actions. 

This is already—we should point out again—the most successful 

modification program ever run and it is just beginning and we are 
21 

intent on expanding this program dramatically, as fast as we can. 

This Administration inherited a huge problem—— 

Senator TESTER. You are right. 

Mr. ALLISON.——and it is doing its best to deal with it as rapidly 

as possible. 

Senator TESTER. And I appreciate it, and it is not an easy task. 

I guess the question that I need to know from a policy standpoint, 

do you have enough tools in your toolbox at this point in time to 

adequately address the problem? 

Mr. ALLISON. Senator, I think we have enough tools. The challenge is to roll them out. We have got to reach as many Americans 

as possible, educate them about this program so that they understand what help is available, and we have to have the capacity to 

handle the demand. And we have been building capacity, working 

with the services as rapidly as possible. We are not satisfied. 

Do we have adequate tools? We think if we can roll this program 

out at the pace we expect, we will make this program available to 

all qualified homeowners who wish to avail themselves of it. 

Senator TESTER. And the program you speak of is all three of 

them, or is there one in particular? 

Mr. ALLISON. Yes, sir. 

Senator TESTER. All three of them? 

Mr. ALLISON. Yes, sir. 

Senator TESTER. OK, which brings me to my next question. Can 

you give me a timeline for when they will be fully operational? 

Mr. ALLISON. Well, again, I want to be very careful about this, 

because one reason why we are bringing the servicers in at the end 

of this month is to ask those very same questions of them. How 

fast can they ramp up to serve the American public, and what can 

we do to help them further? We want to work with them as closely 

as possible. We are monitoring them every day. We are in continuous contact with the servicers. And I know that we are going to 

have much greater capacity every month for the next several 

months. 

Senator TESTER. OK. In your opening statement, you talked 

about a myriad of outreach things that you were doing. I assume 

it is not only to homeowners, but also to servicers and maybe others. 

Mr. ALLISON. Yes, sir. 

Senator TESTER. Are those outreach—number one, is it adequate? Do people that need help know that there is help available 

and know how to get through the myriad of, as with anything, the 

myriad of forms and people to get hold of and all that? And what 

is the best way, in your opinion, to reach out to the homeowners 

that have problems so that they know that there is help out there? 

Mr. ALLISON. Senator, I think that is a very important question 

and we have to reach homeowners in multiple ways. We are going 

out and holding events. At the event in Miami, we had several 

thousand people come and we were helping them to fill out the 

forms on the spot. We are doing the same, as I mentioned, in Sacramento today. We are going to other communities around the 

country. But that is just one measure. We have to work with local 

counseling agencies. We are using the Internet to get the word out, 

as well. We have to be on television. We have got to be doing as 
22 

much as we can, many different approaches, and we have to reach 

people many times. 

Senator TESTER. Can you tell me at this point in time what the 

rate of turn-down is in participation? 

Mr. ALLISON. I can’t give you yet a really good estimate of that, 

and the reason is, as I mentioned, for instance, right now, we have, 

as I said, 325,000 offers right there. The number of trial modifications will lag the number of offers, as you can understand. So right 

now, we have about 160,000 trial modifications. We haven’t yet 

completed any significant modifications because that takes 3 

months in the trial period. So in August, we are going to start to 

see actual modifications. So this is still early and I think it is premature for me to give you a definitive answer to your very good 

question. 

Senator TESTER. We would love to have it at some point in time. 

I am sorry, Mr. Apgar, I didn’t fire more questions at you. 

I appreciate—these are difficult times and there is a level of frustration here that is high. We appreciate your work and we look forward to working with you to try to get this problem solved into the 

future. Thank you. 

Mr. ALLISON. Thank you. 

Chairman DODD. That question that Senator Tester has raised 

with you about the tools in the toolbox, we need to know from you. 

There is no lack of willingness up here to step up if you give us 

some idea of what additional tools are needed. Our frustration is, 

we see these numbers continue to go up. We think we are trying 

to address the issue. We turn around and we watch the numbers 

get worse. And, of course, we are being asked every single day by 

our constituents and others, what is going on? You have got money 

you put into this. You crafted designs and programs to get things 

done and the numbers continue to rise. 

So you are getting a sense of the frustration we are feeling, and 

you feel it at the local level. As I say, you are going to hear from 

some people later today if you hang around who are out there at 

the street level that are as frustrated as we are, and they reflect 

those frustrations to us. 

So we need to know. You are not going to find unwilling members here to want to respond, and quickly, if there are things that 

we can do to assist you to get this done. But you need some clarity 

in the system. It needs clarity so that people know what the rules 

are and how to apply them and make it work, and that is going 

to be critical. 

Senator Corker. 

Senator CORKER. Mr. Chairman, thank you, and I thank both of 

you for your service and for being here and for being involved in 

this really complex issue. 

I am going to take a little different tack. No doubt, I wouldn’t 

be in this body, I don’t think, if I had not been involved in trying 

to make sure that people had affordable housing as a young man, 

and that civic and nonprofit activity led me to this place, no question. So I want you to know I have tremendous empathy for people 

who especially have children and living in a home that have to vacate it because of foreclosure and loss of jobs, and I understand 

that is a tragedy for many people across the country. 
23 

But I am going to take, again, a little different tack, because I 

am not under any illusion that you will ever really catch up with 

this. I know that you are trying hard. I talked to a lender yesterday who said one of the biggest problems is the program continues 

to change. So every time they get set up and ready to execute, 

there is a whole new set of rules, and that is because we are chasing this thing from behind, and I know this. It is very unlikely we 

are going to catch up, and I am under no illusion you are going to 

solve it. I think your efforts will improve. But I think the only 

thing that is going to resolve it is a turn-around in the economy 

and things stabilizing. But I thank you for your efforts, OK. 

The tack I want to take is this. I know that $50 billion is coming 

out of TARP for this. I know that most of us thought that the 

TARP money all was going to be repaid because we were going to 

invest in things that had value. And I realize there were clauses 

in here that allowed this to occur and I am not debating that. And 

I realize both Administrations have invested money out of TARP 

that is not going to come back, so I am not—but the fact is, this 

$50 billion is gone once it is spent. I mean, it is not invested in 

something the taxpayers will get back. 

It seems to me that there are numbers of different classifications 

of borrowers. I mean, Mr. Apgar, you alluded to the fact, I think— 

I was daydreaming, I apologize, for a second—but you alluded to 

the fact that I think one of the biggest problems was 100 percent 

loan-to-value, and that is why we are having this problem. And so 

we had so many people in this country that put down 3 percent, 

and some of that was loaned to them or given to them by the seller. 

And so we had people that, in essence, were really renting houses. 

I mean, they didn’t really own a home. They did in document, but 

they put no equity down. I think the staff have shown us, those 

people who put equity down, candidly, have not been foreclosed on 

in large. 

I am wondering if we should treat homeowners that were in essence renting their houses—they basically got somebody to give 

them a nonrecourse loan and nothing down—if we should focus on 

them the same way that we focus on those people who actually— 

and I know there are far less of these—actually had equity in their 

homes. 

And then I love—actually, just answer that briefly, if you would. 

I have one more question. I will stop. 

Mr. APGAR. Well, I will take it, Senator. I will take a shot at 

that. It is true that folks who have limited equity in their home or 

no equity, as you suggest, are more likely to quickly get in trouble 

in economic instability times and more likely to lose their home to 

foreclosure. We can’t pick and choose which side of the line we 

work on because when a house goes to foreclosure, it provides such 

blighting influence on a neighborhood that the neighbors are 

harmed, as well. And as house prices go down, it is indiscriminate 

in terms of folks that once had good equity in their home are now 

underwater just along with the folks who had limited equity are 

underwater. So we have to work with both groups. 

I do believe that we need to think real hard about the role of low 

downpayment lending in whether or not that is a helpful path to 

home ownership. 
24 

Senator CORKER. And I hope that, at some point—I realize in the 

middle of a crisis, maybe that is not the time, but I think we 

should look at that, and I think that most of us realize that in a 

push to create affordable housing for everybody in America, we actually have created a big part of this problem because there was 

no equity. And then we have done away with the recourse side of 

loans, which has made it even worse, and I would like for us to 

focus on that at some point. I think that is a huge issue. 

But I want to ask my one last question. The reason I brought up 

the $50 billion and the reason I brought up the fact that so many 

of these people are basically renting a home, because they put no 

equity in it, OK, we are expending huge amounts of taxpayer monies in other ways, too. It is not just this $50 billion. And I wondered, Herb, if you might talk to us a little bit about the liabilities 

that you believe we are creating at the GSEs, Fannie and Freddie, 

because there potentially, the way I see it, is going to be a large 

trailing liability that we may be creating at those organizations by 

continuing to sort of chase this mortgage problem the way we are. 

If you would give us some insights into that. And I hope at some 

point—I think we will—we will look into that as a Committee, but 

if you could share that with us today, I would appreciate it. 

Mr. ALLISON. Thank you very much, Senator Corker. First of all, 

you have mentioned correctly that we may spend $50 billion on the 

homeowner affordability programs. These expenditures can be also 

viewed as investments that will have returns in the form of housing prices higher than they would have been had we had more foreclosures. So that is a type of return to the American public. And 

also, we are making payments to individual homeowners for successfully continuing to pay on their modified mortgage, which is 

also money they can be spending and putting back into the economy. So I think there is a kind of multiplier effect. 

Senator CORKER. What I meant for the taxpayers, I am talking 

about like a return on investment—— 

Mr. ALLISON. Yes, sir. 

Senator CORKER.——which you are very familiar with in your 

previous life, so—— 

Mr. ALLISON. Yes, and you are absolutely correct, Senator. Those 

are, from that standpoint, expenditures. We are not going to get a 

direct return back on those, but I think we will get an indirect return. 

As to the liabilities of the GSEs, I would answer it the same way. 

I want to point out, I think that the GSEs are performing an extremely vital role in this program and I think they are off to a very 

good start. They have—they account for about half the mortgages 

in the United States. They have great professionals there with 

great knowledge and a lot of capability. 

We are, as you know, the government has provided an additional 

$200 billion to the GSEs to assure that they can play an active role 

in the mortgage modification programs going forward. Again, I 

think that their ability to be actively involved in the modification 

program is going to provide returns to the American public. 

Senator CORKER. I know my time is up, but it is further digging 

a hole for the GSEs to play the role they are playing in these mortgage modifications, isn’t that correct? 
25 

Mr. ALLISON. That is correct, sir, that there are additional expenses that they will be incurring as a result of this, but we have 

also provided about $25 billion available to the GSEs for their expenses in this program. 

Senator CORKER. But that is, again, taxpayer money. 

Mr. Chairman, I do hope at some point we will look at the collateral damage that we are creating, just to sort of be able to tally 

up the true cost so that we ourselves will know, and I apologize for 

going beyond my time. 

Chairman DODD. No, that is all right, and it goes to the point, 

I think, to speak for myself, I am prepared to make some of these 

investments provided we get some results. My frustration here is 

not so much that you are making these investments, that in fact 

we are getting the indirect return on the investment because we 

are keeping people in homes, the economy is stabilizing, the institutions are, I think that is a tradeoff I can make a case for. What 

is frustrating is that we make the investments and we see the 

problems continue to escalate. That is the frustration I feel in all 

of this to some degree. But obviously, it is an important question, 

and we need to look at it, and I have told Senator Corker that we 

will, in fact, have a public hearing on that issue, as well. 

Senator Merkley. 

Senator MERKLEY. Thank you very much, Mr. Chairman, and 

thank you for your testimony. 

I wanted to get an overview here. Under Hope for Homeowners, 

I believe the testimony is that only a handful of new mortgages 

have been written. A handful is one, or is a handful a dozen, or 

is a handful a thousand? 

Mr. APGAR. I think it is safe to say that a handful is very few. 

The technical answer is that there were over 50 mortgages actually 

closed, but because of the processing delays and problems with the 

way in which the program was done, only one actually moved to 

actual insurance. So 50 homeowners got the benefit of the refinancing, but FHA only insured one mortgage. 

Senator MERKLEY. OK, so 1 to 50? 

Mr. APGAR. Yes. Not enough to talk about. 

Senator MERKLEY. All right. And under the HAMP program, the 

Home Affordability Mortgage Program, I believe the testimony was 

160,000 modifications? 

Mr. APGAR. One hundred and sixty thousand completed trial 

modifications, yes. 

Senator MERKLEY. Why do you say trial modifications? What is 

that meant to signify? 

Mr. APGAR. Well, I will take a shot and I will turn it back to my 

colleague, but—— 

Senator MERKLEY. Very brief, because I have lots of questions. 

Mr. APGAR. It takes 3 months to prove that the borrower can 

handle the new modification program, and then they go to a permanent modification. 

Senator MERKLEY. I see. OK, great. Then under the HARP program, the Home Affordable Refinance Program, how many 

refinancings have taken place under that? 

Mr. ALLISON. The total number of refinancings, this year, number at least two million. However, if you look at the modifications 
26 

of loans with a loan-to-value ratio above 80 percent, the program, 

that is about 43,000 so far. And the pace of refinancings depends 

heavily on interest rates. Recently, interest rates have risen somewhat on mortgages, which tends to slow the number of 

refinancings. 

Senator MERKLEY. So refinancing is about 43,000? 

Mr. ALLISON. With loan-to-value ratios above 80 percent, yes. 

Senator MERKLEY. OK. Let me lay out my frustration. If you 

take the roughly 200,000 families that have been assisted through 

this—and another question I have, and you may not know the answer but if you do I would like to know it—is kind of the cost that 

goes into each one of those, on average. Is it $10,000 per family? 

Is it $20,000 per family? But let us say it was $10,000 per mortgage in terms of costs to the citizen. We would be looking at roughly $2 billion that have been spent to assist homeowners. 

Now, $2 billion is a significant number, but the contrast is stark 

between an extraordinary, enthusiastic, eager, generous effort to 

assist our major financial institutions, which was extremely important in order to stabilize our economy, and what has just been a 

dragging through the mud, slow, difficult, we will try this, we will 

try this, and here we are at one mortgage under Hope for Homeowners and only about 200,000 with the other two programs. There 

must—we need the same attitude with which we approached assisting our banks to assist our working families. 

I know that as you lay out the details it is complicated, it is difficult, but somehow, it is just hard to explain to the working families in America how it is we could move so fast with extraordinarily 

complicated deals with the huge financial institutions and we are 

moving so incredibly slowly, mired in paperwork, in rules. In talking to the banks back home, they are complaining that every couple 

of weeks, they get a different version of the rules and the citizens 

can’t get through to folks who can make the modifications, and we 

just don’t seem to be applying the same levers of government to 

move quickly for our families that we have moved on with our 

major financial institutions. 

Just kind of your thought about that contrast and how we can 

possibly get the same level of energy and effort to help our working 

families. 

Mr. ALLISON. Senator Merkley, thank you, because that is a 

question on everybody’s minds, and we are as frustrated as anybody. This is a crisis that began about 2 years ago. This Administration has been in office now for 5 months or so. This program 

was announced early in the Administration. This is an all new, 

very aggressive, dramatic program. It was really launched in terms 

of actually beginning to work with homeowners about 10 weeks 

ago. 

Already, we have 160,000 modifications underway. I know that 

in comparison to the damage that has already resulted from this 

crisis, this seems like a small number. It is growing rapidly. We 

are doing all we can to grow it as fast as possible. 

You correctly point out that this is a complicated business. It has 

taken some weeks just to set up the program. Mortgages are very 

complicated. We have to work with many different servicers. We 
27 

have to make sure that they are totally involved in this program, 

they are totally committed to it. 

I think as my colleague, Mr. Apgar, said, they are past the stage 

where they were wondering how much they needed to be involved. 

I think more and more, they are fully committed to this program 

and that should result in even faster roll-out. 

We want this to happen as rapidly as possible. I think even 

though this crisis is several years in the making already, we have 

to keep in mind that this program started just weeks ago. We all 

wish it had started a lot earlier. But here we are and we are trying 

to make it work as rapidly as we possibly can. 

Senator MERKLEY. Do you wish to add anything? 

Mr. APGAR. Well, with respect to the Hope for Homeowners Program, there is no doubt that 51 mortgages is not going to help the 

economy stabilize. That is why immediately in February, we proposed bold new reforms for the Hope for Homeowners Program, including taking this, what once was a stand-alone program and 

nesting it in the harder Making Home Affordable Program, so that 

people have the option to both get a modification or, where it made 

sense, a mortgage write-down under a Hope for Homeowners Program. We worked with the Congress to make sure we got that perfecting legislation. It has now been enacted, and we are busy rolling—putting that in place. We think that the new Hope for Homeowners will perform substantially better than the flawed program 

that we inherited at the beginning of the year. 

Senator MERKLEY. Well, I certainly wish you Godspeed in pursuing this and appreciate your effort to expedite it in every possible 

way. 

I would like to follow up, because my time is out, but follow up 

with my staff and get details on the 160,000 modifications. One of 

the things I have been concerned about is that some modifications 

are better than others, and modifications that we saw early on, 

where simply a family was told, well, you don’t have to pay for 3 

months, but then you have got to make it up over the next 12 

months, the payments actually went up, really didn’t help the situation at all. I want to get a better understanding of what share of 

those 160,000 modifications actually represent paths to avoid foreclosure and will be a solution. 

Mr. APGAR. Well, just a quick answer on that. One hundred percent of the modifications that are being done brings the homeowner 

to a 31 percent DTI. They are deep, true modifications, not the 

things that were passing off as modification which actually increased the borrower’s payment in some of the earlier reports on 

modifications. 

Senator MERKLEY. That is excellent. Thank you. 

Senator Menendez. 

[Presiding.] Thank you. 

Senator Johanns. 

Senator JOHANNS. Thank you, Mr. Chairman. 

Secretary Allison, how many homes would be in foreclosure 

today? What would the total number be? 

Mr. ALLISON. I am not sure of the exact number, but it numbers—the numbers are far too high. 
28 

Senator JOHANNS. And how many go into foreclosure every 

month? 

Mr. ALLISON. I think we are seeing several hundred thousand a 

month. 

Senator JOHANNS. Is that accelerating or is that declining, that 

monthly number? 

Mr. ALLISON. I think we are seeing that as unemployment has 

been rising, the rate of foreclosures has risen to an extent. 

Senator JOHANNS. I have an impression that as we have gone 

through this subprime mess, that part of what we are dealing with 

now, and I wouldn’t know how to quantify it, I haven’t even read 

any statistics about it, but that we are now moving into another 

phase of foreclosure-related problems related to unemployment rising and people, if they don’t have a paycheck, even with unemployment, they are probably in a crisis very quickly. Would that impression be accurate? 

Mr. ALLISON. Well, we certainly are seeing that while early on, 

excessive speculation accounted for a lot of the foreclosures, now 

certainly unemployment is a major factor. And that is why the Administration has also introduced and the Congress has approved 

the Economic Recovery Program. That is the $800 billion of expenditures between now and the end of 2010. 

Senator JOHANNS. Here is what I would suggest to you. I didn’t 

vote for that because as a former mayor and a Governor, I couldn’t 

figure out how there was any possibility that that would be a job 

creator. I just didn’t see it. At least initially, we aren’t seeing it. 

Some have even gone so far as to call it a flop. Whether it is or 

not, time will tell. But if that doesn’t work, if, in fact, the three to 

four million jobs that were promised by the President don’t occur, 

how much worse does this get? 

Mr. ALLISON. Well, I think all of us have to be intent on doing 

the best we can to ameliorate the problem, and I think that the Administration, with the support of the Congress, has enacted very, 

very bold programs to deal with this extremely serious crisis. 

Mr. ALLISON. Let me come at this from another angle. I look at 

these huge foreclosure numbers. I look at the really paltry amount 

of impact that you are having at this point, and it is. It is very, 

very small. And I understand the situation with the new Administration. But here is my struggle. I see these extravagant promises 

in just about everything that happens here—and I am new to this, 

too, myself—and then I see this terrible execution. You know, the 

stimulus money isn’t getting out. You are not getting on top of the 

foreclosure numbers. And that has nothing to do with what you inherited. Execution is what you do every day. 

Tell me when you break through here. Tell me when you are up 

and running and going and the next hearing—when can we invite 

you back for a hearing where you say, boy, I know when we were 

here in July, it was pretty ugly, but now we are hitting on all cylinders and we are doing exactly what you want us to do. Is that 

a week away? Is that a month away? Is that a year away? When 

will you be able to assure us that the program is firing? 

Mr. ALLISON. Senator, my expectation is that sometime in the 

fall, we will probably be at the near capacity on this program in 

terms of scaling. We are working very hard to do that. But we will 
29 

not rest even then. There will still be more we can probably do. We 

are constantly reevaluating the program, even at this very early 

stage, to see how we can do it better. We have got to be in touch 

with the American public, the community groups, the banking system, with the Congress, obviously. We have to be reporting to you, 

and beginning next month—— 

Senator JOHANNS. So—— 

Mr. ALLISON.——you are going to see more complete reporting on 

how well this program is working so we can all assess its effectiveness together. 

Senator JOHANNS. So if we say fall is October 15 and you are at 

capacity at that point, what is capacity? What can I write down on 

a sheet of paper here, and when you are invited back I can remind 

you that you told me by fall, and I picked the date October 15, that 

you are at capacity? Tell me what that number is. 

Mr. ALLISON. Well, what I mean is we have signed up now 

servicers representing about 85 percent of the total mortgages in 

the country. We can still reach more servicers to get at the rest of 

that 15 percent and we are going to try hard to do that. But with 

the 85 percent now covered, we want to make sure that these 

servicers are scaling as rapidly as possible so they can reach all of 

the eligible homeowners, and that is going to take some time. 

I want to point out again, this was intended to be a multi-year 

program, as is the overall Economic Stimulus Program, and it is 

going to take time to implement, unfortunately, all of these programs. 

Senator JOHANNS. Here is what I would tell you, though. Those 

weren’t the promises made. You know, the promises made were 

very vastly different on the economic stimulus package than what 

you are trying to sell me on today. And I am just saying to you that 

if you can’t tell me how many homes will be impacted monthly by 

the time you are fully ramped up, I don’t know what you are heading toward and I don’t know how $50 billion is therefore going to 

be effectively spent, and that is my point. 

I have started new administrations as a mayor and a Governor. 

Sir, you always inherit something, and you know what? You are 

going to leave something behind for the next people. It is just the 

reality of life. But it is the execution that I think is just desperately 

worrisome here. And if you can’t articulate what the goal is, how 

do you even rally the troops back in your office to get to whatever? 

I walk away from this hearing not better informed about what 

that is going to be and I think that is a serious flaw in what you 

are doing. 

I am sorry I am out of time, but those are my thoughts. I just 

think if you can’t tell us what you are headed to, what your goal 

is in terms of number of properties you are going to deal with each 

month, we will be flailing around with this 2 years from now and 

it will be regarded as a failed program, a costly failed program. 

Thank you. 

Senator MENENDEZ. Senator Bennet. 

Senator BENNET. Thank you, Mr. Chairman. 

I wanted to, now that we have gotten around the horseshoe here, 

share a really typical story that I get in my office or when I am 

traveling the State and I think it is typical of what people on this 
30 

Committee hear about every day, and this comes from David 

Croach of Aurora, Colorado, who is a former Air Force Security Police Officer. 

Last year, David was laid off. He found another job, but was laid 

off again and has been looking for full-time employment since 

March. From a part-time job, David makes about $20,000 a year, 

down from his former salary of $61,000 per year. In a letter to my 

office, he wrote: 

I have a 14-year-old son and am doing the best to make ends meet. Unfortunately, ends aren’t meeting anymore. I have exhausted my savings, had 

to disburse my 401(k) to pay bills and attempt to save my house. 

After calling the Colorado Foreclosure Prevention Hotline, David 

was referred to a HUD-certified counselor who recommended that 

he apply for a loan modification. Unfortunately, David was told by 

his mortgage lender that he made too much money to qualify for 

a loan modification. Instead, the bank offered to take his overdue 

balance and put the balance back into the loan, which would have 

increased his payments. The bank wouldn’t consider any other options. 

In discussing his situation with my staff, he noted that every 

time he turned around, the answer from his lender was no. He filed 

for bankruptcy on May 28 and foreclosure remains a serious threat. 

We hear about these stories on a daily basis, and I appreciate 

your efforts, by the way. Thank you for your service. I am wondering, as this gets ramped up, as people need to hear the information that you are providing, the trips to Florida and to the Northwest you talked about, whether there is some way we can work 

with lenders to forestall some of these foreclosures as the program 

gets ramped up, to be able to, where possible, have some sort of 

moratorium that says we are not going to foreclose paying loans 

during this period of time. 

And I realize there are all kinds of unintended consequences of 

what I am talking about, but the shame here would be if the inability to be able to get the money out, the inability to be able to have 

people understand the procedures and processes leaves us in a situation where foreclosures that could have been avoided aren’t. And 

as you were saying earlier, the effect of a foreclosure or a fire sale 

on an entire neighborhood, on the home equity value of tens and 

hundreds and thousands of other homeowners in the country are 

affected, potentially by foreclosures that never should have happened to begin with. 

And I wonder if you have any thoughts on that as a potential 

strategy that we could employ to make sure that we are beginning 

to get ahead of this massive problem rather than continuing to 

trail behind. 

Mr. APGAR. Well, thank you for that question. We just heard that 

one of the central issues is execution, and we hear hundreds of stories of the type you told us brought to you by your staff and by our 

community connections around the country and from our own personal visits in communities. In my sense, a lot of people are feeling 

and saying things that are true. 

When I hear that story, I think that whoever was on the other 

end of the phone from that individual was not executing the program as directed by our guidelines. That person sounds to me— 
31 

without more details, I couldn’t be sure—that they should be eligible. Certainly, they don’t need more income to qualify—they don’t 

have incomes that are too high to qualify. And so what is the question? 

That is the central focus of this effort, to bring the major—inform 

the major leaders, the CEOs of these companies to sort of say, tell 

us how that story could be happening in your company. What was 

the disconnect? Was it a lack of training? Was it a lack of resources 

on their part? Was it our problem, that the rules are too complex 

to implement? What is going on here? Because our sense is that 

many of these stories, in fact, reflect situations that could and 

should be corrected, that every time we miss one of those, somebody then goes into foreclosure and adds to the problem. 

And so it is execution, execution, execution, and that is the major 

focus of the next set of initiatives that Secretary Allison indicated. 

Let us figure out how to get the program working as it was designed. 

Mr. ALLISON. Senator Bennet, if I may add to Mr. Apgar’s answer—— 

Senator BENNET. Please. 

Mr. ALLISON.——under the rules of the program, a servicer in 

the program should not foreclose unless the servicer has first 

checked on whether the person is eligible. We are also going to be 

auditing this program, and that is Freddie Mac’s role, to make sure 

that people who were eligible were offered a modification. And so 

we are aware of the problem and we hear these same complaints. 

That is one reason why we are calling in the servicers at the end 

of this month, to discuss this with them. We want to see better adherence to the program. We want to see the metrics. And we 

have—we are developing metrics for that very reason. We have got 

to surveil this program to make sure that the intention is being implemented by every servicer. 

Senator BENNET. I just would underscore what you have heard 

today, which is that the visibility and the urgency with which the 

issues in New York and Wall Street were addressed needs to not 

come in first in this race of urgency, because our homeowners are 

suffering tremendously, and whatever you can do to put in big 

block letters in the front offices of the providers that you are talking about, something that says, check twice and make sure you are 

doing whatever you can do to keep people in their homes, because 

it is in everybody’s—it works to the benefit of everybody. 

This is one of those cases where no one wins if a foreclosure that 

could have been avoided isn’t avoided. No one wins. The banks 

don’t win. The other homeowners in the neighborhood don’t win. 

The community doesn’t win. And it just would be a shame if we 

are not doing everything we can possibly do to expedite this or to 

make sure that bad decisions are forestalled so that you have the 

opportunity to do the work you are trying to do. 

I, for one, and I am sure the rest of the Committee feels this 

way, would love to hear after your meeting next week or next 

month what the targets are and what the agreed upon steps are 

going forward so that we have some assurance that things are moving forward and that we have done everything that we can do. I 

would like to join the Chairman in saying, if there are things that 
32 

we haven’t done, let us know what those things are because this 

housing issue is a fundamental issue for our families and also our 

economic recovery depends on our getting this right. 

I appreciate your testimony. Thanks for being here. Thank you, 

Mr. Chairman. 

Senator MENENDEZ. Senator Warner. 

Senator WARNER. Thank you, Mr. Chairman. I guess as you will 

conclude, that as the next-to-last, I have got to at least make a couple of quick comments about some of the comments made by my 

colleagues. 

One, I would echo Senator Corker’s comments about I hope this 

Committee will have a chance to examine some of our past policies 

where we encouraged folks to get into homes with no documentation, no money down, no equity involved, no skin in the game, and 

clearly one of the things that generated this crisis. 

I do have to comment on Senator Johanns’ comments about the 

stimulus. It was not perfect and I share concerns about some of the 

dollars getting out. But I have got to tell you, for a bill that has 

got north of $200 billion of tax breaks in it that is helping at least 

folks in my State and businesses, small businesses on 5-year lookbacks, we have had testimony here of the one little brief upstart 

we had in housing purchases oftentimes generated by funds in 

terms of that $8,000 new purchasing tax credit, and I was a former 

Governor and I can assure you, at least in the Commonwealth of 

Virginia, and I would strongly believe that in every State around 

the country, there are thousands of teachers that have not been 

laid off because of Federal funds that are going into States to help 

ameliorate the budget crisis, thousands of construction workers 

working on roads right now that otherwise would not have been 

worked on, and literally millions of Americans, those who receive 

Medicaid payments still getting the health care they need because 

of that Federal assistance to States in crises where they still do 

have to balance their budgets, and I think that for many of those 

States, they have got the worst days to come in front of them. 

I want to follow up on Senator Bennet’s comments, as well. I candidly believe that we have a potential flood of foreclosures waiting 

in the wings. At least in my State, many banks have kind of slowed 

the process on foreclosure, waiting to see the effects of these programs that are being rolled out, and I have the same sense of urgency of colleagues on both sides of the aisle that we appreciate the 

challenge you have got, but we have got to get this out sooner, 

quicker, faster, more expeditiously. 

We have the same kind of stories that Senator Bennet indicated 

and you are hearing, as well, that consumers are feeling like there 

is opaqueness in the program. A neighbor gets accepted. They get 

turned down. There seems to be no remedy. 

The question I have—my first question, and I will try to get both 

of them in—the first question is, we put in place a number of incentives and sweeteners to servicers to participate in the program. 

I hope as you bring these servicers in and you will look at which 

servicers are actually acting in good faith and which are not, we 

have used the carrots. Do we need some sticks? And what kind of 

actions are we going to be taking if we can find evidence of a pat-
33 

tern of those servicers who are not acting in good faith in terms 

of enacting this program. Have you thought about the sticks end? 

Mr. ALLISON. Senator, we first of all are going to be publishing 

on a servicer-by-servicer basis their performance, beginning next 

month. And since we made that known, we have seen the additional activity on the part of a number of servicers, which is welcome. 

Let me point out that we do have ambitious goals for this program. We want to achieve loan modifications numbering between 

three and four million over the next several years. We know we 

still have a long way to go, but this program is just getting started. 

We need to have the servicers working very hard with us. We are 

going to be meeting with them continuously. They are also not 

going to receive those payments unless they are performing. So 

they have a strong incentive to get out and try to modify as many 

eligible loans as possible. 

So I think a combination of public disclosure, having them come 

testify before your Committee, another powerful incentive to perform. We want to be working closely with you, getting more ideas 

about how we can do better. And we want to be out talking to the 

public, as well, to see how well the—— 

Senator WARNER. Well, I would only add that I think disclosure 

is important. Public embarrassment might be another step up. 

Mr. ALLISON. That is right. 

Senator WARNER. But when people’s lives are at stake, I hope 

you will think, as you thought creatively in creation of this program in terms of the carrots, that you think equally creatively in 

terms of potential sticks or penalties. 

And that would be my last question. It seems we are seeing some 

evidence that those servicers who still retain the loan, the whole 

loans, are acting in better faith—they obviously have more of a financial interest in some level of resolution—and that those baskets 

of investor-backed loans where the servicer has no skin in the 

game, that there is still a much greater pattern of dumping of 

those properties and not as great of participation in terms of the 

modification program. Are you seeing that pattern, as well? 

Mr. ALLISON. I cannot tell you for certain that that is the case. 

I think that with the greater disclosure we are going to be making, 

that will become very abundantly clear over the next several 

months, whether that is the case or not. But I can’t give you a specific answer to your question, Senator. We will be glad to look at 

that and come back to your office. 

Senator WARNER. And again, I cannot urge you enough that 

whether there are additional incentives or potential penalties or 

sticks out there, you have got to come forward. I just am concerned 

with these kinds of stories that we are all hearing, and Lord knows 

you are hearing them directly, as well. The immediate hardship 

this provides upon a family or upon an overall neighborhood, 

maybe public embarrassment is not enough for some of the folks 

who are not acting in good faith in this program. 

Mr. ALLISON. Thanks for your suggestion, Senator. 

Senator WARNER. Thank you, Mr. Chairman. 

Senator MENENDEZ. Thank you, Senator. 

The Chair would be next, but I want to—— 
34 

Senator SCHUMER. No, please. 

Senator MENENDEZ. I want to recognize—— 

Senator SCHUMER. I need a few minutes to get—I would prefer 

a few minutes. 

Senator MENENDEZ. OK, great. All right. 

Let me thank you for your testimony today. Look, I want to start 

off putting something in context here. I appreciate Senator 

Johanns’ comments, but in March of 2007, we had a hearing here 

and there was a previous Administration, and at that hearing I 

said we are going to have a tsunami of foreclosures and the Administration looked at me and said, well, Senator, that is an exaggeration. Unfortunately, I wish they had been right and I had been 

wrong. 

If, in fact, we started working in March of 2007 to mitigate the 

tsunami of foreclosures that we had not fully seen the crest of, we 

would be in a much better position today. I think that is important 

to understand the total spectrum of what we are facing today. This 

Administration has had approximately 6 months since it took office, so, you know, I just want to put that in context. 

Having said that, however, let me say that as the Chair of the 

Subcommittee on Housing, I share Chairman Dodd’s concerns that 

he expressed in my opening statement and I am not happy. I am 

not happy with where we are at. I think there is a lot more to be 

done. 

So let me start off by asking some questions here. What number 

of modifications do you—per month will you consider a success? 

Mr. ALLISON. Senator, we certainly aren’t satisfied with the level 

that we have today. I think that the number will vary over time, 

but I think we need to be on a pace to achieve three to four million 

modifications by the end of 2012, and that is a major undertaking. 

No program has ever come close to that. And that will have a 

major impact on many families across the country and also help to 

preserve homeowners. 

Senator MENENDEZ. If you did three to four million by 2012, that 

means roughly a little over a million a year, is that fair to say? 

Mr. ALLISON. Yes, sir. 

Senator MENENDEZ. So if it is a million a year and you divide it 

by 12, you are talking about what a month, 100,000, roughly? 

Mr. ALLISON. Yes. It would be around 20,000 a week, and I can 

tell you that in the past few weeks, we have actually exceeded that 

number. But we are not satisfied even with that. We would like to 

achieve the home modifications as rapidly as possible. 

Senator MENENDEZ. Well, we are looking at 2.4 million foreclosures just this year alone, and this is the problem. You know, 

time is not on our side. More importantly, it is not on the side for 

families of this country and the consequences in the economy. So 

this has to move much more significantly. 

If we are not at that level in this period of time that we are talking about ramping up, what is your Plan B? 

Mr. ALLISON. Well, we believe, first of all, that this program, because it has just gotten started, has not nearly reached its potential. We are encouraged by the rate of improvement week to week 

that we have been able to achieve over the last 10 weeks and we 

expect further improvement down the road. We are not just satis-
35 

fied with doing the three or four million over 3 years. We would 

like to achieve that faster. And we need to, week by week, get a 

better sense of how the servicers are doing against the number of 

loans that each one of them has outstanding, and we are going to 

be comparing the rates at which they manage to contact as many 

of those eligible homeowners as possible. 

Senator MENENDEZ. But let me ask you, I am not happy of where 

we are at with the servicers. I sent a letter to them in anticipation 

of this hearing. Let me ask you this. You know, one of the reasons 

I am asking you what is your rate of success is because we can’t 

determine whether the servicers are doing the right thing unless 

we know what the rate of success is. I mean, we need a little transparency and we need some information here in order to establish 

what are the right benchmarks. I am all for having those who are 

not performing be publicly known, but that—I want to echo Senator Warner’s remarks. That is not enough. There have to be consequences here. We have created incentives. There have to also be 

consequences here at the end of the day. 

And so I want to know what you are going to do with servicers 

if, in fact, they have signed a contract, we have created incentives, 

and they are not living up to it. 

Let me ask you this. When are those—will those with VA, FHA, 

and home equity loans be eligible for the program? 

Mr. APGAR. On the FHA front, yes. With the new authority in 

the recently enacted legislation, we are going to do an FHA modification program that is closely aligned with the overall Administration’s plan. That program is ready to roll out and should be 

available very shortly. It will provide deep, true modifications of 

the type that FHA has not been able to do in the past and that 

will not only help those borrowers in distress, but also, because 

FHA already owns the mortgage risk, will probably turn a small 

profit back to—— 

Senator MENENDEZ. What is the timeframe for that? 

Mr. APGAR. The next couple weeks. 

Senator MENENDEZ. The next couple of weeks. What about the 

VA and home equity loans? 

Mr. APGAR. The VA, I believe, is on the same pace. I am not sure 

about the question on the home equity loans. That is the second 

lien program, which also is close to rolling out in the next couple 

of weeks. 

Senator MENENDEZ. Let me ask you, to what extent does the current foreclosure program depend on the borrowers being delinquent? You know, back at home in New Jersey, we have an enormous number of homeowners who tell us that their lenders tell 

them, perhaps incorrectly, that they first need to be delinquent on 

their mortgages to be eligible for the Federal programs. Having delinquency as a program requirement obviously gives borrowers bad 

incentives to default on their loans. What is the nature of that? 

Mr. ALLISON. Senator, people do not have to be delinquent to 

qualify—— 

Senator MENENDEZ. But we hear this all the time—— 

Mr. ALLISON. Yes, sir—— 

Senator MENENDEZ. All the time, we hear people who tell us— 

and then they purposely—look, I have a woman who is here who 
36 

serves the Senators in the Capitol. She is not my constituent per 

se, she doesn’t live in New Jersey, but she told me her story. She 

was told that she had to be delinquent in order to qualify. Then 

she purposely becomes delinquent in order to qualify, and now she 

is having a hell of a time trying to get a modification. There is 

something fundamentally wrong with this. I mean, I understood 

the law to be very clear that you don’t have to be delinquent. 

Mr. ALLISON. Right. 

Senator MENENDEZ. How can any servicer or any lender say you 

have to be delinquent? There should be a consequence for that. It 

is false. 

Mr. ALLISON. Senator, we totally agree with you, and that is another reason why we are bringing the servicers in next week to talk 

to them about this. We want to make sure the information they are 

giving out is correct. Now, they have to do additional training of 

their representatives. We have to make sure that we are monitoring their actual performance and auditing to make sure that 

people who are eligible in their population of mortgage holders—— 

Senator MENENDEZ. Secretary, let me just say, and I will stop 

here. 

Mr. ALLISON. Yes, sir. 

Senator MENENDEZ. Let me just say this. It is very simple. All 

the training in the world—there is one simple statement to anyone 

who works for you. You do not have to be delinquent in order to 

be eligible for the program. That is it. Now, how much training 

does that take? How much training does that take? 

Mr. ALLISON. Senator, we very much agree with you, but—— 

Senator MENENDEZ. This is why there have to be consequences 

if, at the end of the day, people are not doing the right thing under 

the law. 

Mr. ALLISON. Yes. 

Senator MENENDEZ. Senator Schumer. 

Senator SCHUMER. Thank you, Senator Menendez, and thank you 

for chairing the hearing. I thank Senator Shelby. It is an important 

hearing, although a good part of me can’t believe that two full 

years after the first signs of this crisis were becoming plain for all 

to see, we are still sitting here talking about how to prevent foreclosures. 

More to the point, 5 months after the Administration announced 

the Making Home Affordable Program, which was supposed to help 

between seven and nine million homeowners modify their mortgages, we are hearing only a few hundred thousand modifications 

have been offered and only a fraction of those loans have actually 

been modified. 

You know, when it was explained to me, I thought it was great, 

you know, focusing on the servicers, giving them incentives. Obviously, it would have been better to have the stick of bankruptcy involved, but that is not in the cards. And it is sort of befuddling as 

to why it is not working, but it clearly isn’t working the way it 

should be and so you need to change things. 

Now, I have one proposal that might help here. I hear that one 

of the things that you are thinking about—one of the things that 

I am thinking about, anyway, I don’t know if you are thinking 

about it—but one of the things I am thinking about is giving home-
37 

owners facing foreclosure the option as a last resort of renting their 

home for a period of time at a fair market rate. This wouldn’t cost 

taxpayers any money, wouldn’t bail out the lenders. 

Homeowners would be able to stay in their home even after defaulting on the mortgage, but they no longer own the home so there 

is little temptation to take advantage of this program unless all efforts at reworking the mortgage have failed. 

For banks, in many cases, it would be better and cheaper than 

foreclosure, particularly given how depressed our housing markets 

are now, and maybe in a year or two they would be better. 

Neighborhoods can ill afford more foreclosures. I have seen this 

throughout my State, downstate and upstate alike. It puts more 

pressure on vacant properties. The more foreclosures you have, the 

harder it is for housing markets to recover, which is an overall goal 

of this economy. And, of course, it helps preserve neighborhoods, 

because someone living in a home is a lot better than a vacant foreclosed home, and these foreclosed homes don’t get sold too quickly 

given the housing market. 

So would Treasury consider this kind of program? If so, can you 

describe how it would work, what you think the pros and cons are, 

and what is the likelihood it could happen? 

Mr. ALLISON. Senator, we are going to be looking at that thought. 

That is a very thoughtful suggestion. I think we have to look at 

this, too, on a case by case basis. There are various programs we 

are rolling out right now for those who cannot afford to stay in 

their homes and those will include deeds-in-lieu as well as short 

sales of the property so they can extinguish the mortgage and we 

provide an allowance for them to seek housing that they can afford. 

The question you are raising is whether they ought to be able to 

stay in that house and rent—— 

Senator SCHUMER. Yes. It would make sense. 

Mr. ALLISON. Yes, and it is certainly an idea that we are thinking about and perhaps Mr. Apgar can talk about that from the 

standpoint of HUD, as well. 

Senator SCHUMER. Go ahead, Mr. Apgar. 

Mr. APGAR. Yes. HUD is looking at a range of options. I mean, 

what we have is a lot of households that are losing their home and 

a lot of homes that have been lost, and figuring how to put those 

back together either by not letting the household depart the home 

through some continuing rental option, or if they do leave the 

home, get another renter or another reuse of that property. And so 

we are exploring a wide range of options, both through the Neighborhood Stabilization Program—— 

Senator SCHUMER. So what would stand in the way of getting 

this done? I know you can always rent a home once it is foreclosed 

on. Banks do that—— 

Mr. APGAR. Right. 

Senator SCHUMER.——if they can’t sell it. But that, again, is 

going to involve finding a new tenant, vacancy, and all that. It is 

a lot easier to let the tenant stay in their home and then the value, 

a year or two later, maybe the market comes back up and you don’t 

even need to foreclose on it. 
38 

Mr. APGAR. Well, we are investigating and looking at other programs that have been like that around the country. Freddie Mac 

had an option like that. 

Senator SCHUMER. Well, give me off the top of your head—— 

Mr. APGAR. One of the obstacles was, quite surprisingly, that the 

homeowner, having gone through the anguish of delinquency, foreclosure, and what, many of them said they didn’t want to stay on 

as renters, which was surprising to us. So the question is, what is 

blocking that program—— 

Senator SCHUMER. Yes, but what about—— 

Mr. APGAR.——from working where it has been tried? We will 

figure that out and we will see if we can make it work. 

Senator SCHUMER. OK, but let us say—give me an objection, either Mr. Allison or Mr. Apgar, to a homeowner who said, I do want 

to stay in my home. I have lived here. I have all my stuff here. I 

don’t know where I would move. I have my patterns. My kids go 

to school here. Whatever. 

Mr. APGAR. If you could figure out a fair rent, it seems like it 

would be a fair deal. 

Senator SCHUMER. OK. It doesn’t seem to me to be too hard to 

figure out a fair rent. And I will bet, I don’t know, that in many, 

many cases, the fair rent is less expensive to the bank—obviously, 

they are not going to get as much money as the mortgage was or 

we wouldn’t be in that boat to begin with—than foreclosing. 

Mr. ALLISON. Well, we are—— 

Senator SCHUMER. And then I have found in lots of foreclosed 

homes, the home gets in bad shape pretty quickly. 

Mr. ALLISON. Yes. Again, we agree that you have a very thoughtful suggestion. I think we owe you a response—— 

Senator SCHUMER. Good. 

Mr. ALLISON.——as we complete our analysis. 

Senator SCHUMER. That would be great. 

Mr. ALLISON. Thank you. 

Senator SCHUMER. OK. Next question. I don’t know what my 

time is here, since I am still on your time, Mr. Chairman, but I will 

take advantage. 

[Laughter.] 

Senator MENENDEZ. I am surprised. 

Senator SCHUMER. Very funny, Bob. 

[Laughter.] 

Senator SCHUMER. The banks and servicers—ever since I persuaded him to take the DSCC, he has been less friendly to me. No, 

that is a joke. 

The banks and servicers complain that the Administration rolled 

out its plan too quickly without consulting them. They haven’t had 

time to put the necessary resources in place to handle the volume 

of modification requests they are facing. But at least one bank, J.P. 

Morgan, has, according to our information, performed much better 

than the others, completing approximately half of all loan modifications completed so far. 

If it is just a matter of getting people and technology in place 

and preparing paperwork, why is one bank able to do a lot more 

than the others? Have you looked at seeing what their success is 
39 

compared to the not very great success of a lot of the other major 

servicers? 

Mr. ALLISON. Senator, we have looked at their success and they 

should be commended for their rapid action and we are pressing 

others to act more rapidly—— 

Senator SCHUMER. But what are they doing differently? That is 

my question. I am not asking to give them a gold star. I am rather 

trying to learn from their success and how we apply it to other institutions that are not getting as many modifications done. 

Mr. ALLISON. Yes, sir. Well, not speaking for J.P. Morgan, they 

can tell you directly, but I believe that they—— 

Senator SCHUMER. Well, they don’t know what is happening in 

the other banks. They know what is happening in theirs. 

Mr. ALLISON. They must have concluded that this crisis was 

going to be here for some time and it made much more sense to 

address it forthrightly and rapidly than allow it to continue to 

build. 

Senator SCHUMER. And you say the other banks, the other 

servicers, most of whom are major banks—as I understand it, twothirds of the servicers of mortgages are major TARP recipients or 

something to that effect. I may have the number off, but a large 

percentage. Are the other banks sort of ignoring reality here? 

Mr. ALLISON. I think it is fair to say that some banks were slower to recognize the enormity of this problem and its potential longevity than others. And I think more and more, as Mr. Apgar testified earlier, have concluded that they must take action and we 

have created incentives for them to do so. And I think, again, publicizing their activities is going to have a major impact on the willingness of these companies to act rapidly. 

Senator SCHUMER. Finally—go ahead, Mr. Apgar. 

Mr. APGAR. Secretary Donovan invited the senior leadership of 

the J.P. Morgan Chase company in to explore what they were doing 

right in order to learn from that, and essentially they have a system of home ownership centers, calls, outreach, a more integrated 

system that clearly has ramped up—— 

Senator SCHUMER. Well, are they willing and are you willing to 

share that with the other banks so that—— 

Mr. APGAR. That will be part of the dialog at the end of the 

month, as we not only talk about what are the obstacles but what 

have been best practices other—— 

Senator SCHUMER. Do you think many of the other banks would 

be willing to accept that kind of methodology? 

Mr. APGAR. We certainly hope so, because we believe that everyone shares the commitment to get this crisis under control. 

Senator MENENDEZ. We have a second panel, so if you could 

wrap up—— 

Senator SCHUMER. OK. Could I do one final question? 

Senator MENENDEZ. Fine. 

Senator SCHUMER. Thank you. I apologize. 

I have been concerned for some time with the effect of predatory 

equity in the residential real estate market. That is when investors 

buy residential properties, often in affordable communities. They 

pay very high prices—that is happening less now, but still happening—with the help of massive amounts of leverage. And so in 
40 

order to make a profit, they stop doing maintenance and upkeep. 

They make every effort to kick out low-income tenants so they can 

renovate the apartments and raise rents. I find this a despicable 

practice and I have gone after the people who do it. But the people 

who enable them, who lend them the money, should equally be 

blamed, and I know that Secretary Donovan cares about this, because when he was HUD Commissioner, we worked on it together. 

Is Treasury or HUD currently working on programs that would 

address the problem that I have labeled predatory equity? 

Mr. APGAR. Yes, we have been working on this issue. I just would 

point out, of course, that not only is this an issue in New York, but 

nationwide, we are seeing over-leveraged buildings or buildings 

where, just like single-family homes, there is more—the value of 

the property is less than the value of the outstanding mortgages. 

What is troubling about this is many of these mortgages are on the 

balance sheets of some of the smaller community banks that we 

were talking about earlier and makes them specifically at risk, and 

so we are working on options to try to address this crisis, both talking with our colleagues in Treasury as well as throughout the Administration. 

Senator SCHUMER. Yes, and I will conclude now, but I think you 

need to talk to some of the bank examiners. The standards by 

which these loans were allowed to go forward were lax and unrealistic in terms of what kind of rents could pay back that kind of 

price that they paid for these buildings. 

Mr. APGAR. Mm-hmm. 

Senator SCHUMER. Thanks. 

Senator MENENDEZ. Thank you, Senator Schumer. 

Thank you both for your testimony. I look forward to hearing 

back from you on some of the issues that the Committee has 

raised. 

With that, let me call up our second panel, invite them to come 

up to the table. As they come up, let me, to advance the time, introduce them. 

Let me welcome our second panel. Let me start off by welcoming 

Thomas Perretta. He is from Chairman Dodd’s State of Connecticut. And if we could ask people to please, if you are finished 

with listening to the hearing, leave the room quietly. Thank you. 

Please, have a seat. 

Mr. Perretta is from Chairman Dodd’s State of Connecticut. He 

has worked for the Connecticut Board of Education for 11 years 

and he is going to share with us his story of how he tried to modify 

his mortgage. Mr. Perretta, I just want to say what you are doing 

here today, coming before the Committee to discuss a very personal 

life story is not only meaningful but courageous. I know I speak for 

all of our colleagues in saying that we are very grateful for your 

willingness to come and share your personal story. 

Let me welcome Joan Carty. She is the President and CEO of the 

Housing Development Fund in Bridgeport, Connecticut. Ms. Carty 

is a longtime community leader, having served as Director of the 

Bridgeport Neighborhood Fund and Stamford’s Neighborhood Preservation Program. We are grateful to her for her hard work and 

years of experience that she brings before the Committee today. 
41 

Next, I would like to welcome Paul Willen, who is the Senior 

Economist and Policy Advisor at the Federal Reserve of Boston. 

Mr. Willen is well published in the areas of financial management 

and mortgage markets. He recently finished some very interesting 

publications on the current foreclosure crisis. 

Next, I would like to welcome Mary Coffin, who is the head of 

Mortgage Servicing and Post-Closing at Wells Fargo Home Mortgage. In her capacity, she oversees an operation that reaches 7.9 

million customers. She is a member of the Wells Fargo Executive 

Management Committee, where she helps to craft the company’s 

overall strategic direction, and she has worked in the mortgage industry for more than 25 years. It doesn’t appear so, but it looks 

like it according to the statement. It says 25 years. 

Let me welcome Mr. Curtis Glovier, Managing Director at Fortress Investment Group,. Mr. Glovier is a partner in Fortress’s hybrid funds area, managing both government relations and private 

equity efforts. He brings with him many valuable years of experience working in the financial markets. 

Let me also welcome Allen Jones, who is the Default Management Executive at Bank of America. Mr. Jones manages Bank of 

America’s strategy and interaction for default management and 

loss mitigation with public policy groups and with Congress. Before 

working with Bank of America, he worked with HUD and with 

KPMG. 

And last, let me welcome Diane Thompson, who serves as Counsel at the National Consumer Law Center. Prior to her current position, she served in the Land of Lincoln Assistance Foundation as 

a home ownership specialist and a supervising attorney. She belongs to many important boards, including the National Community Reinvestment Coalition’s Board and the Consumer Advisor 

Council of the Federal Reserve. 

Welcome, all. We are going to have your full statements included 

in the record. Because this is a large panel and we want to get all 

of your testimony in before any votes, we are going to ask you to 

stick to the 5-minute timeframe that I think the Committee advised you that you would have so we can get everybody’s testimony, 

hopefully some questions in, and go from there. 

With that, Mr. Perretta. 

STATEMENT OF THOMAS PERRETTA, CONSUMER, 

STATE OF CONNECTICUT 

Mr. PERRETTA. Good morning, Mr. Chairman and Ranking Member Shelby and everyone. 

My mortgage problems became evident when my wife, Susan, 

passed away June 1, 2008. We worked hard doing the best we 

could for our son, living within our means. We had vacations. We 

enjoyed ourselves. We stayed—I am going off the top of my head 

with this. 

We stayed at my in-laws for a year and a half, saving money for 

the downpayment for the townhouse. Tommy did well in high 

school. She was creative in getting him through college. He graduated from Quinnipiac last year and he was going to do physical 

therapy. He wanted to take a year off to be with Mom. Mom didn’t 

make it. 
42 

We worked all our lives. I am lucky. I have been working with 

the Stamford Board of Education for 11 years. I am in my twelfth 

year right now. I am very fortunate for that. 

After going through, getting Tommy through college, all the 

bills—she had taken care of the bills for the last 24 years—Tommy, 

you have got to take the $2,000. Here is a check. Go pay the mortgage. We have got to do this. She was in a nursing home at 

Longridge, still writing out the checks. She was still paying the 

bills. 

When she passed away, I had to borrow money. I had no money 

to bury her. I borrowed—I just go done paying $16,000 from last 

year to bury her. A lot of friends, my in-laws, the funeral director 

was very understanding. I am on a—we had a large electric bill. 

I am on a yearly electric plan with CL&P. I have negotiated payments with my common charges. I took the cable box out for TV. 

I am on cell phone only. We don’t have a regular phone. We have 

a computer on AT&T for my son. I am taking the car back. I can’t 

afford the car payment. 

I started realizing the problems after the holidays this past year, 

that I was going to have to—I contacted Chase. I wanted to know 

what to do. I talked to a lady—they were always in touch with 

me—with the statement that we owed—my mortgage was $2,031. 

It went up a little bit with the taxes and everything. I kept getting 

a bill. My late charges had piled up. I tried to keep up. At one 

point, I paid the first payment I was late and then another $2,000 

in 2 weeks. Income tax time came. I had money. I got some money 

back. I straightened out a little bit. I wanted to know if I could do 

something. I have to get this payment down. I can’t afford it. 

I had gone over a formula two different times on the telephone 

with two separate people from Chase, 10 minutes. I had my little 

briefcase. I have everything I owe right next to me. I can do it on 

the telephone just like that. And their reply was, I don’t qualify. 

I don’t make enough to qualify. The common sense—it didn’t make 

sense to me. If I could make enough, I wouldn’t be in this jam I 

am in. 

Finally, Air Post Housing Development Fund. I was falling behind. They got the paperwork in to Chase on May 4. I didn’t receive a reply. I lost my—God bless my wife. 

Now that my son has graduated college, he is going to start chipping in. He is on a business trip right now. He is going to come 

in. He is going to help me by paying off the big electric bill, which 

is $500 a month on top of what I regularly pay. We are halfway 

done with that. That was, like—she was 98 pounds. I had the heat 

on for the last two winters all the time. He is going to straighten 

out with me with the common charges. I am going to use his car 

a couple times when he takes the train to work. I can walk to 

work. I am close enough for that. And if I have to go somewhere, 

I get my father-in-law’s truck on the weekend if I have to cut a 

lawn or something like that. 

All I was looking for was to get the mortgage payment down. I 

would have figured—another common sense—and I am sorry for 

going off like this—another common sense thing should have 

kicked in. I didn’t want the sympathy for the fact that I lost my 

wife. I was looking for the understanding that we had gotten our 
43 

mortgage with two incomes, mine and hers. Now once I notified 

them that I am missing her income, that we have to do something—I am behind five, 6 months with my mortgage and I sent 

paperwork in to them and everything. If not for Housing Development Fund, I don’t know where I—I didn’t know where else to go. 

And that is it. I am beside myself right now. I am just waiting 

for a response from them. I don’t have the other income. I don’t understand. 

Thank you very much for your time. I am sorry. 

Senator MENENDEZ. No, thank you very much for sharing your 

story, and I am sorry for your wife’s loss. 

Mr. PERRETTA. Thank you. 

Senator MENENDEZ. Ms. Carty. 

STATEMENT OF JOAN CARTY, PRESIDENT AND CEO, THE 

HOUSING DEVELOPMENT FUND, BRIDGEPORT, CONNECTICUT 

Ms. CARTY. Good morning, Mr. Chairman. Thank you for inviting 

me to testify today. My name is Joan Carty. I am the President 

and CEO of the Housing Development Fund in Connecticut. 

Last year, because of the widespread and increasing problems 

with subprime lending, mortgage delinquencies, and rising foreclosures, HDF started an additional counseling program to assist 

families in our communities who are stressed with these problems. 

In the course of developing our program, we have reached out to 

many other partners: The Bar Association for Pro Bono Attorneys, 

the courts to establish working relationships with mediators, volunteers with financial and social services backgrounds to help us with 

the ever increasing volume of people who need guidance, and the 

banks, who in many cases control the outcomes of the situations 

facing people in foreclosure or mortgage delinquency. 

We are a HUD-certified counseling agency. We have personally 

experienced the kind of shadow boxing that occurs when a homeowner in distress calls their lender or servicer for help. Too often, 

their call is bounced to a call center across the globe or the call is 

bounced from department to department within the bank. On many 

occasions, after multiple periods of time on hold, they finally reach 

a live person, but it is a representative who is merely following a 

script. Often, the lender or servicer representative has no record of 

prior contact with the homeowner. It is a process that often feels 

futile. 

We have found that in too many cases, when we send clients’ 

modification requests to banks or servicers, including the largest 

ones, that the modification package enters a black hole for months 

on end. These homeowners are in distress. Even a 30-day timeframe can radically affect their credit profile. Once they slip behind 

on timely payments on their mortgage or any consumer debt, their 

credit score goes down and their monthly interest charges can go 

up. In many cases, cross-default provisions mean that default on 

one obligation will trigger higher monthly charges on all other 

debt, even if they are current on it. 

If we were to look for common themes as to why families are in 

distress, we often find that death, divorce, illness, or injury, in addition to predatory terms on many mortgages, have pushed families 
44 

to the edge of the cliff. Imagine the multipliers and harm rendered 

when this limbo extends for months. 

I understand that the lenders and servicers need modification requests that are well documented and that contain a budget that 

has been carefully worked out so that the homeowner will succeed 

over the long term. That is the kind of service that we as a counseling agency provide to our clients. What our clients in turn need 

from the lenders and servicers is rapid response, responses before 

their lives continue to spiral downward. 

It is difficult to believe that the sophisticated automated platforms that have been in use by lenders and servicers for loan origination over the past decade cannot be retooled to generate effective 

loan modifications with greater frequency and within tighter timeframes. 

I would also suggest that rapid response will help in other ways. 

With delay comes added expenses, which often get added to the 

mortgage balance. Extensive delays in the mediation process often 

result in the lenders charging the homeowner multiple times for 

late fees, attorneys’ fees, and updated appraisals. 

Denial of homeowners’ requests lead to expensive foreclosure 

processes which hurt the families involved and the communities in 

which the homes are located. In many instances, these foreclosures 

do not ameliorate losses or generate profits for the banks, given the 

current declines in property values throughout the country. 

Additionally, it is critically important to create a system that 

rapidly responds to requests from homeowners who are still current on their mortgages but who know they will not be able to sustain their payments going forward. 

What we are building at our agency is a system that can carry 

homeowners from that initial request for assistance through assessment of their situation and development of a modification request that will have viability over the long term. What we need 

from the lenders and servicers is their commitment to building a 

system that will react promptly and predictably to these reasonable 

requests. Thank you. 

Senator MENENDEZ. Thank you. 

Mr. Willen. 

STATEMENT OF PAUL S. WILLEN, SENIOR ECONOMIST AND 

POLICY ADVISOR, FEDERAL RESERVE BANK OF BOSTON 

Mr. WILLEN. Senator Menendez, Chairman Dodd, Ranking Member Shelby, and members of the Committee, thank you for your invitation to testify. My name is Paul Willen and I am a Senior Economist and Policy Advisor at the Federal Reserve Bank of Boston, 

but I come to you today as a researcher and as a concerned citizen 

and not a representative of the Boston Fed or any other Reserve 

Bank or of the Board of Governors. 

My recent research has focused largely on understanding how we 

got here, why we had more foreclosures in one quarter in 2008 in 

Massachusetts than in the 6 years from 2000 to 2005 combined, 

and why millions of Americans have seen what is supposed to be 

one of the most positive experiences of their adult life, home ownership, turned into a nightmare. 
45 

Let me talk first about some misconceptions about how we got 

here. These are important because most of the ineffective policy efforts over the last 2 years failed because they were based on incorrect theories of the crisis. One example is the idea that large 

changes in payments associated with the resets of adjustable rate 

mortgages caused the crisis. Every serious researcher, including us, 

who has looked at loan-level data has failed to find support for this. 

Most borrowers who default on adjustable rate mortgages do so 

long before the first change in their monthly payment. 

Another example is the claim that many borrowers who got 

subprime loans were steered into them and could have qualified for 

prime loans. We found in a large sample of subprime loans that 

only 10 percent met the combination of borrower credit history, 

downpayment, monthly income, and documentation necessary to 

qualify for a prime mortgage. 

In our most recent paper, we focused on the question of renegotiation of troubled mortgages. We followed borrowers in the year 

after their first 60-day delinquency and found that lenders gave 

payment reducing modifications to about 3 percent of the borrowers. The leading explanation for this is that securitization generates contractual complexity and fragmented ownership, which 

makes it impossible for borrowers and lenders to come together for 

mutual benefit. Our evidence refutes this claim. Servicers are just 

as reluctant to modify loans when they own them as when they 

service them on behalf of securitization trusts. 

The most plausible explanation for why lenders don’t renegotiate 

is that it simply isn’t profitable. I am using lenders loosely here to 

mean the bearers of the loss, the investors or their appointed representatives, the servicers. The reason is that lenders face two 

risks that can make modification a losing proposition. The first, 

which has been recognized as an issue by many observers and researchers, is re-default risk, the possibility that the borrower who 

receives a modification will default again and thus the modification 

will have only served to postpone foreclosure and increase the loss 

to the investor as house prices fall and the home itself deteriorates. 

The second risk, which has been largely ignored, is self-cure risk, 

the possibility that the borrower would have repaid the loan without any assistance from the lender. About a third of the borrowers 

in our large sample are current on their mortgages or prepay 1 

year after they become 60 days delinquent. An investor would view 

assistance given to such a borrower as wasted money. 

Some have suggested that our estimates overstate self-cure risk, 

but we would argue the opposite. The borrowers most likely to benefit from, for example, a 20 percent cut in payments are borrowers 

without substantial income loss or deep negative equity and are 

thus the ones most likely to cure without assistance from the lender. 

Let me say that my observations that servicers and investors 

may find modification unprofitable has no bearing on whether it is 

desirable for society at large and the economy. The private net 

present value to investors and the social net present value to society of a modified loan may well be very different. 

Let me conclude by talking about what we have always argued 

is the central problem in the foreclosure crisis but that policy-
46 

makers have only recently recognized, borrower life events like job 

loss, illness, and divorce. People argue that life events could not explain the surge in defaults in 2007 because there was no underlying surge in unemployment or illness that year. But that view reflects a misunderstanding of the interaction of house prices, depreciation, and life events in causing default. 

Foreclosures rarely occur when borrowers have positive equity 

for the simple reason that a borrower is almost always better off 

selling if they have to leave the house anyway. Thus, detrimental 

life events have no effect on foreclosures when prices are rising. 

But when home prices fall, some borrowers can no longer profitably 

sell and then the income-disrupting life events take a toll. Thus, we 

did not need to see a surge in life events to get a surge in foreclosures, but rather a fall in house prices, which is exactly and unfortunately what we saw. 

Let me finally say that a key policy concern going forward is that 

economic recovery alone will not eliminate the foreclosure problem. 

Even in a healthy economy, 300,000 people file new claims for unemployment insurance every week. Without a substantial rise in 

home prices, many of these people will face the combination of negative equity and job loss that leads to foreclosure. The Massachusetts foreclosure crisis of the early 1990’s did not end when the 

economy recovered in 1993 but when vigorous house price growth 

eliminated negative equity in 1998. 

We hope that these findings add perhaps unexpected insights 

into your work as policymakers, and thank you again for the opportunity to appear before you today. 

Senator MENENDEZ. Thank you. 

Ms. Coffin. 

STATEMENT OF MARY COFFIN, HEAD OF MORTGAGE 

SERVICING, WELLS FARGO 

Ms. COFFIN. Chairman Dodd, Ranking Member Shelby, Senator 

Menendez, and members of the Committee, I am Mary Coffin, Executive Vice President of Wells Fargo Home Mortgage Servicing, 

and thank you for inviting me to speak today. 

Throughout this historic public and private sector collaboration, 

Wells Fargo has considered it our leadership responsibility to 

champion solutions. We have played a key role in creating streamlined, unified modification programs to help customers in need. A 

prime example of our work with the Administration is the new 

Homeowner Affordability and Stability Plan, which we fully support. Early indications are that HARP and HAMP are of great 

value and will benefit a significant number of families. In fact, we 

believe the Administration’s goal to help as many as seven to nine 

million homeowners over the next few years is well within reach. 

In the first half of 2009, through lower rates, refinances, and 

modification, Wells Fargo alone has helped close to one million 

American homeowners. We refinanced three-quarters of a million 

customers through HARP and standard programs. And since our 

company represents approximately 20 percent of the market, we 

could estimate that close to four million Americans nationwide 

have already refinanced into lower mortgage payments. 
47 

In these turbulent times, it is important to note that more than 

90 percent of the borrowers remain current on their mortgage payments. To help those in need of assistance in the first half of this 

year, we have provided more than 200,000 trial and completed 

modifications, an increase of over 100 percent from the same period 

1 year ago. And notably, last month, 83 percent of Wells Fargo’s 

modifications resulted in a payment reduction. 

Acutely aware of the importance of speed, Wells Fargo worked 

with the government aggressively to develop and deliver HARP and 

HAMP. We did this in a way that was mindful of our responsibility 

to American taxpayers to execute solutions for those truly in need. 

Speed of execution was complicated by the multiple versions of the 

program, each with unique contractual requirements. 

On March 4, the Administration first announced the components 

of the Homeowner Affordability and Stability Plan. On April 6, we 

received the final HAMP guidelines from Fannie and Freddie and 

began implementing the program for these customers. On April 13, 

we were the first to sign a HAMP contract for loans we service for 

private investors, as well as the loans in our own portfolio. Further 

details for this program finalized by May 14, and we began offering 

it 9 days later. 

Since January, we have been providing loan workouts to 

Wachovia Option ARM customers who are struggling with their 

payments, and at the end of this month, we will add HAMP as yet 

another potential solution for those borrowers. With this addition, 

we will have fully executed HAMP for almost all of our at-risk borrowers. Since we, Wells Fargo, service one-third of the Nation’s 

FHA loans, we are hopeful the government will soon provide this 

program, as well as the second lien program as it was initially described, since these borrowers are currently ineligible for a HAMP. 

As of June 30, Wells Fargo was in the process of finalizing 

52,000 home affordable modifications. When working with all of 

our seriously delinquent borrowers, 30 percent are not eligible for 

HAMP because they have an FHA or a VA loan, and another 15 

percent do not meet the basic program requirements. Of the remaining 55 percent, whom we have all contacted, we are actively 

working with half, and the other half have not yet chosen to work 

with us. 

For those borrowers who don’t qualify for HAMP, we immediately seek to find another modification or alternate solution to 

avoid foreclosure. Before any home moves to foreclosure sale, we 

conduct a final quality review to ensure all options have been exhausted. 

We understand this time has been frustrating for at-risk customers and that they are anxious and in need of answers. With the 

President’s February 18 announcement that refinance and modification programs would be forthcoming, we began to experience a 

large increase in customer inquiries. Knowing this would occur, we 

anticipated the influx and increased and trained team members to 

handle it. Yet it has been challenging to meet customer expectations as the various program details were provided to us over a period of 90 days. 

While we forecasted an increase in inquiries, including from customers current on their mortgage payments, our forecast turned 
48 

out to be low. Historically, on a monthly basis, five to 10 percent 

of inquiries for loan work-outs come from borrowers who are current. Since the announcement and the related increased focus on 

imminent default, this statistic has risen to nearly 40 percent. And, 

of course, not everyone who calls qualifies for imminent default. 

To manage this demand, we have implemented mandatory overtime. We have streamlined document processing. We are upgrading 

systems to handle escrow requirements for our home equity lines 

and loans. And most importantly, we have increased our trained 

staff by 54 percent over the first half of this year to 11,500 default 

team members, all whom are U.S.-based. 

In conclusion, we can certainly tell you we have been working 

very hard to responsibly execute these programs, and again, we 

fully support them. 

I will be glad to answer any questions. 

Senator MENENDEZ. Thank you. 

Mr. Glovier. 

STATEMENT OF CURTIS GLOVIER, MANAGING DIRECTOR, 

FORTRESS INVESTMENT GROUP, ON BEHALF OF THE MORTGAGE INVESTORS GROUP COALITION 

Mr. GLOVIER. Thank you for inviting me to testify today. My 

name is Curtis Glovier and I am a Managing Director at Fortress 

Investment Group. I am also a member of the Mortgage Investors 

Coalition, organized to provide policymakers with the mortgage investors’ point of view. I am testifying today in my capacity as a 

member of the coalition. 

Allow me to start by commending the Committee for your leadership in pursuing every possible action to help keep Americans in 

their homes. We share your frustration with the slow pace of efforts to help homeowners. I also want to thank the Chairman for 

coauthoring with Chairman Frank a letter last week highlighting 

the Hope for Homeowners Program, or H4H, and to offer our support to facilitate American families’ participation in this program 

so that they may be able to keep their homes and build equity. The 

discounted refinance program offered by H4H provides the best 

long-term solution for the homeowner and for the recovery of the 

U.S. housing market. 

The Mortgage Investors Coalition currently has 11 member firms 

with about $200 billion in total assets under management and over 

$100 billion in mortgage-backed securities. Investors in private 

label, that is non-Federal agency, mortgage-backed securities include asset managers, charitable institutions, hedge funds, insurance companies, municipalities, mutual funds, pension funds, universities, and others. 

Investors in securitizations and mortgages generally have no 

interaction with the homeowners—that is the job of the servicer— 

and also have extremely limited decisionmaking authority with respect to modifications, foreclosures, and other servicing actions. 

Very often, the original lender or its affiliate acts as servicer once 

the loans are securitized. Loan servicing is relatively concentrated. 

Fifty-five percent of all mortgages are serviced by the four largest 

banks. It is also important to note that there are $1.1 trillion of 

second liens, like home equity loans, in the residential mortgage 
49 

market, and the vast majority of these are held on bank balance 

sheets as opposed to in securitizations. 

While the Federal Government’s actions to bolster Fannie Mae 

and Freddie Mac and broaden the FHA’s mandate have proven to 

be a critical stopgap measure during the housing and economic crisis, a revival of the non-agency market and return of private investors to the market is seen by many as the prerequisite to the recovery of the U.S. housing market and a return to normalcy in the 

capital markets. 

Returning homeowners to a positive equity position provides significant opportunity and motivation for at-risk homeowners to remain in their homes and communities. A short refinancing under 

H4H solves both the affordability and the negative equity problems 

plaguing homeowners at risk of foreclosure today. The program 

was created to reduce principal on the existing senior lien mortgage and to eliminate the existing subordinate, second lien, which 

can thereby prevent unnecessary foreclosures. 

The Coalition believes that a properly implemented Hope for 

Homeowners Program will not only provide stability for homeowners, but will also stem the declines in the housing markets and 

provide certainty for the fixed-income capital markets, which will 

bolster financial markets in general and promote increased lending 

and reinvestment in mortgages. We believe the program will prevent additional foreclosure inventory from adding to the overhang 

of bank-owned properties in the residential real estate market, 

thereby helping to establish a floor for housing prices. The best solution to our Nation’s mortgage crisis is to significantly forgive 

principal on first and second lien mortgage debt in connection with 

the refinancing of the over-extended homeowner into a new low interest rate mortgage through the Hope for Homeowners Program. 

Investors seek sustainable mortgage restructurings that address 

the interests of all parties and the multiple factors that have contributed to homeowner re-defaults. Compared to a short refinance 

program, such as H4H, a modification approach, such as the Making Home Affordable Program, has a notable shortcoming: by not 

addressing negative equity, homeowners are trapped in a mortgage 

that cannot be refinanced and a house that cannot be sold. When 

the program ends in 5 years, the interest rate on both the first and 

second mortgage will reset higher. The outstanding balance of the 

combined mortgage debt is likely to still exceed the value of the 

home, and there could be a meaningful risk of a re-default. The low 

prices of securities in the mortgage market today in part reflect the 

great uncertainty of future cash-flows and values associated with 

such modified loans. 

While there are still operational hurdles to overcome in implementing a more effective H4H Program, the major impediment to 

the viability of the program is the volume of second mortgages or 

second liens outstanding. As indicated earlier, while a small percentage of second mortgages are sold to investors, the vast majority 

remain on the balance sheets of our Nation’s largest banks. In fact, 

the four banks that service approximately 55 percent of mortgages 

held roughly $441 billion of second liens on their balance sheets as 

of last year. 
50 

Banks have favored loan modification programs, such as Making 

Home Affordable, that not only defer the recognition of losses on 

the second lien portfolios, but also better their second lien position 

at the expense of the first lien investors and to the detriment of 

the homeowner. 

How can Hope for Homeowners become a reality? It is an effort 

that will require participation and sacrifice by all interested parties 

to succeed. The government, financial institutions, and investors all 

share an important stake in the recovery of the American homeowner and must contribute actively to forge healthier housing and 

financial markets. Investors stand ready to make the sacrifice necessary to re-equitize homeowners at risk of foreclosure. 

Thank you for the opportunity to testify today. 

Senator MENENDEZ. Mr. Jones. 

STATEMENT OF ALLEN H. JONES, DEFAULT MANAGEMENT 

POLICY EXECUTIVE, BANK OF AMERICA 

Mr. JONES. Good afternoon, Senator Menendez. I am Allen Jones, 

Bank of America’s Default Management Policy Executive. 

Bank of America strongly supports the Administration’s Making 

Home Affordable Program, and we stand ready to support our borrowers with a sense of urgency. Since the start of housing crisis, 

Bank of America has been at the forefront of Government and industry efforts to develop loan modification programs that work and 

help financially distressed customers remain in their homes. 

We know that more needs to be done. That said, we strongly support Administration’s focus on affordability and loan modification 

and refinance processes in order to achieve long-term sustainability 

for homeowners, and we are eager to constructively participate in 

the upcoming meeting at Treasury. 

Before getting into specifics, I want to highlight a couple of 

items. 

First, Bank of America exited subprime lending nearly 9 years 

ago. Upon acquiring Countrywide, we have taken the steps to ensure our combined company is a leader in traditional mortgage 

products. Our April launch of the Clarity Commitment, a clear and 

simple one-page disclosure that accompanies every new and refinanced loan, is one demonstration of our focus on ensuring customers understand what loan they are getting and the associated 

costs. 

Second, Bank of America has been at the forefront to develop 

loan modification programs as a way of avoiding foreclosures and 

helping financially distressed customers remain in their homes. We 

modified 230,000 mortgages in 2008, and we report that year-todate we have modified 150,000 loans. 

In recent weeks, the Administration’s Making Home Affordable 

modification guidelines and supplemental guidelines have been 

rolled out. With the MHA program, our systems have been converted, and MHA has become the centerpiece of Bank of America’s 

overall home retention efforts. Already approximately 80,000 Bank 

of America customers are in the trial modification period or are responding to efforts we have made under Making Home Affordable. 

We have achieved this level of accomplishment by devoting substantial resources to this effort. Our servicing team has more than 
51 

7,400 associates dedicated to home retention, double what it was 

a year ago. 

Bank of America has also devoted significant resources to community outreach. Since the beginning of this year, we have participated in more than 120 outreach events in over 26 States. 

Earlier this year, we announced our financial support and commitment to the Alliance for Stabilizing Communities, which is led 

by the National Urban League, the National Council of La Raza, 

and the National Coalition for Asian Pacific American Community 

Development. 

We understand the importance of being there for our customers 

when they call and are providing a timely response to their inquiries. My teammates respond to an average of 80,000 customer calls 

a day and up to 1.8 million calls a month. 

Our customers have multiple entry points into our home retention team. Whether on an outbound call, inbound call, outreach 

event, or by mail, once we have made contact with the borrower, 

we diagnosed the financial challenge. We isolate short-term issues 

such as inability to pay because of a medical bill versus long-term 

challenges like a loss of job or underemployment. Short-term issues 

may be solved through a repayment plan. Longer-term financial 

challenges may be solved through a loan modification. 

In the event we cannot find a solution, we consider a short sale 

or deed in lieu of foreclosure. In the event neither of these offers 

work, we will work with the borrower to find a graceful exit and 

provide relocation assistance. 

Bank of America customers will not lose their homes to foreclosure while their homes are being considered for modification. 

The bank places foreclosure sales on hold while it determines a 

customer’s eligibility for its home retention programs. 

With MHA, we believe there are additional opportunities for 

servicers to partner with the Administration and Congress to refine 

the program to help reach our mutual beneficial goal of helping as 

many borrowers as possible. We need to get this right to preserve 

the flow of mortgage credit to support sustainable homeownership, 

and at the same time protect communities and neighborhoods from 

avoidable foreclosures. 

We look forward to working with the Congress and the Administration to accomplish these goals. Thank you. 

Senator MENENDEZ. Thank you. 

Well, Ms. Thompson, you get the final word here, at least at this 

point. 

STATEMENT OF DIANE E. THOMPSON, OF COUNSEL, NATIONAL CONSUMER LAW CENTER, ALSO ON BEHALF OF NATIONAL ASSOCIATION OF CONSUMER ADVOCATES 

Ms. THOMPSON. Thank you. Good afternoon, Senator Menendez. 

Thank you for providing me with the opportunity to testify today. 

My name is Diane Thompson. I am an attorney, current Of Counsel 

with the National Consumer Law Center. In my work at NCLC, I 

provide training and support to attorneys and housing counselors 

representing homeowners from all across the country. For nearly 

13 years prior to joining NCLC, I represented low-income homeowners at Land of Lincoln Legal Assistance Foundation in East St. 
52 

Louis, Illinois. I testify here today on behalf of the National Consumer Law Center’s low-income clients and on behalf of the National Association of Consumer Advocates. 

My comments today will focus on the barriers homeowners face 

in accessing sustainable modifications under the Administration’s 

Home Affordable Modification Program, or HAMP. 

In preparing for this testimony, I reviewed my notes of conversations with hundreds of housing counselors and attorneys regarding 

HAMP since its rollout in early March. I also solicited updates 

from advocates as to their current experience with HAMP. 

What happened next was astonishing. For the last several days, 

I have had a steady stream of phone calls and e-mails from advocates all over the country. Their frustration is palpable. Over and 

over they ask me: How can I tell if the servicer is telling me the 

truth? I know that this modification is in violation of the HAMP 

guidelines, but when I raise that, the servicer stopped returning 

my phone calls. And, fundamentally, what can I do to help the borrowers I am working with to get a loan modification? They can pay. 

They want to keep the house. But the servicer says no. 

The housing counselors and attorneys I work with are on the 

front lines of our national foreclosure disaster. Many of them had 

high hopes for HAMP. Few, if any, now look to HAMP for assistance in their daily struggle. 

My written statement details the most common problems with 

HAMP. Implementation has been excruciatingly slow. Months after 

HAMP’s rollout, servicers are still telling advocates that they do 

not have a process in place to review homeowners for HAMP modifications or that they have put such reviews on hold for one reason 

or another. In the meantime, servicers have continued to proceed 

with foreclosures and foreclosure sales, even for homeowners who 

are undergoing a current review and have submitted all documentation. 

Beyond delays in implementing the program, servicer noncompliance has been widespread. Participating servicers refuse to offer 

HAMP loan modifications, instead steering homeowners into more 

expensive, less sustainable loan modifications. Many servicers continue to require waivers of all legal claims and defenses. Some 

servicers have instructed homeowners to waive their rights to 

HAMP review in order to obtain any loan modification. There are 

reports of several servicers requiring downpayments usually in the 

range of thousands of dollars before they will consider homeowners 

for HAMP modification. 

We know that the Administration has allotted $15 billion to 

servicers for their participation in HAMP and will be disbursing 

those funds soon. We are very concerned that servicers may receive 

this money for non-HAMP-compliant loan modifications. HAMP is 

premised on servicer incentives. These incentives are unlikely to 

change servicer behavior without consequences for noncompliance. 

Homeowners and their advocates have no mechanism to challenge a servicer’s denial of a loan modification or even to determine 

whether or not a servicer truly performed an accurate evaluation 

of the homeowner’s qualifications for such a modification. The key 

driver of whether or not a homeowner gets a loan modification— 

the net present value test—is not public. Nor are servicers cur-
53 

rently required to disclose to homeowners what numbers they put 

into the model or what the result of the test was. 

The net present value test measures whether or not the investor 

will profit more by modification or not. Many advocates report that 

servicers appear to have entered incorrect information into the net 

present value analysis or failed to follow it at all. 

HAMP must be modified to provide greater transparency and accountability. The NPV test for qualifying homeowners must be 

available to the public. Servicers must be required to report to 

homeowners what numbers they used in the analysis and what the 

results of that analysis were. Homeowners who are denied a loan 

modification or who encounter difficulties in obtaining a loan modification need access to an independent review process. 

Ultimately, we believe that, in order to be effective, HAMP may 

need to mandate principal reductions. With one out of five homeowners underwater, significant readjustment in principal balances 

are necessary for the economic stability of the country. Additionally, servicers must be required to halt all foreclosure proceedings 

upon commencement of a HAMP review and should not be able to 

proceed with a foreclosure without a HAMP review. Proceeding 

with the foreclosure during a review increases costs of any ultimate 

modifications and creates a real risk that a home will be sold in 

foreclosure before the review is completed. 

Staying foreclosures pending review will provide a powerful incentive to servicers to expedite HAMP reviews. Homes that can be 

saved should not be lost to foreclosure because a servicer failed to 

complete a HAMP review. 

If the data coming out in August and then this fall supports our 

experience that changes to HAMP in design and implementation 

cannot address the foreclosure crisis, mandated loan modifications, 

bankruptcy reform, and servicing legislation should be adopted by 

Congress. 

Thank you. 

Senator MENENDEZ. Thank you, Ms. Thompson. Thank you all 

for your testimony. 

Let me start. I am disturbed at elements of your testimony, Ms. 

Thompson, that some servicers in violation of HAMP’s rules are 

being asked to waive legal rights and others are being steered into 

non-HAMP modifications, despite representations to the contrary. 

Have you contacted Treasury about this? Have you shared the experiences you have had? And if so, what type of response have you 

gotten? 

Ms. THOMPSON. We did talk with Treasury. We were at a meeting with Treasury last week, actually, discussing the net present 

value test and our belief that that test must absolutely be made 

public, and we discussed briefly at that point the issue of compliance, and we were told that we would schedule a subsequent meeting at a later date to discuss in more detail our concerns regarding 

compliance. 

Senator MENENDEZ. What was their response to you on the net 

present value issue? 

Ms. THOMPSON. Treasury indicated that they would be willing to 

discuss providing—requiring servicers to provide some information 

as to what the inputs into the net present value test were and 
54 

what the outputs were. They were reluctant to provide the full net 

present value analysis or even to require servicers to provide the 

entire list of inputs. 

Senator MENENDEZ. Ms. Coffin or Mr. Jones, any observations 

about some of this in terms of violation of HAMP rules being asked 

to waive legal rights, steering into non-HAMP modifications? 

Ms. COFFIN. I will go first. We have actually trained and worked 

with all of our staff and created for our organization that HAMP 

is at the very top of the waterfall. Now, in my testimony, you will 

see the timeline of execution, so some customers that we have been 

working with before we had it fully executed have been moved forward, even in some more aggressive modifications than even the 

HAMP, particularly on our pick-a-payment option ARM portfolio. 

But HAMP is at the very top of our waterfall, and I guess my comment to some of the statements made is that, you know, since the 

beginning of this, we have understood as servicers there is full 

transparency here, we would be fully audited, and we assume that 

all of our files and information have to be completely documented 

as to why we either chose or did not choose to do a modification. 

And in a conversation earlier, we know that we will be held accountable for that. 

So our actions are being documented. Whether the NPV model 

is disclosed or not, it is going to be known by Treasury and the audits that are done as to why we did or didn’t do the modification 

and did we do it accurately. 

Mr. JONES. Senator Menendez, Bank of America fully supports 

the Making Home Affordable program, and as far as the challenges 

that we are facing, I am not aware, do not have an example to 

share with you, of any instance where we are not looking to do the 

best for our customer. 

And I would like to share that beginning last year, when we did 

230,000 loan modifications, in the event a borrower applied for a 

modification that we could not do, we sent a decline letter, and we 

explained exactly why we could not do that modification. 

Going forward, while it is not a requirement, I do not believe, 

under Making Home Affordable, it is our intent to provide a similar 

declination letter. As Mary mentioned, we expect the process to be 

fully transparent, and I am happy to work with you and the members and walk you through our process. 

Senator MENENDEZ. Let me ask, so neither of you are going to 

find in your servicers, the people who work for you, telling people 

that they have to be in default in order to be considered, right? 

Ms. COFFIN. I would say from a historical perspective and the 

number of team members that we have, I could never blanketly tell 

you we have never told a customer that. 

Senator MENENDEZ. Have you made it very clear to your employees that that is not the answer to someone? 

Ms. COFFIN. Very clear. And we also record all of our phone calls, 

and if we hear that, we will go back and actually pull the calls, research them, and retrain and/or handle the employee appropriately 

in that circumstance. 

Senator MENENDEZ. Mr. Jones, what is experienced by Bank of 

America? 

Mr. JONES. Bank of America’s experience is the exact same. 
55 

Senator MENENDEZ. Well, I am going to share some cases with 

both of you. 

Let me ask you, Ms. Coffin and Mr. Jones, Mr. Glovier argues 

that you are holding second mortgages on your books at inflated 

values. As a result, your banks are refusing to accept reasonable 

payments for second mortgages and blocking homeowners from getting principal reduction through the Hope for Homeowners. How do 

you respond to that? 

Ms. COFFIN. Go ahead. I will let you go first this time. 

Mr. JONES. Sure, thanks for the question, Senator Menendez. I 

was here earlier for panel one and listened very closely to former 

Commissioner Apgar’s comments and Secretary Allison’s, and 

where we are is we look forward to the Hope for Homeowners 

guidelines when they come out. Today we do not have guidelines 

that I can comment on. So I think the story was told, when Senator 

Merkley offered, that only one H4H loan has been created at this 

point. 

In addition, we await final guidance on second liens. Once we 

have those, we fully commit to supporting the Making Home Affordable second lien program. 

Ms. COFFIN. I would second that Wells Fargo has been very actively engaged with the Administration on the HAMP program for 

our home equity loans. As a matter of fact, we are very anxious for 

it to be—and I heard today within 2 weeks—so that we can implement that. 

Knowing what we believe will be the parameters of that program, as we have co-loss-mitigated someone who we are working 

to find a solution for a borrower who has a first with us and we 

own the second, we have already aggressively and proactively gone 

ahead to mod that, as we believe the program will be administrated. That is, if we lower the interest rate on a first, we will take 

the second, we will lower it to the same level. If there is a principal 

forgiveness or forbearance done, we will also match that on a percentage basis. 

I will make one other statement as to home equity that I do not 

think most people believe, but it is a fact. In working on our own 

linked portfolio—that is, where we have the first, we are servicing 

the first, and we own the second—that in the small delinquency 

that there is, when the first is seriously delinquent, over more than 

half the time the second is current. 

So in our programs that we have been working on and our advice 

and expertise and our analytical research to the Administration in 

helping to develop a program, one of the reasons Hope for Homeowners that we brought to the attention is that it does not allow 

for a subordination, only requires an extinguishment of the second. 

And when you are sitting with a performing loan that is current, 

that, one, does not provide that to be a very good option; but, number two, and more importantly to Hope for Homeowners, I think we 

have to look at the nature of who that product is best served by. 

None of these programs serve blanketly all borrowers who are in 

need of assistance. Take Hope for Homeowners, for example. When 

you work through that program today, if you really have a struggling borrower who has an affordability issue, they could not afford 
56 

the ending interest rate of that loan. It will be somewhere in the 

range of 8 to 10 percent. 

Now, when a modification today ends up in the range that it is 

being produced in a HAMP, they are not going to opt for a Hope 

for Homeowners modification—or a refinance, excuse me. 

Senator MENENDEZ. Mr. Glovier or Ms. Thompson, any observations on those? 

Mr. GLOVIER. You know, I would just echo what Mr. Apgar said 

in his testimony, that the second liens are certainly an issue and 

that HUD is working on that. We do understand that HUD and 

Treasury are working with the large bank and bank-affiliated 

servicers to work through that. But we have yet to see resolution 

on that process. 

Ms. THOMPSON. I would say that we have certainly heard from 

many homeowners that they have had trouble getting servicers 

who hold the second liens to agree to modify the second liens, even 

when the second liens were not performing; and that we also look 

forward to the new guidance under HAMP to see what happens. 

There is an additional point about affordability of loan modifications, and I agree with Mr. Apgar that affordability is certainly a 

problem. But there is more than one way to make a loan affordable, and you can do it by reducing the interest rate, or you can 

often do it by reducing the principal balance. If you reduce the 

principal balance, you have also effectively reduced the payments. 

When I was a practicing legal services attorney, all of the loan 

modifications that I agreed to had principal reductions as part of 

them, because I believe strongly that you need to have homeowners 

building equity, that you need to align the value of the loan with 

the value of the collateral. So I do not think that there is an opposition, which we sometimes set up, between affordability and principal reductions. I think principal reductions are often the most effective way to achieve long-term affordability. 

Senator MENENDEZ. You testified that servicers have incentives 

that keep them from forgiving principal, even when doing so might 

be better for the investor as well as the homeowner. How do you 

explain that? 

Ms. THOMPSON. Yes, I think it is true that—I think that the complex web of incentives for servicers—I am not sure that any 

servicer, that any of us fully understand it, that there are lots of 

different directions in which the incentives pull. But certainly 

servicers’ primary income base is based on a percentage of what 

the principal balance on the loan pool is. So, by reducing principal 

balances, they are going to take a hit to their monthly servicing income. 

They may also take a hit in the residuals. Many servicers hold 

residual interests, and once the principal balance loss is recognized, 

the residual income may be cut off for them which they would otherwise be receiving. 

There are lots of other ways in which, depending on the nature 

of the pooling and servicing agreement, servicers can, in fact, lose 

money by doing principal reductions. Now, that has not prevented 

all servicers from doing principal reductions. Ocwen and Litton 

have done many loan modifications with principal reductions. But 
57 

other servicers seem extraordinarily reluctant to do it, even when 

from a hard-headed economic analysis it seems to make sense. 

Senator MENENDEZ. You just mentioned one—I did not catch the 

name. Who is it that is—— 

Ms. THOMPSON. Ocwen and Litton have both done quite a large 

number of principal reduction modifications. 

Senator MENENDEZ. Are there any other servicers that are being 

more aggressive in offering principal reductions or deeper loan 

modifications? 

Ms. THOMPSON. My understanding is that Ocwen and Litton are 

leading the pack in the principal reduction modifications. I believe 

Carrington may as well be doing some principal reductions. 

Senator MENENDEZ. Well, Mr. Willen, I appreciated your testimony. I know you are not here on behalf of the Federal Reserve, 

but there is a lot of great information in your findings. What policy 

responses do you think make sense based upon those findings? 

Mr. WILLEN. Several of my colleagues and I at the bank have 

made a proposal—which, again, is from us, not from the bank 

itself—in which we argued that the most effective way to help borrowers right now would be some sort of direct assistance to the borrowers rather than trying to incentivize servicers to help them. 

One of the things that we are doing right now, we put together 

a whole web of incentives, and I think, as Diane said, the servicer 

already faces a web of incentives, and we have just added a whole 

new one. And whether that will actually get them to help the people who we think deserve the help, and especially in light of the 

fact that Government money is already going into this in terms of 

the payments to the servicers, that doesn’t seem like a very— that 

seems like it is—it is not clear whether that will actually help the 

borrowers who we want to help. 

And so what we have advocated is targeting assistance to unemployed borrowers, either in the form of a grant or in the form of 

a loan. And one of the things that I think was appealing to us is 

that it is something you can do quickly, and it does not require setting up all kinds of structures with servicers. We already have a 

bureaucracy in place—the unemployment insurance system—that 

is in place to help unemployed borrowers, and this would just be 

one thing to add to that rather than going through the servicers. 

Senator MENENDEZ. So in Mr. Perretta’s case, you would advocate having the Government give him a direct grant and/or loan in 

order to meet his present challenge? 

Mr. WILLEN. I think that if such a program existed, we would 

have solved his problem by now. 

Senator MENENDEZ. One last question to you, Ms. Thompson. Ms. 

Coffin has a pie chart which I found interesting in part of her written testimony that shows that mortgages associated with Government programs, such as Fannie Mae, Freddie Mac, and Ginnie 

Mae, constitute nearly 70 percent of all the mortgages, but only 32 

percent of the seriously delinquent mortgages. 

Meanwhile, the mortgages not affiliated with those programs 

constitute about 30 percent of all of the mortgages in the universe, 

but a whopping 67 percent of all the seriously delinquent mortgages. 
58 

Doesn’t this tell us that a primary cause of the financial crisis 

is the unregulated mortgage brokers and lenders who did not worry 

about whether the mortgages they issued met Fannie or Freddie’s 

guidelines and were good for borrowers? And doesn’t that make the 

case for a Consumer Financial Protection Agency that spreads 

across the spectrum of financial entities beyond banks simply and 

looks at all of the interests of consumers among the predatory lenders that are out there? 

Ms. THOMPSON. I think there is no question but that complex, 

unregulated mortgages are what are driving the current foreclosure 

crisis. Any way that you look at the data, that is what the data 

shows. The adjustable rate mortgages, for example, are—it is absolutely true, as Mr. Willen said earlier, it is not the reset but the 

adjustable rate mortgages, these complex loans that were sold to 

people are absolutely driving the foreclosure crisis, and there is no 

question in my mind but that if we had had effective, comprehensive regulation of those products, we would not be where we are 

today. 

Senator MENENDEZ. OK. Well, thank you all for your testimony, 

and we will be following up. As you heard, I think, from several 

of the members when we had the first panel, there is clearly a real 

concern about moving this process forward, getting more engaged, 

having our servicers be more aggressive as well as looking at what 

the Government’s response is here. We look forward to a continuing 

dialog in this. 

Seeing no one else here and resisting the temptation to ask 

unanimous consent for something incredible, I will keep the record 

open—— 

[Laughter.] 

Senator MENENDEZ. For that would be the last time I would 

chair—keep the record open for 1 week for questions other members may have. If they are submitted to you, we really ask you to 

get a response to us as soon as you can. And with the thanks of 

the Chairman, this hearing is adjourned. 

[Whereupon, at 12:35 p.m., the hearing was adjourned.] 

[Prepared statements and responses to written questions follow:] 
59 

PREPARED STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD 

I’m glad you could all join us today, but I have to be honest with you: I am frustrated that we have to hold this hearing. 

For over 2 years, this Committee has worked to stem the tide of foreclosures in 

America. We’ve gotten plans and proposals from the Administration. We’ve passed 

legislation, made changes asked of us, and passed some more. We’ve received assurance after assurance from the industry. 

Everybody agrees that the crisis in our housing market was the catalyst for the 

broader economic crisis. And everybody understands that getting out of this broader 

crisis requires that we stabilize our housing market and stem the tide of foreclosures. 

So I’m hoping that, with stakes this high, somebody can explain to me why nothing has changed. 

Today the Associated Press is reporting ‘‘The number of U.S. households on the 

verge of losing their homes soared by nearly 15 percent in the first half of the year 

as more people lost their jobs and were unable to pay their monthly mortgage bills.’’ 

Why am I still reading about lost files, under-staffed and under-trained servicers, 

and hours spent on hold? 

Why does the National Foreclosure Mitigation Program tell us that homeowners 

are waiting an average of six to 8 weeks for a response? 

Why am I still reading stories about homeowners, community advocates, even my 

own staff acting on behalf of constituents, shuffled from voicemail to voicemail as 

they attempt to help people stay in their homes? 

Why are servicers and lenders refusing to accept principal reduction so that homeowners can start building equity and get the housing market moving again? Two 

years ago I brought together banks, lenders, mortgage firms, regulators, and consumer groups for a Homeownership Preservation Summit. 

We all agreed, upon a statement of principles. 

• First, servicers should attempt to contact subprime borrowers before loans 

reset, in order to identify likely defaults early enough for the loan to be modified. 

• Second, modifications should be made affordable for the long term. 

• Third, servicers should have dedicated teams of professionals to implement 

those modifications. 

• And finally, we agreed that we needed real accountability, a system for measuring the progress. 

We were able to come to this agreement because we all understood that nobody 

wins when a home is foreclosed upon. 

Nobody wins when a bank has to sell a house at auction for less than it would 

get if it simply refinanced. 

Nobody wins when a home loses $5,000 in value for every foreclosure on the block. 

Nobody wins when foreclosure rates are the single biggest threat to economic recovery. 

So what happened? And what are we going to do differently? Today, I want answers. 

Foreclosure is not an abstract concept. It’s very real pain for American families. 

It’s not just the loss of a house. It’s the loss of a home. It’s the anguish of having 

to uproot your family. It’s the sadness of feeling like you let them down. 

And it’s the terrible heartache caused by the violation of the sacred promise that 

has long defined the American middle class: that if we work hard and play by the 

rules, we can build something better. 

Most people in foreclosures worked hard and played by the rules. They budgeted, 

they saved, and they relied on brokers and lenders—professionals who were supposed to be experts—to help them achieve their dream of homeownership. 

But then someone lost a job, gets sick, or, in far too many cases, discovered that 

they’d simply been cheated. 

Last year, I met Donna Pearce—a grandmother from Bridgeport, Connecticut, 

where there are 5,000 families with subprime mortgages in danger of foreclosure. 

Donna was assured by her lender that she could refinance in 6 months, but he 

didn’t mention the thousands of dollars in penalties that refinancing would cost— 

penalties she couldn’t afford. 

People like Donna didn’t deserve to lose their homes. Neither do the 10,000 families that will receive a foreclosure notice today or the 60,000 families in my home 

state of Connecticut that could find themselves in foreclosure over the next 4 years. 
60 

I know I speak for my friend Senator Shelby and our colleagues on this Committee when I say I’m glad to have the support of the Administration and the industry in our effort to stem this dangerous tide. 

But what we don’t have is results. And so here we sit. Again. And the American 

people are demanding to know why. 

PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY 

Thank you Mr. Chairman. 

Today, the Committee will examine the state of our housing market and the Federal Government’s efforts to prevent foreclosures in the midst of what is now the 

most severe recession in a generation. Problems in our housing market have been 

center-stage since the start of this crisis. 

Rising default rates on sub prime mortgages appear to have triggered the financial crisis nearly 2 years ago. 

Since then, default rates on all classes of mortgages have risen sharply and precipitous declines in the value of mortgage-backed securities have crippled banks and 

led to the insolvency of Fannie and Freddie. 

As the economy has continued to worsen, millions of Americans have seen the 

value of their homes fall and many have lost or may lose their homes to foreclosure. 

In an effort to forestall unnecessary foreclosures, Congress and the Obama Administration initially devised several programs. Nearly 1 year ago, Congress enacted 

the Hope for Homeowners program. 

This program aimed to keep homeowners in their homes by encouraging lenders 

and servicers to modify mortgages. Unfortunately, this program has only modified 

a handful of mortgages. While recently enacted changes to the program may help 

improve Hope for Homeowners, it is clear that the program needs a thorough reexamination. 

In many ways I believe that this hearing could begin to put the horse back in 

front of the cart by undertaking some of the investigative work necessary to properly address the issues surrounding the housing market in this country. 

We’ve heard many theories about the causes of our difficulties. However, my hope 

is that with this hearing we can begin to gather verifiable facts which will allow 

us to do our own analysis. Homeowners in need will be better served if we actually 

identify the root causes of foreclosures and craft effective solutions, rather than simply implementing policies to counteract what we think is the problem. 

As the Committee considers how to prevent foreclosures, we should begin by determining the following: 

• First, and probably most important, is the degree to which escalating default 

rates can be attributed to unscrupulous lenders. If true predatory lending was 

as pervasive as some have argued, we should be able to easily document that 

fact. I must say, however, aside from anecdotal evidence, I have yet to see such 

data. 

I look forward to hearing what the Administration believes is the reason for the 

rising default rates and what evidence they cite in support of their position. 

• The second question we need to ask is: What is working? 

Unfortunately, existing modification programs have not been very effective. It is 

important to understand why they have not been working as expected and if there 

is anything we can or should do in response. 

• Finally, we should determine whether our policies are building the foundation 

for a stable and sustainable housing market, or if they are merely delaying the 

inevitable. 

I have long criticized our housing policy for willfully ignoring long-term financial 

consequences, especially with respect to the GSEs. Sustainable policies must be 

based on economic realities and facts, not wishful thinking. 

I hope today we can begin to establish some of those facts by examining the research and experiences of our panelists. 

To the extent we can clearly determine what caused this crisis, we will then be 

able to address it more effectively and also implement policies to avoid future crises. 

Thank you Mr. Chairman. 

PREPARED STATEMENT OF SENATOR TIM JOHNSON 

These are difficult times for homeowners no matter where you live. My State has 

been more fortunate than most in that our housing market didn’t experience the 
61 

boom that other parts of the country did and South Dakota banks didn’t sell as 

many exotic loan products as bankers in other regions sold. That said, with the 

housing market still in free fall in parts of our country, and the unemployment rate 

ticking upward, the housing situation continues to be troubling. Even in places 

where home values have remained relatively stable during this period of turbulence 

are now experiencing the effects. 

We all know that widespread foreclosures have negative consequences on our communities. The Administration and Congress have taken many steps to create programs to aid financial institutions in helping keep responsible families in their 

homes—an important goal for preserving both neighborhoods and homeownership. 

Yet, we are still seeing rising foreclosure numbers. We need to know if the programs 

need to be improved and if the financial institutions need to do more. I look forward 

to hearing more from today’s witnesses about the progress being made to modify 

and refinance home loans, including the successes and the challenges. 

PREPARED STATEMENT OF HERBERT M. ALLISON 

ASSISTANT SECRETARY FOR FINANCIAL STABILITY, DEPARTMENT OF THE TREASURY

JULY 16, 2009 

Introduction 

A strong housing market is crucial for our economic recovery. It is a fundamental 

source of wealth and well-being for individual families and communities and plays 

a key role in our financial system. The recent crisis in the housing sector has devastated families and communities across the country and is at the center of our financial crisis and economic downturn. Today, I want to outline the steps that Treasury and the Administration have taken to address this crisis, help millions of homeowners and lay the foundation for economic recovery and financial stability. 

This crisis took years in the making and as a result, millions of homeowners have 

mortgage payments they are unable to afford. The rapid decline in home prices of 

the past 2 years has had devastating consequences for homeowners, communities 

and financial institutions throughout the country. Moreover, rising unemployment 

and other recessionary pressures have impaired the ability of many otherwise responsible families to stay current on their mortgage payments. The result is that 

responsible homeowners across America are grappling with the possibility of foreclosure and displacement. Many analysts project that more than 6 million families 

could face foreclosure in the next 3 years if effective actions are not taken. 

The Administration’s Efforts 

This Administration has moved with great speed to aggressively confront the economic challenges facing our economy and housing market by announcing and implementing an unprecedented mortgage modification program. Within a month of taking office, on February 18th, President Obama and Secretary Geithner announced 

the Making Home Affordable (MHA) Program, a critical element of Treasury’s Financial Stability Plan. This program was broadly designed to stabilize the U.S. 

housing market and offer assistance to millions of homeowners by reducing mortgage payments and preventing avoidable foreclosures. 

An initiative of this scale has never been previously attempted. Just 2 weeks after 

the President announced the program, the Administration, working with the banking regulators, HUD, and the Federal Housing Finance Agency, published detailed 

program guidelines for MHA’s Home Affordable Modification Program (HAMP). On 

April 6th, we issued detailed servicer guidance. Today, we have 27 servicers signed 

up to participate in MHA. Between loans covered by those servicers and the GSEs, 

more than 85 percent of all mortgage loans in the country are now covered by the 

program. 

The initiative includes the following three key components: 

(1) The Home Affordable Refinance Program (HARP): HARP expands access 

to refinancing for families whose homes have lost value and whose mortgage 

payments can be reduced at today’s low interest rates. It helps to address the 

problems faced by homeowners who made what seemed like conservative financial decisions three, four or 5 years ago, but who have found themselves 

unable to benefit from the low interest rates available today because the value 

of their homes has sunk below that of their existing mortgages. 

Initially, the program was able to help homeowners whose existing mortgages 

were up to 105 percent of their current home value. However, we moved to expand 

it to help those with mortgages up to 125 percent of current home value. 
62 

(2) The Home Affordable Modification Program (HAMP): HAMP will provide up to $75 billion dollars, including $50 billion of funds from the Troubled 

Assets Relief Program (TARP), to encourage loan modifications that will provide sustainably affordable mortgage payments for borrowers. Importantly, 

HAMP offers incentives to investors, lenders, servicers, and homeowners to 

encourage mortgage modifications. 

(3) Support to the GSEs: The Administration is encouraging low mortgage rates 

more generally by increasing support for the Government-Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, through an expansion of Treasury’s Preferred Stock Purchase Agreements with the GSEs. To this effect, we 

have committed up to an additional $200 billion of capital to the GSEs. 

In addition, we have also announced the following additional HAMP measures: 

• On April 28th, the Administration announced additional details related to the 

Second Lien Program which will help to provide a more comprehensive affordability solution for borrowers by addressing their total mortgage debt. In addition, this announcement included provisions to strengthen HOPE for Homeowners Program, which provides additional relief for borrowers with mortgage 

balances greater than the current value of their homes. 

• On May 14th, we announced additional details related to the Foreclosure Alternatives Program, which will provide incentives for short sales and deeds-in lieu 

of foreclosure where borrowers are unable to complete the modification process. 

We also announced additional details on Home Price Decline Protection Incentives, designed to provide incentive payments for modifications to partially compensate lenders and investors for home price declines. 

HAMP Design—Key Principles 

Now, I will discuss these programs in greater detail. Our initiatives are built 

around three core concepts. 

• First, the program focuses on affordability. Building on the insights of Chairwoman Bair of the FDIC, it is designed to reduce mortgage payments to an affordable level based on borrowers’ gross monthly income. 

• Second, HAMP’s pay-for-success structure aligns the interests of servicers, investors and borrowers in ways that encourage loan modifications that will be 

both affordable for borrowers over the long term and cost-effective for taxpayers. 

• Third, the Program establishes detailed guidelines for the industry to use in 

making loan modifications with the goal of encouraging the mortgage industry 

to adopt a standard that better suits borrowers and lenders, both in and out 

of MHA. 

In the past, a lack of agreed-upon guidelines has limited the number of loan modifications that are completed, even in instances where modifications would have been 

beneficial to all involved. Driving the industry toward standardized modifications 

based on HAMP should help increase the number of modifications. 

That will be good for borrowers, good for lenders, good for mortgage lending 

standards and good for improved stability of our overall financial system. 

HAMP Design—Eligibility Criteria 

Next, I will discuss the eligibility criteria for the modification program, designed 

specifically to help responsible American homeowners with the greatest need for assistance and to provide that assistance at the least cost to taxpayers. 

Modifications are potentially available to all borrowers regardless of loan-to-value 

ratio, so borrowers can qualify no matter how much the price of their home has fallen. 

The modification plan was designed to be inclusive, with a loan limit of $729,750 

for single-unit properties, and higher limits for multi-unit properties. At this level, 

over 97 percent of the mortgages in the country have a principal balance that might 

be eligible. 

Finally, because it is more effective to reach borrowers before they have missed 

a payment, the modification program includes incentives for the modification of 

loans where borrowers are current on their payments, but can demonstrate financial 

hardship or imminent risk of default. 

HAMP Design—Modification Process 

Next, I will discuss the modification process. 
63 

Under HAMP’s loan modification guidelines, mortgage servicers are prevented 

from ‘‘cherry-picking’’ which loans to modify in a manner that might deny assistance 

to borrowers at greatest risk of foreclosure. 

Participating servicers are required to service all loans in their portfolio according 

to HAMP guidelines, unless explicitly prohibited by pooling and servicing agreements, and further must make reasonable efforts to obtain waivers of any limits on 

participation. Participating servicers are also required to evaluate every eligible 

loan using a standard net present value (NPV) test. The NPV test compares the net 

present value of cash-flows with modification and without modification. If the test 

is positive, the servicer must modify the loan. 

Under the program, servicers must reduce the borrower’s first lien mortgage to 

a 31 percent debt-to-income (DTI) ratio, meaning that the monthly mortgage payment is no greater than 31 percent of gross monthly income. To reach this payment, 

the servicer must use a specified sequence of steps: 

1. Reduce the interest rate, subject to a rate floor of 2 percent. 

2. If the 31 percent DTI has not been reached, extend the term or amortization 

period of the loan up to a maximum of 40 years. 

3. If the 31 percent DTI still has not been reached, forbear principal until the 31 

percent ratio is achieved. 

Principal forgiveness may be applied at any stage. Additionally, each loan must 

be considered for a HOPE for Homeowners refinancing. 

The borrowers’ modified monthly payment of 31 percent DTI will remain in place 

for 5 years, provided the borrower remains current, and following the modification 

the interest rate will step up each year to a specified cap that will be fixed for the 

life of the loan. We believe HAMP creates new fixed-rate loans that homeowners can 

afford and can understand. 

HAMP Design—‘‘Pay for Success’’ Incentive Structure 

HAMP offers ‘‘pay for success’’ incentives to servicers, investors and borrowers for 

successful modifications. This aligns the incentives of market participants and ensures efficient expenditure of taxpayer dollars. 

Servicers receive an up-front payment of $1,000 for each successful modification 

after completion of the trial period, and ‘‘pay for success’’ fees of up to $1,000 per 

year, provided the borrower remains current. Homeowners may earn up to $1,000 

toward principal reduction each year for 5 years if they remain current and pay on 

time. 

HAMP also matches reductions in monthly payments dollar-for-dollar with the 

lender/investor from 38 percent to 31 percent DTI. This requires the lender/investor 

to take the first loss in reducing the borrower payment down to a 38 percent DTI, 

holding lenders/investors accountable for unaffordable loans they may have extended. 

To encourage the modification of current loans expected to default, HAMP provides additional incentive to servicers and lender/investors when current loans are 

modified. 

Signs of Progress 

Our progress in implementing these programs to date has been substantial, but 

we recognize that much more has to be done to help homeowners. Toady, I want 

to highlight some key points of success: 

• We have signed contracts with 27 servicers, including the five largest. Between 

loans covered by these servicers and loans owned or guaranteed by the GSEs, 

more than 80 percent of all mortgage loans in the country are now covered by 

the program. 

• 325,000 trial modifications have been offered under the program. Tens of thousands of trial modifications are underway. 

At this early date, MHA has already been more successful than any previous similar program in modifying mortgages for at risk borrowers to sustainably affordable 

levels, and helping to avoid preventable foreclosures. 

Nonetheless, we recognize that challenges remain in implementing and scaling up 

the program, and are committed to working to overcome those challenges and reach 

as many borrowers as possible. In particular, we are focused on addressing challenges in three key areas: capacity, transparency and borrower outreach. 
64 

Expanding Servicer Capacity 

We are taking a number of steps and working with servicers to expand nationwide capacity to accommodate the number of eligible borrowers who can receive assistance through MHA. I highlight some key measures below: 

One, we are also asking that all servicers move rapidly to expand servicing capacity and improve the execution quality of loan modifications. This will require that 

servicers add more staff than previously planned, expand call center capacities, provide a process for borrowers to escalate servicer performance and decisions, bolster 

training of representatives, enhance on-line offerings, and send additional mailings 

to potentially eligible borrowers. 

Two, just last week, as a part of the Administration’s efforts to expedite implementation of HAMP, Secretaries Geithner and Donovan wrote to the CEOs of all 

of the servicers currently participating in the program. In this joint letter, they 

noted that ‘‘there appears to be substantial variation among servicers in performance and borrower experience, as well as inconsistent results in converting trial 

modification offers into actual trial modifications.’’ They called on the servicers ‘‘to 

devote substantially more resources’’ to the program in order for it to fully succeed. 

The joint letter to participating servicers also requests that the CEOs designate 

a senior liaison, authorized to make decisions on behalf of the CEO, to work directly 

with us on all aspects of MHA and attend a program implementation meeting with 

senior HUD and Treasury officials on July 28, 2009. Treasury also requested that 

each servicer detail the specific steps that the servicer will take toward effective implementation and compliance. 

Three, we are taking additional steps to expedite implementation, including more 

standardization of documentation and disclosure of the NPV evaluation. 

Transparency and Accountability 

As Secretary Geithner has noted, we are committed to transparency and better 

communication in all of Treasury’s programs. Accordingly, Treasury is focused on 

continued transparency and servicer accountability to maximize the effectiveness of 

HAMP. Specifically, we are planning to take three additional concrete steps in conjunction with the servicer liaison meeting to enhance transparency in the program: 

One, by August 4th, we will begin publicly reporting servicer-specific results on 

a monthly basis. These reports will provide a transparent and public accounting of 

individual servicer performance by detailing the number of trial modification offers 

extended, the number of trial modifications underway, the number of official modifications offered and the long terms success of modifications. 

Two, we will work to establish specific operational metrics to measure the performance of each servicer. These performance metrics are likely to include such 

measures as average borrower wait time in response to inquiries, the quality of information provided to applicants, procedures for document processing and review, 

and response time for completed applications. 

We are also planning to deploy a data reporting tool that will contain over 130 

data elements and will be able to provide a comprehensive assessment of the program at the loan, servicer, and mortgage market levels. This will enable the program to be effectively measured against specific performance benchmarks. 

Finally, we have asked Freddie Mac, in its role as compliance agent, to develop 

a ‘‘second look’’ process pursuant to which Freddie Mac will audit a sample of MHA 

modification applications that have been declined. This ‘‘second look’’ process will be 

designed to minimize the likelihood that borrower applications are overlooked or 

that applicants are inadvertently denied a modification. 

We have also expanded the efforts of the Federal Government to combat mortgage 

rescue fraud and put scammers on notice that we will not stand by while they prey 

on homeowners seeking help under our program. 

Borrower Outreach 

The third challenge we are tackling aggressively is borrower outreach. We recognize the importance of borrower outreach and education and are committing significant resources, in partnership with servicers, to reach as many borrowers as possible. Here, we have taken a number of steps: 

• We have launched a consumer focused website, www.MakingHome 

Affordable.gov, with self-assessment tools for borrowers to evaluate potential 

eligibility in the MHA program. This website is in both English and Spanish 

and already has over 22 million page views. 

• We have worked with an interagency team to establish a call center for borrowers to reach HUD approved housing counselors, so that they are able to receive direct information and assistance in applying for the MHA program. 
65 

• Working closely with Fannie Mae, we have also launched an effort to hold foreclosure prevention workshops and borrower education events in cities facing 

high foreclosure rates. The first such outreach event was held in Miami in June. 

Much more has to be done and we will continue to work with other agencies and 

the private sector to reach as many families as possible. 

Program Limitations 

Finally, we recognize that any modification program seeking to avoid preventable 

foreclosures has limits, HAMP included. Even before the current crisis, when home 

prices were climbing, there were still many hundreds of thousands of foreclosures. 

Therefore, even if HAMP is a total success, we should still expect millions of foreclosures, as President Obama noted when he launched the program in February. 

Some of these foreclosures will result from borrowers who, as investors, do not 

qualify for the program. Others will result because borrowers do not respond to our 

outreach. Still others will be the product of borrowers who bought homes well beyond what they could afford and so would be unable to make the monthly payment 

even on a modified loan. 

Nevertheless, for millions of homeowners, HAMP will provide a critical opportunity to stay in their homes. It will bring relief to the communities hardest hit by 

foreclosures. It will provide peace of mind to families who have barely managed to 

stay current on their mortgages or who only recently have fallen behind on payments. It will help stabilize home prices for all American homeowners and, in doing 

so, aid the recovery of the U.S. economy. 

Conclusion 

In less than 5 months, including the initial startup phase, HAMP has accomplished a great deal and helped homeowners across the country. But we know that 

more is required to help American families during this crisis and will aggressively 

continue to build on this progress. For example, we are taking additional steps to 

implement programs including: 

1. the Second Lien Program; 

2. the Foreclosure Alternatives Program; 

3. Home Price Decline Protection incentives; and 

4. strengthening of HOPE for Homeowners. 

Each of these supplemental programs is designed to increase the effectiveness and 

take-up of the basic modification plan. 

Sustained recovery of our housing market is critical to lasting financial stability 

and promoting a broad economic recovery. 

We look forward to working with you to help keep Americans in their homes, restore stability to the U.S. housing market and growth to the U.S. economy. 

Thank you. I look forward to your questions. 

PREPARED STATEMENT OF WILLIAM APGAR 

SENIOR ADVISOR FOR MORTGAGE FINANCE, 

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

JULY 16, 2009 

Chairman Dodd, Ranking Member Shelby, and Members of the Committee, thank 

you for the opportunity to testify on the progress that the Obama Administration 

is making to stabilize the U.S. housing market through the Making Home Affordable (MHA) program, the integration of the HOPE for Homeowners element into the 

larger plan, and other Administration efforts to provide relief to homeowners and 

neighborhoods suffering from the effects of the foreclosure crisis. 

My name is William Apgar and I serve as Senior Advisor for Mortgage Finance 

to HUD Secretary Shaun Donovan. In this capacity, I have worked closely on the 

development and implementation of the Administration’s Making Home Affordable 

program which was announced on February 18, 2009, the HOPE for Homeowners 

program, and other efforts intended to address the housing crisis. 

Making Home Affordable: Progress and Challenges 

We are all aware that the U.S. is facing an unprecedented foreclosure crisis—with 

millions of Americans projected to lose their homes within the next few years. Working together, Congress and the Administration have undertaken a number of initiatives designed to prevent foreclosures and mitigate the impact of foreclosed and 

abandoned properties on local neighborhoods and the broader economy. 
66 

At the center of the Administration’s effort to address the housing crisis is the 

Making Home Affordable Program, a comprehensive program to stabilize the housing markets by providing affordable refinance and modification opportunities for atrisk borrowers. Since the launch of the program in March, 27 servicers—representing more than 85 percent of the market—have signed up. So far, these 

servicers have collectively extended trial modification offers to more than 325,000 

borrowers. 

Despite this significant progress, we recognize that more has to be done to reach 

additional homeowners facing, or at risk of, foreclosure and ensure that they are assisted in a timely manner. As with any new program, we have encountered a few 

difficulties in launching the Making Home Affordable Program. Many consumers 

have had trouble reaching their servicers and receiving a timely response from 

servicers after they have submitted applications for modification. Other consumers 

have complained of receiving inaccurate or misleading information from servicers. 

HUD is working with Treasury to quickly resolve issues surrounding program implementation and execution. 

For instance, we have had ongoing meetings and conversations with servicers to 

encourage them to be more responsive. To further underscore the importance of 

prompt servicer response, last week Secretaries Donovan and Geithner sent letters 

to the CEOs of the participating financial institutions urging them to add servicing 

capacity and improve the quality of execution necessary to reach the sizable number 

of homeowners at risk of foreclosure and to designate a senior official to serve as 

a liaison with the Administration and work with HUD and Treasury on the implementation of all aspects of MHA. By early August, we will be able to start reporting 

servicer specific results publicly. 

In addition, we are exploring a variety of mechanisms to enable servicers to leverage their relationships with nonprofits and other entities to help expedite the processing and approval of modification applications. HUD and Treasury are working 

to create a network of trusted advisors to guide borrowers through the application 

process, help them prepare complete application packages, and troubleshoot if the 

borrower appears to have been improperly deemed ineligible for the program. Moreover, HUD is also working with Treasury and the Homeownership Preservation 

Foundation to further train and utilize housing counseling to better resolve consumer complaints against servicers. 

Evolving Nature of MHA 

The MHA program continues to evolve in order to respond to the changing nature 

and magnitude of the foreclosure crisis. For example, on April 28, the Administration announced the framework for a program that would facilitate the modification 

of second liens when a first lien is modified. Second mortgages can create significant 

challenges to helping borrowers avoid foreclosure because they can increase borrowers’ monthly mortgage payments beyond affordable levels. Up to 50 percent of 

at-risk mortgages have second liens, and many properties in foreclosure have more 

than one lien. 

Also, on July 1, Secretary Donovan announced an expansion of the Administration’s Home Affordable Refinance Program (HARP) to include participation by borrowers who are current on their payments but have first mortgage loan-to-value ratios of up to 125 percent. Mortgage rates remain at near historic lows providing 

many homeowners with high rate mortgages the ability to refinance into lower rates 

and experience lower monthly payments. Unfortunately, millions of responsible 

homeowners have seen the value of their homes drop so dramatically that they are 

unable to take advantage of these lower rates. In many hard hit communities in 

California, Florida and Nevada, a large number of homeowners have experienced 

significant reductions in home values and have been unable to participate in the 

program. Under authorization provided by the Federal Housing Finance Agency, 

borrowers whose mortgages are currently owned or guaranteed by Fannie Mae or 

Freddie Mac will now be allowed to refinance those loans even in situations where 

the value of their first mortgage is as much as 125 percent of the current value of 

their home. By increasing this LTV cap from the previously authorized 105 percent, 

this new initiative will expand the ability of the program to aid many hard hit borrowers, particularly those in states suffering from the most extreme declines in 

home prices. 

Similarly, in recognition that the MHA program will not assist every at-risk 

homeowner or prevent all foreclosures, the Administration announced foreclosure alternatives for borrowers and HUD is working on a number of neighborhood stabilization initiatives. Under the details announced on May 14, MHA will provide incentives for servicers and borrowers to pursue short sales and deeds-in-lieu (DIL) 

of foreclosure in cases where the borrower is generally eligible for a MHA modifica-
67 

tion but does not qualify or is unable to complete the process. These options eliminate the need for potentially lengthy and expensive foreclosure proceedings, preserve the physical condition and value of the property by reducing the time a property is vacant, and allows the homeowners to transition with dignity to more affordable housing. The new details simplify the process of pursuing short sales and 

deeds-in-lieu, which will facilitate the ability of more servicers and borrowers to utilize the program. The program provides a standard process flow and minimum performance timeframes and standard documentation. The final details of the program 

are being finalized, and will be announced as soon as completed. 

New Legislative Authorities: HUD’s Role 

In addition to efforts to improve the execution of the program that was first announced in February, the Obama Administration is now working to implement new 

and improved program features authorized by the ‘‘Helping Families Save Their 

Homes Act of 2009’’ signed into law on May 20, 2009. The legislation eases eligibility requirements and streamlines the application process for the HOPE for Homeowners (H4H) program and provides the Federal Housing Administration (FHA) 

with additional loss mitigation authority to assist FHA borrowers under MHA. 

We want to commend Chairman Dodd and other members of the Committee for 

your leadership in getting this important legislation enacted. When fully implemented, the improved H4H program is expected to provide relief to certain at-risk 

homeowners who are underwater on their mortgages and are not covered by other 

programs, including Fannie Mae and Freddie Mac programs. The new FHA loss 

mitigation program will enable homeowners with mortgages insured by the FHA to 

obtain assistance under terms roughly comparable to borrowers in other segments 

of the market, without increasing costs to the taxpayer. 

HOPE for Homeowners: As you know, H4H was initially authorized under the 

Housing and Economic Recovery Act of 2008 to provide a mechanism to help distressed homeowners refinance into FHA insured loans. The temporary program, established within the FHA, is premised on the view that the creation of equity for 

troubled homeowners is likely to be an effective tool for helping families keep their 

homes and avoid foreclosure. Unfortunately, due to several obstacles to participation, including steep borrower fees and costs, complex program requirements, and 

lack of operational flexibility in program design, the original H4H program has only 

served a handful of distressed home owners. We believe that the legislative improvements combined with the integration of the H4H into the Administration’s MHA 

program will make the program a more attractive and less burdensome option for 

underwater borrowers seeking to refinance their loans and regain equity in their 

homes. 

The improved H4H program will provide a new program option for certain at-risk 

borrowers who are underwater on their mortgages and are not eligible to participate 

in the GSE refinancing program. When a borrower approaches participating 

servicers for assistance, the servicer will be required to offer the option for a H4H 

refinancing in tandem with a MHA Trial Modification option. The program only 

serves homeowners who do not own other homes, demonstrate their ability to meet 

their H4H mortgage payment obligations, have not intentionally defaulted on any 

other substantial debt in the last five years, and do not have other significant 

sources of wealth. To ensure proper alignment of incentives, servicers and lenders 

will receive pay-for-success payments for Hope for Homeowners refinancings similar 

to those offered for Home Affordable Modifications. These additional supports are 

designed to work in tandem and take effect with the improved and expanded program 

Though the program promises substantial benefits to underwater borrowers best 

served by an increased equity position in their homes, treatment of second liens 

poses significant challenges to the implementation of H4H. First, the presence of a 

second lien complicates the execution of a mortgage refinance even under the best 

of circumstances. As the effort to offer consumers the option of modifying both first 

and second liens has demonstrated, since the second liens tend to be held in portfolio by several of the Nation’s largest banking institutions, while first liens are 

owned by a wider range of investors, coordinating the communication and decision 

making between these two separate financial interests can be logistically complex. 

Equally challenging is the determination of a fair allocation of payments to each 

of these two distinct investment interests needed to facilitate the refinancing of an 

underwater mortgage. Under the improved and integrated H4H, HUD has flexibility 

to pay to extinguish second liens consistent with MHA guidelines, and the potential 

to provide investors a share of the price appreciation in exchange for taking a significant ‘‘hair cut.’’ Even in situations where there is little prospect of realizing any 

future appreciation, many first lien investors, under the concept of ‘‘one loss—one 
68 

time,’’ appear increasingly willing to accept the required ‘‘hair cut,’’ and execute a 

clean exit from the transaction. 

Unfortunately, the calculation of second lien holders is decidedly more complex. 

Even in situations where the combined LTVs of first and second liens exceed the 

current market value of the home, seconds liens may have some value. In particular 

representatives of banking institutions that hold sizeable numbers of second liens 

in their portfolios report that that in some situations, borrowers who are delinquent 

on their first lien are continuing to make payments on their second lien, providing 

some measure of benefit to second lien holders. Of course, where the first lien is 

underwater, once the property moves to foreclosure, the second lien is worthless. 

In light of these complex and often conflicting interests, determining a fair compensation system for holders of second liens is difficult. In this regard the recent 

letter to the heads of the five bank regulators (FRB, OCC, NCUA, FDIC, OTS) 

dated July 10 and jointly signed by Senate Banking Committee Chairman Dodd and 

House Financial Services Committee Chairman Frank is instructive. In assessing 

methods used to estimate the value of second liens held on the balance sheet of the 

Nation’s largest banks, the letter expressed the concern ‘‘that loss allowance associated with these subordinated liens may be insufficient to realistically and accurately 

reflect their value, especially in light of the historically poor performance of first lien 

mortgages and seriously diminished value of the underlying collateral.’’ The letter 

goes on to observe that in situations where banks are allowed to carry these loans 

at potentially inflated values, they may be reluctant to ‘‘negotiate the disposition of 

these liens, and thus may stand in the way of increasing participation in the H4H.’’ 

To better understand these issues, HUD and Treasury are now working with the 

OCC and other regulators that supervise the activities of the large national banking 

entities that hold in portfolio the largest share of second liens. In addition to ensuring that current regulatory policy does not act to encourage banks to seek to delay 

the realization of portfolio losses by allowing these entities to carry assets at inflated valuations, these conversations will also draw on the considerable expertise 

of the OCC and other regulators to help HUD craft an extinguishment schedule that 

will provide fair compensation to the holders of the second lien assets. 

In sum, HUD remains committed to reissuing guidance on the operation of the 

reconstituted version of H4H program. The goal is a program that works—a program that provides real benefits to a group of homeowners best served by an increased equity position in their homes, while at the same time providing fair treatment to the interests of the investor/owners of first and second liens and adequate 

compensation for the other parties participating in the transaction. 

The FHA Modification Program: As noted above, HUD is also now working to 

finalize guidance implementing the Federal Housing Administration’s (FHA) Home 

Affordable Modification Loss Mitigation Option which is an important complement 

to the MHA and will provide homeowners in default with greater opportunity to reduce their mortgage payments to sustainable levels. The FHA’s long-standing Loss 

Mitigation Program has given lenders who provide FHA-insured mortgages the authority and responsibility to assist homeowners who have fallen into financial difficulties with their home mortgages. The new legislation will increase the number 

of distressed homeowners receiving assistance by expanding the authority of FHA 

to engage in foreclosure prevention by allowing the use of new tools. Under new authorities, FHA can offer a partial claim up to 30 percent of the unpaid principal balance as of the date of default combined with a loan modification. In addition, it 

permits loss mitigation tools to kick in for loans that face ‘‘imminent default,’’ rather than just for loans in default. Moreover, FHA is granted the 

authority to facilitate loan modifications through assignment of loans in order to 

address servicer loss mitigation disincentives relating to having to purchase loans 

from Ginnie Mae pools. 

Additional Challenges 

Even as the Obama Administration is working to improve the execution of the 

Making Home Affordable and to deploy new program features authorized under the 

‘‘Helping Families Save Their Homes Act,’’ we continue to examine new approaches 

to expand the reach of the foreclosure avoidance efforts and stabilize housing markets in communities around the country. As I noted in testimony before the House 

Financial Services Committee last week, the Administration stands ready to explore 

with Congress additional ideas to aid at-risk borrowers that may not qualify currently qualify for the MHA. 

• The current very high level of unemployment is making the already difficult 

task of helping families struggling to meet their mortgage payment even harder. Initial efforts by the government to prevent foreclosures were not primarily 

designed to assist unemployed individual in some of the hardest hit commu-
69 

nities. As the economy has weakened, unemployment has become an increasing 

cause of mortgage default and foreclosure. Recognizing this, the Administration 

is now exploring a series of programmatic options that can help unemployed 

workers get the mortgage assistance that they need. 

• Next, recognizing that there is an impending crisis in the multifamily mortgage 

sector which could have devastating effects for tenants, HUD Secretary Donovan has led the Administration’s review of potential means to expand access to 

bond financing to assist State and Local Housing Finance Agencies in continuing to pursue their important financing role to increase both affordable 

homeownership and rental housing opportunities. HUD has also created an internal task force to develop a better understanding of this emerging crisis, has 

reached out to Treasury and the Federal Housing Finance Agency (FHFA) to 

explore new approaches to confront this situation, and is now completing a top 

to bottom review of HUD’s own multi-family initiatives to identify new programmatic alternatives. Building on these efforts, HUD looks forward to working with the Committee to explore various options for stabilizing the multifamily housing sector. 

• Finally, Secretary Donovan has challenged HUD to do all that we can to work 

with Congress and the Administration to insure that the nearly $6 billion appropriated to date for the Neighborhood Stabilization Program (NSP) plays its 

intended role in helping to stabilize housing markets and combat blight. In 

many communities, NSP is starting to generate real results, but HUD will continue to monitor program activities, identify strategies that produce real results, 

and work to make program modifications that will help ensure that this funding 

is deployed quickly, wisely, and well. 

Conclusion 

Once again, I would like to thank you for the opportunity to participate in today’s 

hearing. HUD shares your concerns about the progress of Administration’s efforts 

to address the foreclosure crisis and can assure you that we are working to resolve 

issues related to implementation and execution of core programs and to implement 

new elements to improve and refine MHA in the near future. I am happy to answer 

any questions you may have. 

PREPARED STATEMENT OF THOMAS PERRETTA 

CONSUMER, STATE OF CONNECTICUT

JULY 16, 2009 

Good morning, Chairman Dodd and Ranking Member Shelby. 

My mortgage problems became evident when my wife, Susan, passed away in 

2008. 

All our lives we were a hard-working couple, giving the best we could to our son, 

Tom Jr., and living modestly. In addition to our regular jobs, we each had various 

part-time jobs. 

Before we bought the town house in 2001, we lived for 1 1⁄2 years at my in-laws 

to save up money for that purchase, which would be a home for us and our son. 

I have been working with the Connecticut Board of Education for 11 years and 

Susan worked for Stamford Health. In 2004 she found her ideal job at Sacred Heart 

School, where she was a guidance counselor in college placement. She was earning 

about $40,000 annually. With our joint incomes we were able to keep our family finances going smoothly and send Tom Jr. to Quinnipiac University. 

But in 2005, just as Sacred Heart was closing permanently, Susan was diagnosed 

with leukemia. In April she had chemotherapy which was followed by a bone marrow transplant October 21, 2005. 

My medical insurance covered her medical payments, although not the co-pays. 

Finally Susan began receiving Social Security disability of $1,400 monthly. As Tom 

Jr. had begun college in 2004, this helped but not enough. 

Throughout the years Susan had managed our finances and in order to keep Tom 

Jr. in college, we applied for a home equity loan from Wachovia and began increasing credit card debt. Susan helped Tom Jr. apply for student loans, and we also took 

out one parent-student loan. 

Because we had both worked all our lives, Susan even began looking for a job 

after her bone marrow transplant, even though she was still weak. In April 2008 

Susan developed an infection and became extremely weak. While at a nursing home 

her health deteriorated and she never returned home. 
70 

In order for her to have a proper funeral I borrowed $16,000 from friends. I have 

just finished paying that amount off. Suddenly after 25 years in which Susan handled the bills, I was overwhelmed but I realized I had to keep paying the mortgages 

on the townhouse. 

We had a first with Chase and a second with Wachovia. I got a grip on some of 

these and started chipping away at our debt. I was making payments to Chase at 

the branch. At the beginning of 2009, as money became tight and I was worried 

about making payments I went to the Chase branch for help because I could not 

keep up. 

The Chase customer service representative told me someone would phone me, but 

no one did. 

At the beginning of 2009 I spoke to a Chase representative over the phone asking 

for help in a loan modification and her reply was that I did not make enough to 

qualify. I was unable to convey that I had just been through the tragic death of my 

wife and was trying to settle everything in a reasonable manner. 

In the past few months Chase collections has been calling me at work, but no one 

has ever suggested that they might help me, or proposed a single positive step for 

resolution. The last calls were just a few weeks ago. 

It seemed that Chase did not realize that people like me, who have just had an 

overwhelming event in their life, may still be honest responsible human beings who 

need help. 

I turned to a housing counselor at the Housing Development Fund and they are 

trying to help me negotiate with Chase since February. So far they also have not 

received a reply, even though my mortgage is a FNMA and should qualify for Make 

Your Home Affordable. A package with my request for a modification was sent to 

Chase on May 4th. 

I explained to the counselor that with all the bills piling on top of each other, I 

was unable to pay the common charges of my condo association and am now in a 

one-year agreement with them. I also have an agreement with the electrical company. Other creditors have worked with me, only Chase is still not doing that. 

Now that Tom Jr. graduated from college and is working he will be contributing 

to the household income. He will help me in paying off the past due common 

charges (the agreement is for $500 a month) and I am giving up my car which will 

lower my expenses by $300. 

With all these steps in place, some of which the counseling agency proposed, I can 

make payments of $1,400 if Chase/FNMA will work with me. 

People like me should be the ones the banks are helping. I am now 6 months past 

due. I hope that Chase will give me a modification soon. 

PREPARED STATEMENT OF JOAN CARTY 

PRESIDENT AND CEO, THE HOUSING DEVELOPMENT FUND, 

BRIDGEPORT, CONNECTICUT

JULY 16, 2009 

Good afternoon, Chairman Dodd and Ranking Member Shelby. Thank you for inviting me to testify today. My name is Joan Carty. I am the President and CEO 

of the Housing Development Fund (HDF) in Stamford, CT. HDF is a community development financial institution that has operated in Connecticut for the last twenty 

years. We provide financing to developers of affordable housing, technical assistance 

to local governments, homeownership counseling and down payment assistance to 

first time homebuyers. We have helped almost 5,000 people secure safe, decent and 

affordable housing. Less than 2 percent of our homebuyers are in delinquency or default. We credit that solid track record to the fact that they were counseled, educated, and that we only allowed our clients into 30-year, fixed rate first mortgages. 

HDF partners with the banking community, local housing authorities and municipalities in its core business. We have leveraged over $145 million in first mortgages 

with our SmartMove and Homebuyer Assistance loan programs. HDF has worked 

with the Greenwich, Stamford and Darien housing authorities to help residents educate themselves about homeownership. HDF also worked with the cities of Stamford 

and Norwalk to put forth innovative and inclusive inclusionary zoning systems in 

these communities. We have partnered with developers to market their below market rate units as well. Last year, because of the widespread and increasing problems 

with subprime lending, mortgage delinquencies and rising foreclosures, HDF started 

an additional counseling program to assist families in our communities who were 

stressed with these problems. In the course of developing our program we have 

reached out to many other partners: the Bar Association for pro bono attorneys, the 
71 

courts to establish working relationships with the mediators, volunteers with financial and social services backgrounds to help us with the ever increasing volume of 

people who need guidance, and the banks—who in many cases control the outcomes 

of the situations facing people in foreclosure or mortgage delinquency. 

We are a HUD certified counseling agency and down payment assistance lender. 

We have personally experienced the kind of shadow boxing that occurs when a 

homeowner in distress calls their lender or servicer for help. Too often, their call 

is bounced to a call center across the globe, or the call is bounced from department 

to department within the bank. On many occasions, after multiple periods of time 

on hold, they finally reach a live person but it is a representative who is merely 

following a script. Often the lender or servicer representative has no record of prior 

contact with the borrower. It is a process that often feels futile. 

We have found that in too many cases when we send clients’ modification requests 

to banks or servicers such as JP Morgan Chase or Goldman Sachs-owned Litton, 

that the modification package enters a black box for months on end. These borrowers are in distress; even a 30 day time frame can radically affect their credit 

profile. Once they slip behind on timely payments of their mortgage or any consumer debt, their credit score goes down, and their monthly interest charges can 

go up. In many cases cross default provisions mean that default on one obligation 

will trigger higher monthly charges on other debt, even if the borrower had remained current for that obligation. If we were to look for common themes as to why 

families are in distress, we often find that death, divorce, illness or injury, in addition to predatory terms on many mortgages, have pushed families to the edge of the 

cliff. Imagine the multipliers and harm rendered when this limbo extends for 

months. 

I understand that the lenders and servicers need modification requests that are 

well documented and that contain a budget that has been carefully worked out so 

that the borrower will succeed in the modification over the long term. That is the 

kind of service that we as a counseling agency provide to our clients. What our clients in turn need from the lenders and servicers is rapid response. Responses before 

their lives continue to spiral downward. It is difficult to believe that the sophisticated automated platforms that have been in use by lenders and servicers for loan 

origination over the past decade cannot be retooled to generate effective loan modifications with greater frequency and within tighter timelines. 

I would also suggest that rapid response will help in other ways. With delay 

comes added expenses, which often get added to the mortgage balance. Extensive 

delays in the mediation process often result in the lenders or servicers charging the 

borrower multiple times for late fees, attorneys’ fees, and updated appraisals. Denial 

of borrowers’requests lead to expensive foreclosure processes, which hurt the families involved and the communities in which the homes are located. In many instances, these foreclosures do not ameliorate losses or generate profits for the banks 

given the current declines in property values throughout the country. Additionally, 

it is critically important to create a system that rapidly responds to requests from 

homeowners who are still current on their mortgages but who know they will not 

be able to sustain their payments going forward. 

What we are building at our agency is a system that can carry borrowers from 

that initial request for assistance through assessment of their situation and development of a modification request that will have viability over the long term. 

What we need from the lenders and servicers is their commitment to building a 

system that will react promptly and predictably to these reasonable requests. 

For two decades, HDF has proven it can deliver housing solutions that work for 

Connecticut—for families, for lenders, for developers, for neighborhoods. We believe 

that affordable housing is an investment in people—employees, parents, children, 

neighbors—without whom the state’s whole economy would suffer. Strong markets 

and strong communities need a diverse mix of households. And that calls for a supply of housing and housing opportunities that low- and moderate-income people can 

afford and remain in despite temporary setbacks. 

Appendix 

The Housing Development Fund Banking Partner: 

Bank of America 

Citibank, FSB 

Commerce Bank 

Fairfield County Bank 

Fieldpoint Private Bank and Trust 

First County Bank 
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Hudson City Savings Bank 

Hudson United Bank 

Milford Savings Bank 

Naugatuck Savings Bank 

Newtown Savings Bank 

Patriot National Bank 

People’s United Bank 

Savings Bank of Danbury 

TD Banknorth 

Union Savings Bank 

U.S. Trust of Connecticut 

Wachovia Bank, N.A. 

Webster Bank 
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PREPARED STATEMENT OF MARY COFFIN 

EXECUTIVE VICE PRESIDENT, SERVICING DIVISION, 

WELLS FARGO HOME MORTGAGE

JULY 16, 2009 

Chairman Dodd, Ranking Member Shelby and Members of the Committee, I’m 

Mary Coffin, executive vice president of Wells Fargo Home Mortgage Servicing. 

Thank you for inviting me to speak today. 

Throughout this historic public and private sector collaboration, Wells Fargo has 

considered it our leadership responsibility to champion solutions. We have played 

a key role in creating streamlined, unified modification programs to help customers 

in need. 

A prime example of our work with the Administration is the new Homeowner Affordability and Stability Plan, which we fully support. Early indications are that the 

Home Affordable Refinance Program (HARP) and Home Affordable Modification Program (HAMP) are of great value, and will benefit a significant number of families. 

In fact, we believe the Administration’s goal to help as many as 7–9 million homeowners over the next few years is well within reach. In the first half of 2009, 

through lower rates, refinances and modifications, Wells Fargo alone has helped 

close to 1 million American homeowners. 

We refinanced three-quarters of a million customers through HARP and standard 

programs. And, since our company represents approximately 20 percent of the market, we could estimate that close to 4 million Americans industry-wide have already 

refinanced into lower mortgage payments. 

In these turbulent times, it is important to note that more than 90 percent of our 

borrowers remain current on their mortgage payments. To help those in need of assistance in the first half of this year, we have provided more than 200,000 trial and 

completed modifications, an increase of about 100 percent for the same period one 

year ago. Notably, last month, 83 percent of Wells Fargo’s modifications resulted in 

a payment reduction which increases the probability customers will sustain these 

payments and, in turn, lowers re-default rates and foreclosures. 

Acutely aware of the importance of speed, Wells Fargo worked with the government aggressively to develop and deliver HARP and HAMP. We did this in a way 

that was mindful of our responsibility to American taxpayers to execute solutions 

for those truly in need. 

Speed of execution was complicated by the multiple versions of the program—each 

with unique contract requirements. 

• On March 4, the Administration first announced the components of the Homeowner Affordability and Stability Plan. 

• By April 6, we received the final HAMP guidelines from Fannie and Freddie, 

and began implementing this program for these customers. 

• On April 13, we were the first to sign a HAMP contract for loans we service 

for private investors as well as for loans in our owned portfolio. Further details 

for this program were finalized by May 14, and we began offering it 9 days 

later. 

Since January, we have been providing loan workouts to Wachovia option ARM 

customers who are struggling with their payments and, at the end of this month, 

we will add HAMP as yet another potential solution. 

With this addition, we will have fully executed HAMP for almost all of our atrisk borrowers. It should be noted that the Administration has not yet made HAMP 

available for FHA, VA, and home equity borrowers. 

Since we service one-third of the Nation’s FHA loans, we’re hopeful that the government will soon provide this program, as well as the second-lien program as it 

was initially described to us. 

As of June 30, Wells Fargo was in the process of finalizing 52,000 Home Affordable Modifications. When working with all of our seriously delinquent borrowers, 30 

percent are not eligible for HAMP because they have an FHA or VA loan and another 15 percent do not meet the basic program requirements. Of the remaining 55 

percent, we are actively working with half, and the other half has not yet chosen 

to work with us. 

For those borrowers who don’t qualify for HAMP, we immediately seek to find another modification or alternate solution to avoid foreclosure. Before any home moves 

to foreclosure sale, we conduct a final quality review to ensure all options have been 

exhausted. 

We understand this time has been frustrating for our at-risk customers and that 

they are anxious and in need of answers. 
193 

With the President’s February 18 announcement that refinance and modification 

programs would be forthcoming, we began to experience a large increase in customer inquiries. Knowing this would occur, we anticipated the influx, and increased 

and trained team members to handle it. Yet, it has been challenging to meet customer expectations as the various program details were provided to us over a period 

of 90 days. 

While we forecasted an increase in inquiries—even from customers current on 

their mortgage payments—our forecast turned out to be low. Historically, on a 

monthly basis, 5 to 10 percent of inquiries for loan workouts came from borrowers 

who were current. Since the announcement and the related increased focus on imminent default, that statistic has risen to nearly 40 percent. Of course, not everyone 

who calls qualifies for imminent default. 

To manage this demand: 

• we have implemented mandatory overtime; 

• we have streamlined the receipt, imaging and processing of the required documents; 

• we are upgrading systems to handle escrow requirements for home equity loans 

and lines; and 

• most importantly, we have increased our trained staff by 54 percent over the 

first half of this year to 11,500 default team members—all of whom are U.S. 

based. 

In conclusion, we can sincerely tell you we have been working very hard to responsibly execute these programs and fully support them. We will continue to work 

with the government, consumer counselors, non-profit agencies and others to reduce 

foreclosure, save homes, and quickly maintain, sell and donate foreclosed properties 

in order to stabilize our economy. 

Our sincere thank you for all you’ve done to help us drive home retention by making the Nation aware of the options available to those in need. I’d be glad to answer 

any questions you may have. 
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PREPARED STATEMENT OF CURTIS GLOVIER 

MANAGING DIRECTOR, FORTRESS INVESTMENT GROUP, 

ON BEHALF OF THE MORTGAGE INVESTORS GROUP COALITION

JULY 16, 2009 

Mortgage Investors Coalition Testimony 

Thank you for inviting me to testify today. My name is Curtis Glovier and I am 

a Managing Director at Fortress Investment Group. I am also a member of the 

Mortgage Investors Coalition, which was organized to develop investor consensus on 

current public policy initiatives and to provide policy makers with the mortgage investor’s point of view. I am testifying today in my capacity as a member of the Mortgage Investors Coalition. 

Allow me to start, Chairman Dodd, by commending you, Ranking Member Shelby 

and the other members of the Committee for your leadership for well over two 

years, going back to before the financial crisis, in trying to pursue every possible 

action to help keep Americans in their homes. We share your frustration with the 

slow pace of efforts to help homeowners get out of bad mortgages and into mortgages that will allow them to stay in their homes and build equity at the same time. 

I also want to thank you particularly, Mr. Chairman, for co-authoring with Chairman Frank a letter last week highlighting the need to help families keep their 

homes and avoid foreclosure. We agree with your diagnosis of the Hope for Homeowners program (‘‘HFH’’) and offer our support to assist American families’ participation in this program, so they may be able to keep their homes and build equity. 

The discounted refinance program offered by HFH provides the best long term solution for the homeowner and for the recovery of the U.S. housing market. 

My testimony today represents the views of the Mortgage Investors Coalition, as 

well those of other mortgage investors whose thoughts I have obtained through numerous conversations I have had in the course of my professional dealings and my 

participation in industry groups. The Mortgage Investors Coalition was formed in 
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April 2009 and currently has 11 member firms with about $200 billion in total assets under management and over $100 billion in current outstanding principal balance of investments in residential mortgage backed securities. In my testimony, I 

will briefly describe the composition of the mortgage market and some of the inherent conflicts that could be contributing to the difficulty in showing sufficient 

progress in stemming foreclosures. 

Investors in private-label (non-Federal agency) mortgage-backed securities include 

asset managers, charitable institutions, endowments, foundations, hedge funds, insurance companies, investment banks, municipalities, mutual funds, pension funds, 

trusts, sovereign wealth funds, universities and others. Thus, many of the beneficiaries of these investments are ordinary American citizens—people with pensions, 

people with life insurance policies or mutual fund investments, and people who benefit from services provided by charities, universities, and state and local governments. 

First, I’d like to briefly describe the residential mortgage market. The mortgage 

market consists of approximately $11 trillion in outstanding mortgages. Of that $11 

trillion, $5.4 trillion are held on the books of the GSE’s as agency mortgage-backed 

securities (issued by one of the agencies) or in whole loan form. Another $3.6 trillion 

are on the bank balance sheets as whole loans or securities in their portfolios, of 

which $1.1 trillion are second liens (home equity loans/lines of credit or closed end 

second mortgages). Of the $1.1 trillion outstanding second mortgages, only 3.7 percent of the total (or $41 billion) is held in securitized form. The remaining $1.8 trillion in first lien mortgages reside in private label mortgage-backed securities. The 

Residential Mortgage Backed Securities (RMBS) market has efficiently provided 

mortgage financing for millions of American families and has served as a means to 

extend credit throughout the American economy and the world. While the Federal 

government’s actions to bolster Fannie Mae and Freddie Mac and to broaden the 

FHA’s mandate have proven to be critical stopgap measures during the housing and 

economic crisis, a revival of the RMBS market and a return of private investors to 

that market is seen by many as a prerequisite to the recovery of the U.S. housing 

market and a return to normalcy in the capital markets. The Federal government 

cannot by itself provide the liquidity necessary to finance the national housing markets. 

The process by which residential mortgage-backed securities are created begins 

when a borrower obtains a mortgage loan from a lender. After the loan is made, 

the loan is pooled together with other mortgage loans and placed into a trust. The 

trust is administered by a trustee and one or more servicers, who are the face of 

the trust to homeowners. Investors in the trust generally have no interaction with 

the homeowners, and also have extremely limited decision-making authority with 

respect to modifications, foreclosures and other servicing actions. Very often, the 

original lender, or its affiliate, acts as servicer once the loans are securitized. Loan 

servicing is relatively concentrated. Roughly 88 percent of subprime loans and 69 

percent of all residential mortgage loans are serviced by 18 servicers, and 55 percent 

of all mortgages are owned by or serviced by the 4 largest banks. 

Returning homeowners to a positive equity position provides significant opportunity and motivation for at-risk homeowners to remain in their homes and communities. A short refinancing under HFH solves both the affordability and negative equity problems plaguing homeowners at risk of foreclosure today. The program was 

created to reduce principal on the existing senior lien mortgage and to eliminate the 

existing subordinate second lien, which can prevent unnecessary foreclosures. The 

Mortgage Investor Coalition believes that a properly implemented Hope for Homeowners program will not only provide stability for homeowners, but will help stem 

the declines in the housing markets and provide certainty for the fixed income capital markets, which will bolster financial markets in general and promote increased 

lending and reinvestment in mortgages. We believe the program will prevent additional foreclosure inventory from adding to the overhang of bank owned properties 

in the residential real estate market, thereby helping to establish a floor for housing 

prices. 

I would like to reiterate what we, the Mortgage Investors Coalition, have been 

stating—from Capitol Hill, to the Departments of Treasury and Housing and Urban 

Development, and with Community Housing Advocates. The best solution to our Nation’s mortgage crisis is to significantly forgive principal on first and second lien 

mortgage debt in connection with the refinancing of the overextended homeowner 

into a new, low interest rate mortgage through the Hope for Homeowners program. 

The burden of solving the housing crisis should not fall squarely on the shoulders 

of any one stakeholder, and investors are willing to do our part by making a significant sacrifice in reducing mortgage principal. 
197 

Investors seek a sustainable mortgage restructuring program that works in the 

best interest of all parties and addresses the multiple factors that have contributed 

to homeowner re-defaults. The solutions that have been offered to date have been 

sub-optimal for the homeowner in that they fail to address the entire consumer debt 

burden, and overlook the pernicious effects of negative equity. Compared to a short 

refinance program such as HFH, a modification approach, such as the Making Home 

Affordable Program, has a notable shortcoming: by not addressing negative equity, 

homeowners are trapped in a mortgage that cannot be refinanced and a house that 

cannot be sold. When the program ends in five years, the interest rate on both the 

first and second mortgage will reset higher, the outstanding balance of the combined 

mortgage debt is likely to still exceed the value of the home, and there could be a 

meaningful risk of a re-default. The low prices of securities in the mortgage market 

today in part reflect the great uncertainty of future cash flows and values associated 

with such modified loans. 

It is our understanding that the Committee would like to examine the reason 

more Hope for Homeowners refinancings have not occurred. The following is our 

analysis of what has happened since this Committee created and Congress passed 

the Helping Families Save Their Homes Act, modifying the Hope for Homeowners 

program. 

While there are still operational hurdles to overcome in implementing a more effective program, the major impediment to the viability of the program is the volume 

of second mortgages or second liens outstanding. The second lien problem exists because many banks and their affiliated servicers offered additional forms of financing 

to consumers, such as home equity loans and second mortgages. As indicated earlier, while a small percentage of second mortgages were sold to investors, the vast 

majority remain on the balance sheets of our Nation’s largest financial institutions. 

In fact, the four banks that service approximately 55 percent of mortgages held 

roughly $441 billion of second liens on their balance sheets as of December 31, 2008. 

Banks have favored loan modification programs such as Making Home Affordable 

that defer the recognition of losses on the second lien portfolios. That program improves the cash flow available to the second mortgage at the expense of the first 

mortgage and defers the immediate loss that would be recognized in a foreclosure, 

short sale or short refinance. In these negative equity scenarios, the second lien 

would receive no proceeds in a foreclosure action; on the other hand, the modification program allows this uncollateralized obligation to remain outstanding and on 

the books of the financial institution as a performing asset, even though the homeowner has no equity in their home. The second lien is subordinate to the first lien 

and often has a higher interest rate. In the vast majority of cases, when a first 

mortgage is delinquent, so is the second lien. Our analysis of 44.1 million first lien 

loans from a primary credit bureau database indicated that of all second lien mortgages, only 3 percent are current with a corresponding first lien mortgage that is 

delinquent. 

We believe the current accounting treatment of second liens on the banks’ balance 

sheets makes them particularly unwilling to take this loss to complete a refinance, 

resulting in 1) unsuccessful modifications that are prone to quickly re-default and 

2) more importantly, only a handful of Hope for Homeowners refinances. The ideal 

scenario for a borrower who owns a home that is worth less than its outstanding 

mortgage debt, referred to as being ‘‘underwater’’, is to refinance into a Hope for 

Homeowners mortgage. Such a refinancing would result in the Borrower having a 

new, affordable mortgage with an equity investment in his or her home and an incentive to stay in the home and build additional equity. In addition this homeowner 

could eventually sell the home in a normal market transaction as opposed to the 

selling into the current market of bank auctions and foreclosure sales. 

As I previously explained, the refinancing of mortgages through Hope for Homeowners is the preferred solution for borrowers and investors in mortgage loans. 

Given that investors want more mortgage refinancings and an increased use of the 

Hope for Homeowners program, why can’t investors just tell the servicers to refinance more loans? 

Unfortunately, even though the loans backing the investments are held for the 

benefit of investors, the investors are limited in the influence they can exert over 

those who administer the trusts. The contracts governing the Administration of the 

trust that issued the mortgage-backed securities were generally written in a manner 

that creates various barriers to investor control. Thus, although investors want 

servicers to be more responsive to borrowers and to significantly increase the penetration of the Hope for Homeowners program, forcing that behavior on the servicers 

is extremely difficult. 

What is the solution? It is an effort that will require participation and sacrifice 

by all interested parties to succeed. The government, financial institutions and in-
198 

vestors all share an important stake in the recovery of the American homeowner 

and must contribute equitably to forge a healthier, more stable housing market, financial market and economy. The solution lies in providing positive equity and affordable payments for homeowners. Investors stand ready to make the sacrifice necessary to re-equitize the homeowners at risk of foreclosure. 

The Congress and the Administration should be diligent in their prodding of 

bank-affiliated servicers to offer HFH refinancings. HUD and Treasury are actively 

working to reach out to all stakeholders, including the banks and servicers who hold 

second liens, to arrive at a solution that can lead to more refinancings under the 

Hope for Homeowners program. It is unclear at this point whether HUD and Treasury have made progress on the second lien issue. If necessary, additional capital 

could be allocated to this effort as TARP funds are repaid to the government. When 

the Emergency Economic Stability Act of 2008 first passed, a significant portion of 

the TARP money was to have been reserved for foreclosure avoidance. Government 

funds could be used to more aggressively compensate second lien holders as their 

investments are extinguished in the short refinance process of HFH. 

Fundamentally, for this problem to be solved, everyone must share the burden. 

Solutions cannot be a windfall for certain stakeholders and terrible for others. We 

must get homeowners out of underwater mortgages and into mortgages that have 

positive equity and are properly underwritten, affordable, fair, and sustainable. 

Contributions must be made by all participants. 

Based on all the available options, it seems the best solution is the Hope for 

Homeowners program. This means that investors like us will have to be prepared 

to take an immediate and substantial hit on the outstanding principal amount of 

the mortgage as loans are refinanced out of the securitization trust at a discount. 

It is necessary for borrowers to emerge from their underwater positions and begin 

to build positive equity for the housing market to recover. Given today’s unprecedented economic conditions, mortgage investors stand ready to contribute to the reequitization of homeowners by reducing principal on first lien mortgage debt to facilitate the refinance of these loans into stable thirty-year, amortizing, fixed-rate 

government loans. 

In creating the Hope for Homeowners program, Congress has created the framework for a successful solution to the housing crisis, and the funding necessary to 

provide sustainable mortgages for many American families at risk of losing their 

home to foreclosure. Mortgage Investors are prepared to make the appropriate contributions to preserve homeownership and call on the Committee to provide support 

in effectuating a workable program with the other stakeholders, including financial 

institutions that control the servicing and origination of residential mortgages. 

Mr. Chairman, we thank you for the opportunity to testify today—and for your 

and your colleagues’ efforts to help families not only achieve the American dream 

but also to keep their homes and avoid foreclosure during these turbulent times. We 

look forward to working with you to provide hope for homeowners and to doing our 

part to solve the housing and mortgage market crisis. 

PREPARED STATEMENT OF ALLEN H. JONES 

DEFAULT MANAGEMENT POLICY EXECUTIVE, BANK OF AMERICA

JULY 16, 2009 

Good morning, Chairman Dodd, Ranking Member Shelby and Members of the 

Committee. I am Allen Jones, Bank of America’s Default Management Policy Executive. Thank you for the opportunity to appear and update you on the efforts of Bank 

of America to help families avoid foreclosures wherever possible and stay in their 

homes. 

Let me start by making two important points on which I will elaborate later in 

the testimony. 

First, as you will recall Bank of America exited subprime lending nearly nine 

years ago. Upon acquiring Countrywide, we have taken the steps to ensure our combined company is a leader in traditional mortgage products. Our April launch of the 

Clarity Commitment—a clear and simple one page disclosure that accompanies 

every new and refinanced loan—is one demonstration of our focus on ensuring customers understand what loan they are getting and the associated costs. 

Second, Bank of America has been at the forefront of government and industry 

efforts to develop loan modification programs as a way of avoiding foreclosures and 

helping financially distressed customers remain in their homes. We modified 

230,000 mortgage loans in 2008, and we are pleased to report that in the first six 
199 

months of this year, modification offers have been accepted or rate relief has been 

provided for more than 150,000 customers. 

In recent weeks, as the Administration’s Making Home Affordable modification 

program guidelines have been completed and our systems have been converted, 

Making Home Affordable has become the centerpiece of Bank of America’s overall 

home retention efforts. Already, approximately 80,000 Bank of America customers 

are in the trial modification period or are responding to modification offers we have 

extended under Making Home Affordable. 

We have achieved this level of success by devoting substantial resources to this 

effort. Our Home Loans business has more than 7,400 associates dedicated to home 

retention. This team has nearly doubled since this time one year ago. They respond 

to an average of 80,000 customer calls a day—and more than 1.8 million calls a 

month. In addition to personnel, we have devoted substantial systems, training and 

other resources to our loan modification efforts. 

Our country is slowly emerging from the worst economic crisis since the Great Depression, the impacts of which have been felt deeply by consumers because at its 

center has been the deterioration in value of an asset important to individual wealth 

and stability—the home. Home values in some areas of the country have depreciated 

to less than half their value at the market’s peak, and unemployment continues to 

rise—recently hitting a 26 year high. 

Against this backdrop, millions of families are struggling. As one of the country’s 

leading mortgage lenders and servicers, Bank of America understands and fully appreciates its role in helping borrowers through these difficult economic times. We 

want to ensure that any borrower who has sufficient income and the intent to maintain homeownership has the ability to do so using any and all resources we have 

available. 

With that introduction, let me describe more specifically how we are leveraging 

Making Home Affordable and other programs to help borrowers, and provide some 

suggestions for improvement. 

Support for Administration’s Foreclosure Relief Efforts 

Bank of America supports the Obama Administration’s Making Home Affordable 

refinance and loan modification programs for their potential to help millions of 

homeowners who otherwise may have faced certain foreclosure. 

The program’s focus on affordability of payment in the loan modification and refinance processes is consistent with the approach we have successfully developed for 

our customers, and we appreciate the opportunity we have had to work with the 

Administration in developing guidelines for its Making Home Affordable programs. 

While our primary focus here today is loan modifications, it’s important to recognize the benefits of the Making Home Affordable refinance program and its role in 

helping more Americans retain their homes. 

Bank of America was one of the first lenders to process refinance applications 

through the Making Home Affordable program. We have taken more than 90,000 

Making Home Affordable refinance applications (the majority of which have locked) 

and funded nearly 40,000 refinances since launching the program. 

Responsiveness to borrowers. We understand the importance of responding 

promptly when our customers call, and providing clear, timely answers to their 

questions. As noted earlier, our home retention division responds to an average of 

80,000 customer calls daily. We seek to answer calls from customers in 90 seconds 

or less—and in the second quarter we met that goal more than 80 percent of the 

time. 

Making Home Affordable Modification Process. Our process for evaluating Making 

Home Affordable modifications generally works as follows: A customer is contacted 

through solicitation or offer letters or they contact us, and we perform an analysis 

of their financial situation, focusing primarily on their income and expenses and any 

hardships they may be suffering. In many cases, particularly where we have delegated authority from our investors to modify their loans, the customer can be prequalified for the Making Home Affordable program over the phone. 

A pre-qualified customer receives a trial modification plan in the mail to execute 

and return within 30 days, along with supporting financial documentation and their 

first trial period payment. During the trial period, the customer’s documentation is 

evaluated to ensure compliance with program guidelines. A customer who meets all 

program requirements, including timely making of all payments during this three 

or four month period, will receive a second agreement that must be signed and 

promptly returned to receive a final modification. 

We continually strive to make our processes efficient and customer-friendly. We 

have established new processes for, among other things, verifying borrower income 

and expenses, managing trial modification periods, securing the payment of mort-
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gage insurance pre-claims at the time of modification so as to enable more borrowers to qualify for modifications, and working with third party contractors engaged by the GSEs. 

Delays in Foreclosure Sales. Bank of America customers will not lose their homes 

to foreclosure while their loans are being considered for a modification. The Bank 

places foreclosure sales on hold while it determines a customer’s eligibility for its 

home retention programs. 

Bank of America’s Home Retention Operations 

While the focus of today’s hearing is on Making Home Affordable modification implementation, we also want to highlight our early leadership to address avoidable 

foreclosures. As the largest servicer in the United States, servicing one in five mortgages, or a total of 14 million loans, we understand our responsibility to help our 

customers sustain homeownership. Before the government’s announcement of Making Home Affordable earlier this year, Bank of America had proactively put in place 

industry-leading assistance programs for distressed borrowers. We continue to leverage those programs to ensure that we consider every potential solution for our customers. 

National Homeownership Retention Program. Shortly after acquiring Countrywide, Bank of America announced the creation of our National Homeownership Retention Program for nearly 400,000 borrowers with discontinued Countrywide 

subprime and pay option ARM products. Outreach under the program began in December 2008. Like Making Home Affordable, our National Homeownership Retention Program focuses on affordability and sustainability, while providing a streamlined loan modification process. 

Hope for Homeowners. Bank of America believes the Hope for Homeowners program provides another useful tool for assisting borrowers. We have not been able 

to implement the program as we are still awaiting final guidance from the Department of Housing and Urban Development. The program, as originally rolled out, 

had a series of unique requirements which were very different from standard FHA 

programs, and presented serious implementation challenges for lenders. The Helping Families Save Their Homes Act signed into law by President Obama in May of 

2009 includes helpful changes to Hope for Homeowners that are designed to make 

the program more consistent with standard FHA practices. We understand the Department of Housing and Urban Development is hard at work on developing final 

Hope for Homeowners guidance that will provide lenders with the tools they need 

to move forward and implement the program. It is important to note that once final 

guidelines are issued, it will still take lenders several months to implement the program. 

Community Outreach and Partnerships. We have also devoted significant resources to community outreach. Since the beginning of this year, we have participated in more than 120 community outreach events in 26 states. We have reached 

more than 5,000 borrowers through these events, with about 50 percent of whom 

we had no prior contact in the last 60 days. 

We have partnered with the National Council of La Raza, National Urban League, 

and the National Coalition for Asian Pacific American Community Development in 

the creation of the Alliance for Stabilizing Communities, and we provided $2.5 million in funding to support this national coalition dedicated to assisting individuals 

facing foreclosure. The Alliance will hold 40 housing rescue fairs over the next two 

years in 24 communities hardest hit by the foreclosure crisis. 

In addition, Bank of America partners with 440 HUD-approved non-profit counseling agencies. Empowering the counselors with knowledge about Bank of America 

Home Loans and the Making Home Affordable modification program is significant 

because counselors can educate borrowers and assist in the modification application 

process. This year, we have trained over 500 counselors in sessions across the 

United States. 

Making Home Affordable Challenges and Improvements 

Bank of America appreciates the opportunity we’ve had to work closely with members of the Administration in developing the Making Home Affordable program. We 

all understand there is still more work to be done on various aspects of the program 

to improve its success and the success of those homeowners that rely on it for assistance during these difficult economic times. 

We would like to take this opportunity to offer some suggestions for improvement: 

Announcement of Program Changes or Guidance. Communications by Treasury to 

servicers and at-risk homeowners regarding program features and effective dates 

could be improved. Advanced notification to loan servicers once new guidelines or 

program changes are determined (but before they become effective) would enable 
201 

servicers to establish early necessary systems and practices to better address customer inquiries. The current method of publicly announcing new guidelines or 

changes concurrently with their effective dates creates immediate demand with insufficient lead time for operational readiness. This can lead to negative customer experience and, ultimately, public backlash against the programs. 

We also would suggest that new or revised guidelines not be issued until they 

have been reviewed with industry representatives and their details have been completed. For example, while we appreciate the spirit in which it was done, the 

issuance by Treasury of its brief and limited guidelines for the second lien and short 

sale programs months before their comprehensive rules have been finalized or even 

drafted has led to a great deal of confusion and delay in the industry and with the 

public. 

Promoting uniform interpretations of program guidelines. Consistency in the creation and interpretation of program guidelines between Treasury and the GSEs, as 

well as consistent guidelines for Fannie Mae- and Freddie Mac-owned or securitized 

loans, also would reduce homeowner confusion and simplify servicers’ ability to 

operationalize these programs as they evolve. Similarly, it is important to encourage 

states to limit modification-related legislation which may complicate participation in 

federal programs such as MHA. And there also should be consistency among the 

various federal regulators and agencies as to the options servicers should utilize and 

the process servicers should follow for implementing Making Home Affordable. 

Requirement of complete documentation. One of the benefits of the MHA program 

is the trial modification period. Servicers can approve trial modifications almost instantly and use the trial period to collect the necessary documentation to complete 

the modification. One factor that slows down the process during the trial period is 

that many borrowers initially provide incomplete information. We hope to work with 

the Administration to address the challenges we are experiencing with some of the 

required documentation returned by customers by reinforcing through the media 

and other communications the importance of complete and accurate documentation. 

Servicers also should have some flexibility to determine the materiality of the incomplete response, such as whether we can accept an electronically filed tax return 

without a signature. 

No program for the unemployed. As a general matter, we would welcome the opportunity to work with Treasury on a program that would offer short term relief 

while unemployed borrowers seek re-employment. This is already a significant population, and a growing need. 

Customer Impacts 

Despite problems in the economy, most of our customers continue to pay their 

mortgages on time; and less than 375,000 loans, or fewer than 3 percent of the 14 

million loans in our servicing portfolio, face foreclosure. While foreclosures are a relatively small percentage of our portfolio, we recognize that the impact they have on 

our communities, neighborhoods and customers is significant. That is why we have 

exhausted and will continue to exhaust every possible avenue to help families stay 

in their homes. 

Despite our best efforts, there are limits to what we can do. With unemployment 

at a 26-year high, even the most ambitious modification plan will not help when 

there is no income. Often the largest impediments to completing loan modifications 

are the changed circumstances of the borrower, such as unemployment, divorce, illness, or dissatisfaction with the property that may make a loan modification unattainable. We can only modify loans where the borrower has the ability and willingness to repay. 

Our goal is to keep as many families in their homes as possible. Often we will 

succeed, but regardless, we believe every customer deserves to be treated with compassion and respect, and we work to provide a dignified process for everyone. 

Bank of America Mortgage Lending Update 

We strongly believe that long-term recovery in the economy and housing markets 

relies upon lenders responsibly and effectively providing loans to creditworthy borrowers. To that end, in April we launched Bank of America Home Loans, which is 

built on a brand promise to always be a responsible lender and help create successful homeowners. 

At that time, we introduced several new tools in response to valuable customer 

feedback. One such tool—the Clarity Commitment—is a one-page summary of a borrower’s loan terms in plain English. We have it in place on 95 percent of our products, and it has been very well received by our customers and community partners. 

Since we introduced it, already 400,000 customers have received this document with 

their loan papers. 
202 

1The National Consumer Law Center, Inc. (NCLC) is a non-profit Massachusetts Corporation, founded in 1969, specializing in low-income consumer issues, with an emphasis on consumer credit. On a daily basis, NCLC provides legal and technical consulting and assistance on 

consumer law issues to legal services, government, and private attorneys representing low-income consumers across the country. NCLC publishes a series of eighteen practice treatises and 

annual supplements on consumer credit laws, including Truth In Lending (6th ed. 2007) and 

Cost of Credit: Regulation, Preemption, and Industry Abuses (3d ed. 2005) and Foreclosures (2d 

ed. 2007), as well as bimonthly newsletters on a range of topics related to consumer credit issues 

and low-income consumers. NCLC attorneys have written and advocated extensively on all aspects of consumer law affecting low-income people, conducted training for thousands of legal 

services and private attorneys on the law and litigation strategies to deal with predatory lending 

and other consumer law problems, and provided extensive oral and written testimony to numerous Congressional committees on these topics. This testimony was written by Alys Cohen, Staff 

Attorney, and Diane E. Thompson, Of Counsel, to NCLC. 2The National Association of Consumer Advocates (NACA) is a non-profit corporation 

whose members are private and public sector attorneys, legal services attorneys, law professors, 

and law students, whose primary focus involves the protection and representation of consumers. 

NACA’s mission is to promote justice for all consumers. 

We are making new mortgage loans available to eligible customers for buying 

homes and refinancing their current mortgage loans. On Friday, July 17, Bank of 

America will report second quarter earnings. In the first quarter of 2009, we generated: 

More than $85 billion in first mortgage production—representing more than 

382,000 customers who purchased homes or saved money on the home theyalready 

own. 

More than $4 billion in home equity and reverse mortgage production, representing almost 23,000 customers. 

One in four of these loans were to low- and moderate-income customers. 

Conclusion 

I want to thank you for the opportunity to describe our ongoing home retention 

efforts. We recognize there is still much more to be done. The ongoing economic crisis demands expedient, affordable loan modifications that help borrowers within the 

framework of our contractual obligations to investors. 

This is a critically important undertaking that must be done right if we as a country are going to preserve the flow of mortgage credit to support sustainable homeownership and at the same time protect communities and neighborhoods from avoidable foreclosures. We look forward to working with Congress and the Administration 

to accomplish these goals. I would be happy to answer any questions you might 

have. 

PREPARED STATEMENT OF DIANE E. THOMPSON 

NATIONAL CONSUMER LAW CENTER, ALSO ON BEHALF OF

NATIONAL ASSOCIATION OF CONSUMER ADVOCATES

JULY 16, 2009 

I. Introduction 

Chairman Dodd, Ranking Member Shelby, and members of the Committee, thank 

you for inviting me to testify today regarding the barriers encountered by homeowners attempting to access the Making Home Affordable program and the Hope 

for Homeowners program. 

I am an attorney, currently of counsel to the National Consumer Law Center 

(NCLC).1 In my work at NCLC I provide training and support to hundreds of attorneys representing homeowners from all across the country and consequently have 

heard many, many reports of the difficulties encountered by advocates and homeowners attempting to obtain sustainable loan modifications. For nearly 13 years 

prior to joining NCLC, I represented low-income homeowners at Land of Lincoln 

Legal Assistance Foundation in East St. Louis, Illinois. In that capacity, I became 

intimately familiar with the difficulties in arranging a loan modification, even when 

it was clearly in the investor’s best interests. 

I testify here today on behalf of the National Consumer Law Center’s low-income 

clients. On a daily basis, NCLC provides legal and technical assistance on consumer 

law issues to legal services, government and private attorneys representing low-income consumers across the country. I also testify here today on behalf of the National Association of Consumer Advocates.2

We are facing in this country a foreclosure tsunami, which threatens to desta-
203 

3The requirement that future appreciation be shared with HUD also reduces homeowners’ investment in their property and may have adverse unintended consequences if homeowners respond to that reduced equity by defaulting. 4 Renae Merle, White House Prods Banks: Letter Tells Chiefs To Start Backing Mortgage Relief, Wash. Post, July 10, 2009, available at http://www.washingtonpost.com/wpdyn/content/ 

article/2009/07/09/AR2009070902928.html?nav=rsslbusiness. 

We are facing in this country a foreclosure tsunami, which threatens to destabilize our entire economy, devastate entire communities, and destroy millions of 

families. Large-scale, sustainable modifications are widely recognized as an essential component of restoring economic health to our country and hope to our homeowners. There are three major Federal programs designed to prevent foreclosures and preserve homeownership: Hope for Homeowners, the Making Home Affordable refinance program, and the Making Home Affordable modification program, or the 

Home Affordable Modification Program. My comments will focus on the modification 

prong of the Making Home Affordable program. Far more of the homeowners facing 

foreclosure are eligible for modification under the Home Affordable Modification Program than for refinance under either Hope for Homeowners or the refinance prong 

of Making Home Affordable. Recent changes to both programs should increase eligibility and may increase participation. Still, restrictions on both programs are likely 

to continue to limit their reach. 

Both Hope for Homeowners and the refinance prong of Making Home Affordable 

are designed to offer some relief to homeowners who owe more than their homes 

are worth. This is an important goal and an essential component of any solution 

to the foreclosure crisis. As described in Chairman Dodd’s letter of July 10, 2009, 

Hope for Homeowners, in particular, could play an important role in moving us forward by mandating principal reductions. We remain concerned, however, that neither program effectively eliminates negative equity. The refinance prong of Making 

Home Affordable permits the refinancing of excess debt and so may permit homeowners to lower interest rates. Absent market appreciation, however, it does not reduce the negative equity. Although Hope for Homeowners mandates principal reductions, many mortgage holders and servicers continue to be unwilling to agree to this 

write-down as the price for participation in the program, even with the possibility 

of an increased share in future appreciation.3 Nor is it clear that even the recent 

improvements to the Hope for Homeowners second lien program will be sufficient 

to remove second liens in any significant number. 

The recent improvements to FHA and RHS are also beyond the scope of my testimony. We would like nonetheless to take this opportunity to congratulate Congress 

and the Administration on the important steps forward in these programs. In addition to improving Hope for Homeowners, S. 896 also increased the ability of homeowners with FHA and RHS loans to access partial claims, a special form of principal 

forbearance. This, too, is an important step to increase the long-term affordability 

of mortgages for many of our most vulnerable homeowners. Having negotiated partial claims with FHA servicers on behalf of low-income homeowners, I personally 

know how important the partial claim option can be to preserving homeownership. 

We at NCLC and NACA applaud Congress and the Administration for their efforts 

to expand the modification options available under the government-insured programs: FHA, RHS, and VA. 

The Home Affordable Modification Program (HAMP) announced by President 

Obama’s administration on March 4, 2009, is a laudable attempt to overcome long 

standing reluctance by servicers to perform large numbers of sustainable loan modifications. HAMP seeks to change the dynamic that leads servicers to refuse even 

loan modifications that would be in the investors’ best interests by providing both 

servicers and investors with payments to support successful loan modifications. Several months into the Home Affordable Modification Program (HAMP), however, 

homeowners and their advocates report that the program is not providing a sufficient number of loan modifications to homeowners, the modifications offered often 

do not meet the guidelines of the program, and the program itself still presents serious barriers to mass loan modifications. 

HAMP, despite its lofty goals, has not yet been able to contain the foreclosure tsunami. To date, implementation of the program by servicers has been slow and sporadic. The Administration’s efforts to hold servicers accountable 4 are a welcome and 

necessary step forward. Further steps to reform HAMP and ensure servicer compliance are needed if the program is to reach its goal of reducing foreclosures. Particularly problematic is the lack of any mechanism to ensure that homeowners are, 

when appropriate, offered a loan modification prior to foreclosure sale. A timeline 

should be set to evaluate whether HAMP, along with other existing programs, can 
204 

sufficiently address foreclosures. If it becomes clear they can not, more stringent 

measures, as discussed below, should be adopted. The structure of the servicing industry makes it unlikely that existing measures will be adequate; currently available information confirms that prognosis. 

A. Problems with Servicers’ Implementation of HAMP Plague Homeowners 

Seeking Loan Modifications. 

—Participating servicers violate the HAMP guidelines: 

• Servicers still require waivers. 

• Some participating servicers offer non-compliant loan modifications. 

• Some participating servicers refuse to offer HAMP modifications. 

• Servicers charge fees to homeowners for the modification. 

• Servicers are continuing to initiate foreclosures and sell homes at foreclosure 

sales while the HAMP review is pending. 

—Servicer staffing and training still lag behind what is needed. 

• Homeowners and counselors report waits of months to hear back on review for 

a trial modification, followed by very short timeframes to return documents. 

• Staff of participating servicers continue to display alarming ignorance of HAMP. 

• Non-participating servicers continue to represent themselves as participating in 

HAMP. 

—Lack of transparency and accountability is resulting in summary denials and 

other unreasonable acts by servicers. 

B. Certain HAMP Policies Must Be Changed to Provide Sustainable Modifications and Save Communities. 

—Transparency must be improved. 

• The Net Present Value model for qualifying homeowners must be available to 

the public. 

• The layers of documents governing HAMP, the guidelines, the Supplemental Directives, the various FAQ’s, and the servicer contracts, should be consolidated, 

reconciled, and clarified. 

• Participating subsidiaries must be clearly identified. 

—Mechanisms for enforcement and compliance should be adopted. 

• All foreclosure proceedings must be stopped upon the initiation of a HAMP review, not just at the point before sale. 

• Homeowners should be provided with an independent review process when denied a loan modification. 

• Homeowners should have access to an ombudsman to address complaints about 

the process. 

• Denials based in part on a borrower’s credit score should be accompanied by an 

adverse action notice under the Fair Credit Reporting Act. 

—The HAMP guidelines should be adjusted to provide more meaningful relief to 

homeowners without reducing their existing rights. 

• Homeowners need principal reductions, not forbearance. 

• Homeowners suffering an involuntary drop in income should be eligible for a 

second HAMP loan modification. 

• Homeowners in bankruptcy should be provided clear access to the HAMP program. 

• Mortgages should remain assumable as between spouses, children, and other 

persons with a homestead interest in the property. 

• Fair lending principles must be ensured throughout the HAMP process. 

• HAMP application procedures should better recognize and lessen the impact of 

exigent circumstances. 

• The trial modification program should be further formalized and clarified, such 

that homeowners receive assurances of the terms of the permanent modification 

and homeowners are not put into default on their loans if they are current at 

the onset of the trial modification. 

• The final modification agreement should make clear that the homeowners do 

not waive any rights nor are required to reaffirm the debt in order to enter into 

the modification. 
205 

5Goldman Sachs Global ECS Research, Home Prices and Credit Losses: Projections and Policy 

Options (Jan. 13, 2009), at 16; see also Rod Dubitsky, Larry Yang, Stevan Stevanovic & Thomas 

Suehr, Credit Suisse Fixed Income Research, Foreclosure Update: Over 8 Million Foreclosures 

Expected 1 (Dec. 4, 2008) (predicting 9 million foreclosures for the period 2009–2012). 6Mortgage Bankers’ Ass’n, Nat’l Delinquency Survey Q109 at 4 (2009) (reporting that 3.85 

percent of 44,979,733, or 1.7 million, mortgages serviced were in foreclosure). Roughly half of 

these were serviced by national banks or Federal thrifts. See Office of the Comptroller of the 

Currency & Office of Thrift Supervision, OCC and OTS Mortgage Metrics Report: Disclosure of 

National Bank and Federal Thrift Mortgage Loan Data, First Quarter 2009, at 8 (June 2009), 

available at http://files.ots.treas.gov/482047.pdf (reporting that 884,389 foreclosures were in 

process by national banks and Federal thrifts at the end of the first quarter of 2009). The estimate of more than 2 million homes in foreclosure is achieved by extrapolating from the MBA 

numbers. The MBA survey only covers approximately 80 percent of the mortgage market. Thus, 

(44979733*3.85 %)/0.8=2.16 million. 7Mortgage Bankers’ Ass’n, Nat’l Delinquency Survey Q109 at 4 (2009). 

8See, e.g., Ben S. Bernanke, Chairman, Bd. of Governors, Fed. Reserve Sys., Address at the 

Federal Reserve System Conference on Housing and Mortgage Markets (Dec. 4, 2008), available 

at http://www.Federalreserve.gov/newsevents/speech/bernanke20081204a.htm#f12; Ira J. Goldstein, The Reinvestment Fund, Lost Values: A Study of Predatory Lending in Philadelphia, at 

62/-/63 (2007), available at www.trfund.com/resource/downloads/policypubs/LostlValues.pdf 

(discussing disastrous community impact left behind by failed subprime lenders). 9See John P. Harding, Eric Rosenblatt, & Yao Vincent, The Contagion Effect of Foreclosed 

Properties (July 15, 2008), available at http://ssrn.com/abstract=1160354; Letter, Senator Dodd 

to Senator Reid (Jan. 22, 2008) (describing cycle of disinvestment, crime, falling property values 

and property tax collections resulting from foreclosures), available at http://dodd.senate.gov/ 

multimedia/2008/012308lReidLetter.pdf; Staff of the J. Economic. Comm., 110th Cong., 1st 

Sess., The Subprime Lending Crisis: The Economic Impact on Wealth, Property Values and Tax 

Revenues, and How We Got Here (2007), available at http://jec.senate.gov/ 

index.cfm?FuseAction=Reports.Reports&ContentRecordlid=c6627bb2-7e9c-9af9-7ac7-32b94d398 

d27&Regionlid=&Issuelid= (projecting foreclosed home owners will lose $71 billion due to foreclosure crisis, neighbors will lose $32 billion, and state and local governments will lose $917 

million in property tax revenue); Dan Immergluck & Geoff Smith, The External Costs of Foreclosure: The Impact of Single-Family Mortgage Foreclosures on Property Values, 17 Housing 

Pol’y Debate 57, 69, 75 (2006) (‘‘for each additional conventional foreclosure within an eighth 

of a mile of a house, property value is expected to decrease by 1.136 percent’’; estimating total 

impact in Chicago to be between $598 million and $1.39 billion); William C. Apgar, Mark Duda, 

& Rochelle Nawrocki Gorey, The Municipal Cost of Foreclosures: A Chicago Case Study (Hous. 

Fin. Policy Research Paper 2005), at 1, available at www.995hope.org/content/pdf/ 

ApgarlDudalStudylFulllVersion.pdf; John P. Harding, Eric Rosenblatt, & Yao Vincent, The 

Contagion Effect of Foreclosed Properties (July 15, 2008), available at http://ssrn.com/ 

abstract=1160354; Letter, Senator Dodd to Senator Reid (Jan. 22, 2008) (describing cycle of disinvestment, crime, falling property values and property tax collections resulting from foreclosures), available at http://dodd.senate.gov/multimedia/2008/012308lReidLetter.pdf. 10See, e.g., J.W. Elphinstone, After Foreclosure, Crime Moves In, Boston Globe, Nov. 18, 2007 

(describing Atlanta neighborhood now plagued by house fires, prostitution, vandalism and burglaries); Dan Immergluck & Geoff Smith, The Impact of Single-Family Mortgage Foreclosures 

on Neighborhood Crime, 21 Housing Stud. 851 (2006), available at www.prism.gatech.edu/di17/ 

housingstudies.doc (calculating that for every 1 percent increase in the foreclosure rate in a census tract there is a corresponding 2 percent increase in the violent crime rate). 11See, e.g., Staff of the J. Economic Comm., 110th Cong., 1st Sess., The Subprime Lending 

Crisis: The Economic Impact on Wealth, Property Values and Tax Revenues, and How We Got 

Here (2007), available at http://jec.senate.gov/index.cfm?FuseAction=Reports.Reports&Content 

Recordlid=c6627bb2-7e9c-9af9-7ac7-32b94d398d27&Regionlid=&Issuelid= (projecting fore- closed home owners will lose $71 billion due to foreclosure crisis, neighbors will lose $32 billion, 

and state and local governments will lose $917 million in property tax revenue); William C. 

Apgar, Mark Duda, & Rochelle Nawrocki Gorey, The Municipal Cost of Foreclosures: A Chicago 

Case Study (Hous. Fin. Policy Research Paper), 2005, at 1, www.995hope.org/content/pdf/ 

ApgarlDudalStudylFulllVersion.pdf. 

• The second lien program should be further developed to promote coordination 

with first lien modifications; servicers should be required to participate in both 

programs. 

—Data collection and reporting should provide broad, detailed information in 

order to support the best HAMP outcomes. 

II. Foreclosures Far Outweigh Loan Modifications. 

Goldman Sachs estimates that, starting at the end of the last quarter of 2008 

through 2014, 13 million foreclosures will be started.5 At the end of the first quarter 

of 2009, more than 2 million houses were in foreclosure.6 Over twelve percent of all 

mortgages had payments past due or were in foreclosure and over 7 percent were 

seriously delinquent—either in foreclosure or more than 3 months delinquent.7

These spiraling foreclosures weaken the entire economy and devastate the communities in which they are concentrated.8 Neighbors lose equity; 9 crime increases; 10 tax revenue shrinks.11 Communities of color remain at the epicenter of the crisis; 
206 

12 See, e.g., Michael Powell & Janet Roberts, Minorities Affected Most as New York Foreclosures Rise, N.Y. Times, May 15, 2009; Mortgage Foreclosure Filings in Pennsylvania: A Study 

by the Reinvestment Fund for the Pennsylvania Department of Banking 36 (Mar. 2005), available at www.trfund.com/policy/palforeclosures.htm; Paul Calem, Kevin Gillen & Susan 

Wachter, The Neighborhood Distribution of Subprime Mortgage Lending, 29 J. Real Estate Fin. 

& Econ. 393 (2004); Ira Goldstein, The Reinvestment Fund, Predatory Lending: An Approach 

to Identify and Understand Predatory Lending (2002) (showing that areas within the city of 

Philadelphia that are predominately African American or Latino also tended to have higher concentrations of foreclosure sales and were more vulnerable to predatory lending); cf. AARP Pub. 

Pol’y Inst., A First Look at Older Americans and the Mortgage Crisis 5 (2008), http://assets.aarp.org/rgcenter/econ/i9lmortgage.pdf (African Americans and Hispanics are foreclosed 

on at roughly three times the rate of white Americans). 13Manuel Adelino, Kristopher Gerardi & Paul S. Willen, Why Don’t Lenders Renegotiate More 

Home Mortgages? Redefaults, Self-Cures, and Securitization 35 (Fed. Reserve Bank of Boston 

Pub. Pol’y Paper No. 09–4, July 6, 2009), available at http://www.bos.frb.org/economic/ppdp/ 

2009/ppdp0904.pdf. 14 Alan M. White, Deleveraging the American Homeowner: The Failure of 2008 Voluntary 

Mortgage Modification Contracts, Conn. L. Rev. 12–13 (forthcoming 2009), available at http:// 

papers.ssrn.com/sol3/papers.cfm?abstractlid=1325534. 15See Ben S. Bernanke, Chairman, Bd. of Governors, Fed. Reserve Sys., Address at the Federal Reserve System Conference on Housing and Mortgage Markets (Dec. 4, 2008), available at 

http://www.Federalreserve.gov/newsevents/speech/bernanke20081204a.htm#f12 (noting that 

the number of foreclosures has more than doubled from pre-crisis levels). 16See, e.g., Gretchen Morgenson, Fair Game—So Many Foreclosures, So Little Logic, N.Y. 

Times, July 4, 2009 (reporting that modifications peaked in February 2009 and have since declined while the number of foreclosures and delinquencies has continued to rise); California Reinvestment Coalition, The Ongoing Chasm Between Words and Deeds: Abusive Practices Continue to Harm Families and Communities in California (2009) (reporting observations by housing counselors that loan modifications declined in the second quarter); Home Foreclosures: Will 

Voluntary Mortgage Modification Help Families Save Their Homes?: Hearing Before the 

Subcomm. on Commercial and Administrative Law of the H. Comm. on the Judiciary, 111th 

Cong. (2009) (testimony of Alan M. White). 17Manuel Adelino, Kristopher Gerardi & Paul S. Willen, Why Don’t Lenders Renegotiate More 

Home Mortgages? Redefaults, Self-Cures, and Securitization (Fed. Reserve Bank of Boston Pub. 

Pol’y Paper No. 09–4, July 6, 2009), available at http://www.bos.frb.org/economic/ppdp/2009/ 

ppdp0904.pdf. 18 Alan White, Rewriting Contracts, Wholesale: Data on Voluntary Mortgage Modifications 

from 2007 and 2008 Remittance Reports, Fordham Urb. L. J. 20 (forthcoming 2009), available 

at http://papers.ssrn.com/sol3/papers.cfm?abstractlid=1259538# 19Office of the Comptroller of the Currency & Office of Thrift Supervision, OCC and OTS 

Mortgage Metrics Report: Disclosure of National Bank and Federal Thrift Mortgage Loan Data, 

First Quarter 2009, at 5 (June 2009), available at http://files.ots.treas.gov/482047.pdf. 20Office of the Comptroller of the Currency & Office of Thrift Supervision, OCC and OTS 

Mortgage Metrics Report: Disclosure of National Bank and Federal Thrift Mortgage Loan Data, 

First Quarter 2009, at 6 (June 2009), available at http://files.ots.treas.gov/482047.pdf. 

targeted for subprime, abusive lending, they now suffer doubly from extraordinarily 

high rates of foreclosure and the assorted ills that come with foreclosure.12

Modifications have not made a dent in the burgeoning foreclosures. A recent 

paper in the Boston Federal Reserve Bank’s Public Policy series found that less 

than 8 percent of all the loans 60 days or more delinquent were modified during 

2007–200813 Professor Alan White, in examining pools of securitized mortgages, 

found that the number of modifications varied dramatically by servicer, ranging 

from servicers who modified as many as 35 percent of the loans in foreclosure to 

as few as 0.28 percent of the loans in foreclosure in November 2008.14 Even at the 

high end of 35 percent of all mortgages in foreclosure, the modification rate is not 

enough to reduce the foreclosure rate to pre-crisis levels.15 HAMP has not yet improved the situation: although modifications increased during the first quarter of 

2009, all data indicate that the number and rate of total modifications fell back during the second quarter.16

Worse, the modifications offered pre-HAMP (and presumably still by servicers not 

offering HAMP modifications) were overwhelmingly ones that increased the borrower’s payment and principal balance. Only about 3 percent of the delinquent loans 

studied in Boston Federal Reserve Bank paper received modifications that reduced 

the payment.117 Professor White’s data shows that, in the aggregate, modifications 

increase the principal balance.18 While the first quarter 2009 data from the OCC 

and OTS shows that a majority of the modifications (excluding short term payment 

plans or forbearance agreements) decreased the payment, most of those modifications also increased the principal balance by capitalizing arrears.19 Unsurprisingly, 

redefault rates on loan modifications remain high.20
207 

21 United States Department of the Treasury, Making Home Affordable Progress Report, May 

14, 2009, available at http://www.treas.gov/press/releases/docs/05142009ProgressReport.pdf. 22 United States Department of the Treasury, Making Home Affordable Progress Report, May 

14, 2009, available at http://www.treas.gov/press/releases/docs/05142009ProgressReport.pdf. 23Tami Luhby, Obama mortgage plan needs work: Many borrowers are not getting help under 

president’s modification or refinancing plan, CNN Money.com, July 8, 2009; Press Conference 

by the President, The White House, Office of the Press Secretary (June 23, 2009), available at 

http://www.whitehouse.gov/thelpressloffice/Press-Conference-by-the-President-6-23-09/ (‘‘Our 

mortgage program has actually helped to modify mortgages for a lot of our people, but it hasn’t 

been keeping pace with all the foreclosures that are taking place,’’). 24Mortgage Bankers’ Ass’n, Nat’l Delinquency Survey Q109 at 4 (2009) (reporting that 3.85 

percent of 44,979,733 mortgages surveyed were in foreclosure in the first quarter and that 1.37 

percent of mortgages surveyed had foreclosure starts in the first quarter; the MBA survey data 

covers 80 percent of the mortgage market, so the numbers are extrapolated by dividing the MBA 

numbers by 80 percent). 25See, e.g., Peter S. Goodman, Promised Help Is Elusive for Some Homeowners, N.Y. Times, 

June 3, 2009. 26Peter S. Goodman, Paper Avalanche Buries Plan to Stem Foreclosures, N.Y. Times, June 29, 

2009) (quoting Michael Barr, Assistant Secretary for Financial Institutions at the Treasury Department: ‘‘They need to do a much better job on the basic management and operational side 

of their firms . . . What we’ve been pushing the servicers to do is improve their infrastructure 

to make sure their call centers are doing a better job. The level of training is not there yet.’’). 27See, e.g., California Reinvestment Coalition, The Ongoing Chasm Between Words and Deeds: 

Abusive Practices Continue to Harm Families and Communities in California (2009); Peter S. 

Goodman, Paper Avalanche Buries Plan to Stem Foreclosures, N.Y. Times, June 29, 2009. 28 Home Foreclosures: Will Voluntary Mortgage Modification Help Families Save Their Homes? 

Hearing Before the Subcomm. on Commercial and Administrative Law of the H. Comm. on the 

Judiciary, 111th Cong. (2009) (testimony of Alan M. White) (65 percent loss severity rates on 

foreclosures in June 2009). 29 Home Foreclosures: Will Voluntary Mortgage Modification Help Families Save Their Homes? 

Hearing Before the Subcomm. on Commercial and Administrative Law of the H. Comm. on the 

Judiciary, 111th Cong. (2009) (testimony of Alan M. White). 

The official numbers available to date on the HAMP program reflect a modest 

start at best.21 The good news is that, on paper at least, 75 percent of all the loans 

in the country should be covered by HAMP.22 The bad news is that only 55,000 trial 

modifications have been offered and only 300,000 letters with information about 

trial modifications have been sent to homeowners. As the President acknowledges, 

foreclosures still outnumber modifications under the program.23 The 300,000 letters 

containing information about trial modifications are obscured by the more than 2 

million homeowners in foreclosure and the over 770,000 new foreclosure starts in 

the first quarter alone.24

Servicers are still staffing up to deal with homeowners in distress.25 Administration officials have admitted that the industry is not yet up to the task.26 The 

progress servicers have made in hiring loan modification staff, although real, is not 

keeping up with the numbers of foreclosures filed by those same servicers. 

We do not yet have any data on the characteristics or performance of the HAMP 

loan modifications. However, extensive reports from advocates around the country 

show that the quality of loan modifications offered too often does not comport with 

HAMP guidelines. Advocates for homeowners continue to report problems with implementation of the program.27 Servicers are all too often refusing to do HAMP 

modifications, soliciting a waiver of homeowners’ rights to a HAMP review, and 

structuring offered modifications in ways that violate HAMP. These violations may 

be harder to detect than the gross failure of servicers to date to process a meaningful number of modifications, but they will vitiate HAMP just as surely. 

III. Servicers’ Lack of Alignment with the Interests of Investors or Homeowners Contributes to the Failure to Do Loan Modifications. 

As discussed above, despite widespread calls for more modifications, the number 

of modifications remains paltry compared to the number of foreclosures. And investors are losing mind-boggling large sums of money on foreclosures.28 The available 

data suggests that investors lose ten times more on foreclosures than they do on 

modifications.29

A. Servicers Have Different Interests Than Investors. 

In attempting to make sense of this puzzle, we should remember that servicers 

are not investors. Investors hold the note, or a beneficial interest in it, and are, in 

general, entitled to repayment of the interest and principal. Servicers collect the 

payments from the homeowners on behalf of the investors. The bulk of their income 

comes from a percentage payment on the outstanding principal balance in the pool; 

the bulk of their net worth is tied to the value of the mortgage servicing rights they 

purchased. A servicer may or may not lose money—or lose it in the same amounts 
208 

30See, e.g., In re Taylor, 2009 WL 1885888 (Bankr.E.D.Pa. Apr 15, 2009). 31See Joseph R. Mason, Servicer Reporting Can Do More for Modification than Government 

Subsidies 17 (Mar. 16, 2009), http://papers.ssrn.com/sol3/papers.cfm?abstractlid=1361331 

(noting that ‘‘servicers’ contribution to corporate profits is often . . . tied to their ability to keep 

operating costs low’’). 32Larry Cordell, Karen Dynan, Andreas Lehnert, Nellie Liang, & Eileen Mauskopf, The Incentives of Mortgage Servicers: Myths and Realities 9–10 (Fed. Reserve Bd. Fin. & Econ. Discussion 

Series Div. Research & Statistical Affairs Working Paper No. 2008–46); State Foreclosure Prevention Working Group, Analysis of Subprime Mortgage Servicing Performance, Data Report 

No. 3 at 8 (2008), http://www.csbs.org/Content/NavigationMenu/Home/SFPWGReport3.pdf; 

Preston DuFauchard, California Department of Corporations, Loss Mitigation Survey Results 4 

(Dec. 11, 2007); cf. Aashish Marfatia, Moody’s, U.S. Subprime Market Update November 2007 

at 3 (2008) (expressing concern as to servicers’ abilities to meet staffing needs). 33 Joseph R. Mason, Mortgage Loan Modification: Promises and Pitfalls 7 (Oct. 3, 2007), available at papers.ssrn.com/sol3/papers.cfm?abstractlid=1027470. 34See, e.g., Ben S. Bernanke, Chairman, Bd. of Governors of the Federal Reserve System, 

Speech at the Federal Reserve System Conference on Housing and Mortgage Markets: Housing, 

Mortgage Markets, and Foreclosures (Dec. 4, 2008), available at http://www.Federalreserve.gov/ 

newsevents/speech/bernanke20081204a.htm (‘‘The rules under which servicers operate do not always provide them with clear guidance or the appropriate incentives to undertake economically 

sensible modifications.’’). 

or on the same scale—when an investor loses money. And it is servicers, not investors, who are making the day-to-day, on the ground, decisions as to whether or not 

to modify any given loan. 

Servicers continue to receive most of their income from acting as largely automated pass-through accounting entities, whose mechanical actions are performed 

offshore or by personified computer systems.30 Their entire business model is predicated on making money by skimming profits from what they are collecting: through 

a fixed percentage of the total loan pool, fees charged homeowners for default, interest income on the payments during the time the servicer holds them before they are 

turned over to the owners, and affiliated business arrangements. Servicers make 

their money largely through lucky or strategic investment decisions: purchases of 

the right pool of mortgage servicing rights and the correct interest hedging decisions. Performing large numbers of loan modifications would cost servicers upfront 

money in fixed overhead costs, including staffing and physical infrastructure. 

B. Servicers’ Business Model Involves As Little Service As Possible. 

As with all businesses, servicers add more to their bottom line to the extent that 

they can cut costs.31 Servicers have cut costs by relying more on voicemail systems 

and less on people to assist homeowners, by refusing to respond to homeowners’ inquires and by failing to resolve borrower disputes. Servicers sometimes actively discourage homeowners from attempting to resolve matters. As one attorney in Michigan attempting to arrange a short sale with Litton reports, the voice mail warns 

‘‘If you leave more than one message, you will be put at the end of the list of people 

we call back.’’ Recent industry efforts to ‘‘staff-up’’ loss mitigation departments have 

been woefully inadequate.32 As a result, servicers remain unable to provide affordable and sustainable loan modifications on the scale needed to address the current 

foreclosure crisis. Instead homeowners are being pushed into short-term modifications and unaffordable repayment plans. 

Creating affordable and sustainable loan modifications for distressed homeowners 

on a loan-by-loan basis is labor intensive.33 Under many current pooling and servicing agreements, additional labor costs incurred by servicers engaged in this process are not compensated by the loan owner. By contrast, servicers’ costs in pursuing 

a foreclosure are compensated. In a foreclosure, a servicer gets paid before an investor; in a loan modification, the investor will usually continue to get paid first. Under 

this cost and incentive structure, it is no surprise that servicers continue to push 

homeowners into less labor-intensive repayment plans, non-HAMP loan modifications, or foreclosure. 

Post hoc reimbursement for individual loan modifications is not enough to induce 

servicers to change their existing business model. This business model—of fee-collecting and fee-skimming—has been extremely profitable. A change in the basic 

structure of the business model to active engagement with homeowners is unlikely 

to come by piecemeal tinkering with the incentive structure. Indeed, some of the attempts to adjust the incentive structure of servicers have resulted in confused and 

conflicting incentives, with servicers rewarded for some kinds of modifications, but 

not others,34 or told both to proceed with a foreclosure and with a modification. 

Until recently, servicers received little if any explicit guidance on which modifications were appropriate and were largely left to their own devices in determining 
209 

35 American Securitization Forum, Discussion Paper on the Impact of Forborne Principal on 

RMBS Transactions 1 (June 18, 2009), available at http://www.americansecuritization.com/ 

uploadedFiles/ASFlPrincipallForbearancelPaper.pdf. 36See Helping Families Save Their Homes: The Role of Bankruptcy Law: Hearing Before the 

S. Comm. on the Judiciary, 110th Cong., 2nd Sess. (Nov. 19, 2008), available http://judiciary.senate.gov/hearings/testimony.cfm?renderforprint=1&id=3598&witlid=4083 (statement of 

Russ Feingold, Member, Sen. Comm. on the Judiciary) ( ‘‘One thing that I think is not well understood is that because of the complex structure of these securitized mortgages that are at the 

root of the financial calamity the Nation finds itself in, voluntary programs to readjust mortgages may simply be doomed to failure.’’). 37See National Consumer Law Center, Foreclosures, Ch. 6 (2d ed. 2007 & Supp.) (describing 

the most common mortgage servicing abuses). 38See, e.g., Ocwen Fin. Corp., Annual Report (Form 10–K), at 3 (Mar. 17, 2008) (typically receive 50 basis points annually on the total outstanding principal balance of the pool). 39 Anthony Pennington-Cross & Giang Ho, Loan Servicer Heterogeneity & The Termination 

of Subprime Mortgages 2 (Fed. Res. Bank of St. Louis Working Paper No. 2006–024A); 26 NCLC 

Reports, Follow the Money: How Servicers get Paid May/June 2008. 40See generally In re Stewart, 391 B.R. 327, 336 (Bankr.E.D.La. 2008) (overviewing servicer 

compensation). 41See, e.g., Ocwen Fin. Corp., Annual Report (Form 10–K), at 3 (Mar. 17, 2008); Kurt Eggert, 

Limiting Abuse and Opportunism by Mortgage Servicers, 15 Housing Pol’y Debate 753, 758 

(2004). 

what modifications to make.35 In the face of an entrenched and successful business 

model, fragmented oversight, and weak, inconsistent, and post hoc incentives, 

servicers need powerful motivation to perform significant numbers of loan modifications. Servicers clearly have not yet received such powerful motivation. 

Servicers may make a little money by making a loan modification, but it will definitely cost them something. On the other hand, failing to make a loan modification 

will not cost the servicer any significant amount out-of-pocket, whether the loan 

ends in foreclosure or cures on its own. Until servicers face large and significant 

costs for failing to make loan modifications, until servicers are actually at risk of 

losing money if they fail to make modifications, no incentive to make modifications 

will work. What is lacking in the system is not a carrot; what is lacking is a stick.36

Servicers must be required to make modifications, where appropriate, and the penalties for failing to do so must be certain and substantial. 

C. Servicers Maximize Income in Ways that Hurt Both Homeowners and Investors. 

Servicers are designed to serve investors, not borrowers. Despite the important 

functions of mortgage servicers, homeowners have few market mechanisms to employ to ensure that their needs are met. Rather, in the interest of maximizing profits, servicers have engaged in a laundry list of bad behaviors, which have considerably exacerbated foreclosure rates, to the detriment of both investors and homeowners.37

Most servicers derive the majority of their income based on a percentage of the 

outstanding loan principal balance.38 For most pools, the servicer is entitled to take 

that compensation from the monthly collected payments, even before the highestrated certificate holders are paid. The percentage is set in the PSA and can vary 

somewhat from pool to pool, but is generally 25 basis points for prime loans and 

50 basis points for subprime loans.39 This compensation may encourage servicers to 

refuse principal reductions and to seek capitalizations of arrears and other modifications that increase the principal balance. 

Servicers also receive fees paid by homeowners and the ‘‘float’’—the interest 

earned on funds they are holding prior to their disbursement to the trust.40 For 

many subprime servicers, late fees alone constitute a significant fraction of their 

total income and profit.41 Servicers thus have an incentive to push homeowners into 

late payments and keep them there: if the loan pays late, the servicer is more likely 

to profit than if the loan is brought and maintained current. Float income encourages servicers to delay turning over payments to investors for as long as possible. 

For servicers, their most important asset is the value of their mortgage servicing 

rights. Whether or not the servicer made the correct speculative investment decision 

when it bought the mortgage servicing rights to a pool of mortgages does more to 

shape its profitability than any other single factor. A servicer’s performance has 

only a marginal impact on the performance of the loan pool; the way a servicer increases its net worth is not by doing a top-notch job of servicing distressed mortgages but by gambling on market trends. Servicers with thin margins may need to 

squeeze all they can out of increasing performance from delinquent loans; servicers 

with stronger pools are likely to be less invested in the performance of the loans 
210 

42 Vikas Bajaj & John Leland, Modifying Mortgages Can Be Tricky, N.Y. Times, Feb. 18, 2009 

(reporting views of Credit Suisse analyst that ‘‘[s]maller companies . . . that are under more 

financial pressure and have more experience in dealing with higher-cost loans have been most 

aggressive in lowering payments’’ than larger companies, who offer weaker modifications). 43Manuel Adelino, Kristopher Gerardi & Paul S. Willen, Why Don’t Lenders Renegotiate More 

Home Mortgages? Redefaults, Self-Cures, and Securitization 35 (Fed. Reserve Bank of Boston 

Pub. Pol’y Paper No. 09–4, July 6, 2009), available at http://www.bos.frb.org/economic/ppdp/ 

2009/ppdp0904.pdf. In addition to the overall limitations of a theoretical economic model to explain the complex web of interacting motivations impacting the numbers of loan modifications, 

there appear to be some errors in the model, even as a theoretical exercise. For example, the 

model assumes that the value of the unmodified loan is the greater of the unpaid principal balance or the value of the home, after adjusting for the costs of the foreclosure. But, in fact, it 

should be the lesser of the two. A foreclosing lender cannot legally recover more than the unpaid 

principal balance and is practically unlikely to recover more than the net foreclosure value of 

the home. This error results in an overstatement of the value of foreclosure, particularly in a 

market where home prices are declining, and thus undervalues modifications. 44 Alan White, Rewriting Contracts, Wholesale: Data on Voluntary Mortgage Modifications 

from 2007 and 2008 Remittance Reports, Fordham Urb. L. J. 17–18 (forthcoming 2009), available at http://papers.ssrn.com/sol3/papers.cfm?abstract—id=1259538#; see also Aashish 

Marfatia, Moody’s, U.S. Subprime Market Update November 2007 at 5 (2008) (reporting that 

half of all active loans facing reset in the first three-quarters of 2007 refinanced; more than onequarter of all remaining loans refinanced after reset); State Foreclosure Prevention Working 

Group, Analysis of Subprime Mortgage Servicing Performance, Data Report No. 3 at 8 (2008), 

http://www.csbs.org/Content/NavigationMenu/Home/SFPWGReport3.pdf (reporting that 23 

percent of closed loss mitigation efforts in May 2008 were either refinancings or reinstatements 

in full by the borrower). 45David Streitfeld, Tight Mortgage Rules Exclude Even Good Risks, N.Y. Times, July 10, 2009. 46 Home Foreclosures: Will Voluntary Mortgage Modification Help Families Save Their Homes? 

Hearing Before the Subcomm. on Commercial and Administrative Law of the H. Comm. on the 

Judiciary, 111th Cong. (2009) (testimony of Alan M. White). 47These numbers are derived from an analysis by Professor Alan White. His comment on the 

study is Attachment E of this testimony. 48Manuel Adelino, Kristopher Gerardi & Paul S. Willen, Why Don’t Lenders Renegotiate More 

Home Mortgages? Redefaults, Self-Cures, and Securitization 24 (Fed. Reserve Bank of Boston 

Pub. Pol’y Paper No. 09–4, July 6, 2009), available at http://www.bos.frb.org/economic/ppdp/ 

2009/ppdp0904.pdf. 

they manage.42 This dynamic leaves many servicers indifferent to the performance 

of the loans they service and unmotivated to hire and train the staff needed to improve performance. 

D. The Possibility of Cure Does Not Explain Servicers’ Failure to Make 

Loan Modifications in the Current Market. 

A recent paper co-authored by my fellow panelist this morning, Paul Willen, confirms that extremely few loan modifications are being done and, in an attempt to 

solve the puzzle, propounds an economic model to explain the dearth of loan modifications.43 Under the terms of that economic model, investors recover more if a borrower brings the loan current or refinances than if the lender modifies the loan. 

This is a commonsense and unobjectionable observation. Both the FDIC Loan Modin-a-Box NPV test and the HAMP NPV test build in the likelihood of cure in determining whether a loan modification or foreclosure is the more profitable path for 

investors. 

In more normal times, it is surely rational for a servicer to spare itself the time 

and expense of modifying a loan in favor of the possibility of cure. In normal times, 

when cure rates exceeded foreclosure rates, an investor would have little objection 

to the wait-and-see-approach.44 However, this model cannot explain the failure to 

perform loan modifications when we observe real world conditions: dropping cure 

rates, due in part to the restricted ability to refinance, even for homeowners with 

high credit scores;45 homes so deeply underwater that investors lose 65 percent of 

the mortgage debt on average in foreclosure;46 and a lack of other, more attractive 

places, to invest funds. If we take the 30 percent cure rate documented for loans 

during 2007 and 2008 in the paper co-authored by Mr. Willen, assume, as the FDIC 

did in its NPV calculations, that 40 percent of all loan modifications will end in redefault, and assume loss severity ratios of 60 percent if the loan is foreclosed on 

immediately or 70 percent if it is foreclosed on after a redefault (to reflect the dropping home prices and potential loss of upkeep by a struggling homeowner), investors 

will still save money if loan modifications reduce the current present value of the 

loan by as much as 20 percent.47

Mr. Willen and his co-authors suggest that the lack of outcry by investors against 

servicers demonstrates that servicers are acting in what the investors perceive as 

their best interest.48 First, the premise that investors have been silent is not correct. Leading groups representing investors have urged more and deeper loan modi-
211 

49See, e.g., American Securitization Forum, Statement of Principles, Recommendations, and 

Guidelines for the Modification of Securitized Subprime Residential Mortgage Loans 2 (June 

2007). 50 Indeed, PSAs usually allow a trustee to increase its monitoring of a servicer only in the 

case of a narrowly circumscribed list of triggering events, primarily financial defaults. Michael 

Laidlaw, Stephanie Whited, Mary Kelsch, Fitch Ratings, U.S. Residential Mortgage Servicer 

Bankruptcies, Defaults, Terminations, and Transfers 2 (2007). 51See, e.g., Joseph R. Mason, Servicer Reporting Can Do More for Modification than Government Subsidies 14 (Mar. 16, 2009), http://papers.ssrn.com/sol3/papers.cfm?abstractlid=1361331 (‘‘The point is, the investor has to completely trust the servicer 

to act in their behalf, often in substantially unverifiable dimensions.’’). 52 Home Foreclosures: Will Voluntary Mortgage Modification Help Families Save Their Homes? 

Hearing Before the Subcomm. on Commercial and Administrative Law of the H. Comm. on the 

Judiciary, 111th Cong. (2009) (testimony of Alan M. White). 53Manuel Adelino, Kristopher Gerardi & Paul S. Willen, Why Don’t Lenders Renegotiate More 

Home Mortgages? Redefaults, Self-Cures, and Securitization 8 (Fed. Reserve Bank of Boston 

Pub. Pol’y Paper No. 09–4, July 6, 2009), available at http://www.bos.frb.org/economic/ppdp/ 

2009/ppdp0904.pdf. 54 Ben S. Bernanke, Chairman, Bd. of Governors, Fed. Reserve Sys., Address at the Federal 

Reserve System Conference on Housing and Mortgage Markets (Dec. 4, 2008), available at 

http://www.Federalreserve.gov/newsevents/speech/bernanke20081204a.htm#f12. 

fications.49 Second, to the extent that some investors have been silent, we cannot 

assume that their silence means that they are happy with servicers’ actions. Given 

the lack of effective control investors exercise over servicers, it would be wrong to 

construe that silence as agreement with servicers’ decisions to decline modifications 

in favor of a chimerical cure. The large, private-label pools that contain most 

subprime loans are passive investment vehicles. Trustees, on behalf of the trust, can 

in exceptional cases fire a servicer, but this right is rarely invoked, usually only 

when the servicer is no longer able to pay the advances due on the borrowers’ 

monthly payments.50 Thus, although servicers are nominally accountable to investors, investors are, in most cases, no more powerful than borrowers to provide direction to a servicer.51

The work of Mr. Willen and his co-authors is an important contribution to understanding the nature and quantity of the loan modifications performed. The study 

does not tell us why loan modifications are not being done, however. The study does 

not run actual net present value analyses on actual loans: many loans that it would 

not make sense to modify in a market with rising home prices, easy refinancing, 

and plentiful alternative investment channels do make sense, purely from the standpoint of financial return to investors, to modify in today’s economic market. The 

paper presents no hard data on whether or not servicers, in this climate, are serving 

the best interests of investors in refusing to modify loans. Servicers, moreover, may 

have different incentives than investors, and it is not clear that servicers do always 

make loan modification based upon the best interests of the trust as a whole. 

What we know from this study is that servicers are not making modifications. We 

believe that more modifications could be made that would serve the interests of both 

investors and homeowners, as well as the national economy. As Professor Alan 

White noted in his testimony last week before a House subcommittee,52 and as the 

authors acknowledge,53 there may be compelling public policy reasons to increase 

the number of modifications. Foreclosures impose high costs on families, neighbors, 

extended communities, and ultimately our economy at large.54 It would be shortsighted indeed to fail to act. 

IV. HAMP Design and Implementation Present Substantial Barriers to High 

Volume, High Quality Loan Modifications 

HAMP offers real hope for increasing both the quantity and the quality of loan 

modifications made. By mandating a take-one, take-all policy, requiring servicers of 

GSE loans to modify loans, and standardizing the loan modification process, HAMP 

should increase the total number of modifications. By mandating affordable payments, limiting the fees charged, and permitting principal reductions, HAMP will 

increase the quality of the loan modifications offered. 

HAMP is a significant step forward from previous loan modification programs. Yet 

the program has significant limitations both in design and implementation. HAMP’s 

ability to guarantee an increase in sustainable modifications is dependent on voluntary servicer participation in the program. Several large servicers are still not 

participating, and the patchwork coverage is confusing to homeowners and their advocates alike. 

More seriously, homeowners have no leverage to obtain a HAMP loan modification 

from even a participating servicer. It is unclear if the Administration’s compliance 

efforts will be able to detect and remedy servicer noncompliance. Similarly, whether 
212 

55See, e.g., Roberto G. Quercia, Lei Ding, Janneke Ratcliffe, Loan Modifications and Redefault 

Risk: An Examination of Short-Term Impact (Center for Community Capital, March 2009), 

available at http://www.ccc.unc.edu/documents/LMlMarch3l%202009lfinal.pdf. 56See Attachment A, Ocwen Loan Servicing Loan Modification Agreement dated June 1, 2009 

(seeking waiver of all legal rights by homeowner) Attachment B, Aurora Loan Services ‘‘workout 

agreement’’ dated May 20, 2009 (seeking homeowner admission of default and stating that the 

trial payments will not remove the homeowner from delinquency). 57See, e.g., Attachment C (Chase Agreement seeking to obtain waiver of homeowner’s right 

to a HAMP loan modification in favor of a non-HAMP loan modification offered prior to March 

4, 2009). 58See, e.g., Attachment D (WaMu HAMP trial plan agreement requiring waiver of HAMP loan 

modification if homeowner later enters bankruptcy). 

or not HAMP’s equalization of the incentives between principal and interest rate reductions will be enough to boost the number of modifications that reduce principal 

remains to be seen. Since loan modifications with principal reductions appear to 

have the lowest redefault rates,55 HAMP’s long-term success may be contingent on 

increasing the number of loan modifications with principal reductions and its great 

weakness in ensuring sustainable modifications may be its failure to mandate principal reductions. 

A. Problems with Servicers’ Implementation of HAMP Plague Homeowners 

Seeking Loan Modifications. 

Servicers’ compliance with HAMP is, at best, erratic. There is widespread violation of the HAMP guidelines across many servicers. The lack of compliance arises 

in part from obvious and persistent short falls in staffing and training. Yet some 

of the violations of HAMP are embodied in form documents, perhaps reflecting a 

more conscious attempt to evade the HAMP requirements. Lack of transparency 

prevents homeowners from identifying violations. Lack of accountability prevents 

homeowners from obtaining any redress when violations are identified. 

1. Participating servicers violate existing HAMP guidelines. 

Waivers of claims and defenses are still being required by servicers. 

The HAMP rollout language prohibits waivers of legal rights. Yet servicers still 

are seeking waivers from homeowners or an admission of default.56 We have 

learned of many instances in which servicers require homeowners to waive all 

claims and defenses in order to obtain a loan modification or even a loan modification review. Servicers also have asked homeowners to waive their right to a HAMP 

loan modification review in favor of a non-HAMP loan modification.57 Not only does 

this violate HAMP rules but it demonstrates bad faith. Some servicers also are requiring homeowners to sign a waiver that states that any HAMP loan modification 

will be suspended if the homeowner subsequently files for bankruptcy.58 These are 

form documents and thus unlikely to represent a random mistake by a line-level 

employee. 

Some participating servicers offer non-compliant loan modifications. 

All homeowners who request a HAMP review are entitled to one. Homeowners 

may elect a non-HAMP modification, but that should be the borrower’s choice, informed by disclosure of all modification options. 

Nonetheless, some servicers have told homeowners that they are providing a 

HAMP modification, only to provide documents that do not comport with the HAMP 

guidelines. These loan modifications are usually significantly less sustainable than 

a HAMP modification would be and often have higher costs. In addition to the waiver issue discussed above, advocates have been told that homeowners must pay large 

advance fees before a modification will be considered, homeowners have been required to complete hefty repayment plans before a review is conducted, and homeowners have been offered, as HAMP modifications, modifications limited to 5 years, 

with no limitation on interest rate increases after that time. Aurora, for example, 

represented to one advocate that it does not have the ‘‘right documents,’’ although 

they have been publicly available for months, and so instead offered the borrowers 

old forms that contain waivers and are otherwise not HAMP compliant. Select Portfolio Servicing has insisted that a New York borrower make payments at a 44 percent debt-to-income ratio instead of the 31 percent mandated by HAMP. 

Some participating servicers refuse to offer HAMP modifications. 

The HAMP servicer contracts require that participating servicers review all homeowners in default for HAMP eligibility and that any borrower who requests a HAMP 

review be granted one, even if the borrower is not yet in default. Homeowners not 

yet in default but who are at imminent risk of default are eligible for a HAMP modi-
213 

59See, e.g., Home Foreclosures: Will Voluntary Mortgage Modification Help Families Save 

Their Homes? Hearing Before the Subcomm. on Commercial and Administrative Law of the H. 

Comm. on the Judiciary, 111th Cong. (2009) (testimony of Irwin Trauss) (Saxon Mortgage ‘‘simply reject[s] homeowners for consideration under HAMP, for no reason that is in any way connected with the program requirements, with no notice of any kind to the homeowner or to her 

counsel.’’). 60See, e.g., Home Foreclosures: Will Voluntary Mortgage Modification Help Families Save 

Their Homes? Hearing Before the Subcomm. on Commercial and Administrative Law of the H. 

Comm. on the Judiciary, 111th Cong. (2009) (testimony of Irwin Trauss). 61Motion to Set Aside the Judgment, Modify the Loan, and Dismiss the Foreclosure, U.S. 

Bank National Ass’n as Trustee HEAT 2006–1 v. Pitman, No. 2008–CV–337 (Greene County, 

Ohio, 2009); Motion to Stay/Abate, Deutsche Bank Nat’l Trust Company, as Trustee for HIS 

Asset Securitization Trust 2007–HE1 v. Hoyne, No. 42–2009–CA–002178 (Marion County, Fla., 

2009). 62Gretchen Morgenson, Fair Game—So Many Foreclosures, So Little Logic, N.Y. Times, July 

4, 2009. 63See, e.g., Attachment A, Ocwen Loan Servicing Loan Modification Agreement dated June 

1, 2009. 

fication. Servicers may only refuse to perform a HAMP review if the pooling and 

servicing agreement (PSA) forbids modification. In that case, servicers are still expected to use all reasonable efforts to obtain an exception to the PSA. 

Staff at some participating servicers routinely refuse to do HAMP loan modifications.59 For example, in a New York case, the employee stated that the investor did 

not permit loan modifications, yet refused to produce a copy of the PSA or even 

identify the investor, much less attempt to obtain a release from the restrictions as 

required by HAMP. One California advocate pursuing a HAMP modification for a 

loan serviced by Wells Fargo was told repeatedly that the holder did not do modifications. After protracted discovery, the servicer identified the holder as Wells 

Fargo Home Mortgage. Wells Fargo Home Mortgage, of course, is owned by Wells 

Fargo Bank, a participating servicer under HAMP. In another case, a Select Portfolio Servicing representative said that the PSA prevented a HAMP modification, 

but could not provide the PSA due to ‘‘system errors.’’ Other times servicers tell 

homeowners that they are not participating or that they are only participating for 

GSE loans. Bank of America has told homeowners in both Pennsylvania and Florida 

that it is only modifying loans that are owned by the GSEs.60 Bank of America is 

a participating servicer under HAMP and therefore required to evaluate all loans 

for modification under HAMP. Some servicers have asserted that loans held by the 

GSEs require a higher debt-to-income ratio than HAMP, despite the implementation 

of nearly identical programs by both Fannie Mae and Freddie Mac. Advocates in 

both Ohio and Florida have been driven to file court documents to compel Wells 

Fargo to do a HAMP review and stay foreclosure proceedings, after Wells Fargo 

failed to complete a HAMP review.61

HAMP may even be causing a drop off in loan modifications. Loan modifications 

rose through the first quarter of the year, but fell after HAMP’s roll out in March.62

Bank of America informed an advocate that future HAMP modifications are put on 

hold while Treasury reviews Bank of America’s version of the Net Present Value calculation. Other advocates and homeowners have been told more generally that their 

servicer is participating but that the servicer does not yet have a program to evaluate homeowners for HAMP. Ocwen, for example, told an advocate on July 1 that 

it did not know when it would be rolling out its HAMP modifications. Ocwen signed 

a contract as a participating servicer on April 16, two and a half months earlier. 

One Brooklyn, New York advocate was told that the investor was not allowing any 

modifications because they were waiting for the Federal Government to act. In the 

meantime, of course, foreclosures continue. 

Servicers charge fees to homeowners for the modification. 

HAMP forbids any upfront payments as a precondition to review or trial modification. Several homeowners have reported being told by various servicers that they 

must make payments before being considered for HAMP.63 Sometimes these payments take the form of a special forbearance agreement or lump-sum payment of 

arrearages; other times it is less clear what the payment is for. 

A Bank of America loss mitigation representative informed a Pennsylvania homeowner’s counsel that if the homeowners paid $2,200.00 to Bank of America, then 

Bank of America would ‘‘consider’’ a loan modification. America’s Servicing Company, a division of Wells Fargo Home Mortgage, told a New York borrower that only 

upon completion of a 3-month repayment plan, followed by a balloon payment of 

$18,000, could the borrower be considered for HAMP. Select Portfolio Servicing representatives demanded a payment in the amount of the original mortgage payment 
214 

64Peter S. Goodman, Paper Avalanche Buries Plan to Stem Foreclosures, N.Y. Times, June 28, 

2009. 65Freda R. Savana, Some Banks Not With the Program, Bucks County Courier Intelligencer, 

July 14, 2009. 66See, e.g., Home Foreclosures: Will Voluntary Mortgage Modification Help Families Save 

Their Homes? Hearing Before the Subcomm. on Commercial and Administrative Law of the H. 

Comm. on the Judiciary, 111th Cong. (2009) (testimony of Irwin Trauss) (discussing a case involving Wells Fargo). 67Mortgage Servicing News Bull., July 14, 2009. 

in order to enter the trial period agreement in order to demonstrate the borrower’s 

‘‘good faith.’’ 

Servicers are continuing to initiate foreclosures and sell homes at foreclosure sales 

while the HAMP review is pending. 

HAMP requires that no foreclosures be initiated and no foreclosure sales be completed during a HAMP review, although existing foreclosure actions may be pursued 

to the point of sale. Reports from around the country indicate that servicers are routinely placing homeowners into foreclosure during a HAMP review and, far worse, 

selling the home at foreclosure while the homeowner is waiting on the outcome of 

the HAMP review. 

Servicers often negotiate loan modifications on a separate track from the personnel pursuing foreclosure. This structure results in homeowners being placed in 

foreclosure, and being subject to a foreclosure sale, while HAMP review is occurring. 

2. Servicer staffing and training still lag behind what is needed. 

Homeowners encounter numerous bureaucratic barriers in attempting to negotiate a 

loan modification. 

Homeowners’ loan files are routinely lost.64 Counselors report waits of months to 

hear back on review for a trial modification. In one case, Select Portfolio Services 

advised counsel for a New York borrower on three separate occasions over 6 weeks 

that the necessary broker price opinion had been canceled due to ‘‘system errors’’ 

and a new request would have to be submitted. A Florida homeowner had his 

HAMP trial modification canceled by Citimortgage for non-compliance, despite having submitted all required documents and payments as required, only to receive a 

HAMP solicitation letter the same day. His lawyer, in describing the situation to 

us, wrote, ‘‘It is driving the poor guy bananas.’’ 

To add insult to injury, homeowners are expected to return the documents within 

days of receipt. Homeowners in both New York and Florida have reported receiving 

the trial modification agreements the same day the servicer required their return. 

One Illinois homeowner received her trial modification agreement 3 days after she 

was required to return the agreement. 

Staff of participating servicers continue to display alarming ignorance of HAMP. 

Staff of participating servicers have told homeowners that HAMP does not exist. 

Several homeowners have reported being told to contact HUD since HAMP is a government program. HUD, of course, does not administer HAMP; participating 

servicers do. Bank of America apparently told the homeowners in one case that they 

were not eligible for HAMP because they were not in default.65 This misinformation 

was given to the homeowner despite the fact that servicers are given an additional 

$500 incentive payment for modifying a loan prior to default. In another case, Bank 

of America refused to modify a first lien position home equity line of credit, apparently under the belief that modifications of home equity lines of credit were banned 

as second liens, whether or not they actually were junior liens. 

In one case, Select Portfolio Servicing (SPS) claimed that it could only take 80 

percent of the applicants’ gross income into consideration, regardless of HAMP 

guidelines and that the clients would have to reduce their debt obligations by $300 

to be considered for a modification. The representatives appeared to be operating 

under SPS’s standard screening process for non-HAMP modifications and were not 

familiar with the HAMP standards. In the same case, another SPS representative 

claimed that the investor on the loan would only allow for payment modifications 

at 44 percent debt-to-income ratio, not the 31 percent mandated by HAMP. In many 

cases, it is not clear if staff are applying the net present value test or if they are 

applying it correctly.66

A recent blurb from Mortgage Servicing News Bulletin captures the problem: 

‘‘Confused About the Rescue Plan?’’ 67 Apparently many servicers are. 
215 

68 See, e.g., In re Stewart, 391 B.R. 327 (Bankr. E.D. La. 2008); In re Sacko, 394 B.R. 90 

(Bankr. E.D. Pa. 2008); In re Prevo, 394 B.R. 847 (Bankr. S.D. Tex. 2008); In re Porter, 399 

B.R. 113 (Bankr. D. N.H. 2008); Katherine Porter, Misbehavior and Mistake in Bankruptcy 

Mortgage Claims, 87 Tex. L. Rev 121 (2009). 

Non-participating servicers continue to represent themselves as participating in 

HAMP. 

Some servicers give conflicting information on whether or not they participate in 

HAMP. American Home Mortgage Servicing, for example, conveyed on its website, 

automated answering service, and through its loan modification staff that it was a 

participating servicer under HAMP. Yet at least some of the loan modifications it 

offered were not HAMP-compliant, nor is it, as of July 13, 2009, listed as a participating servicer. 

3. Lack of transparency is resulting in summary denials and other unreasonable acts by servicers. 

Even when servicers do a HAMP review, they sometimes use the wrong numbers, 

which advocates are only able to uncover after a protracted battle. In one case involving a New York borrower, Select Portfolio Servicing representatives initially advised that the clients were ineligible for a HAMP loan modification, based on their 

budget. When asked for clarification about the grounds for this determination, SPS 

representatives claimed that the clients’ expenses exceeded their income, making it 

impossible for them to afford their mortgage. Upon further discussion, it was revealed that SPS was using the clients’ original mortgage payment as an input value 

for these calculations, rather than the proposed modified payment amount that 

would have made their mortgage affordable. 

Some servicers are scrutinizing homeowner expenses and using back-end ratios as 

a basis for denying HAMP loan modifications. Back-end ratios, the ratio between 

all of the borrowers’ fixed monthly obligations and income, should not disqualify a 

borrower under HAMP unless the reduced payment will cause the borrower severe 

financial hardship; instead, homeowners with back-end ratios above 55 percent are 

to be referred to HUD-certified housing counselors. In other cases, homeowners are 

turned down for loan modifications without any explanation. 

Servicers refuse to provide the final payment amounts even when the borrower 

provides all verified information before the beginning of the trial modification period. In one case, 3 days after the servicer had supplied the borrower with the first 

set of trial modification documents and nearly 2 months after the borrower had submitted verified income information, the servicer increased the monthly payment 

amount, without any apparent justification. 

The permanent modifications offered often include arrears that are undocumented 

and apparently overestimated. While HAMP permits arrearages and some fees to 

be capitalized, HAMP does not permit unpaid late fees to be capitalized. Given the 

widespread practice by servicers of padding fees in foreclosure or bankruptcy,68

homeowners and their advocates have good reason to seek review of the legitimacy 

of the fees. 

Some servicers claim they are doing a large volume of modifications for homeowners not eligible for HAMP, as well as many HAMP loan modifications. Whether 

or not the homeowners with the non-HAMP modifications were in fact eligible for 

HAMP is uncertain. As discussed above and exemplified in Attachment C, some 

servicers are requiring homeowners to waive their eligibility for a HAMP review in 

order to obtain any modification. The lack of public accountability makes it impossible to know how many of those reported as ineligible for HAMP were, in fact, ineligible, and how many were simply steered away from HAMP modifications. 

In addition, determining whether or not any individual servicer is or is not participating is not trivial. As discussed above, some servicers represent themselves on 

their websites as participating, but fail to provide any HAMP review. As discussed 

below, confusion as to coverage of affiliated servicers is widespread. 

B. Certain HAMP Policies Must Be Changed To Provide Sustainable Modifications and Save Communities. 

1. Transparency must be improved. 

The NPV model for qualifying homeowners must be available to the public. 

A homeowner’s qualification for a loan modification under HAMP is determined 

primarily through an analysis of the Net Present Value (‘‘NPV’’) of a loan modification as compared to a foreclosure. The test measures whether the investor profits 

more from a loan modification or a foreclosure. Most investors require that servicers 
216 

69 American Securitization Forum, Statement of Principles, Recommendations and Guidelines 

for the Modification of Securitized Subprime Residential Mortgage Loans (June 2007), available 

at http://www.americansecuritization.com/uploadedFiles/ASF%20Subprime%20Loan%20Modifi 

cation%20Principlesl060107.pdf. 70We understand and appreciate that the Treasury Department is working on this issue. As 

is apparent, providing full information to the public on participating servicers is essential. 

perform some variant of this test prior to foreclosure.69 The outcome of this analysis 

depends on inputs including the homeowner’s income, FICO score, current default 

status, debt-to-income ratio, and property valuation, plus factors relating to future 

value of the property and likely price at resale. Participating servicers are required 

to apply this analysis to all homeowners who are 60 days delinquent and those at 

imminent risk of default. Homeowners and their advocates need access to the program to determine whether servicers have actually and accurately used the program 

in evaluating the homeowner’s qualifications for a HAMP modification. Without access to the NPV analysis, homeowners are entirely reliant on the servicer’s good 

faith. 

The lack of NPV transparency makes servicer turndowns hard to counteract. NPV 

turndowns must be detailed and in writing, and based on a transparent process that 

conforms to HAMP guidelines. 

The layers of documents governing HAMP, the guidelines, the Supplemental Directives, the various FAQ’s, and the servicer contracts, should be consolidated, reconciled, and clarified. 

Homeowners, their advocates, and servicers have no one source of guidance on 

HAMP. The initial guidelines differ slightly from the Supplemental Directives, and 

the FAQs provide different interpretations. All of this complicates compliance. 

Participating subsidiaries must be clearly identified 

Participating servicers may, but need not, require their subsidiaries to participate, 

so long as the subsidiary is a distinct legal entity. However, if the subsidiary is not 

a distinct legal entity, then the subsidiary must participate. The public list of participating servicers still does not make these distinctions clear. One example of the 

confusion is Wells Fargo. On financialstability.gov, Wells Fargo Bank is listed as a 

participating servicer. Wells Fargo Bank, N.A., is, according to the National Information Center maintained by the Federal Reserve, the parent company of Wells 

Fargo Home Mortgage. The contract posted on financialstability.gov variously represents the covered servicer as Wells Fargo Bank, N.A. (when giving the address 

for notices) and Wells Fargo Home Mortgage, a division of Wells Fargo Bank, N.A. 

(above the signature lines). Does this contract mean that both Wells Fargo Bank, 

N.A., and Wells Fargo Home Mortgage are covered? And is America’s Servicing 

Company, a division of Wells Fargo Home Mortgage also covered? The answer to 

both questions appears to be yes but has not been uncontested. Asking homeowners 

and counselors to wade through these legal relationships invites confusion and frustration.70

2. Mechanisms for enforcement and compliance should be adopted. 

All foreclosure proceedings must be stopped upon the initiation of a HAMP review, 

not just at the point before sale. 

While many servicers are placing homeowners in foreclosure and proceeding to 

sale in violation of HAMP guidelines (as described above), even compliance with the 

current rule is pushing homeowners into costlier loan modifications and tilting the 

scales toward foreclosure. In judicial foreclosure states, servicers are aggressively 

pursuing foreclosures while reviewing homeowners for loan modifications. As a result, homeowners are incurring thousands of dollars in foreclosure costs. Servicers 

either demand these payments upfront (an apparent violation of HAMP) or capitalize the costs without permitting any review by the homeowner. In either event, 

these costs make it harder to provide an affordable loan modification and the continuation of the foreclosure causes homeowners great stress. All foreclosure proceedings should be stayed while HAMP reviews occur. Staying the foreclosures during the pendency of a HAMP review would encourage servicers to expedite their 

HAMP reviews, rather than delaying them. 

Homeowners should be provided with an independent review process when denied a 

loan modification. 

It seems unlikely that all servicers will always accurately evaluate the qualifications of every homeowner who is eligible for HAMP. Homeowners who are wrongly 

denied must be afforded an independent review process to review and challenge the 

servicer’s determination that the borrower does not qualify for HAMP. 
217 

71 15 U.S.C. § 1681m. 72See Renae Merle & Dina ElBoghdady, Administration Fills in Mortgage Rescue Details, 

Wash. Post, Mar. 5, 2009 (reporting that one in five homeowners with a mortgage owe more on 

their mortgages than their home is worth). 73See, e.g., Kristopher Gerardi, Christopher L. Foote, & Paul S. Willen, Negative Equity and 

Foreclosure: Theory and Evidence (Fed. Reserve Bank of Boston Pub. Pol’y Paper No. 08–3, June 

2008); Andrey Pavlov & Susan Wachter, Aggressive Lending and Real Estate Markets (Dec. 20, 

2006), available at http://realestate.wharton.upenn.edu/newsletter/pdf/feb07.pdf. 74 Roberto G. Quercia, Lei Ding, Janneke Ratcliffe, Loan Modifications and Redefault Risk: An 

Examination of Short-Term Impact (Center for Community Capital, March 2009), available at 

http://www.ccc.unc.edu/documents/LMlMarchl%202009lfinal.pdf. 

Homeowners should have access to an ombudsman to address complaints about the 

process. 

Homeowners currently have no resource for addressing complaints, whether with 

a servicer’s failure to return phone calls or offer of a non-compliant modification. 

Any forum for addressing homeowners’ complaints must adhere to timelines for addressing complaints and provide public accounting as to the nature of the disputes 

and their resolution. 

Denials based in part on a borrower’s credit score should be accompanied by an adverse action notice under the Fair Credit Reporting Act. 

The Fair Credit Reporting Act requires that if an adverse action in the provision 

of credit is taken based in part on the borrower’s credit score that the borrower be 

advised of that adverse action and of the credit score upon which the decision was 

based.71 The reason for that requirement is that credit scores often have errors, 

which a borrower may correct—but only if the borrower is aware of the error. 

The Net Present Value test relies on credit scores to determine default and redefault rates. It is at least possible that those credit scores could result in the failure of the NPV test and the denial of a loan modification. Absent full transparency 

regarding the NPV calculation, homeowners are unlikely to know of the program’s 

reliance on their FICO score or, if they do, whether or not their FICO score was 

the cause of their denial for a HAMP modification. An adverse action notice alerts 

homeowners to the possibility that an incorrect FICO score—which could be corrected—might be the reason their servicer denied a HAMP modification. Without an 

adverse action notice homeowners have little opportunity to address any potential 

problems. 

3. The HAMP guidelines should be adjusted to provide more meaningful relief to homeowners without reducing their existing rights. 

Homeowners need principal reductions, not forbearance. 

Principal forgiveness is necessary to make loan modifications affordable for some 

homeowners. A significant fraction of homeowners owe more than their homes are 

worth.72 The need for principal reductions is especially acute—and justified—for 

those whose loans were not adequately underwritten and either 1) received Payment 

Option Adjustable Rate Mortgage loans that negatively amortize until as much as 

125 percent of the original balance is owed; or 2) obtained loans that were based 

on inflated appraisals. As a matter of equity and commonsense, homeowners should 

not be trapped in debt peonage, unable to refinance or sell. 

Practically, principal reductions may be key to the success of HAMP. Being ‘‘underwater’’ increases the risk of default, particularly when coupled with unaffordable 

payments.73 Built into the HAMP NPV calculations is an assumption that default 

increases as a function of how far underwater the homeowner is. Existing data on 

loan modifications shows that loan modifications with principal reductions tend to 

perform better.74 In order to bring down the redefault rate and make loan modifications financially viable for investors, principal reductions must be part of the package. 

The Federal Reserve Board’s loan modification program directly requires principal 

reductions for those homeowners most underwater. Under that program, principal 

reductions are mandated when the outstanding loan balance exceeds 125 percent of 

the home’s current market value. Not incidentally, under the most recent revisions 

to the Making Home Affordable refinance program, once the mark-to-market loanto-value ratio is 125 percent, a homeowner may refinance. Thus, once the loan value 

is reduced to 125 percent of current market valuation, there is, at least for some 

homeowners, the possibility of refinancing. While a loan-to-value ratio of 125 percent still leaves homeowners underwater and restricts their options, it gives them 

some hope, as it permits the possibility of refinancing or even sale, after several 

years of payments or subsequent to a market rebound. A reduction only to 125 per-
218 

75 HUD Mortgagee Letter 2008–32, October 17, 2008. 

cent is still sufficiently harsh that it is likely to contain any moral hazard problems, 

yet it puts a finite bound on the homeowner’s debt peonage. 

HAMP permits principal reductions, but does not mandate them, not even in the 

most extreme cases. HAMP does require forbearance, but only as a method for reducing payments. While forbearance provides affordable payments, it prevents a 

homeowner from selling or refinancing to meet a needed expense, such as roof repair or college tuition, and sets both the homeowner and the loan modification up 

for future failure. For all of these reasons, the HAMP guidelines should be revised 

so that they at least conform to the Federal Reserve Board’s loan modification program by reducing loan balances to 125 percent of the home’s current market value. 

Homeowners suffering an involuntary drop in income should be eligible for a second 

HAMP loan modification. 

Even after a loan modification is done successfully and is performing, homeowners 

may still become disabled, lose their jobs, or suffer the death of a spouse. These subsequent, unpredictable events, outside the control of the homeowner, should not result in foreclosure if a further loan modification would save investors money and 

preserve homeownership. Foreclosing on homes where homeowners have suffered an 

involuntary drop in income without evaluating the feasibility of a further HAMP 

modification is punitive to homeowners already suffering a loss and does not serve 

the interests of investors. 

Some servicers provide modifications upon re-default as part of their loss mitigation program. This approach should be standard and mandated, and should include 

continued eligibility for HAMP modifications rather than only specific servicer or investor programs. 

Homeowners in bankruptcy should be provided clear access to the HAMP program. 

As a result of the HAMP guidelines providing servicer discretion on whether to 

provide homeowners in bankruptcy access to HAMP modifications, homeowners generally are being denied such modifications. In at least one instance, a servicer is reported to have refused a modification on the basis of a former bankruptcy, a clear 

violation of the HAMP guidance. The HAMP guidelines should provide clear guidance on instances where a loan modification should be provided to homeowners in 

bankruptcy. The HAMP guidelines should explicitly provide that servicers must consider a homeowner seeking a modification for HAMP even if the homeowner is a 

debtor in a pending bankruptcy proceeding. 

Some servicers have explained their reluctance to do loan modifications in bankruptcy by citing a fear of violating the automatic stay in bankruptcy. Neither the 

automatic stay nor the discharge order should be a bar to offering an otherwise eligible homeowner a loan modification. HUD, in recent guidance to FHA servicers, 

has explicitly recognized that offering a loan modification does not violate the automatic stay or a discharge order.75

Servicers should be required, upon receipt of notice of a bankruptcy filing, to send 

information to the homeowner’s counsel indicating that a loan modification under 

HAMP may be available. Upon request by the homeowner and working through 

homeowner’s counsel, servicers should offer appropriate loan modifications in accordance with the HAMP guidelines prior to discharge or dismissal, or at any time 

during the pendency of a chapter 13 bankruptcy, without requiring relief from the 

automatic stay, and, in the case of a chapter 7 bankruptcy, without requiring reaffirmation of the debt. The bankruptcy trustee should be copied on all such communications. All loan modifications offered in pending chapter 13 cases should be approved by the Bankruptcy Court prior to final execution, unless the Court determines that such approval is not needed. If the homeowner is not represented by 

counsel, information relating to the availability of a loan modification under HAMP 

should be provided to the homeowner with a copy to the bankruptcy trustee. The 

communication should not imply that it is in any way an attempt to collect a debt. 

Two changes to the modification rules should also be made to facilitate access for 

homeowners in bankruptcy. First, the payment rules should take into account the 

fact that payments may be passed through the bankruptcy trustee, rather than directly from homeowner to servicer. Supplemental Directive 09–03 requires that the 

servicer receive a payment by the end of the first month that the trial plan is in 

effect. If the servicer does not receive the payment, the trial modification is terminated and the homeowner is disqualified from a permanent modification under 

HAMP. There is often an initial lag between passing the payments from the bankruptcy trustee to the servicer; homeowners should not be penalized for a delay over 
219 

76 12 U.S.C.§ 1701j–3(d)(6) (2008) (transfer from borrower to spouse or children); 12 U.S.C. 

§ 1701j–3(d)(7) (2008) (transfer to spouse pursuant to divorce decree or legal separation agreement). 

which they have no control and which is occasioned solely by their exercise of their 

right to file bankruptcy. 

Second, the modification documents should explicitly prohibit servicers from requiring homeowners to reaffirm mortgage debts. Although the guidance and supplemental directive appear to allow homeowners not to reaffirm in bankruptcy, the 

form modification agreement requires reaffirmation by its terms in paragraph 4E. 

The modification agreement should be amended to restate explicitly that the borrower does not waive any claims by entering into the modification and that no reaffirmation of the debt is required. Because reaffirmations of home mortgages have 

the potential to deny homewners a fresh start, many bankruptcy judges refuse to 

approve them. Congress recognized this concern with an amendment to the Bankruptcy Code in 2005 that permits mortgages to be serviced in the normal course 

after bankruptcy even if the mortgage has not been reaffirmed. These purported reaffirmation agreements made outside the mandatory notice and review procedures 

of section 523(c) and (d) of the Bankrutpcy Code have no effect, are not enforceable, 

and the government should not be involved in encouraging the practice. 

Mortgages should remain assumable as between spouses, children, and other persons 

with a homestead interest in the property. 

Federal law, the Garn-St Germain Depository Act of 1982, specifically forbids acceleration when the property is transferred from one spouse to another and permits 

a spouse or child to assume the mortgage obligations.76 Such transfers are most 

likely to occur upon death or divorce. They may also occur in the context of domestic 

violence. Freddie Mac has long allowed mortgage assumptions by relatives as one 

method of working out delinquent mortgages. 

Following these policies, the HAMP program should allow mortgages for certain 

homeowners to be assumable. Homeowners who have recently suffered the death of 

a loved one should not find themselves immediately faced with foreclosure or suddenly elevated mortgage payments. 

Fair lending principles must be ensured throughout the HAMP process. 

Incentive payments for pre-default homeowners are aimed at the necessary policy 

of ensuring that homeowners already facing hardship obtain sustainable loans, yet 

the additional funds for such reviews may implicate fair lending issues. The home 

price decline protection program may result in payments focused more on non-minority areas and should be reviewed for fair lending concerns. Servicer incentive 

payments based on reductions in the dollar amount of a payment also may raise 

fair lending considerations. Moreover, hardship affidavits and paperwork must be 

made available in appropriate languages to ensure wide access to the program. Data 

on loan modifications and applications are essential to ensuring equitable access to 

the program; these data must all be available as of fall 2009. Any further delay will 

limit transparency and delay accountability. 

HAMP application procedures should better recognize and lessen the impact of exigent circumstances. 

Aspects of the loan modification procedures, or gaps in current guidance, create 

hurdles for certain homeowners. For example, victims of domestic violence are unlikely to be able to obtain and should not be required to obtain their abuser’s signature on loan modification documents. While predatory lending and predatory servicing can create default and an imminent risk of default, as recognized by the 

HAMP plan, the hardship affidavit does not contain an explicit reference to either 

category. Thus, at present, a loan modification would be available only to a homeowner who realizes that the fraud and predatory behavior that resulted in unreasonable levels of debt are legitimate grounds for seeking a modification and who is 

able to articulate and defend that categorization to a line-level employee of the 

servicer who may be relying in a formulaic way on the categories contained in the 

hardship affidavit or may be outright hostile to claims of predatory behavior. 

The trial modification program should be further formalized and clarified, such that 

homeowners receive assurances of the terms of the permanent modification and 

homeowners are not put into default on their loans if they are current at the 

onset of the trial modification. 

The trial modification program currently complicates matters for participating 

homeowners by increasing costs and failing to maximize the chances for long-term 
220 

77Supplemental Directive, 09–01, at 2, available at hmpadmin.com. 

success. Moreover, by binding homeowners but not servicers, it may further discourage some homeowners from participating. 

Payments received during the trial modification period should be applied to principal and interest, not held in suspense until the end of the trial period. Trial modification payments should be applied as if the modification, and any capitalization, 

occurred at the outset of the trial period, with payments allocated accordingly between principal and interest. The policy of capitalizing arrears at the end of the 

modification period, including any difference between scheduled and modified payments, penalizes homeowners (including those not in default at the time of the trial 

modification) by raising the cost of the modification and increasing the chances that 

some homeowners will not pass the NPV test. The use of suspense accounts and 

capitalizing arrears after the trial period render meaningless the term ‘‘modification’’ in ‘‘trial modification.’’ 

In addition, homeowners who are not delinquent at the start of the trial period 

and who are making payments as agreed under the trial plan currently are reported 

to credit bureaus as making payments under a payment plan; this may register as 

a black mark against their credit. Homeowners should not face decreased credit 

scores simply because they are seeking to attain a responsible debt load. For homeowners in bankruptcy, the new rules defining when trial payments are ‘‘current’’ fail 

to take into account the delay in initial disbursement that may occur when payments are made through the chapter 13 trustee. 

Finally, homeowners need some assurance at the time of the trial modification 

that, if their income is as represented upon approval of the trial modification, the 

servicer will provide a final modification on substantially similar terms. Homeowners are bound by the trial modification; it is not clear that servicers are. 

The borrower is required to sign the trial modification documents, but the servicer 

is not. This onesided contract discourages some homeowners and advocates. Homeowners may decide that the costs of a trial modification—the capitalized interest, 

the sunk payments, the potential adverse credit reporting—are not worth the uncertain benefit of a permanent modification. Some servicers compound this problem by 

telling homeowners seeking modifications that they are under no obligation to offer 

a permanent modification. Indeed, the trial modification agreement itself, in paragraph 2F, appears to allow servicers to choose not to complete a permanent modification. According to paragraph 2F, homeowners are not entitled to a permanent 

modification if the servicer fails to provide the borrower with ‘‘a fully executed copy 

of this Plan and the Modification Agreement.’’ Should a servicer fail to provide the 

borrower with a fully executed copy, the borrower is left without a permanent modification and without any recourse, while the servicer may then retain the payments 

made and proceed to a foreclosure. Faced with this uneven exchange, many homeowners will rationally refuse to complete a trial modification, even if they would 

qualify for and benefit from a permanent modification. 

The final modification agreement should make clear that the homeowners do not 

waive any rights nor are required to reaffirm the debt in order to enter into the 

modification. 

Although the HAMP guidelines prohibit waiver of claims and defenses,77 the language in paragraph 4E of the modification agreement, ‘‘[t]hat the Loan Documents 

are composed of duly valid, binding agreements, enforceable in accordance with 

their terms and are hereby reaffirmed,’’ could be construed as a waiver of some 

claims, particularly claims involving fraud in the origination or execution of the documents. In addition to the problems posed by reaffirmation of the debt in bankruptcy, reaffirmation of the debt and loan documents outside of bankruptcy could 

be construed as a waiver of defenses to the debt. Servicers, as discussed above and 

demonstrated by the attachments, are seeking even stronger waivers of legal rights; 

the form documents should give such unauthorized behavior no shelter. The modification agreement should clearly state that the borrower does not waive any claims 

and defenses by entering into the agreement and that the borrower is not required 

to reaffirm the debt. 

The second lien program should be further developed to promote coordination with 

first lien modifications; servicers should be required to participate in both programs. 

Servicers continue to express ignorance of the second lien program and widely 

refuse to modify second liens. For example, Bank of America told a Pennsylvania 

borrower that a home equity line of credit could not be modified because it was 

‘‘written’’ as a second lien, even though it was the primary, and only, lien against 
221 

78Second liens can be modified if they are, as many are in the current market, completely 

unsecured because the amount of the first lien equals or exceeds the market value of the property. 

the property. Servicers will often service both the first and second liens. Frequently, 

servicers themselves hold the second lien. Yet often servicers refuse to address the 

second lien, despite the incentives in HAMP to do so. Servicers who hold second 

liens may prefer to gamble on a market recovery rather than accept the incentive 

payments under HAMP and recognize their losses now. Many servicers will choose 

not to participate in the second lien program absent a Federal mandate. 

The second lien program should work in concert with the primary lien modification program to the greatest extent possible. Only such coordination will result in 

maximizing the potential of the program to save homes and communities. 

4. Data collection and reporting should support the best HAMP outcomes 

possible. 

The maximum amount of data should be made available to the public, including 

data on a loan-by-loan basis. The data should be made available in user-friendly formats that are easy to obtain and that allow for additional and varied processing and 

analysis. The data should be made available on a basis as close to real time as possible. Data collected by the government and disclosed to the public, including HAMP 

monitoring data and other data, should enable the government and the public to 

compare the performance of HAMP against specific benchmarks. The data should 

enable the government and the public to assess the extent to which HAMP is serving equitably those most heavily targeted for high risk loans (especially AfricanAmerican, Latino and older borrowers). 

V. Benchmarks for Performance, Mandatory Loan Modification Offers, and 

Other Servicing Reforms Should Be Required If the Program Does Not 

Produce Sufficient Results in Short Order. 

Creating affordable and sustainable loan modifications for distressed homeowners 

is labor intensive. It is no surprise, then, that servicers continue to push homeowners away from HAMP loan modifications or delay the process substantially. 

Initial data collection will make a more exact review of the HAMP program possible within the next few months. Freddie Mac already is engaged in substantial 

oversight. Our work nationwide on behalf of homeowners facing foreclosure and 

unaffordable loans tells us that many qualified homeowners are being unnecessarily 

turned away from HAMP, those receiving loan modifications often obtain terms 

quite different from HAMP, and even the HAMP-compliant modifications are limited 

in what they can do for homeowners with high loan principals. 

We anticipate that the data will reflect the experience of hundreds of homeowners 

and their advocates, showing that the program is too narrow and too hard to implement. When the data substantiates our necessarily impressionistic description of the 

failures of HAMP, Congress should enact legislation to mandate loan modifications 

where they are more profitable to investors than foreclosure. Loss mitigation, in 

general, should be preferred over foreclosure. Additionally, Congress should revisit 

the question of bankruptcy relief. First-lien home loans are the only loans that a 

bankruptcy judge cannot modify.78 The failure to allow bankruptcy judges to align 

the value of the debt with the value of the collateral contributes to our ongoing foreclosure crisis. 

Basic problems in the structure of the servicing industry need to be addressed in 

order for the homeowner-servicer relationship to be functional. From the homeowner’s perspective, one of the biggest obstacles to loan modification is finding a live 

person who can provide reliable information about the loan account and who has 

authority to make loan modification decisions. Federal law should require that mortgage servicers provide homeowners with contact information for a real person with 

the information and authority to answer questions and fully resolve issues related 

to loss mitigation activities for the loan. While the Real Estate Settlement Procedures Act currently requires servicers to respond to homeowners’ request for information and disputes within 60 days, in practice many such inquires go unanswered. 

Despite this failure to respond, servicers are still permitted to proceed to collection 

activities, including foreclosure. Essential changes to this law governing servicers 

should ensure that homeowners facing foreclosure would no longer be at the mercy 

of their servicer. There should be transparency in the servicing process by allowing 

the homeowner to obtain key information about the loan and its servicing history. 

Servicers should be prohibited from initiating or continuing a foreclosure proceeding 

during the period in which an outstanding request for information or a dispute is 

pending. 
222 

79See generally 2008 Nat’l. Taxpayer Advocate Ann. Rep. at vi—vii (summarizing recommendations regarding changes to the treatment and reporting of cancellation of debt income 

in the mortgage context). 

Further reform of the tax code to simplify the exclusion of discharge of indebtedness income would also be of assistance to many homeowners, particularly homeowners with significant refinancing debt whose servicers are persuaded to do sustainable principal reductions.79

VI. Conclusion 

Thank you for the opportunity to testify before the Committee today. The foreclosure crisis is continuing to swell. We are drowning in the detritus of the lending 

boom of the last decade. The need to act is great. The HAMP program must be 

strengthened. Homeowners who qualify must have the right to be offered a sustainable loan modification prior to foreclosure. Passage of legislation to allow for loan 

modifications in bankruptcy, to reform the servicing industry, and to address the tax 

consequences of loan modifications also would aid in protecting homeowners from 

indifferent and predatory servicing practices and reducing the foreclosure surge. Together, these measures would save many homes and stabilize the market. We look 

forward to working with you to address the economic challenges that face our Nation today. 
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RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN DODD 

FROM HERBERT M. ALLISON, JR. 

Q.1. One issue that was brought to my attention recently concerned servicer advances, that is, scheduled principal and interest 

payments and other costs that servicers must advance to the trust 

when the borrower fails to make a monthly payment. As you may 

know, these servicer advances play a critical role in any successful 

mortgage modifications. 

Independent servicers use outside financing to provide these advances, traditionally at low costs due to the minimal credit risk involved. However, given the current liquidity shortages in the market, financing such advances has become prohibitively expensive. 

And while the Term Asset Loan Facility (TALF) includes servicer 

advances as eligible collateral under the program, servicers tell me 

that the TALF is hamstrung by stringent rating requirement, particularly incompatible to HAMP modification process. Indeed, 

HAMP’s prolonged modification timeline creates inherent risk for 

the creditors, lowering the credit rating on the assets backed by 

servicer advances accordingly. 

Has this issue been brought to the Treasury’s attention? 

A.1. Yes, Treasury is aware of the issue. Servicer advances play an 

important role in the residential mortgage backed securities market as well as in the HAMP program. This was a consideration 

when the Federal Reserve elected to make servicer advances TALF 

eligible. Subsequently, based on the state of the residential market, 

rating agencies have required a greater level of subordination by 

the servicer advance firms in order to obtain an AAA-rating and 

make them TALF eligible. Treasury recognizes higher levels of subordination can result in a higher cost of funds for some servicers, 

but Treasury does not have any influence on the rating agency 

opinions and decisions. 

Q.2. How serious do you think this issue is? 

A.2. Although the issue may be of concern for an affected firm, it 

is not clear that the issue is widespread. Treasury has received reports that a servicer has already obtained the required AAA-rating 

and issued TALF-eligible securities. 

Q.3. What plans do you have to address it? 

A.3. Treasury has examined the issue, but at this time Treasury 

believes the TALF program is providing a viable financing solution 

to independent servicers and therefore, does not believe the program requires significant modifications. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR JOHNSON 

FROM HERBERT M. ALLISON, JR. 

Q.1. Are a proportionate number of rural homeowners facing foreclosure as in urban or suburban areas? 

A.1. The proportion of homeowners facing foreclosure is higher in 

urban and suburban areas than in rural areas. Particularly hard 

hit are newer subdivisions on the outer edges of metropolitan 

areas. Many of the homes in these areas were purchased in the last 

three or 4 years prior to the housing crisis, and therefore their 
251 

owners suffered greater home price declines. Proportionately, these 

suburban homeowners also took out a higher number of subprime 

mortgages. Another difficult segment has been urban areas where 

homes values are slightly below the state average while the income 

level of the residents is significantly below the state average. Regarding rural housing, conclusive research on rural mortgage lending is hampered by the limitations on Home Mortgage Disclosure 

Act data and the difficulty of getting comprehensive local data of 

all varieties in smaller communities. Still, we are well aware that 

rural areas have not been immune from foreclosures. For definitive 

figures on foreclosure data for rural, urban, and suburban homeowners, we suggest that you please refer to the Department of 

Housing and Urban Development (HUD). 

Q.2. Are they seeking refinancing and modifications at the same 

rate? 

A.2. We do not have reliable data on the rate that rural homeowners are seeking refinancings and modifications relative to 

urban and suburban homeowners. 

Q.3. During the hearing, both of you talked about your outreach 

programs to help with modifications. What specific outreach is 

being done to prevent home foreclosures and educate homeowners 

about the programs that are available through Hope for Homeowners (H4H) and Making Home Affordable in rural areas? 

A.3. Reaching delinquent borrowers to encourage their participation in the Making Home Affordable program is a key responsibility of participating servicers, who are expected to have written 

procedures for outreach attempts until constructive borrower contact is established. These requirements are the same, regardless of 

the location of the borrowers. Often, repeated attempts using alternative contact methods are required to reach borrowers. At a minimum the written contact procedures should include: 

a. Evaluation of Delinquent Borrowers—Within 30 days of execution of a Servicer Participation Agreement and monthly 

thereafter, identify all borrowers in the servicing portfolio that 

meet the basic HAMP eligibility criteria (owner occupant, loan 

originated before January 1, 2009, loan amount within GSE 

loan limits, borrower is at least 60 days delinquent) and send 

solicitation letters similar in format to those posted at 

www.hmpadmin.com. 

b. Written Contact Attempts—Send a minimum of three letters 

in varying formats such as email, courier services, and hand 

delivery. 

c. Telephone Contact Attempts—Initiate no less than four telephone contact attempts per borrower. 

In addition, the Making Home Affordable website and the HOPE 

Hotline (1–888–995–HOPE), the two main points of entry for inquiring about the MHA program, are available to everyone regardless of their location. 

The Hope for Homeowners program is administered by the Department of Housing and Urban Development, which would be in 

a better position to address specific outreach related to that program. 
252 

Q.4. Are you seeing any other foreclosure trends in rural areas that 

are worth noting before this Committee? 

A.4. Smaller, community-based financial institutions such as those 

that are more prevalent in rural areas appear to be less likely to 

foreclose on their borrowers than the large money-center institutions that predominate in urban and suburban areas. This may be 

because of the more personal nature of banking in smaller institutions. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORKER 

FROM HERBERT M. ALLISON, JR. 

Q.1. The Obama administration is now considering a proposal that 

would allow people to rent back a property when they have defaulted. The question is, won’t this cause more damage to the secondary market for mortgages? Investors buy MBS for a stream of 

payments securitized by real property. They do not buy them to become landlords. Negating the trust agreement by forcing investors 

to rent rather than be made whole on their investment will only 

further damage the value of MBS in the United States and harm 

future home buyers. 

A.1. While the Obama administration is considering a number of 

options to address the growing number of foreclosures, the Treasury Department is very cognizant of the need to respect contractual 

rights of investors. This is evident in how Treasury designed and 

operates the Making Home Affordable loan modification program, 

which has been guided in its underlying principles by the contractual relationships between servicers and investors. 

Q.2. I have heard reports that the GSEs have tightened underwriting criteria for condominiums and townhome communities. I 

know in certain areas there were significant losses on loans where 

these projects were overbuilt, especially in Florida; clearly adjustments were necessary. But I’m hearing the guidelines are going beyond this and are making it hard for creditworthy borrowers living 

in established, healthy developments to get mortgages. What’s the 

right balance on this? Given the need for prudential management 

at these institutions, what is this Administration’s plan to make 

sure we don’t go so far as to actually hurt healthy homeowners 

while we’re trying to help them? Is there a review process that 

looks at what all the regulators, the GSEs and FHA are doing to 

make sure we are getting at this problem in a coordinated fashion? 

We shouldn’t operate at cross purposes with some trying to be prudently flexible and others using the wrong tools. 

A.2. The Treasury Department defers to the Department of Housing and Urban Development, the Federal Housing Finance Agency, 

and the Federal Housing Administration on this question. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR JOHNSON 

FROM WILLIAM APGAR 

Q.1. Are a proportionate number of rural homeowners facing foreclosures as in urban and suburban areas? 
253 

A.1. Although conclusive research on rural mortgage lending is 

hampered by the limitations on Home Mortgage Disclosure Act 

data and the difficulty of getting comprehensive local data of all varieties in smaller communities, based on the available data it appears that the proportion of homeowners facing foreclosure is higher in urban and suburban areas than in rural areas. Particularly 

hard hit are newer subdivisions on the outer edges of metropolitan 

areas. Many of the homes in these areas were purchased in the last 

three or 4 years prior to the housing crisis, and therefore their 

owners suffered proportionately higher home price declines. Proportionately, these suburban homeowners took out a higher number of 

subprime mortgages. Another particularly hard hit area has been 

in urban areas where homes values are slightly below the state 

averages in terms of value while the income level of the residents 

are significantly below the state average income levels. 

We understand from our HUD field office in South Dakota that 

the mortgage default rate in South Dakota is very low. According 

to data published by the Mortgage Bankers Association, South Dakota had the second lowest rate of foreclosure filings and the fourth 

lowest percentage of home loans in foreclosure in second quarter 

2009. As noted above, the number of foreclosures and sub-prime 

mortgages in South Dakota are substantially less than other areas 

around the country. However, according to data located on HUD’s 

NSP website, there are a number of foreclosures and sub-prime 

mortgages that do exist with the highest concentration in the Sioux 

Falls Metropolitan Statistical Area (MSA) and Rapid City HUD 

Metro FMR Area (HMFA). Minnehaha, Pennington, and Meade 

counties have the highest estimated number of foreclosures. 

However, like other communities around the Nation, rural areas 

in South Dakota have not been immune from foreclosures. In fact, 

some rural counties in South Dakota are experiencing high percentages of foreclosure. According to HUD data, the counties of 

Shannon, Buffalo, Dewey, and Ziebach have the highest percentage 

rate of foreclosures in the state with rates of 10 percent or greater 

at the end of 2008. 

Q.2. Are they seeking refinancing and modifications at the same 

rate? 

A.2. We do not have reliable data on the rate that rural homeowners are seeking refinancings and modifications relative to 

urban and suburban homeowners. 

Q.3. During the hearing both of you talked about your outreach 

programs to help with modifications. What specific outreach is 

being done to prevent home foreclosures and educate homeowners 

about the programs that are currently available through Hope for 

Homeowners (H4H) and Making Home Affordable in rural areas? 

A.3. Although the Making Home Affordable program and Hope for 

Homeowners Programs have not specifically targeted rural areas 

for outreach efforts, the steps that servicers are expected to take 

to reach at-risk borrowers is the same regardless of the location of 

the borrower. Reaching delinquent borrowers to encourage their 

participation in the MHA program is a key responsibility of participating servicers. Often, repeated attempts using alternative contact 

methods are required to reach borrowers. Servicers that participate 
254 

in the program are expected to have written procedures for outreach attempts until constructive borrower contact is established. 

In addition, the Making Home Affordable website and the HOPE 

Hotline (1–888–995–HOPE), the two main points of entry for inquiring about the MHA program, are available to everyone regardless of their location. 

Earlier this summer in Miami, the Administration launched a 

nationwide campaign to promote the Making Home Affordable Program (and HOPE for Homeowners which has been incorporated 

into the overall MHA program) in communities most in need. The 

campaign involves a series of outreach events to engage local housing counseling agencies, community organizations, elected officials 

and other trusted advisors in the target markets to build public 

awareness of Making Home Affordable, educate at-risk borrowers 

about available options, prepare borrowers to work more efficiently 

with their servicers and drive them to take action. HUD leverages 

local housing partners who are on the ground and on the front 

lines with at-risk borrowers to help broaden our outreach efforts 

and keep more people in their homes. 

In addition, HUD, in partnership with many nonprofit counseling 

agencies, provides housing counseling assistance to the record number of homeowners at risk of foreclosure, particularly those preparing to take advantage of the foreclosure prevent programs made 

available under this Administration. HUD-approved counseling 

agencies are located across the Nation (in rural and urban communities) and provide distressed homeowners with a wealth of information and assistance for avoiding foreclosures. The counselors 

provide assistance over the phone and in person to individuals 

seeking help with understanding the Making Home Affordable program and often work with borrowers eligible for the Administration’s refinance or modification program to compile an intake package for servicers. These services are provided free of charge by nonprofit housing counseling agencies working in partnership with the 

Federal Government and funded in part by HUD and 

NeighborWorks® America. The list of approved HUD counselors 

can be found at: http://www.hud.gov/offices/hsg/sfh/hcc/fc/. 

In South Dakota, HUD field staff participate in various events, 

sponsored by realtors, mortgage bankers and consumer organizations, to provide information on FHA program, including benefits 

of refinancing into FHA products. 

Q.4. Are you seeing any other foreclosure trends in rural areas that 

are worth noting before this Committee? 

A.4. Smaller, community-based financial institutions such as those 

that are more prevalent in rural areas appear to be less likely to 

foreclose on their borrowers than the large money-center institutions that predominate in urban and suburban areas. This may be 

because of the more personal nature of banking in smaller institutions. 
255 

RESPONSE TO WRITTEN QUESTION OF SENATOR SHELBY 

FROM JOAN CARTY 

Q.1. In your testimony you mention many common themes as to 

why families are in distress as you discuss the need for quicker action. In addition to mortgage terms, you mention many life events. 

This seems to at least partially support Dr. Willen’s studies that 

have shown life events to be one of the primary causes of the financial difficulties that have lead to foreclosure. 

As you counsel these families, what steps do you encourage them 

to take that will allow them to remain current on their mortgages 

following a loan modification? 

A.1. Thank you for your interest in our work. As we counsel families following a loan modification, we encourage them to take the 

following steps: 

1. Always pay family necessities (food and current medical bills 

expenses), then housing related bills, including real estate 

taxes and insurance if they are not included in your mortgage 

bill. 

2. Also pay child support and income tax debt. Not addressing 

these debts can result in very serious and expensive problems. 

3. Concentrate on paying secured debt until their finances allow 

them to start paying unsecured debt. 

4. Develop an action plan where the goal will be to save at least 

8 months of living expenses in case of emergencies. Client 

could save money by budgeting. A counselor could help the client identify areas where client can save money. 

5. If client has high credit card debt, client can work to get all 

debt consolidated at a lower interest rate and lower payments. 

6. Work to rebuild a good credit history: It’s important that a client rebuilds his/her credit history because the credit score will 

determine the future interest rate that client will be charged 

on both secured and revolving credit. Also, most insurance 

companies charge a higher premium to people who have poor 

credit scores. 

7. After saving for at least 8 months of living expenses, client 

could do the same to save for a car, repairs on the house, and 

for any long term and short term expenses. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY 

FROM PAUL S. WILLEN 

Q.1. In previous hearings, we heard many times that large percentages of sub-prime borrowers would have actually qualified for traditional mortgages. In your testimony you said, ‘‘most borrowers 

who got subprime mortgages would not have qualified for a prime 

mortgage for that transaction.’’ 

As you noted the assumption that people were steered toward 

subprime mortgages has been at the center of a lot of policy debates in this area. Could you expand a bit on why your research 

finds this assumption to be inaccurate? 
256 

1Just the Facts: An initial analysis of the subprime crisis, With Chris Foote, Kris Gerardi and 

Lorenz Goette. 2008. Journal of Housing Economics, 17(4):291–305. 

A.1. In our research, we showed that prime lenders would not have 

underwritten the vast majority of subprime loans 1—in other 

words, that subprime borrowers weren’t steered to subprime loans 

but rather would have been rejected by prime lenders. Our analysis 

used the following criteria for qualifying for a prime loan—that the 

borrower have a FICO score above 620 and a debt-to-income ratio 

less than 40 percent and that the combined loan-to-value ratio fell 

below 90 percent and that the borrower fully documented income. 

By our count, less than 10 percent of the subprime loans made in 

2005 and 2006 passed all these tests. Furthermore, we found that 

fraction had actually declined over time. 

Previous claims by some that the data showed steering into 

subprime loans were based on a misunderstanding of what constitutes a subprime loan. A much-cited Wall Street Journal article 

from December of 2007 purported to show that a large and increasing number of subprime borrowers would, in fact, have qualified for 

prime loans. However, the analysis focused exclusively on FICO 

scores, and was based on the erroneous assumption that anyone 

with a FICO score above 620 automatically qualified for a prime 

loan. It is true that a FICO below 620 generally renders a borrower 

ineligible from a prime loan, but the converse is not true: to get a 

prime loan one needs a high FICO score and to pass the other tests 

noted above. The Wall Street Journal article was correct in its 

claim that the number of borrowers with FICO above 620 in 

subprime pools had grown over time—in our data it grew from less 

than 40 percent in 2000 to more than 70 percent in 2006. What the 

article failed to mention was that the fraction with, for example, 

very high LTV score had increased dramatically over the same period. 

The steering claim is at least partly based on a misunderstanding of what a subprime loan is. Most of what makes subprime 

loans different from prime loans involves the characteristics of the 

transaction and the borrower. There are three ways to see this. The 

first involves the fact that the small subset of subprime borrowers 

who would have qualified for prime treatment got loans that were 

virtually indistinguishable from the equivalent prime borrowers: 

two-thirds had fixed rate mortgages with an average interest rate 

of 6.6 percent. The second involves the fact that prime and 

subprime loans with similar characteristics perform similarly in 

the data. A 90 percent LTV subprime loan to a borrower with a 620 

FICO score is not significantly more likely to default than an otherwise identical prime loan. Finally—and contrary to common assumption—our research shows that subprime loans were not any 

more likely to have ‘‘risky features’’ like interest-only or negative 

amortization payment options. 

Q.2. In your testimony and your papers you discuss impact of a 

downturn in housing prices on the default rates. Specifically, while 

discussing the role of life-event on default rates, your testimony 

states ‘‘when home prices fall, some borrowers can no longer profitably sell, and then income-disrupting life-events really take a toll.’’ 

You further state that ‘‘foreclosures rarely occur when borrowers 
257 

have positive equity.’’ I believe that this is an important point and 

one must be in the center of a discussion about what happened to 

cause the downturn in our housing market and subsequently in our 

economy. 

Given the importance of equity in a home to prevent foreclosures, 

do you believe that relaxed down payment standards, which allowed people to purchase homes with little or no down payment, 

left homeowners more vulnerable to these life-events? 

A.2. Yes I do. The reason that lenders view home mortgages as safe 

and the reason that borrowers pay low interest rates is that the 

loan is secured by the property, and thus the lender is not as exposed to the borrower’s ability or willingness to repay the loan. For 

the borrower, the whole logic of buying a home with a mortgage depends on the ability of the borrower to sell the property if his or 

her circumstances change. I think the willingness of lenders to 

make zero-down loans, and the willingness of borrowers to take 

them out, resulted from the belief that house prices would continue 

to rise and that the borrower would quickly build equity. Going forward, it will be important for both borrowers and lenders to take 

the possibility of substantial price declines into account, no matter 

how improbable such a decline may appear at the time. 

Q.3. Other testimony submitted to the Committee seemed to indicate that the primary reasons the loan modifications have not been 

occurring at a faster pace are largely logistical reasons within the 

leaders. You seem to suggest that this is not the reason, but rather, 

contrary to popular belief, there simply economic factors that prevent the modifications from moving forward. 

Please respond to this, as well as the criticism that your research 

was not relevant because it analyzed loan modification programs in 

existence prior to the efforts of the past year. 

A.3. The claim that the problems are ‘‘logistical’’ does not make 

economic sense. For a profitable opportunity, firms can and will increase capacity. In the fall of 2008, there was a dramatic increase 

in refinancing activity, which initially caused problems because 

lenders were understaffed. Within weeks, lenders were able to 

overcome this and refinance record-breaking numbers of loans. If 

loan modification were highly profitable for lenders, they would 

hire lots of staff. The foreclosure crisis started in 2007, so the idea 

that lenders were still struggling to ‘‘staff up’’ in 2009 must be erroneous, in my opinion. 

Our claim in the paper is that a logical explanation for the paucity of modifications is that they aren’t profitable for lenders. 

Whether loan modifications are socially useful is a completely separate question which we do not address in the paper. That said, we 

do argue essentially that making social policy based on the assumption that it is in the interests of lenders to modify loans—i.e., 

that the interests of lenders and society are perfectly aligned—is 

mistaken. 

Q.4. In their recently released white paper, the Administration 

suggests that certain type of products should be construed as ‘‘plain 

vanilla’’ and therefore safe for all consumers, while other loans 

should presumably carry a warning symbol, or perhaps be banned 

outright. 
258 

2 A Proposal to Help Distressed Homeowners: A Government Payment-Sharing Plan by Chris 

Foote (Boston Fed), Jeff Fuhrer (Boston Fed), Eileen Mauskopf (Board of Governors) and Paul 

Willen (Boston Fed). 

Based on your research and experience, are there times when a 

30-year fixed mortgage could be more dangerous than an adjustable rate mortgage? As you stated in your testimony, doesn’t the 

characteristics of the borrower drive the success or failure of the 

loan generally? 

A.4. I personally would strongly disagree with the (original) suggestion. Fixed-rate mortgages have performed better than adjustable rate mortgages in the crisis, but that statement is entirely relative. According to the Mortgage Bankers Association, between the 

first quarter of 2007 and today, the fraction of subprime adjustable 

rate mortgages that were more than 90 days delinquent grew from 

4 percent to 17 percent, which is, of course, dismal. Would the figures have been dramatically different if those borrowers got fixedrate mortgages? The evidence does not suggest it would have. The 

percentage of subprime fixed rate loans that were more than 90 

days delinquent rose from 3 percent to 13 percent. 

Features like adjustable rates, interest only, negative amortization payment options, and low documentation are risk factors—but 

in my view they only account for a small percentage of the risk associated with a loan. Identifying a fixed rate mortgage as unquestionably ‘‘safe’’ would, I believe be a disservice to consumers. A borrower with problematic credit buying a house with little or no 

money down is a risky proposition regardless of what type of loan 

the borrower uses—and to identify such a mortgage as ‘‘inherently 

safe’’ simply because certain features like adjustable rates are absent would be thus irresponsible. 

Q.5. Your testimony indicates that a plausible explanation for lenders reluctance to renegotiate loans is that it simply isn’t profitable 

because of ‘‘re-default risk’’ and ‘‘self-cure risk.’’ 

What do you believe is the best way forward with respect to the 

mortgage problems facing the country? 

A.5. I think that there are two things we need to do. The first is 

to focus government efforts on helping unemployed borrowers. I 

have, along with several colleagues in the Federal Reserve System, 

circulated a proposal to provide loans or grants to unemployed 

homeowners.2 As I argued in my testimony, most borrowers default 

because of the combination of negative equity and a life-event like 

job loss. But because unemployed borrowers, unlike speculators, 

may be quite committed to living in the home they own, lenders 

may view them as having high ‘‘self-cure risk’’ and thus be unwilling to help them by easing the terms of their debt. A government 

program to tide committed homeowners through troubled times 

would prevent foreclosures. 

All that said, the number of preventable foreclosures is in my 

view far lower than many have assumed. Ultimately, and unfortunately, the best foreclosure prevention program imaginable will not 

prevent more than 20 percent of the foreclosures we can expect. 

Thus, I think the second key policy initiative should be to minimize 

the effects of foreclosures both on borrowers and communities. This 

means making sure that adequate rental housing is available for 
259 

displaced families, and that foreclosed properties transition to committed homeowners who are able to afford them as soon as is practicable. 

Q.6. Your testimony casts serious doubts about the effectiveness of 

loan modification programs. If job-loss is driving foreclosures, it appears that government programs to pay servicers and borrowers to 

modify mortgages will not help many homeowners. It will, however, 

cost the taxpayers a lot. 

Is the best way to prevent foreclosures to simply make sure we 

have solid economic growth and a vibrant job market? 

A.6. Yes and no. There is no question that a vibrant job market 

would help mitigate the foreclosure problem. The 482,000 people 

filing new claims for unemployment insurance in the week ended 

January 15, 2009 are all candidates for foreclosure if they have 

negative equity in their homes. Reducing that number will reduce 

foreclosures. The problem is that even when times are good, the 

mix of jobs and firms changes continuously and so large numbers 

of people lose jobs. In the last forty years, in spite of several vigorous expansions and vibrant job markets we have rarely seen a 

week with fewer than 300,000 new claims for unemployment insurance, far fewer than today, to be sure, but still a significant number. As I said in my testimony, we expect foreclosures to remain 

elevated for a considerable period, regardless of what happens to 

the labor market. In Massachusetts in the 1990s, foreclosures persisted at high levels long after a vigorous economic recovery started. 

Q.7. During previous hearing this Committee has heard testimony 

that had lenders given borrowers sustainable loans rather than 

sub-prime loans, we would not be now facing a foreclosure crisis. 

• Do you agree with this conclusion? 

• What types of borrowers typically received sub-prime loans? 

• Could most sub-prime borrowers qualified for prime loans? 

A.7. No, I do not agree with the conclusion. In a recent paper, two 

co-authors and I addressed exactly this question. The dramatic fall 

in house prices we observed over the last 3 years would have 

caused a crisis with or without subprime lending. We showed that 

falling house prices we observed for 2005 house buyers would have 

caused a dramatic increase in foreclosures even for the 2002 vintage of buyers, almost none of whom received subprime loans. By 

contrast, the subprime-heavy 2005 vintage would have faced almost no foreclosures if house prices appreciated as they did earlier 

in the decade. 

The main risk factors in a loan are the credit score of the borrower and the amount of equity the borrower has in the house. 

Other things, like whether the loan is labeled subprime or whether 

the loan was interest-only do matter, but only marginally. In most 

cases, the only way a lender could have prevented a subprime foreclosure was by refusing to do business with the borrower. A 100 

percent LTV loan to a borrower with 600 credit score will always 

be a risky proposition. 

Some have attributed the run-up in house prices and the subsequent fall to subprime lending, but there is little evidence in the 
260 

data to support this claim. Robert Shiller dates the house price 

boom in the United States to 1998, whereas subprime did not start 

to grow rapidly until 2004. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY 

FROM MARY COFFIN 

Q.1. Hope for Homeowners and the Making Homes Affordable Programs are both based on the idea that if we are able to modify a 

borrowers loan and thus decrease that person’s monthly debt to income ratio, homeowners will be able to keep up with their payments. This will in turn reduce the number of foreclosures and stabilize our housing market.While you are probably not yet able to 

speak to statistics regarding these programs, however, historically, 

have you seen that reducing a borrower’s monthly debt to income 

ratio alone has a high success rate in keeping that borrower current in his or her new loan? 

A.1. Every borrower faces fairly unique circumstances and the economic environment continues to shift, so it is difficult to make 

broad statements of a general nature. It has been my experience 

that reducing the borrower’s monthly expenses overall, whether 

those are related to debt or other living expenses, and the borrower 

staying within that new budget will increase that borrower’s 

chances of staying current with his or her mortgage payments. As 

mortgage servicers, we only can impact the mortgage payment component of a customer’s overall obligations, so when we do reduce 

that payment we are doing our part to help bring their expenses 

in line with their income. 

We will even work to reduce the mortgage payment when we believe it will help the customer keep their home even if the mortgage debt is not the source of the financial difficulties. A meaningful portion of our borrowers come to us with housing payment-togross income ratios less than 31 percent before modification. We 

find the majority of these customers have problems with their overall debt and expense levels, and their mortgage delinquency is really a symptom of a larger financial problem. Such customers do not 

appear to need help with their first mortgage and they are not eligible for HAMP, but many will lose their home through foreclosure 

without a modification. As a result, first mortgage investors, such 

as Freddie Mac and Fannie Mae, have been approving retention 

modifications with characteristics similar to HAMP for customers 

who fail to qualify for HAMP; primarily those with pre-modification 

HDTI ratios below 31 percent and/or those who need to go below 

31 percent HDTI to achieve overall affordability targets. 

Q.2. We face a bit of a dilemma with how to inform the public 

about these programs. If we believe that loan modifications are 

truly the best way to stabilize our housing market, then we must 

make sure the public is aware of the programs. However, at the 

same time, we risk setting unrealistic expectations for the public 

as it relates to the sacrifices necessary for the program to be effective. What have been your experiences with customers seeking loan 

modifications before and after the government made them a priority? Are we in fact reaching more of the most vulnerable? Are the 

expectations of the public realistic? 
261 

A.2. One issue that servicers have faced is a gap between consumer 

expectations regarding the availability of Home Affordable Modification Program and our ability to actually implement the program. The original announcement about the program was made by 

the Administration on February 18, but program guidelines weren’t 

available for 2 to 3 months after that and changes were being made 

to HAMP as late as July. In addition, there was no HAMP available for FHA borrowers until mid August and guidelines for the 

second lien HAMP have not been released as of the beginning of 

September. As a result, customers heard about the program and 

contacted their servicers about their potential to benefit from 

HAMP before—and sometimes months before—the program could 

be made available to them. 

We believe the priority should be to assist those who have been 

hardest hit by the economic downturn and are not able to afford 

their monthly mortgage payments. Following the government’s 

HAMP announcement, however, the ratio of current customers contacting us increased dramatically compared to those who were delinquent. While we agree that HAMP should be available to borrowers who haven’t yet missed a payment but are at risk of imminent default, this could hamper, to some extent, our ability to reach 

and assist the already delinquent borrowers who are most at risk. 

Public perception and individual expectations also vary widely, 

and there are borrowers out there who don’t fully understand what 

HAMP is for and who should expect to benefit from the program. 

Some borrowers, for example, are fully able to afford their monthly 

mortgage payments, but expect that they should be eligible for a 

loan modification through HAMP simply because the current market value of their home has decreased. These borrowers’ circumstances clearly aren’t addressed by HAMP and weren’t intended to be, yet this misperception of the program creates additional call volume for servicers and eventually results in frustration 

for the customer. 

This misalignment of consumer expectations regarding HAMP 

and the realities of the program has created some confusion and 

frustration among borrowers. We continue to discuss with Treasury 

ways that we can avoid similar challenges as new elements of 

HAMP or other borrower assistance programs are rolled out in the 

future. 

RESPONSE TO WRITTEN QUESTION OF SENATORS CORKER 

AND VITTER FROM MARY COFFIN 

Q.1. The SAFE Act was designed to require licensing of loan officers, not mortgage servicers or employees that perform modifications and loss mitigation. However, I understand that this Act is 

being interpreted to apply to servicers. HUD has indicated it wants 

to include employees that do modifications within the licensing and 

registration scheme. Is this interpretation-that loss mitigators are 

covered by SAFE-going to impede your ability to do modifications? 

A.1. Requiring any employee performing loan workouts, loss mitigation or loan modifications to be registered under the SAFE Act 

would impose a significant burden on mortgage servicers and definitely would impede our efforts to provide relief to struggling bor-
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rowers at a critical time and undermine the objectives of the Making Home Affordable initiatives. One of the most important issues 

is that it would severely restrict our ability to add employees to our 

home retention team or shift employees to home retention efforts 

as work demands vary. In response to significant increases in the 

volume of modifications we are considering, for example, Wells 

Fargo hired and trained 4,000 people in the first half of the year. 

It would have been impossible to register all or a significant number of those new staff in time to deal with the increase in activity 

that we have experienced. 

SAFE was not constructed to cover servicers or servicing personnel, but to establish nationwide oversight of individual loan 

originators, lenders and mortgage brokers. SAFE’s education and 

testing requirements, for example, are focused on originations 

issues and don’t address servicing-related matters. Loan modifications present none of the risks or concerns that the SAFE Act was 

intended to address, namely: accountability and tracking of mortgage loan originators; enhanced consumer protections; reducing 

fraud in the mortgage loan origination process. In a modification 

scenario, the mortgage has already been originated and the borrower is already aware of and contractually bound by the terms of 

their mortgage. Modifications do not present sales opportunities to 

Agency-regulated institutions. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY 

FROM CURTIS GLOVIER 

Q.1. In your testimony you focus on the need for additional principle reduction. 

Have you analyzed how many homes would need principle reductions, and how much principle would need to be written off, to stabilize our housing market? 

A.1. Based on an analysis of non-performing loans in the Loan Performance data base as of April 30, 2009, (covering the non-agency 

mortgage-backed securities market), we believe that approximately 

1,622,000 homes would need principal reductions to prevent a foreclosure. 

In the aggregate, this equates to a reduction in mortgage debt of 

approximately $120.25 billion, which is approximately $74,000 per 

homeowner. This amount represents 6.8 percent of the $1.765 trillion non-agency residential mortgage market and would result in 

a principal reduction of approximately 30 percent per mortgage 

loan. 

Q.2. What level of taxpayer money do you believe would be necessary for these reductions? 

A.2. No taxpayer contribution is necessarily required to achieve 

this principle reduction. It is certainly conceivable that the principal reduction could be borne entirely by the investors in the residential mortgage-backed securities. 

While some form of compensation for accepting a principal reduction of the first mortgage could serve as an incentive for facilitating 

more and quicker action, the Mortgage Investors Coalition supports 

policies that drive mortgage foreclosure avoidance policy toward 
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principal reduction and refinancings (like those originally intended 

by the Hope for Homeowners program). We believe it is a better 

policy for homeowners because it reestablishes homeowner equity. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY 

FROM ALLEN JONES 

Q.1. Hope for Homeowners and the Making Home Affordable Programs are both based on the idea that if we are able to modify a 

borrowers loan and thus decrease that person’s monthly debt to income ratio, homeowners will be able to keep up with their payments. This will in turn reduce the number of foreclosures and stabilize our housing market. 

While you are probably not yet able to speak to statistics regarding these programs. However, historically have you seen that reducing a borrowers monthly debt to income ratio alone has a high 

success rate in keeping that borrower current in his or her new 

loan? 

A.1. Bank of America applauds the Obama Administration’s Homeowner Affordability and Stability Plan’s focus on assisting financially distressed homeowners with their mortgage payments 

through their refinancing and loan modification program. We 

strongly support the Administration’s focus on affordability in the 

loan modification and refinance processes in order to achieve longterm mortgage sustainability for homeowners. The Administration’s focus on affordability and sustainability is consistent with 

the approach we have successfully developed with our customers. 

While there are many factors that influence whether a borrower 

will be able to perform on their loan, including the borrower’s continued employment and whether the borrower has a desire to continue to remain in their home, we believe that reducing the borrower’s monthly payment to a 31 percent debt to income ratio 

under these programs should help to reduce the number of foreclosures and help stabilize housing markets. Our research suggests 

that reducing the borrowers 1st lien monthly mortgage obligation 

provides incrementally more benefit than other modification factors. The degree of this reduction is what is important. Payment 

change alone is not the sole factor. Other factors such a mod type, 

borrower profile, equity, etc are determining factors in the probability of success. 

Q.2. We face a bit of a dilemma with how to inform the public 

about these programs. If we believe that loan modifications are 

truly the best way to stabilize our housing market, then we must 

make sure the public is aware of the programs. However, at the 

same time, we risk setting unrealistic expectations for the public 

as it relates to the sacrifices necessary for the program to be effective. 

What has been your experiences with customers seeking loan 

modifications before and after the government made them a priority? Are we in fact reach more of the most vulnerable? Are the 

expectations of the public realistic? 

A.2. We have made important progress under our programs before 

HAMP, yet HAMP represents a watershed in loan modifications. 
264 

The program applies lessons we learned in early efforts across the 

industry, establishes uniform national standards and provides appropriate incentives to borrowers, servicers and investors. We are 

confident HAMP enables servicers to help more struggling homeowners and will play a key role in stabilizing the housing markets 

and promoting economic recovery. 

However, the program was not designed to assist borrowers who 

have vacated their home or no longer occupy the home as their 

principal residence. Nor was the program structured to assist the 

unemployed or those who already have a relatively affordable housing payment of less than 31 percent of their income. Out of our 

HAMP eligible population, as recently defined by Treasury, of the 

customers we’ve talked with, a significant number are known to 

fall into one of these four categories. This demonstrates the depth 

of the Nation’s recessionary impacts on homeowners, not the failure of the government program or the efforts of participating mortgage servicers. 

Bank of America believes it is necessary to provide solutions to 

these customer segments that fall outside HAMP’s target reach— 

and we are doing so. We have non-HAMP options we consider to 

avoid foreclosure including modification programs for non-owners 

and borrowers with a debt-to-income ratio below 31 percent, and 

importantly, forbearance programs for the unemployed. 

We also are working with Treasury to expand HAMP to assist in 

meeting these same challenges—specifically including a program 

for the unemployed and allowance for a housing ratio less than 31 

percent for low-to-moderate income borrowers. 

The benefit of having Treasury take the lead to address these 

challenges is creating an industry standard that helps all customers and provides investor incentive to help more borrowers 

qualify. In any case, Bank of America will continue to provide solutions to these customers. 

RESPONSE TO WRITTEN QUESTION OF SENATORS CORKER 

AND VITTER FROM ALLEN JONES 

Q.1. The SAFE Act was designed to require licensing of loan officers, not mortgage servicers or employees that perform modifications and loss mitigation. However, we understand that this Act is 

being interpreted to apply to servicers. Even HUD has indicated it 

wants to include employees that do modifications within the licensing and registration scheme. Is this interpretation—that loss mitigators are covered by SAFE—going to impede your ability to do 

modifications? 

A.1. If this interpretation were to apply to our loss mitigation employees, then it would impose additional burdens that would impair 

our ability to do loan modifications on a timely basis.