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THE PRIVATE SECTOR AND GOVERNMENT 

RESPONSE TO THE MORTGAGE 

FORECLOSURE CRISIS 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

DECEMBER 8, 2009 

Printed for the use of the Committee on Financial Services 

Serial No. 111–93 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

December 9, 2009 ............................................................................................. 1 

Appendix: 

December 9, 2009 ............................................................................................. 53 

WITNESSES 

THURSDAY, SEPTEMBER 00, 2009 

Allison, Herbert M., Jr., Assistant Secretary for Financial Stability, U.S. 

Department of the Treasury ................................................................................ 35 

Goodman, Laurie S., Senior Managing Director, Amherst Securities ................. 13 

Gordon, Julia, Senior Policy Counsel, Center for Responsible Lending .............. 9 

Krimminger, Michael H., Special Advisor for Policy, Office of the Chairman, 

Federal Deposit Insurance Corporation (FDIC) ................................................ 37 

Marks, Bruce, Chief Executive Officer and Founder, Neighborhood Assistance 

Corporation of America (NACA) ......................................................................... 14 

Roeder, Douglas W., Senior Deputy Comptroller for Large Bank Supervision, 

Office of the Comptroller of the Currency (OCC) .............................................. 39 

Sanders, Anthony B., Distinguished Professor of Real Estate Finance, Professor of Finance, School of Management, George Mason University ............. 11 

Schakett, Jack, Credit Loss Mitigation Strategies Executive, Bank of America .......................................................................................................................... 7

Sheehan, Molly, Senior Vice President, Chase Home Finance ............................ 6 

APPENDIX 

Prepared statements: 

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

Marchant, Hon. Kenny ..................................................................................... 56 

Allison, Herbert M., Jr. .................................................................................... 58 

Goodman, Laurie S. .......................................................................................... 68 

Gordon, Julia .................................................................................................... 73 

Krimminger, Michael H. .................................................................................. 95 

Marks, Bruce ..................................................................................................... 115 

Roeder, Douglas W. .......................................................................................... 119 

Sanders, Anthony B. ........................................................................................ 136 

Schakett, Jack ................................................................................................... 140 

Sheehan, Molly ................................................................................................. 146 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Capito, Hon. Shelley Moore: 

Written statement of the HOPE NOW Alliance ............................................ 156 

Allison, Hon. Herbert M., Jr.: 

Written responses to questions submitted by Representatives Adler and 

Baca ................................................................................................................ 162 

Gordon, Julia: 

Written responses to questions submitted by Representatives Adler and 

Baca ................................................................................................................ 165 

Krimminger, Michael H.: 

Written responses to questions submitted by Representatives Adler and 

Baca ................................................................................................................ 167 

Page

IV 

Roeder, Douglas W.: 

Written responses to questions submitted by Representatives Adler and 

Baca ................................................................................................................ 170 

Sheehan, Molly: 

Written responses to questions submitted by Representatives Adler and 

Baca ................................................................................................................ 173 

(1) 

THE PRIVATE SECTOR AND GOVERNMENT 

RESPONSE TO THE MORTGAGE 

FORECLOSURE CRISIS 

Tuesday, December 8, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:08 a.m., in room 

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

Members present: Representatives Frank, Waters, Maloney, 

Watt, Moore of Kansas, Clay, Baca, Lynch, Miller of North Carolina, Scott, Green, Cleaver, Klein, Donnelly, Carson, Kosmas, 

Himes, Peters; Royce, Capito, Hensarling, Neugebauer, Marchant, 

Jenkins, and Paulsen. 

The CHAIRMAN. Good morning. I apologize for the delay, but with 

the major legislative product of this committee coming up, we are 

a little busy. We will convene this hearing today. We have had a 

series of conversations obviously on an ongoing basis with a variety 

of people. 

We have a great frustration at the failure of the combined efforts 

of elements of the Federal Government to make a substantial impact on the foreclosure issue. Programs have been put forward and 

revised, but no one can think we have done a satisfactory job. Part 

of it is mistakes of the past, and one of the things we are determined to do going forward—the gentlewoman from California, Ms. 

Waters and others have talked about this—is to change the law so 

that some of the problems we now have will not continue. Namely, 

we will not have situations where there are mortgages that we believe it is in the public interest to modify and no one has the authority to modify it, or at least if someone has the authority to 

modify it, he or she is able to dodge the responsibility by invoking 

some shared responsibility. That cannot be allowed to continue. 

So we will straighten that out going forward, but we are in a current situation with a tangle of problems. Many of us feel that bankruptcy for primary residences is ultimately going to be necessary 

to get a substantial improvement. Those who disagree with that 

have a particular burden in my mind of showing that it is possible 

to achieve substantial avoidance of foreclosure, with all the negative consequences that has for the society, without it. 

And I do want to stress that when we talk about mortgage foreclosure avoidance, we’re not simply talking about compassion for 

individuals. Many of the individuals involved are the victims of cirVerDate Nov 24 2008 18:27 May 20, 2010 Jkt 056236 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\56236.TXT TERRIE
2 

cumstance. Many were misled. Some were themselves less than responsible. But the problem is, even if people want to say, okay, 

they made their bad mortgage decision, let them live with it, that 

has reverberating consequences for the whole society. 

Foreclosures create concentric circles of harm, primarily to the 

individual family, but then to the neighborhood, to the municipality, and to the whole economy because of the widespread dispersion of mortgage-backed securities. So slowing down the rate of 

foreclosures is very important. 

We will in the bill before us this week be including a provision— 

I hope that it will be accepted—that will deal with a new class of 

foreclosure, a relatively new class, those who took out mortgages 

that were not themselves problematic but who are unemployed and 

find that you cannot make mortgage payments out of unemployment compensation if that’s your sole source of income. We will be 

putting forward a program modeled on a successful one in Philadelphia that will lend money to those who are unemployed and face 

loss of their homes for the duration of their unemployment or some 

other period. That will help some. But we still have the problem 

of those mortgages that have to be disentangled. And as I said, we 

are dissatisfied with the progress, and what we are doing again 

today, we hope, is to get specific proposals that will help us further 

disentangle this situation. 

So with that, I’m going to recognize the ranking member of the 

Housing Subcommittee, and we have a total of 10 minutes on each 

side, and we will proceed from there. The gentlewoman from West 

Virginia. 

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

you for holding this hearing this morning, and I too share the 

chairman’s frustration. And he and I are both well aware, as we 

had a similar meeting in the Housing and Community Opportunity 

Subcommittee in September of this year on the very issue of tracking progress with the Administration’s foreclosure mitigation program. 

Introduced in early 2009, the Making Home Affordable Program 

was rolled out with the promise of assisting seven to nine million 

troubled borrowers, yet the program has thus far assisted only a 

small fraction of that estimate. While the Administration’s plan 

was somewhat more successful than the troubled HOPE for Homeowners program, I have significant concerns with the overestimation of the population served by these programs. Although there 

are many Americans who are struggling to pay their mortgages, it 

has become clear that these programs simply may not be capable 

of handling the volume of borrowers, nor is it realistic to suggest 

that every struggling borrower will be able to benefit from a modification. 

Furthermore, there should not be a push to achieve these targets 

at the expense of ensuring that modifications are being processed 

in a manner that ensures the lender has as complete a picture of 

the borrower’s financial situation as possible. To this end, I was 

very troubled to learn that some modifications are being performed 

with minimal documentation. After all, it was this very practice of 

no- or low-documentation loans that helped create the housing criVerDate Nov 24 2008 18:27 May 20, 2010 Jkt 056236 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 K:\DOCS\56236.TXT TERRIE
3 

sis we face today. We should not be in the business of perpetuating 

this practice. 

According to the Treasury Department, 375,000 trial modifications are set to convert to permanent modification by the end of the 

year. However, JPMorgan Chase recently disclosed that in November, close to 25 percent of the trial modifications failed to make the 

first payment, and nearly 50 percent of borrowers failed to make 

all 3 payments. Furthermore, the Federal Reserve Bank of Boston 

cites that 30 to 45 percent of borrowers who receive modifications 

end up in default within 6 months. This raises significant concerns 

about the ability of these programs to meet the long-term expectations outlined earlier this year. 

These challenges are greatly compromised by a shift in the root 

causes of foreclosures. With the downturn in the economy, as the 

chairman mentioned, we are now facing more traditional causes of 

foreclosure, namely the loss of a job. As these programs progress, 

we must have a realistic understanding of their capability, and we 

have an obligation to our taxpayers to focus our efforts first and 

foremost on families who truly need assistance. 

I look forward to hearing from our witnesses this morning, and 

I again want to thank the chairman for holding this important 

hearing. 

Mr. WATT. [presiding] The gentlelady yields back, and the gentleman from Georgia, Mr. Scott, is recognized for 2 minutes. 

Mr. SCOTT. Thank you very much, Mr. Chairman. I can’t think 

of a more pressing issue for us to deal with at this time than the 

foreclosure situation. It is alarming. RealtyTrac, for example, reports that in the third quarter of 2009, my State of Georgia had 

a 25 percent increase in home foreclosures over the third quarter 

in 2008. That is a total of over 36,000 foreclosure filings, or 1 in 

every 98 households. That is absolutely devastating. 

But I want to turn just for a moment about what is an even more 

devastating situation, perhaps the most insidious side of our current foreclosure crisis and loan modification process, and that is 

the unfortunate scamming of vulnerable homeowners who are in 

desperate need of assistance in saving their homes. It is one of the 

most tragic aspects of human existence, in my opinion, that whenever and wherever people are downtrodden, others will move in 

and prey upon them and worsen their condition. 

I was just contacted last night by a constituent who had contracted with a group called Prodigy Law Group in Irvine, California, just to help him to navigate the loan modification process. 

They contacted him and said they could bring it down far better 

than anyone else. And unfortunately what my constituent did not 

know was that this firm had a reputation as being scam artists. In 

fact, the Better Business Bureau of California as well as numerous 

other outfits had identified the Prodigy Law Group as known 

scammers. 

So as we debate this issue, not only must we deal with what is 

before us and what we’re doing, but we have to find a way to put 

these predatory beasts that are preying on people who are already 

in bad conditions out of business. 

I yield back the balance of my time. 

4 

Mr. WATT. The gentleman yields back. Mr. Hensarling is recognized, it says for 3 minutes, but actually you have a little bit more 

than that. I’m not sure exactly how much time is left, 31⁄2 minutes, 

I think. 

Mr. HENSARLING. Thank you, Mr. Chairman. By any standard of 

measurement, the foreclosure mitigation programs of this Administration and this Congress have been abject failures. HOPE for 

Homeowners had $300 billion authorized at least as of summer, the 

latest date I have available, 1,000 applications, and 50 loans closed 

by July. The Home Affordable Modification Program, $75 billion 

cost, supposed to help 3 to 4 million homeowners, 650,000 modifications, trial modifications. 

The Home Affordable Refinance Program, supposed to help 4 to 

5 million homeowners, latest numbers available, 116,500. Yet we 

know that foreclosure rates and delinquency rates continue to rise 

from 9.9 percent in the third quarter of 2008 to now 14.1 percent 

in the third quarter of 2009. Government taxpayer-funded foreclosure mitigation programs have been an abject failure. On the 

other hand, those who actually hold loans have a financial incentive for borrowers who can work out to make modifications. And 

under the HOPE NOW Program, at least as of the latest data 

available, 4.7 million have been afforded workout plans since August of 2007 with no cost to the taxpayer. 

Now there is no better foreclosure mitigation plan than a job. 

And unfortunately, the job creation program of this Administration 

has also been an abject failure, as we suffer through the highest 

unemployment rate that we have had in a generation, 31⁄2 million 

of our fellow countrymen having lost their jobs since the President 

took office. 

The best way to have a foreclosure mitigation plan, again, is to 

create a job. And the best way to create a job is to tell job creators 

that they’re not going to have to contend with a trillion dollar nationalized takeover of a health care system, that a $600 billion 

threatened energy tax to our economy will not take place, that the 

tax relief in this decade that brought upon one of the longest periods of economic prosperity will not be allowed to expire so that tax 

rates on income, on dividends, on capital gains increase, that some 

certainty will be brought to the market, and the bill that Chairman 

Frank will bring to the Floor tomorrow, which will be a job-crushing bailout bill, whether that too would not become law. 

That is a plan. That is a recipe to create jobs in our economy, 

to take away the looming storm clouds of Obamanomics and let 

this economy create jobs. And if you create jobs, then people can 

keep their homes. Nothing short of that will work. We have to signal to those who ultimately have to pay the bill that this is a Congress and this is an Administration ultimately that is going to be 

serious about the debt and the deficit. Throwing more money at 

programs that do not work is absolutely insane, and it does not 

work. Why we would be considering giving more money to the same 

programs is beyond me. 

I yield back the balance of my time. 

Mr. WATT. The gentleman’s time has expired, and I will recognize myself for 2 minutes, and then I will go to Mr. Klein as our 

final opening statement. 

5 

Let me just say that it is obvious that we have a serious foreclosure problem, default problem, and that has come home to all 

of us with the nature of the calls that have come into our offices. 

Generally, before this economic meltdown, our job was to intervene 

with the Federal Government on behalf of constituents to get Social 

Security checks or VA benefits or travel documents. The bulk of the 

business that we are now doing is calls from people trying to get 

credit or trying to get out from under or survive the credit that 

they were already extended. Disproportionately, our calls are that. 

And I got an even greater appreciation for that this past weekend when Mr. Marks’ group, the Neighborhood Assistance Corporation of America, brought their road show to my congressional district in Charlotte and well over 50,000 people showed up from all 

over the country seeking to have their loans modified. We are in 

a serious problem, and the programs that are out there, even when 

they are working, are not working on a scale that’s large enough 

to have the impact that needs to be had. And then on top of that, 

the loss of jobs has added a whole other wave of foreclosures and 

defaults that has made the problem worse. 

So I welcome this opportunity to hear from the witnesses today. 

My time has expired, and I will now recognize the gentleman from 

Florida, Mr. Klein, for 2 minutes. 

Mr. KLEIN. Thank you, Mr. Chairman, and thank you for holding 

this important hearing. I’m from South Florida, and we face serious 

problems with our housing market, as many other parts of the 

country do. And I think we all understand it’s essential for both 

banks and servicers as well as the Federal Government to implement effective programs to increase loan modification and prevent 

foreclosures where they can be prevented. 

I’m pleased to see the increased focus on foreclosure prevention 

from the Obama Administration, and they have taken some steps 

in the right direction, but we have a long way to go. One of the 

problems with the Home Affordable Modification Program and 

other initiatives is incomplete paperwork, and we hear this over 

and over again. Documents are submitted for the loan modification, 

and we just keep hearing that it’s not the right documents, and 

then from the borrower’s side, we hear that they have been asked 

over and over to present the same documents. It’s a communication 

problem, it’s a dragging of the feet problem, and in some cases, it’s 

a problem of the servicers and banks not having adequate personnel, quantity and quality, to service these loan modifications 

and to address the problems. 

I’m also concerned about the process of short sales, and I appreciate the new Treasury guidelines that have come into play to expedite the closings on short sales. Yet I still have concerns they don’t 

go far enough to address some of the issues complicating the execution of short sales, particularly secondary liens and investor interest, which my attitude is, where there’s a will, there’s a way. I 

think these are things that can be worked through. 

Another issue is appraisals. This seems to be a constant issue in 

terms of working through difficulties in loan modifications, because 

some properties were overvalued on the way up and because there’s 

very little activity at the ground level right now, appraisals are 

coming in exceedingly low and not necessarily reflective of the 

6 

value. Again, I think this is something that’s deepening the problem and prolonging the agony. 

Lastly, I want to point out that in many cases, banks are also 

sitting on foreclosure proceedings, so they don’t have to necessarily 

write down the asset or take title and step in the shoes of the borrower, and that’s creating another problem in the communities because people who aren’t keeping up with their mortgages are not 

keeping up with their taxes and not keeping up with their homeowners assessments and condominium assessments, and it’s creating a whole problem in terms of the marketability of properties 

in those communities and the value in those properties. 

So I just want to say that we have a lot of work to do. I appreciate everybody coming here today, and giving us their thoughts 

and ideas, and we need to move expeditiously on this important 

issue. 

I thank the chairman. 

Mr. MOORE OF KANSAS. [presiding] The Chair recognizes Ms. 

Sheehan. 

STATEMENT OF MOLLY SHEEHAN, SENIOR VICE PRESIDENT, 

CHASE HOME FINANCE 

Ms. SHEEHAN. Good morning. My name is Molly Sheehan. I work 

for the Home Lending Division of JPMorgan Chase as the executive 

responsible for housing policy. At Chase, we have been working 

very hard to help prevent foreclosures and keep families in their 

homes. Since 2007, under our expansive programs, we have helped 

prevent over 885,000 foreclosures. 

Since January 1, 2009, Chase has offered over 568,000 modifica- tions to struggling homeowners for a value of over $100 billion in 

mortgage loans. We have approved or completed over 112,000 permanent modifications under HAMP, Chase Proprietary Modification programs or other modification programs offered by the GSEs 

and FHA/VA. We have given specific details of all of that activity 

in our written testimony for you to review. 

This year alone, we have opened 30 Chase Homeownership Centers in 13 States. Over 60,000 struggling borrowers around the 

country have been able to meet with trained counselors face-to-face. 

We plan to add an additional 21 sites early next year. We have 

added over 2,500 loan modification counselors in 2009, bringing the 

total number to 5,200 loan modification counselors in 15 sites 

around the country. We have hired over 2,800 additional mortgage 

operation employees to handle the unprecedented volume. So we 

now have nearly 14,000 home lending employees at Chase dedicated to helping our homeowners. 

We have handled over 12.8 million inbound calls, and our outbound foreclosure prevention calls increased to 4 million in 2009, 

up from 400,000 the year earlier. And we have had 3.6 million visits to our dedicated Web site for loan modifications where borrowers have been able to download over 1.6 million modification 

packages that they can provide to Chase. 

Through HAMP alone, we have offered trial plans to over 

200,000 homeowners and are working very hard to make those 

modifications permanent. Based on our experience, for every 100 

HAMP trial plans initiated from April through September 2009, 29 

7 

borrowers did not make all required payments under their trial 

plan, making them ineligible for a permanent modification under 

HAMP. Seventy-one borrowers made all three payments under 

their trial plans. Of those 71, 20 borrowers did not submit yet all 

the documents required for underwriting. Thirty-one customers 

have submitted all the required documents, but the documents do 

not yet meet HAMP underwriting standards. Twenty borrowers 

have completed all required documents and are eligible for underwriting. And out of those 20, 16 will likely be approved or have already been approved for a permanent HAMP modification. 

To the extent a borrower is not approved for a permanent HAMP 

modification, we have other alternatives available to them under 

Chase modification programs and programs offered by the GSEs 

and FHA/VA. Right now, we are very focused on helping the 51 

percent of borrowers who are paying but need help completing documents, and have implemented aggressive new initiatives: A coordinated program to call our customers 36 times; reach out by 

mail 15 times; and make at least 2 home visits, if necessary, to 

help complete documents. Also, ordering key documents earlier in 

the process so they’re ready when the borrower’s documents come 

in to expedite underwriting; targeting outreach efforts to borrowers 

who live near our Chase Homeownership Center so they can come 

in in person to get help completing their documents; and assigning 

specific pools of accounts to loan modification counselors to provide 

continuity in dealing with the customer and end processing. 

Under this program recently launched, we have completed over 

4 million calls, letters, and home visits, for an average of 27 activities per borrower through the end of November to help the conversion process to permanent. 

We are also paying special attention to the 31 percent whose documents are in but don’t meet HAMP requirements. And we will be 

working on very specific initiatives to get that process completed 

with the Treasury in order to simplify the documentation for our 

borrowers. 

Thank you very much. I would be happy to answer any questions 

you have. 

[The prepared statement of Ms. Sheehan can be found on page 

146 of the appendix.] 

Mr. MOORE OF KANSAS. Thank you, Ms. Sheehan. 

The Chair next recognizes Mr. Jack Schakett, credit loss mitigation strategies executive, Bank of America. Sir, you have 5 minutes. 

STATEMENT OF JACK SCHAKETT, CREDIT LOSS MITIGATION 

STRATEGIES EXECUTIVE, BANK OF AMERICA 

Mr. SCHAKETT. Chairman Moore, Congresswoman Capito, and 

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

you on Bank of America’s loan modification efforts and to discuss 

areas where we can work together to help more homeowners stay 

in their homes. 

I am Jack Schakett, Bank of America’s credit loss mitigation executive, and I have the responsibility of foreclosure prevention programs with a mortgage servicing portfolio of more than 14 million. 

Bank of America is a proud partner in the Administration’s Home 

8 

Affordable Modification Program, HAMP. With more than 160,000 

customers currently active in trial modifications, HAMP has proven 

a valuable tool that complements the aggressive loan modification 

programs that Bank of America already has in place. 

Over the last 2 years, Bank of America, with the combined effort 

of HAMP, has offered help to 615,000 homeowners. In over 100,000 

calls a day, we hear from our customers, their concerns and their 

frustrations. We believe we have improved significantly our ability 

to handle the large volume associated with these calls, but we also 

believe much more needs to be done. 

We fully share Treasury’s commitment to convert successful trial 

modifications to permanent as quickly as possible. In support of 

that commitment, Bank of America is focusing on assisting customers and providing all the necessary documents for the underwriting process. Otherwise, homeowners are at risk of missing this 

opportunity to obtain a HAMP loan modification, an outcome that 

none of us want. 

As this committee knows from prior hearings, in addition to the 

customers making three timely trial payments, the servicer must 

fully underwrite the permanent modification. This includes 

verifying income, occupancy status, and tax returns. Specifically, 

Bank of America has approximately 65,000 customers who have 

made more than 3 trial payments on time. These modifications are 

set to expire on December 31st. Of those customers, 50,000 have 

either not submitted some or all the required documents or the documents they have submitted revealed a discrepancy that needs to 

be followed up on with the customer. 

For these customers, Bank of America last week sent by overnight mail an urgent request for the documents needed to be complete in the process and set up the timeframes required to avoid 

losing the Treasury’s modification program benefits. We included a 

return, prepaid express mail envelope to make the process as easy 

as possible. This is in addition to the previous reminder calls and 

mailing attempts. 

We have dedicated substantial resources to these efforts, including the expansion of our default management staff to nearly 

13,000. For all the customers who have now submitted their documentation, we are confident that we can meet the Treasury’s requirement to fully underwrite 100 percent of these loans before the 

trial expiration. 

But despite these efforts, it was clear that some portion of these 

customers who are facing a December 31st expiration would not be 

able to complete the process and would narrowly miss the deadline. 

Late yesterday, after a meeting with the Treasury Department, 

where we discussed our concerns about the looming expiration 

date, Treasury released new guidance that will prove to be very 

helpful in relief to the customers who have submitted all their documents and where servicers are still working on completing the underwriting or the notarization process. We think this new guidance 

will go a long way to eliminate fallout on technical grounds, and 

we really appreciate the assistance from the Treasury Department. 

Today, I would also like to offer several areas for consideration 

where HAMP could be enhanced to help more customers. Based on 

the Treasury survey data, the total customers eligible today for asVerDate Nov 24 2008 18:27 May 20, 2010 Jkt 056236 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\56236.TXT TERRIE
9 

sistance of the program is estimated to be 1.5 million. Bank of 

America’s share of that is about 340,000. Bank of America has 

made offers to 74 percent of that population and has started trial 

modifications with nearly half. This compares favorably to the latest Treasury report for all servicers participating in the program. 

We believe this demonstrates that HAMP is an effective program 

in reaching certain borrowers. However, the program was not designed to assist borrowers who have vacated their homes or no 

longer occupy their home as their principal residence. Nor was the 

program structured to assist for the unemployed or those already 

with a relatively affordable housing payment of less than 31 percent of their income. 

We encourage Treasury to expand HAMP to assist in meeting 

some of these challenges, specifically including a program for the 

unemployed and allowances for a housing ratio less than 31 percent for the low- to moderate-income borrowers. In any case, Bank 

of America will continue to provide solutions to these customers 

that fall outside the reach of HAMP. 

At Bank of America, our goal is to keep as many customers in 

their homes as possible. We understand the urgency of all solutions, not only for the customers we serve, but to further encourage 

the housing recovery that has begun to take root. We appreciate 

the continued strong support and partnership with the Administration and Congress on this very important issue. 

Thank you. 

[The prepared statement of Mr. Schakett can be found on page 

140 of the appendix.] 

Mr. MOORE OF KANSAS. Thank you very much. 

We next recognize for testimony Ms. Julia Gordon, senior policy 

counsel for the Center for Responsible Lending. Ms. Gordon, you 

have 5 minutes. 

STATEMENT OF JULIA GORDON, SENIOR POLICY COUNSEL, 

CENTER FOR RESPONSIBLE LENDING 

Ms. GORDON. Good morning, Chairman Moore, Ranking Member 

Capito, and members of the committee. Thank you for inviting me 

today to talk about stopping foreclosures. 

Without stronger policy intervention, not only will millions of 

families lose their homes unnecessarily, but foreclosures will continue to destroy communities, especially minority communities, 

hamper the housing market, and slow or prevent a full economic 

recovery. I serve as senior policy counsel at the Center for Responsible Lending, a nonpartisan research and policy organization dedicated to protecting homeownership and family wealth. 

We are affiliates of Self-Help, a nonprofit financial institution 

that makes mortgage loans in lower-income neighborhoods, and is 

consequently grappling with many of the same issues encountered 

by other lenders. And my testimony is informed by this experience. 

The government’s principal anti-foreclosure program, HAMP, has 

not reached its potential. One obstacle impeding HAMP’s success 

is that the private servicing industry as a whole is either unable 

or unwilling to do what it has agreed to do. To address this problem, Congress should mandate loss mitigation prior to foreclosure. 

10 

For many servicers, only a legal requirement will cause them to 

build the systems and safeguards necessary to ensure that such 

evaluations occur before the home is lost. One relatively simple 

way to improve the HAMP program would be for Treasury to require servicers to stop all foreclosure proceedings while borrowers 

are being evaluated for a HAMP modification. Right now, foreclosures may proceed up to the point of sale on a parallel track 

with the loss mitigation discussions. As a result, homeowners receive a confusing mix of communications from their lender, some 

of which tell the borrower they’re being considered for a modification, but others of which warn of an impending foreclosure. 

Confused borrowers who think they’re going to lose their homes 

may fail to send in their documentation, may default early on a 

trial modification, may not answer the phone when their servicer 

calls, or they may leave the home, which makes them ineligible for 

HAMP. It’s also crucial for Treasury to make the NPV model public, so that homeowners can tell whether their HAMP evaluation 

was done correctly, and for Treasury to provide full public access 

to the HAMP database to encourage evidence-based program creation and ideas, similar to the way we get full data under the 

‘‘Home Mortgage Disclosure Act.’’ 

Only that data will be able to tell us what works and what 

doesn’t, what servicers are doing the best job, and whether minority homeowners are being helped to the same degree as White 

homeowners. The foreclosure problem also has evolved, and we 

must expand HAMP to meet new challenges, such as negative equity and unemployment. Others on this panel will talk more about 

the importance of principal reduction, something we believe would 

be enormously useful under this program, and we also should expand HAMP to assist homeowners who have lost their jobs and 

may not have the 9 months of guaranteed unemployment income 

that they need to be eligible for HAMP. And this is what would be 

done through Chairman Frank’s TARP for Main Street bill. 

Beyond the HAMP program, we urge Congress to lift the ban on 

judicial modifications of principal residence mortgages. This solution costs nothing to the U.S. taxpayer. It’s the only solution that 

cuts through the Gordian Knot of second liens, securitization, negative equity, and back-end consumer debt. It would also serve as a 

stick to the carrot of HAMP incentive payments. 

Finally, we commend this committee for its work on legislation 

to create the Consumer Financial Protection Agency and we urge 

the full House to pass that bill this week. We now know it’s much 

less expensive and much easier to prevent these problems than to 

clean up after them. The CFPA would gather in one place the consumer protection authority which is currently scattered across 

many different agencies, and it would remain fully focused on the 

sole mission of protecting our families and economy from the dire 

consequences of predatory lending and consumer abuse. 

Thank you for inviting me today, and I look forward to your 

questions. 

[The prepared statement of Ms. Gordon can be found on page 73 

of the appendix.] 

Mr. MOORE OF KANSAS. Thank you for your testimony, Ms. Gordon. 

11 

Next is Dr. Anthony B. Sanders, distinguished professor of real 

estate finance, professor of finance, School of Management at 

George Mason University. 

Sir, you are recognized for 5 minutes. 

STATEMENT OF ANTHONY B. SANDERS, DISTINGUISHED PROFESSOR OF REAL ESTATE FINANCE, PROFESSOR OF FINANCE, SCHOOL OF MANAGEMENT, GEORGE MASON UNIVERSITY 

Mr. SANDERS. Mr. Chairman and members of the committee, 

thank you for the invitation to testify before you today. 

According to the Treasury Service Performance Report through 

October of 2009, 920,000 trial modification plans have been offered 

to borrowers, and 651,000 trial modifications have been made. 

Given the fall off the cliff of housing prices in many States, the 

surge of unemployment, and the evaporation of liquidity for banks 

and related institutions in the second half of 2007, I am frankly 

surprised that the servicing industry has moved so quickly to make 

loan modifications in such large numbers. 

With 14.4 percent of borrowers in foreclosure or delinquent on 

their mortgages, this creates an incredible challenge to the servicing industry. It is a real challenge to servicers to make loan modifications succeed when 70 percent of loan modifications that have 

only interest rate cuts have gone into default, redefault after 12 

months. If the loan modification affordability calculation is done, or 

HAMP only uses first lien mortgages, the failure of these modifications is not unanticipated. And as I mentioned in the House TARP 

hearings during November 2008, the negative equity problem in 

the sand States of California, Arizona, Nevada, and Florida is 

going to be very, very challenging for the servicing industry. 

Loan modifications must take into account consideration for the 

negative equity position of households to determine the likelihood 

of success in making these payments. Why are so few loans expected to be permanent? Well, there are several reasons for this. 

The first reason for the projected failure rate is the degree to which 

many residential loans in the United States are in a negative equity situation. According to a Deutsche Bank research report, they 

are expecting 25 million homes to be in negative equity position. 

The second reason is the unemployment rate. While a 10 percent 

unemployment rate is bad enough, the true unemployment rate, including wage and salary curtailment, is closer to 171⁄2 percent. This 

is a very challenging obstacle to overcome for the servicing industry. 

The third is the documentation problem, which we have heard 

about today. To qualify for a trial loan modification, the HAMP 

program is following the stated income approach that does not require documentation. Like stated income loans, qualification for 

temporary loan modifications is fertile ground for moral hazard 

problems, where borrowers/applicants who are insulated from risks 

may behave differently from the way they would if they were fully 

exposed to the risk. In this case, borrowers may not want to submit 

the required documentation, since they may be denied for permanent modification. This is not to say that some borrowers have not 

experienced true documentation problems, which would be conVerDate Nov 24 2008 18:27 May 20, 2010 Jkt 056236 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\56236.TXT TERRIE
12 

sistent with the dramatic growth in demand for loan modifications 

through HAMP as servicing entities ramp up their servicing efforts 

to meet the demand. 

The fourth reason is that many borrowers are having trouble 

making the three consecutive payments, because they either have 

too much income, not enough income, or a house that has fallen too 

much in value. The Making Home Affordable Program provides a 

service performance report that rank orders the servicers in terms 

of active trial modifications, a share of eligible 60-plus days delinquencies, the higher the better. 

The problem with this accounting for success, is it does not control for servicers who are servicing loans in particularly hard areas, 

such as bubble States like California, Arizona, Nevada, and Florida. Servicers in these States where housing prices have collapsed 

by as much as 50 percent in some areas are going to be heavily 

challenged to perform these modifications. When you add in the already high unemployment rates in these States, these are indeed 

great challenges. In addition, the highest unemployment rates by 

metropolitan area as of September are: Detroit, 181⁄2 percent; Warren, a suburb, 17 percent; Riverside, 14.1 percent; Las Vegas, 13.7 

percent; and L.A., 12.7 percent. 

While Arizona has only an unemployment rate of 9.1 percent, the 

difficulty of modifications must be considered when combined with 

the crash of the housing crises that have occurred there. The States 

and metropolitan areas with the highest unemployment rates 

should be taken into consideration when determining the loan 

modification success rates. 

My recommendation is for Treasury to account for loans that are 

serviced in the bubble States and the Midwest economically 

malaised States, such as Ohio and Michigan. In short, modifying 

loans in Nebraska is likely to be far easier than modifying loans 

in Arizona, Nevada, and the Inland Empire. One thing we should 

consider is allowing financial institutions, rather than taking immediate hits to their capital when we have a modification or default, allowing them to amortize their losses over a 5-year period. 

That would enable sales of some of these distressed assets as TARP 

was originally intended to do and allow other participants to jump 

into the market to do more innovative programs like short payoffs, 

short sales foreclosures, conversions to leases, which Fannie Mae 

is considering, and broader loan modifications that make particular 

sense. Particularly given the vacancy rates in many States in the 

housing market, conversions at least make some sense when the 

comparatively low rental rates compare to mortgage payments. 

I appreciate the opportunity to speak with you. 

[The prepared statement of Dr. Sanders may be found on page 

136 of the appendix.] 

Mr. MOORE OF KANSAS. Thank you, sir. The Chair appreciates 

your testimony. 

And next, the Chair recognizes Ms. Goodman for 5 minutes. Ms. 

Goodman is the senior managing director for Amherst Securities. 

You are recognized, ma’am. 

13 

STATEMENT OF LAURIE S. GOODMAN, SENIOR MANAGING 

DIRECTOR, AMHERST SECURITIES 

Ms. GOODMAN. Mr. Chairman and members of the committee, I 

am honored to testify today. My name is Laurie Goodman and I am 

a senior managing director at Amherst Securities, a leading brokerdealer specializing in the trading of residential mortgage-backed 

securities. 

I am in charge of strategy and business development. To keep 

abreast of trends in the residential, mortgage-backed securities 

market, we do an extensive amount of data-intensive research. I 

will share some of our results with you today. 

As a result of my testimony, I hope to leave you with two points. 

First, the housing market is fundamentally in very bad shape. The 

largest single problem is negative equity. Second, the current modification program does not address negative equity and is therefore 

destined to fail. There is no single solution to this crisis. The arsenal of measures must include principal reduction and must explicitly address the loss allocation between first lien investors and second lien investors. 

In order to place today’s topic into context, let’s look closely at 

the housing market. The mortgage bankers delinquency survey for 

Q3 shows that 14.1 percent of borrowers are not making their 

mortgage payments. That is 7.9 million homeowners. This dramatic 

increase from several years ago is the result of three things: first, 

borrowers are transitioning into delinquency at a rapid rate; second, cure rates are extremely low; and third, the time between 

when a borrower first goes delinquent and when the home is liquidated has lengthened dramatically. 

Given the current trajectory, we estimate that approximately 7 

million of these 7.9 million homeowners will be forced into vacating 

their properties. This estimate of 7 million units includes only the 

borrowers who have already stopped making their mortgage payments. It does not include the 250,000 new borrowers per month 

who are going delinquent for the first time. Modifications can’t help 

considerably as their success rate has been low. 

The real problem is that many borrowers have negative equity 

in their home. Most borrowers don’t default because of negative equity alone. Generally, a borrower experiences a change in financial 

circumstances, misses a payment on their mortgage, and then reevaluates their financial priorities. If the home has substantial 

negative equity, they will choose to walk. A few numbers will help 

illustrate this point. At Amherst, we did a study looking at all 

prime borrowers who were 30 days delinquent on their mortgage 

6 months ago. Six months later, we found for prime borrowers with 

20 percent equity, only 38 percent had become 60-plus days delinquent. For prime borrowers with substantial negative equity, 75 

percent had become 60-plus days delinquent. 

There is a substantial group of people who have argued that the 

primary problem is not negative equity, it is unemployment. This 

is not supported by the evidence. First, the increase in delinquencies for subprime, Alt-A, and pay option ARM mortgages 

began to accelerate in Q2 2007. By contrast, we did not begin to 

see large increases in unemployment until Q3 2008. 

14 

Further evidence of the importance of negative equity comes 

from another study we recently completed. We found that the combined loan to value ratio, or CLTV, plays a critical role. For AltA and prime loans in low unemployment areas, the default frequency was at least 4 times greater for borrowers underwater by 

20 percent than it was for borrowers with at least a 20 percent equity position. We also found that if a borrower has positive equity, 

unemployment plays a negligible role. All borrowers with positive 

equity perform similarly, no matter what the local level of unemployment. Indeed, negative equity is the most important predictor 

of default. When the borrower has negative equity, unemployment 

acts as one of many possible catalysts greatly increasing the probability of default. 

HAMP modifications, as you are aware, are primarily a payment 

reduction plan. HAMP has three fatal flaws. First, the agent retained to make the modification was a mortgage servicer rather 

than an originator. Second, HAMP only considers the first mortgage payment, taxes, and insurance. It does not consider the borrower’s total financial circumstances. Third and most importantly, 

the program does not emphasize the re-equification of the borrower. 

What can/should be done? Here are some imperatives. First, 

there is no ‘‘one-size-fits-all’’ approach to modifications. Second, 

moving principal reduction higher in the HAMP modification waterfall would be the most natural way to raise the success of the 

modification program. Would investors support this type of program? Absolutely. While foreclosure is devastating to a borrower, 

it’s also devastating to an investor, because recovery rates are low. 

The interest of the first lien investor and the borrower are totally 

aligned. 

Third, any principal reduction program requires the Administration to address the second lien problem head on. Fourth, we endorse the revamped HOPE for Homeowners Program. Fifth, we 

need more transparency on the data. 

We are concerned that if policies continue to kick the can down 

the road, working with a modification program that does not address negative equity, delinquencies will continue to spiral with no 

end in sight. 

Thank you very much for allowing me to testify today. I am 

happy to answer any questions. It has been an honor. 

[The prepared statement of Ms. Goodman can be found on page 

68 of the appendix.] 

Mr. MOORE OF KANSAS. Thank you, Ms. Goodman, for your testimony. 

And finally, the Chair recognizes Mr. Bruce Marks from Neighborhood Assistance Corporation of America. 

Sir, you have 5 minutes. 

STATEMENT OF BRUCE MARKS, CHIEF EXECUTIVE OFFICER 

AND FOUNDER, NEIGHBORHOOD ASSISTANCE CORPORATION OF AMERICA (NACA) 

Mr. MARKS. Thank you very much. It is very good to be here. My 

name is Bruce Marks and I am CEO and founder of NACA, the 

15 

Neighborhood Assistance Corporation of America. We are a nonprofit homeownership advocacy organization. 

I am not going to read from the prepared remarks that we have 

done, because I think we have an interesting panel. So I want to 

respond to some of the points that were made in the panel. 

One thing I wanted to go through is we have legally binding 

agreements with every major servicer and the two major investors 

in the country for closure prevention. So we have Bank of America, 

Citi, Sachs, and Fannie Mae. These are legally binding agreements: 

Litton, GMAC, Freddie Mac, One West, Chase, Wells. We have 

American Homes, HSBC. Again, every one of the major servicers 

in the country and every one of the major investors in the country, 

we have a legally binding agreement. 

There are only two real solutions out there. One is to restructure 

the mortgage for someone with a stable income to make their mortgage affordable, not to refinance. To restructure by permanently reducing the interest rate or the outstanding principal to make it affordable, and I say permanent. That means not a reset in 5 years 

to make that payment affordable, and we agree with what Laura 

and some of the other people on the panel said: We should do more 

principal reductions so you can keep the re-interest rate at the 

market rate, and make it affordable by doing a principal reduction. 

That clearly hasn’t happened. 

The other action, which you do when someone does not have stable income, because they are unemployed, is a forbearance agreement. Lenders have been doing the forbearance agreements for 

many, many years, and they really continue to do that. 

We have homeowners here: Dana Holmes, who is in the audience; as well as Paul Roberts. Dana went to a Save the Dream 

event that NACA has been doing. We have done 12 around the 

country. Each one has about 40,000 to 60,000 people in attendance. 

Paul has reduced his mortgage payment by $1,400 a month. He is 

at a new fixed-rate at 3 percent locked in. Dana has gone to one 

of the Save the Dream events, saving $833. Again, she is in the audience, with an interest rate of 3 percent fixed, as well. But I think 

it’s really interesting to hear we have two of the major servicers 

here. 

We have Bank of America and we have Chase. So one of the 

things we have heard about is what is not working. Well, let’s take 

the two examples of who we have here. We have Bank of America. 

What they have done at the Save the Dream events is that they 

are doing on-site mortgage restructures, and that means that they 

get all the documents, they get the verification of income. 

They get that piece done, and they actually have the homeowners 

signing the legal documents, signing them at the event so people 

in one place are walking away with a restructure, saving $500, 

$1,000, sometimes $2,000 a month, getting the job done. And almost 15 percent of the people who are coming through are doing 

that. 

Then you have Chase. Chase, out of all these servicers here, is 

the worst. And the fact of the matter is when you look at their documentation and you look at what they’re doing, they are playing 

you. The fact of the matter is, when they say that they are doing 

these trial mods, and all of that, and all of a sudden, it’s the borVerDate Nov 24 2008 18:27 May 20, 2010 Jkt 056236 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\56236.TXT TERRIE
16 

rower’s fault because the homeowners can’t get the documents 

there, it’s because they’re underwriting them after 3 months, so 

they refuse to do on-site, permanent restructures. They put people 

through the process. 

They’re impossible to work with. Talk to the homeowners about 

that. So I think it’s a really interesting contrast that you have the 

one who does the best, and that’s Bank of America, and the one 

who does the worst, and that is Chase. So when you get Jamie 

Dimon up here, ask him for the facts of that. 

Let’s talk about what the solutions are and what they really 

should be. Well, the Administration has to stop pleading, begging, 

and bribing the servicer to do the right thing, because the fact of 

the matter is a lot of their business models don’t work. They’re in 

the collection business. They’re in the business of remitting that 

money to the investors. They’re not in the origination business, 

which is what we’re at now. 

So the fact of the matter is, where are the OCC and the Federal 

Reserve? They should be requiring the servicers to do the mortgage 

restructures, to do what they should be doing. That’s their job, and 

that doesn’t require the TARP money. Clearly, when we had a financial crisis, we required the lender to take the TARP money, because there was a safety and soundness issue. We can have that 

same standard, that same standard to say, let’s require the 

servicers, the lenders, to stop the foreclosures, to restructure the 

mortgages and to make them affordable without use of the taxpayer money out there. 

So thank you very much. I would be glad to answer any other 

questions. 

[The prepared statement of Mr. Marks can be found on page 115 

of the appendix.] 

Mr. MOORE OF KANSAS. Thank you, Mr. Marks, and I thank all 

of the witnesses for their testimony here today. I will start with 

you, Ms. Sheehan, representing Chase. 

You just heard Mr. Marks’s testimony. Would you have any response or any reply to some of his comments, ma’am? 

Ms. SHEEHAN. We have been working with Mr. Marks’s organization for quite a while. We think they do a great job in their outreach events and bringing homeowners out to talk to us. We have 

a process that we have established in terms of how we do our intake for our events. It is a slightly different process, perhaps, than 

Bank of America. And I’m sure each of us has different processes, 

but we have worked very, very hard to make sure that we get the 

documents in. We have a dedicated portal. We image documents. 

We put them together and then they go through our 

prequalification process. 

I know there have been bumps along the road, absolutely, particularly in building-up capacity to manage the outreach process 

with Mr. Marks, but we continue to work very, very hard and we 

will certainly follow-up with him after this hearing and talk further 

about how we can do better. 

Mr. MOORE OF KANSAS. Thank you. Do any other witnesses have 

a comment on my question? Anybody else? 

When it comes to foreclosures, I continue to be troubled by stories of mortgage fraud and individuals who are trying to make a 

17 

quick buck by scamming innocent people. To any of our witnesses, 

what steps, Ms. Sheehan, or others, is Chase or others taking to 

ensure your customers are not taken advantage of? Is there enough 

information being provided to the general public about what a legitimate mortgage foreclosure mitigation plan is compared to a 

scam? Is there more education that needs to be done so innocent 

people are not taken advantage of? Any of the witnesses, Ms. 

Sheehan or others? 

Ms. SHEEHAN. Certainly, there is a lot of work that needs to be 

done in the scam process. I think we have made a lot of progress. 

We have worked with the FTC making sure that we are getting information to them when we learn about scams that are going on. 

We have put together booklets with the FTC that we include in all 

of our conversations with our customers. We continually remind 

them that they don’t need to pay for a modification. 

Mr. MOORE OF KANSAS. Thank you. Do any other witnesses want 

to answer that question? Mr. Marks? 

Mr. MARKS. Yes. The answer is, if you consider those servicers 

out there who are doing the fraudulent activity, you have to reconsider them as roaches out there. You can’t kill off all the roaches 

by stomping them all out; you have to cut off their food source. And 

the food source is the lack of the ability where some homeowner 

goes to the servicer to get a real solution right then and there. So, 

the focus should be on really requiring the servicers to get the job 

done, because if you do that, then you’re going to prevent all these 

frauds. 

Clearly, it should be outlawed that no one should charge anybody 

to save their home because they should be working with the 

servicers and the nonprofits who don’t charge to do that. But, we 

have to focus 100 percent on getting the job done. Everybody who 

comes to an NACA Save the Dream event has tried to work with 

a servicer and has failed. So, we have to really put these players 

out of business, and frankly, put the nonprofits, the NACA’s and 

the like, out of business because our job should become irrelevant 

if the servicers are required to do these restructures and the 

forebearances. Thank you. 

Mr. MOORE OF KANSAS. Do any other witnesses care to comment? 

Mr. SANDERS. I just want to add to what he what he was saying. 

I disagree with, in part, what he’s saying because, again, supposing 

a borrower doesn’t like what they’re hearing from the servicer. 

They may want to get legal representation or an organization to try 

to push the envelope. You have to be very careful about trying to 

regulate people out of these industries. It sounds good, but I think 

there might be people who want additional representation, although I really don’t like the scammers, either. 

Mr. MARKS. And we shouldn’t agree with that because at these 

events, we also do a forensic audit of the loan, so on the pick and 

pay and all that, you find that 80 percent of all the pick and pays 

in the country that, you know, that there’s something that was 

done illegally, so that when we do a forensic audit, we find the violations and that gives the borrower a better opportunity to get a 

long term solution, so absolutely. 

Mr. MOORE OF KANSAS. Thank you to my witnesses. My time has 

just about expired. I’m going to next recognize Mrs. Capito, please. 

18 

Mrs. CAPITO. Yes, thank you. There are two things that are troubling me here. First of all is the, I guess the conflicting information, but the information that once people, well, when I learned at 

the last hearing that in order to go into a trial modification, you 

don’t have to have your documentation before you. You can go 

ahead and go into the trial modification for 3 months without the 

documentation. But, according to what Ms. Sheehan is saying, and 

then after you’re requesting these documents, that they’re not 

forthcoming with a large percentage of the folks who are trying to 

modify their loans. 

What is the principal reason that people aren’t coming forward? 

Is it as the gentleman just said, they don’t like what they’re seeing, 

or they’re just postponing the inevitable, or what is the reason for 

this? 

Ms. SHEEHAN. Certainly, a lot of the situations that we see are 

where they have submitted some of the documents but not all of 

the documents. And— 

Mrs. CAPITO. Exactly. They have to have income tax— 

Ms. SHEEHAN. Right. So— 

Mrs. CAPITO. Proof of employment. 

Ms. SHEEHAN. Yes, and it could be, but frequently it may be documents that they don’t have easy access to— 

Mrs. CAPITO. Like? 

Ms. SHEEHAN. For example, a supporting death certificate or divorce decree. Mr. Marks made the point that this is a true origination process, it’s really, truly underwriting a new loan and so what 

we are looking at, as you said, all of the different financial aspects 

of their situation. And so it is a challenge for borrowers and we’re 

trying to help them, we’re trying to help them overcome that challenge. 

Mrs. CAPITO. Mr. Schakett, do you have the same situation at 

Bank of America? 

Mr. SCHAKETT. Yes. That’s definitely true. I think that one thing 

that when they were first setting up HAMP, there was a lot of discussion around whether or not we should require full documentation, partial documentation, or no documentation to start the trial 

mod period. Obviously, at that time, I think there was a general 

consensus that we supported that we have a lot of pent-up demand 

right now, we need to get the customer started as soon as possible, 

so people erred on the easy side in the beginning of the program, 

they said, make it no documentation, oral commitment to what you 

make, start the trial period, use that trial period to gather the documentation, hopefully that you would actually then solve the documentation problem, at the same time and parallel with the 3 

months’ trial payments. 

Clearly, what we’re now looking at, we’re at a pretty high fallout ratio. We think it’s time probably to maybe change the process 

slightly. We would advocate up-front now to require some documentation, at least two documents: the hardship affidavit, which is 

fundamental to the program, to prove what kind of hardship, and 

it also has language about making sure everything you’re saying is 

truthful; and then assign the 4506–T, which lets them know that 

we’ll be pulling a tax return at some point in the future. So, if 

there are customers who potentially were trying to game the sysVerDate Nov 24 2008 18:27 May 20, 2010 Jkt 056236 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\56236.TXT TERRIE
19 

tem, that might root out those customers up-front and eliminate, 

maybe, some of the conversion problems we have today, so this at 

least is our view, it may be a good time to challenge what documentation we’re requiring up-front to make it a little bit tougher 

to get into the program, still allowing the time to finish processing 

the loan, this added on to the end of the trial because that parallel 

processing still, I think, is a good idea, because there are a lot of 

documents to get and trying to get them all up-front would maybe 

unnecessarily delay the start of the process. 

Mr. MARKS. And if I can add just one thing to what they’re saying is that, it’s not a difficult process. It’s really a simple process. 

If we can do it in the same day, get same-day solutions, all you 

need is three documents: the hardship affidavit; the 4506–T authorization; and verification of income. So, we don’t believe that 

you should do the no-docs. We believe in the trial mods, but you 

should underwrite it on day one, end it, get it done, after 3 months 

of making on-time payments, it gets done. 

The other problem is that homeowners have lost confidence in 

the servicers. And so, if the process doesn’t work, people don’t trust 

the servicers out there, and somehow, we have to re-establish the 

trust between the homeowners and the servicers. But, just get it 

done at the beginning, get the verification. I think that the fact of 

the matter is, they required more documentation at the beginning 

of the process. The Administration has made it a simpler process 

so— 

Mrs. CAPITO. Well, I would certainly say that, to have some upfront documentation, like I said, I was astounded to hear there was 

no documentation in the beginning. This is the problem that we 

had when we started. And I am talking way back here. 

The other thing, I think that Ms. Goodman brought up, was that 

the negative equity situation when challenged whether it was unemployment driving a lot of this now. Well no, not really, it’s more 

negative equity or people are underwater. I don’t see how you solve 

that problem. Luckily, I am from a State, West Virginia, where we 

don’t really have that problem, but these States like California, 

Florida, and Nevada, they are so far underwater. They are underwater by amounts that are more than the median home price 

where I live. And, people have to feel just desperate, that there’s 

no way that they can get out from under. So, I think that is a huge 

hurdle to overcome here and it’s one that you can’t do overnight. 

It’s not like, you have lost your job, you have a new job. It’s like, 

you have time here, and I think my time’s up, but anyway, that’s 

just a comment I wanted to make. Thanks. 

Mr. MARKS. Is it possible to respond to that? Do you mind? If I 

can do that quickly? 

Mr. MOORE OF KANSAS. We do have other people who want to 

ask questions. You can respond in writing. In fact, the Chair encourages anybody who would like to provide additional testimony, 

to give us written testimony that will be provided to the members 

up here. Thank you, sir. The Chair next recognizes Ms. Waters of 

California for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. And I apologize for not being able to get here earlier today. Let me just say 

that I have spent a lot of time trying to understand why we can’t 

20 

get loans modified quicker. I don’t buy the White House’s latest attempt to prod servicers into doing loan modifications. I don’t think 

the jawboning and trying to embarrass these servicers into doing 

the right thing works. 

I think that we have to have stronger legislation. I think I understand a lot about loan servicing, and Mr. Marks, you’re absolutely 

correct. I see no reason why you cannot do a loan modification in 

the same day that you’re contacted, with limited documentation. 

I’m not saying no documentation. But you know, this business of 

the trial for 3 months and then the request for 6 months’ worth of 

bank statements and on and on and on. 

In my office, we’re helping people 75- and 80-years-old try to put 

together requests from servicers that professionals working every 

day can’t put together very easily. 

And the other thing is, these many servicers, why do you lose so 

much? Most of the time, I’m getting calls about people having to 

submit papers a second and a third time. Also, I get the feeling 

that some of our companies have just brought in servicers and they 

gave them a 21⁄2 hour training session and put them out there to 

try to do loan servicing, and then they tell my constituents they 

can’t take into account certain kinds of income that are not valid. 

I don’t care where the money comes from. Child support, unemployment, Social Security, all of that should be taken into consideration. But, I’m talking to servicers, because I get on the phone with 

them, and I get on the phone with my constituent, I get a waiver 

for my constituents to talk directly to the servicers, to assist them. 

I’m just amazed at what appears to be incompetence. I’m amazed 

at the requests for all of this documentation: the bank statements; 

the tax filings; and on and on and on. It is not necessary and 

they’re not getting it done. We know that they are not getting it 

done. The White House is embarrassed about this and people are 

losing their homes who could remain in their homes. 

In the Recovery Bill that is going to be on the Floor tomorrow, 

we’re going to try and do something for the unemployed because we 

have reverse mortgages where people get reverse mortgages, get 

money up-front, and then when the house is sold, or what have 

you, the money is paid back. We could do that with the unemployed, you know, when the house is sold, we could lend money upfront and they could pay it back when the house is sold. 

But, I tell you, there is not a real effort by the mortgage companies or the banks or the servicers, or whomever, the banks own 

most of these servicers and operations, to really do loan modifications. That’s the bottom line. You don’t want to do them. And so, 

not wanting to do them, you don’t care about HAMP or anything 

else, you just don’t want to do them, so I am looking for stronger 

legislation to force these modifications. I’m looking for ways to expedite, as Mr. Marks explained, and I didn’t hear some of the other 

testimony. 

But, it’s not a lot that can be told to me about the ‘‘can’t be 

done,’’ that people are not getting their paperwork in, that somehow people signed on the dotted line and now they don’t want to 

take responsibility. 

I have been looking at, if I may, I have been looking at some of 

these mortgages where they readjust in perpetuity. They readjust 

21 

every year for the rest of the loan up through 2034, 2035, and on 

and on and on. Those should be modified on the spot. It has nothing to do with anything except that’s a predatory loan. 

And for those servicers and those companies who have those bad 

products that are out on the market and they have people who are 

in trouble and they’re saying they can’t modify those loans, I’m 

coming after them with some real legislation to do so. Some of the 

loans are predatory. Some of them are, people have been defrauded 

and I want those loans modified even if they work every day and 

they can afford to pay the loan, those loans have to be modified 

along with people who don’t have the money because they have lost 

their jobs, etc. I yield back the balance of my time. There is not 

a lot else to be said about this mess, Mr. Chairman. 

Mr. MOORE OF KANSAS. I thank the gentlelady for her questions 

and her comments. Next the Chair recognizes— 

Mr. MARKS. If I can just comment— 

Mr. ROYCE. I think we’re into my time now. 

Mr. MOORE OF KANSAS. It’s Mr. Royce’s time. The Chair will recognize Mr. Royce for 5 minutes. 

Mr. ROYCE. Thank you, Mr. Chairman. 

Mr. MOORE OF KANSAS. And I want to say—excuse me—to the 

witnesses, that they have an opportunity to submit written statements, as well. Mr. Royce? 

Mr. ROYCE. I appreciate that, Mr. Chairman. I just make mention here, Ms. Sheehan in her testimony said that JPMorgan Chase 

had successfully prevented 730,000 foreclosures and Mr. Schakett 

mentioned that the Bank of America assisted 615,000 customers in 

the first 6 months of 2009 to refinance into more affordable mortgages at a lower interest rate. Now, the Administration and some 

of the Members of Congress here would like to change the Bankruptcy Code so that bankruptcy judges could write down principal. 

This doesn’t just have to do with writing down an interest rate; it 

has to do with reducing principal on a loan. And if the borrower 

understands that if they wait and don’t renegotiate because we 

might do these huge write-downs of principal, why would the borrower continue to work at the table to try to stay, try to work out 

an arrangement for a lower interest rate? That would be one of the 

questions that I would ask. 

Mr. Schakett, do you have any thoughts on that? What would 

happen, in other words, to your efforts to restructure, to continue 

to restructure these loans, should that kind of legislation pass? 

Mr. SCHAKETT. Well, certainly there is risk if the customer believes he has two outlets to restructure his loan. One, to work with 

the mortgage company in existing programs like HAMP to modify 

or seek judicial process to modify, and if he believes he could get 

a better deal judicially, you’re right, there is some risk it actually 

would undermine the HAMP program. 

You know, our view is if the Congress and the Administration determines we should do more in principal reductions for certain borrower segments, we have to work that into some leg of HAMP, 

okay? And I think there could be some borrower segments, very 

high LTV’s, the late stage delinquencies, that because there’s a 

large unwillingness problem, maybe there should be some sort of 

a principal forgiveness program that the government participates 

22 

in. But, it would be best served, I believe, by putting that through 

a process that works for everybody and is actually sponsored by the 

Administration itself versus through a judicial process. 

Mr. ROYCE. You see, one of the concerns I have here is having 

fought in the past against some of the policies that encourage 

Fannie Mae and Freddie Mac to do some of the types of lending 

they did with zero downpayment loans, subprime loans, half of 

their portfolio being subprime, my concern is that we now go to a 

situation where if this cram-down concept goes through, it’s going 

to have an effect in the future on mortgage rates. And I want to 

ask Professor Sanders about this. 

What’s going to be the effect going forward on the secondary 

market? Are lenders going to have to reprice their consumer mortgage products in order to adjust for the risk to investors presented 

by something like bankruptcy cram down? Is that the likely consequence of legislation like this? 

I remember a Justice, Supreme Court Justice John Paul Stevens’ 

comment that there’s a reason the Bankruptcy Code does not treat 

residential mortgages like it treats credit cards or auto loans. And 

basically, what he said was, we want to ensure investment certainty and encourage the flow of capital into this market. If Congress keeps making mistakes, errors in judgment, that balloons the 

market, like what was done with Fannie Mae and Freddie Mac, 

and then comes back with cram-down, or legislation like that, do 

we drive the private capital out of the market? 

At the end of the day, I don’t think Congress did any favors for 

disadvantaged people by pushing Fannie Mae and Freddie Mac and 

mandating that half of their goals, mandated that half of that be 

subprime and Alt-A loans. That was a huge mistake for Congress 

to make. Zero downpayment loans, frankly, by Fannie and Freddie, 

that was a huge mistake. We’re now living with the fact that people took advantage of that, obviously, as everybody would. If you 

could capital at those rates and with no money down, if you could 

flip homes, 30 percent of the homes in 2005 were flipped in this 

country. 

So, we knew what was going on. Let me ask you, Professor, your 

observation on that. 

Mr. SANDERS. Well, first of all, I think you were spot-on at the 

beginning that the write-down of principal, while it is desired by 

anyone who is in that position, has serious moral hazard implications about waiting and actually going to the default if you know 

you’re going to get a principal write-down. But secondly, on the secondary markets, Andy Davidson and I wrote a paper for the MacArthur Foundation called, ‘‘Securitization After the Fall.’’ And what 

we said was, if we want to get the whole securitization market, 

which is really, really important for the mortgage market and the 

housing market to recover, we have to establish trust so investors 

around the world, the United States pension funds, have to trust 

that the securities market is going to work, etc. 

And the problem is, if we go to cram-downs, cram-downs, I think, 

will send a shock wave through the international markets that, oh, 

my gosh, we’re going to allow judicial intervention, and they’re 

probably not going to be consistent, they’re going to vary by jurisVerDate Nov 24 2008 18:27 May 20, 2010 Jkt 056236 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\56236.TXT TERRIE
23 

diction, it’s just a terrible signal we’re sending to the capital markets around the world, if we pursue that. 

Mr. ROYCE. As nobly intended as it is. Thank you, Professor. 

Thank you, Mr. Chairman. 

Mr. MOORE OF KANSAS. Thank you. The Chair will next recognize Mr. Clay of Missouri for 5 minutes. 

Mr. CLAY. Thank you so much, Mr. Chairman. Along the same 

lines as Ms. Waters, some of the strategy that we see now deployed 

by mortgage holders and banks does not make good economic 

sense. Why haven’t we seen an effort to keep people in their homes 

instead of removing them? And then leaving the home vacant and 

reducing the value of the surrounding property in the neighborhood. If it is about the bottom line and profit motive, would it not 

be a better business strategy to keep people in homes? Doesn’t the 

mortgage holder or the bank have to maintain utilities and to keep 

the water on in those facilities? 

Let me ask someone on the panel, and maybe Ms. Sheehan or 

Mr. Schakett could take a stab at this. What is more cost-effective 

for banks and mortgage holders, to evict and/or foreclose on a 

home, is that more cost-effective, or would it be better to work out 

some arrangement, even if the homeowner is reduced to paying 

rent in order to keep them in that house? What would be more 

cost-effective to the banks or the mortgage holders? 

Ms. SHEEHAN. I would say that, obviously, when we look at our 

distressed borrowers, the first thing we do is make a consideration 

about whether or not we can achieve an affordable and sustainable 

monthly payment for their housing under a modification program. 

That’s what we’re trying to do because generally speaking, that is 

going to be more cost-effective from an investor or lender perspective than a foreclosure. So, absolutely, that is part of the process 

that we follow. 

Mr. CLAY. Well, but think about the difficulty when you remove 

a family from a home, then it’s vacant, then you drop the overall 

value of the homes in that neighborhood. Then, your profit is reduced when, even if you’re able to sell that home. It is just a strategy. Mr. Schakett, you may— 

Mr. SCHAKETT. Well, you’re right. There’s no question. When we 

make the calculation, is it better to try to make an affordable payment for the customer versus take the home away from the customer, part of the calculation of taking the home away recognizes 

that if we take it away, we do have to pay the bills while he’s not 

there, there are eviction costs, it does take a while to market the 

property, the property could decline in value further which makes 

it even worse for us. So, all of those calculations are part of the 

math which weighs heavily in the favor of the consumer that says 

as long as he can make some kind of reasonable payment, it is almost always better to keep the customer in the home. That’s exactly right. 

Mr. CLAY. But we are not seeing that trend now among mortgage 

holders who are saying, let’s make every effort to keep people in 

their homes. We’re not seeing that. 

Mr. MARKS. Sir, if I can respond? 

Mr. CLAY. Yes. 

24 

Mr. MARKS. Because there are two separate pieces. One is the 

servicer. If the servicer does nothing, and it goes to foreclosure, 

they lose nothing. The other is the investor. And then we always 

hear from the servicer that says, you know, we would love to do 

it, but the investor says, no. The fact of the matter is, they virtually never, ever contact the investor. What they do is they go to 

the trustee who tends to be the same entity the servicer is and 

says, what does the pooling and servicing agreement say? That’s 

the contract between the servicer and the investor. So, while they 

say it’s the investor’s problem, it’s not. When you talk to PEMCO 

and the biggest investors out there, they say, we want to do these 

modifications, we actually want to do the principal reductions. But 

we’re not seeing that. So, the fact of the matter is, the servicers 

lose very little if it goes to foreclosure. It’s the investor who loses. 

And they very seldom ever talk to the investor and then the lawyers for the servicers says, well, they take the conservative approach. So, they find a reason to say no, as a reason to say yes, 

but reading the pooling and servicing agreement, the PSA, in a 

very conservative manner, which hurts everybody, as you say, sir. 

Mr. CLAY. Well, don’t the servicers have a fiduciary responsibility 

to the investor? 

Mr. MARKS. That’s right, and you know, from our opinion, we 

think that they’re in violation of their fiduciary responsibility because they find a reason to say no when their approach has been 

the opposite, where they should be saying yes in a lot of cases. 

Mr. CLAY. Thank you. 

Ms. GOODMAN. Let me just make one more point and that is that 

many borrowers are so far underwater that they don’t want the 

modification; the current modification program doesn’t work for 

them. You need to go to some sort of a principal reduction program. 

They still legally owe the money even if they’re making a lower 

payment. 

Mr. MOORE OF KANSAS. The gentleman’s time has expired. Any 

other witnesses who with to make a comment are certainly invited 

to do so in writing, please, for the record, because that is helpful. 

The Chair next recognizes the gentleman from California, Mr. 

Baca, for 5 minutes, sir. 

Mr. BACA. Thank you, Mr. Chairman, and thank you for holding 

this hearing. In my area, we probably have the third or the fourth 

highest foreclosure rate in the Nation, so it has really impacted the 

Inland Empire, and in my neighborhood, I have homes that are basically vacant or have just been rented. And it seems like many individuals who have lost their homes or are in the process of losing 

their homes are stating, why should I continue to pay the high 

rates that are currently there right now when the property value 

has even gone down so much, so they end up vacating their home 

and then renting, which is a problem that we have. 

But my question pertains to the HAMP program. A lot has been 

made about the HAMP program and its inability to help families 

whose breadwinners have become recently unemployed because of 

the current economy. In many of these situations, it is actually better for the lender to foreclose on the property and I state, it is better for the lender to foreclose on the property. 

25 

Moreover, there is evidence showing that permanent modifications for unemployed individuals actually end up hurting the taxpayers because of the government ownership of Fannie and 

Freddie. Because of this, there have been plans that actually called 

for limited modification for unemployment and actually called for 

use of housing vouchers or grants to be used. Could you comment 

on the feasibility of such an approach, addressing what’s possible, 

pros and cons that may be, and I address this question to Mr. 

Marks. 

Mr. MARKS. Sure. Thank you. One is that, with someone who is 

really unemployed, servicers have done this for many years, there’s 

a standard practice where they do a forebearance for 3 to 6 

months. And, you know, they should be doing that. So, you don’t 

need MHA, frankly, you don’t need the government subsidies to 

help the servicers to do that. So, it’s really an enforcement part. 

The other problem, and I think it’s a very good point, is that we 

are getting people locked in at a 2 percent interest rate for life. 

Well, that’s a nice piece, but that shouldn’t be the answer acrossthe-board. What should be the answer is, let’s put someone on affordable payment at a market rate and reduce the outstanding 

principal because that’s better for the economy, it’s better for the 

homeowner, it’s better for the community. 

And under MHA and under HAMP, you see virtually no solutions 

when there’s a principal reduction or forebearance. Everything is 

interest rate reduction. We don’t think that’s the right answer 

across-the-board. We agree with the investors out there who say 

that is not the right answer across the board. They would rather 

have a significant principal reduction closer to the current value of 

the property and keep the interest rate at the market rate and we 

think that, you know, MHA and HAMP, should be reconfigured to 

re-encourage that, please. 

Mr. BACA. Thank you. And you’re saying that the current rate of 

the market today, not what it was before they foreclose, is that correct? 

Mr. MARKS. Absolutely. It’s all about the affordable payments, 

how you get to the affordable payment, so once you look at 31 percent of the gross income or you take the net cash flow to determine 

an affordable payment, which is less, then how you get there is up 

to the servicers and the investors. And while you can reduce the 

interest rate to 2 percent or 3 percent, like you have heard here, 

to get to that, maybe you could keep it at a 5 percent interest rate 

and reduce the outstanding principal by $50,000 or $100,000 to get 

closer to the current value of the property. 

Mr. BACA. Mr. Sanders, would you like to tackle this? 

Mr. SANDERS. The whole issue of the interest rates is a fascinating one. I think we are price stressing it too much and the one 

thing I want to add to that, though, is that I’m hoping everyone 

considers the fact that if we do, in fact, move to 2 percent loans 

for a large segment of the population who are in financial difficulty, 

etc., which again, is very noble sounding. So, I want to point out 

that somebody’s going to be holding those notes, and when high inflation and high interest rates suddenly go ka-boom in a few years, 

which they will, whoever’s sitting on that paper is going to have 

catastrophic losses. Right now, the Fed is sitting on that, but 

26 

Freddie is insuring this and we have to again, be, I think, very 

careful of the long-run implications of what we’re doing here. 

Mr. BACA. Yes, but the people who are holding those notes really 

have been the greedy ones who took advantage of those individuals, 

right? So why not make them lose? If those are the ones holding 

the notes, hey, I don’t mind them losing because they got greedy 

in the first place. 

Mr. SANDERS. Well, if pension funds and the Federal Reserve are 

the greedy ones, then I don’t think so. This is going to hurt a lot 

of people and it’s just not what you call the greedy folk, it’s going 

to be folks around the world who are going to suffer when we get 

inflation and interest rates going up. 

Mr. BACA. Okay, thank you. Thank you, Mr. Chairman. 

Mr. MOORE OF KANSAS. Next, the Chair recognizes the gentleman from North Carolina, Mr. Miller, for 5 minutes. 

Mr. MILLER OF NORTH CAROLINA. My impression from that period is that the voluntary modifications took a huge spike, and that 

the total number of modifications by courts was a relatively small 

percentage. But it provided a template for other modifications. 

Ms. Gordon, are you aware of what went on during that period? 

Was there a dip in voluntary modifications? 

Ms. GORDON. No. There was not a dip in voluntary modifications. 

And to add to what you just said, in a number of States around 

the country—until the Supreme Court decision on this topic, many 

States permitted bankruptcy judges to ‘‘cram-down’’ principal residence mortgage debt in bankruptcy court, and those States didn’t 

have any different situation with respect to the cost or availability 

of credit than the States that didn’t have it. 

Bankruptcy is a very difficult process for an individual or a family. Chapter 13 bankruptcy is onerous. You have to live under a 

very strict plan. You’re monitored by the court for 5 years. This is 

not a choice that anybody chooses lightly. 

We have two situations now. We have the situation in that the 

voluntary modifications are not happening, and it is all utterly out 

of control of the homeowner. They have no last resort that they can 

initiate themselves which would serve as a backstop to the 

servicer’s responsibility to help them try to address whatever problems they’re facing with the mortgage. So, on the one hand, the 

ability of the bankruptcy judge to help a homeowner out gives a 

homeowner a last resort. 

We have another situation in that many of these distressed 

homeowners are financially distressed generally, and already are 

filing for bankruptcy. They’re already in bankruptcy court. It’s just 

that the judge doesn’t have the power to do the main thing that 

will actually ultimately make them successful in Chapter 13, and 

able to continue to pay back all of their other consumer debt that 

they owe, which is that the judge doesn’t have control over their 

principal residence mortgages. 

For those homeowners, one thing that is especially important is 

right now most participating servicers aren’t permitting folks who 

are already in bankruptcy to do a HAMP modification. So they’re 

really stuck. They can’t get the voluntary modification because the 

servicers don’t want to do it for people in bankruptcy. But the 

27 

bankruptcy judge can’t help them out, either. So those people are 

really locked out of the process. 

Mr. MILLER OF NORTH CAROLINA. Ms. Gordon, you mentioned 

studies based upon the differences from jurisdiction to jurisdiction 

between, I guess, 1978 and 1994. There was a study I know by a 

fellow named Leviton at Georgetown, and I think he had a co-author who was, I think, at Columbia. I think they were both economists and lawyers, bankruptcy lawyers, who looked at the differences and found no difference in the availability or terms of 

credit. Is that what you’re—are there other studies, or— 

Ms. GORDON. There are not that many studies on this particular 

issue. But there are a number of studies, some of which we have 

done at the Center for Responsible Lending, some of which have 

been done at UNC and other research institutions on related 

issues. 

You know, the fact is, every time there is a program—there is 

an idea to help homeowners— 

Mr. MILLER OF NORTH CAROLINA. Okay. 

Ms. GORDON. —the mortgage industry will come back and say, 

‘‘Well, this program is going to impact the cost and availability of 

credit.’’ 

Mr. MILLER OF NORTH CAROLINA. Right. 

Ms. GORDON. And for every one of those—every time that has 

been asserted, studies have demonstrated that it’s not the case. 

Mr. MILLER OF NORTH CAROLINA. In an 8th grade math class, we 

had to show our work. We just couldn’t give an answer, we had to 

show how we got there. And I understand at the graduate level 

that’s referred to as peer review. You have to set forth what your 

assumptions are, what your methodology was, what facts you relied 

upon, and then your analysis, and walk through the analysis. And 

then other scholars in the same field can look at it and test those 

assumptions. 

Mr. Sanders, are you—can you give me a citation to a published, 

peer-reviewed study that shows that judicial modification makes 

voluntary modifications more difficult? 

Mr. SANDERS. That’s a very good question. And I will send it 

back to you, saying that we are—as Laurie has testified to—we are 

in such unchartered waters that all that matters is, with a 50 percent decline in house prices, we will see how this works. 

No, I have no evidence that—Ms. Gordon was referring to—that 

this was going to be terrible. However, when we’re this—with high 

unemployment and this far upside down in many—or 10 States, at 

least, in the United States—I will believe that when I see it. 

Mr. MILLER OF NORTH CAROLINA. Professor Sanders, isn’t it true 

that under the bankruptcy laws, every other kind of secure debt 

can be modified in exactly the same way that the legislation we 

talked about last year would modify home mortgages? Every other 

kind of secure debt? 

Mr. SANDERS. That is true. 

Mr. MILLER OF NORTH CAROLINA. Okay. Thank you. 

Mr. SANDERS. But there is a reason why they’re not. 

Mr. MILLER OF NORTH CAROLINA. I’m sorry. What? 

Mr. SANDERS. There is a reason why mortgages were not included in that— 

28 

Mr. MILLER OF NORTH CAROLINA. That’s the only reason? 

Mr. SANDERS. No, I didn’t say that is the reason. I am saying 

mortgages are not included. And that was a statement. 

Mr. MILLER OF NORTH CAROLINA. Okay. 

Mr. SANDERS. Not a reason. 

The CHAIRMAN. The gentleman from Georgia. 

Mr. SCOTT. Thank you, Mr. Chairman. Let me start with this, 

because we’re in a terrible situation here and I have had difficulty 

since we have been in this crisis of understanding why there has 

not been a sense of urgency. 

Now, we have moved in good measure to save Wall Street. I had 

no argument with that. The credits were frozen up; we had to do 

that. But we did it with urgency. We did it with abundance. We 

did it $700 billion first. The Fed came in with another $1.2 trillion. 

But when we get down to the homeowner, we crunch and we worry 

about these things. 

We went outside the box to save the American economy focusing 

on Wall Street, and did a good job with that. No question. But 

when it comes down to rescuing the homeowner, which, in large 

measure, was the core cause of the problem, we stay in this box. 

Why is it that we can’t intelligently look at what I think is the 

foremost issue here? And that is reducing the principal. Why is it— 

what is it about this? 

Here we are, at the end of this year, we will lose 2.5 million 

homes to foreclosure. Right now, two out of every nine homes are 

in foreclosure or default. This is a problem of catastrophic means. 

Why can’t we do that? Why can’t we stop the foreclosure procedures while the modification process is going on? 

These are simple things. I just have a problem understanding 

why we can’t do this. Why can’t we look at this home modification 

program, affordability program, and understand that maybe that 

31 percent is too high, especially when people are losing levels of 

income? 

Can somebody help me with this? Let us start with the reduction 

of the principal. I would like to know, from each of you, why we 

can’t do that. What is the problem here? 

Mr. MARKS. Can I just ask one thing? I think one question to the 

servicers is, in their model, when they look at the affordable payment, do they have the process in place to do the principal reduction, as well as the interest rate reduction? 

And then, when it comes to the MHA program, or HAMP, why 

don’t they encourage the principal reduction versus just the interest rate reduction? Because we agree—and we see very few of those 

out there. 

Ms. GORDON. Well, there are a few structural reasons of conflict 

of interest why servicers may not do this. One is that the biggest 

servicers, and the ones that service the vast majority of the loans 

out there right now are owned by the same banks that hold many 

of the second liens on these loans, so they have a conflict of interest, in terms of writing down the principal. 

Servicers generally make most of their money from their monthly 

servicing fee, which is a percentage of the outstanding loan principal balance, so they don’t want to write down the principal balance. There are a number of other financial conflicts, too, that have 

29 

to do with right to residuals or buy-backs or any number of structural things in the servicing industry that push against this. 

And so, the real question is, why have we not been willing to require that this happens? If we just leave it up to the banks’ interests, the banks have different interests. Congress is going to need 

to require that this happens, and you are completely right, that we 

have not put the energy into this issue. You know, the foreclosure 

crisis has basically been something of a— 

Mr. SCOTT. Right. 

Ms. GORDON. —50-State Katrina, sucking money out of communities, particularly minority communities, and just leaving husks of 

neighborhoods in its wake. 

Mr. SCOTT. Ms. Goodman? 

Ms. GOODMAN. I will actually second what Julia Gordon said. 

The conflict of interest between the borrower and the second lienholder is huge, in terms of writing down principal. 

And before you can have a successful principal reduction program, you have to explicitly address the second lien. There seems 

to be no other option, other than extinguishment. You may want 

to pay the bank to extinguish the second lien, you may want to let 

them take the loss over a period of time, but that simply has to 

be done. 

Another problem that has often come up in terms of principal reduction is the moral hazard, or strategic default problem. How do 

you keep borrowers who otherwise could afford to pay their mortgage from strategically defaulting, or trying to take advantage of 

a principal reduction plan? There is no single option here. But, as 

you mentioned, we have to think outside the box. We have to think 

in terms of shared appreciation features, requiring all reduced 

principal mortgages to be made with recourse, introducing an impact on credit scores, limiting future access to credit or limiting the 

ability to borrow against the property. We have to consider a wide 

range of ideas, but certainly the strategic default issue plays a very 

prominent role in people’s minds. 

Mr. SCOTT. Thank you. My time has expired. Thank you, Mr. 

Chairman. 

The CHAIRMAN. The gentleman from Texas. 

Mr. GREEN. Thank you, Mr. Chairman. I thank the witnesses for 

appearing. 

The 3/27s and 2/28s, are we still having a significant number of 

them come through the process? 

Ms. GOODMAN. The bulk of those payment shocks are behind us. 

It’s the pay option ARM payment shocks that are left to come. 

Mr. GREEN. And are we now finding that persons who had conventional loans, reasonable rates, are also starting to default? 

Ms. GOODMAN. Absolutely. Negative equity is just a huge problem at this point. 

Mr. GREEN. And is the problem one that you can, with some degree of anecdotal evidence, indicate that certain communities have 

experienced to a greater extent than others? 

Mr. MARKS. Absolutely. When you go to the— 

Mr. GREEN. Let me just take your ‘‘absolutely’’ as the answer— 

Mr. MARKS. Yes. 

Mr. GREEN. —and ask another question if I may, please? 

30 

Mr. MARKS. Yes. 

Mr. GREEN. Can you identify communities by way of empirical 

and anecdotal evidence that have had a greater shock than some 

others? 

Mr. MARKS. Yes. But I would also add that this has become more 

across-the-board in virtually every community and in every State. 

Mr. GREEN. Given that it has embraced every community and 

every State, but some more so than others— 

Mr. MARKS. Yes. 

Mr. GREEN. —kindly identify communities that have ostensibly 

been hit harder than others? 

Mr. MARKS. You certainly see the minority communities, and you 

see— 

Mr. GREEN. Define ‘‘minority communities.’’ 

Mr. MARKS. The communities where the majority of the population are African American, Hispanic, and other ethnic minorities, 

and low- and moderate-income communities, communities where 

the median income is less than 80 percent of the median. 

Mr. GREEN. Whether by accident or design, this impact on these 

communities that seem to have been hit harder than others, what 

will happen, in terms of recovery, for these communities without 

some intervention? 

Mr. MARKS. Absolutely devastating. You see the foreclosures, you 

see— 

Mr. GREEN. Tell me about the loss of wealth for these communities. 

Mr. MARKS. It is massive. I think there are other people on the 

panel who can actually empirically identify that, and they should— 

Mr. GREEN. Is there anyone who can give some empirical evidence? 

Ms. GORDON. Yes. Our research reports show what we call spillover effects of the foreclosures, really, in the hundreds of billions 

of dollars. And, there are two types of spillover effects. There is the 

general reduction in everybody’s property value, and— 

Mr. GREEN. Are you talking now specifically about the communities that were referenced by Mr. Marks? 

Ms. GORDON. Yes. 

Mr. GREEN. Identify— 

Ms. GORDON. The more foreclosures there are, the worse the— 

Mr. GREEN. For the record, I need— 

Ms. GORDON. —spillover effects. 

Mr. GREEN. —for you to identify the communities that you are 

talking about. 

Ms. GORDON. Largely communities that are African-American or 

Latino communities, or lower income—you know, the more lower, 

middle-income— 

Mr. GREEN. Will these communities— 

Ms. GORDON. —homeowner communities— 

Mr. GREEN. Will these communities recover without some specific 

intervention? 

Ms. GORDON. Absolutely not. 

Mr. GREEN. Does someone else have an opinion that you would 

like to give, with reference to this? 

[No response.] 

31 

Mr. GREEN. Anyone else? 

[No response.] 

Mr. GREEN. This is the moment. This is the moment to speak 

truth to power. You hear that phrase used quite a bit. People fear 

speaking truth to power. Somebody has to tell the truth about 

what’s happening to certain communities in this country. This is 

your moment. 

Ms. Sheehan? Speak truth to power. 

Ms. SHEEHAN. We have established our Chase homeownership 

centers in the most hard-hit communities. We are there to help 

people through those centers in person, and address their needs. 

And that is the process we have used to think about how we can 

best be useful. 

Mr. GREEN. Do you agree that certain communities are being 

devastated, if not obliterated, by virtue of what happened, whether 

it was by accident or design that this is happening? 

Ms. SHEEHAN. I don’t have that kind of data here. 

Mr. GREEN. Without data, you do have anecdotal evidence. You 

are involved in this process, true? 

Ms. SHEEHAN. We are involved in the process. And as I said— 

Mr. GREEN. What does your anecdotal evidence connote? 

Ms. SHEEHAN. What our evidence, what our experience has told 

us, is that there are communities where we have— 

Mr. GREEN. Are you afraid to say it, Ms. Sheehan? Are minority 

communities being devastated more? 

Ms. SHEEHAN. Minority communities are definitely having problems, we know that, as well as— 

Mr. GREEN. Are they having more problems, Ms. Sheehan? 

The CHAIRMAN. Let me just say—I haven’t used my 5 minutes. 

I’m not going to take the whole 5 minutes, so I’m going to yield 3 

minutes of my time to the gentleman from Texas, so he can continue. 

Mr. GREEN. Thank you, Mr. Chairman. Ms. Sheehan, let us not 

be euphemistic about this. Let us not let our inhibitions prevent us 

from telling the truth. This is a moment in time when people need 

to hear the truth, because we have people who are suffering. Some 

are suffering more than others. 

Is the minority community suffering more than some other communities? 

Ms. SHEEHAN. We know that we have an obligation to all of our 

communities, including our minority communities, and we are 

working— 

Mr. GREEN. So you subscribe to the notion that a rising tide 

raises all boats? 

Ms. SHEEHAN. We have an accountability to help our customers, 

and— 

Mr. GREEN. I assume that is true. Let me ask you this: If a rising 

tide raises all boats—and I am putting these words in your mouth; 

you can extract them if you so choose—why is the Titanic still on 

the floor of the ocean? 

A rising tide—see, I’m bringing this up because this seems to be 

a prevailing theory, that if we do, across-the-board, the right thing, 

we will help everybody. And we don’t seem to understand that 

32 

some are being left behind, even with the best of intentions. We are 

leaving people behind. 

And this is something for which I thank God that CNN has decided that they are going to monitor and report on. Because if we 

wait on persons to come before us with these panels and tell the 

truth, we may not get the entirety of the truth. For whatever reasons, we don’t want to face a fact. Whether by accident or design, 

some communities are suffering more. And they are not going to 

recover without some sort of specific intervention. That’s the truth. 

Anybody differing with that truth, raise your hand. Let the record 

reflect that no one has raised a hand. 

My final comment, Mr. Chairman, if I may, is this. I beg you, 

friends. Let’s get beyond splitting hairs, and let’s talk about how 

we are going to save this country. It’s really bigger than any one 

group of people. It’s about this country. And we have to do better. 

We have to do better. 

All of these banks have to do better. If you don’t do better at 

some point, you’re going to force Congress to take drastic action 

that some would call a moral hazard, because we have to have 

some means of having these servicers take the responsibility and 

do something to help people who deserve and merit help. 

Thank you, Mr. Chairman, I yield— 

The CHAIRMAN. I will just take my last 10 seconds here on this 

to give a different variant to the gentleman’s metaphor. It has always been my view that while the rising tide may lift all boats, for 

those people who can’t afford a boat and are standing on tiptoe in 

the water, the rising tide is very bad news, in fact. 

The gentleman from Missouri? 

Mr. CLEAVER. Thank you, Mr. Chairman. Thank you, Mr. Green. 

I am interested in—in order that I can read it and become more 

familiar with it, Professor Sanders, was there an administrative 

order or some kind of congressional vote that directed Fannie and 

Freddie to make bad loans? 

Mr. SANDERS. No, I don’t believe there was any administrative 

order asking them or requiring them to make bad loans. 

Mr. CLEAVER. The only reason I ask that is because earlier you, 

in responding to one of my colleagues, accepted in your comments 

that it had happened, and went on to describe how troublesome it 

was. 

We can try to get it read back. It was a question from, I think, 

Mr. Royce. You don’t remember? 

Mr. SANDERS. I don’t believe I would say that, because I don’t 

think Fannie and Freddie purposely went out and made bad loans, 

or were ordered to do so. Is that what your question is? 

Mr. CLEAVER. Yes. 

Mr. SANDERS. No, I didn’t—wouldn’t have—said that. 

Mr. CLEAVER. So that hasn’t come up today since you’ve been 

here? 

Mr. SANDERS. No. In fact, Fannie and Freddie were only mentioned, I think, by me. And that’s not what I said. 

Mr. SCHAKETT. Well, I think the comment was that Mr. Royce 

said something like, ‘‘Fannie and Freddie had an obligation to do 

50 percent of their product in subprime or alt-A,’’ and he viewed 

33 

that as a problem, okay, a mandate to do that. So that’s the comment, I believe, that was said. 

So you can imply that was to make bad loans, but I think it was 

to use 50 percent of their volume for subprime and alt-A is what 

Mr. Royce said, if I remember right. 

Ms. GORDON. And we did not have a chance to rebut the ongoing 

incorrect assertion that has been rebutted by everyone from the 

Board of Governors of the Federal Reserve on down. The toxic 

loans that caused this housing crisis were primarily private loans 

that were securitized into the private securities market. 

Mr. CLEAVER. Yes, I understand that. You know, I just hear over 

and over and over again that, somehow, either Congress or President Bush or somebody forced Fannie and Freddie to, you know, 

to bundle and securitize some bad mortgages. And I— 

Mr. MARKS. Actually, sir, we had testified on September 12, 

2000, in front of Congress right here, saying that Fannie and 

Freddie should not be allowed to get into those types of products 

out there. 

But no one forced them to do it. You’re exactly correct. No one 

forced them to do it. And certainly, the entities we don’t see up 

here are the New Centuries, the Fremonts, the First Franklins, 

and all those who have been in the forefront of predatory lending, 

because, clearly, they’re out of business now. 

Mr. CLEAVER. So I guess it doesn’t matter how many times or 

how many people dethrone that notion, people are going to continue to say it. Is that what you hear, Ms. Gordon, is it what you 

believe? 

Ms. GORDON. Yes, it’s hard to know how to stop that from coming 

up over and over, when it has just been clearly debunked as a reason. 

Mr. CLEAVER. Okay. Mr. Schakett, you know, this whole term 

‘‘hell,’’ you know, the word ‘‘hell,’’ it actually originated because on 

the west side of Jerusalem, where they—the land field where they 

burned the trash was called ‘‘sheol,’’ and the interpretation comes 

down as ‘‘hell.’’ That was the first view of what humans thought 

hell would be, you know, burning, constant burning of the trash. 

And there are people who tell me they go to phone tree hell when 

they are trying to talk with someone about their mortgage, and trying to get some kind of modification, that they actually go to phone 

tree hell, and that they are being—their concerns, their interests, 

their desires, their frustration of being burned, sitting on the 

phone. 

Do you believe that we have been able to put out the fire in hell? 

Mr. SCHAKETT. No, I don’t think we put out the fire yet. 

I agree that certainly we have frustrated our customers. But volume is sometimes—we haven’t had the ability to handle the volume 

necessary, and not always provided the right answers to the customers, or moved them around from one person to another, and not 

given them the right answers as we try to staff-up and train people. 

So, I could appreciate, you know, your constituents, okay, being 

frustrated with that process. We obviously continue to add resources and training and try to improve. We are not— 

Mr. CLEAVER. But do you think that— 

34 

The CHAIRMAN. I am going to give the gentleman an additional 

minute-and-a-half for biblical exegesis. 

[laughter] 

Mr. CLEAVER. Thank you, Rabbi. 

[laughter] 

Mr. CLEAVER. I am just concerned— 

The CHAIRMAN. If you stuck with the right Testament for me— 

[laughter] 

Mr. CLEAVER. You know, I am wondering if the phone tree from 

hell is one of the reasons for the fact that 25 percent of the borrowers who come in for modification end up losing their homes. 

They can’t even go through the three-payment trial period. They 

lose their home right off. 

And is there a reason for that, or can the phone tree hell be part 

of the reason? Either you or Ms. Sheehan? 

Mr. SCHAKETT. Okay, and I certainly believe that the phone tree 

problems clearly frustrate our customers. The only good news about 

that is that we clearly have not taken customers through foreclosure while we worked within the trial period. 

So, although we may not answer the phone in a timely manner, 

although we may have frustrated them, all those people are in foreclosure hold. So I assure you that nobody is getting foreclosed on 

because of it. That doesn’t undermine that, you know, there is not 

huge frustration, and that we need to improve that. 

Our more recent mailing, we mentioned earlier, we actually sent 

out 50,000 letters to try to say exactly what we were still missing 

from these customers, and what it took to comply. It was our attempt, somewhat of our attempt, to make sure the customers that 

we didn’t handle right in the past now knew exactly what we needed from them, and give them an easy way to respond back to us 

to try to get these modifications complete. 

So, again, I appreciate that we have frustrated our customers. 

But we haven’t foreclosed on them in the meantime. 

The CHAIRMAN. The gentleman from Florida. 

[No response.] 

The CHAIRMAN. Then I will just take my last minute-and-a-half 

to say this: We are terribly frustrated by what’s happening. 

We are going to move forward on the unemployed. I understand 

that doesn’t solve all of the problems, but I do think this is helpful. 

And the bill that has come to the Floor will have $3 billion to be 

advanced to people who are unemployed, to help them avoid it. It’s 

a program that has worked well in Philadelphia. We will continue 

to push for other things. 

But the most important thing, I think, is a point that the gentleman from California has consistently made. Going forward, this 

committee will make a very high priority passing legislation early 

next year that will prevent us from being entrapped in this again. 

There will have to be, for any residential mortgage, one party that 

is solely, fully, legally responsible for these decisions. 

And people who want to invest in mortgages, people who want 

to make second lien loans, people who want to invest in the 

securitization will do so, going forward, knowing that those rights 

are subject, whatever they have, to the responsibility of one individual to make those decisions, because it is a terrible example of 

35 

our violating an important principle that ought to exist in the law: 

You should not have important decisions be made in this society 

that cannot be easily made by somebody. 

And so, that is something the gentleman from California identified early. And that doesn’t get us out of this current thing, but we 

do—and we will work with many of you, going forward, to make 

sure that we have that, so that we will not have this shifting of 

the blame back and forth. 

Beyond that, we appreciate this hearing, and we will continue to 

press people in the Administration, as we will do in this next 

panel, to act on some of the suggestions. 

I also have a package of statements to put into the record without objection. The ranking Republican asked me to put in the statement from the HOPE NOW Alliance, and we also have, from the 

Home Ownership Preservation Foundation, the National Council of 

La Raza, the Brennan Center for Justice, and the PICO Network 

of faith-based community improvement organizations. And I note 

that one of those—that one—comes from people in Massachusetts, 

in New Bedford, Fall River, and Brockton. 

So, without objection, they are all part of the record. 

And the panel is dismissed with our thanks for a very useful discussion. 

We have to get people to get out and people to set up. Please 

take the conversations outside so we can get the panel going. No 

one should be standing still. They should either be walking or sitting. 

We will now turn to our second panel. We appreciate the attendance of the public officials who are responsible. And I did not follow 

the usual procedure of asking the public officials to testify first. It 

is not out of any lack of respect for their commitment and integrity, 

of which we are appreciative. But it did seem to me that today, it 

would be very useful if we heard some of the questions and criticisms first, and could then have them respond to them. 

I ask people at the door to please leave. 

And we will now begin with Herbert Allison, who is the Assistant 

Secretary for Financial Stability at the Department of the Treasury. 

Mr. Allison? 

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

THE TREASURY 

Mr. ALLISON. Chairman Frank and members of the committee, 

thank you for the opportunity to testify today about the Treasury 

Department’s comprehensive initiatives to stabilize the U.S. housing market and support homeowners. 

The Administration has made strong progress ramping-up the 

Making Home Affordable Program. But even though the number of 

homeowners being helped continues to grow, we recognize that the 

Home Affordable Modification Program, or HAMP, faces challenges 

in converting borrowers to permanent mortgage modifications, and 

in fostering effective communications between servicers and borrowers. 

36 

Our most immediate challenge is converting trial mortgage modifications into permanent modifications. Servicers report that about 

375,000 trial modifications will be more than 3 months old, and 

due to be decisioned before December 31st. 

Treasury has launched an aggressive conversion campaign to increase the number of permanent modifications. We have streamlined the modification process, and required conversion plans from 

the seven largest servicers. Treasury and Fannie Mae have assigned teams to work with each servicer, and to report daily on 

their progress. We are engaging all 81 HUD field offices and hundreds of State and local governments in this effort. 

We have enhanced our Web site to provide borrowers with a simplified way to navigate the modification process, using instructional 

videos, downloadable forms, and an income verification checklist. 

Next week, we will hold our 20 borrower event, connecting 

servicers, housing counselors, and homeowners. In addition, we 

have brought in executives from the services 4 times to Washington, including just yesterday, to discuss ways of accelerating 

conversions. 

Another challenge is helping unemployed homeowners. HAMP is 

designed to enable many unemployed homeowners to participate. 

Borrowers with 9 months or more of unemployment insurance remaining are eligible to include that income for consideration in 

their modification request. 

We recognize, however, that some unemployed borrowers will 

have trouble qualifying. Treasury is actively reviewing various 

ideas to improve program effectiveness in this area, while remaining focused on helping borrowers as quickly as possible under the 

current program. 

A third challenge is preventing foreclosures of homeowners eligible for HAMP. During the modification trial period, any pending 

foreclosure sale must be suspended. And no new foreclosure proceedings may be initiated. We prohibit foreclosure proceedings 

until the borrower has failed the trial period, and has been considered and found ineligible for other foreclosure prevention options. 

We are working with stakeholders to review, improve, and monitor 

compliance with our rules, so no borrower being evaluated for 

HAMP is subject to foreclosure during that process. 

A fourth challenge is transparency. On August 4th, our public 

monthly report began including trial modifications by each servicer. 

October’s report added data on trial modifications by State. Upcoming reports will show permanent modifications by servicer, and 

measures of servicer’s responsiveness to borrowers. We are requiring servicers to send notices that clearly explain to borrowers why 

they did not qualify for a HAMP modification, and how they can 

ask for a second look at their application. 

We will also provide additional transparency of the net present 

value, or NPV model, a key component of the eligibility test. We 

are increasing public access to the NPV White Paper, which explains the model’s methodology. We are also working to increase 

transparency of the NPV model, itself, so counselors and borrowers 

can better understand how the model works. 

HAMP is on track to provide a second chance for up to 3 to 4 

million borrowers by the end of 2012. Based on a recent survey of 

37 

servicers, we estimate that, as of the beginning of November, up 

to 1.5 million homeowners were eligible for the program, meaning 

they were both 60-plus days delinquent, and likely to meet the 

HAMP requirements. 

To put the current stage of HAMP in context, we should compare 

the 1.5 million eligible homeowners to the more than 680,000 borrowers who are in active modifications, and are included among the 

900,000 borrowers who have received offers to begin trial modifications. On average, borrowers and trial modifications have had their 

payments reduced by over $550 per month, down roughly 35 percent from their prior payments. HAMP has made great strides 

since modifications began in May. But we have a long way to go. 

We will continue to work closely with housing counselors, State 

and local governments, servicers, homeowners, investors, and Congress to enhance the program’s performance, and to help keep 

Americans in their homes. Thank you. 

[The prepared statement of Assistant Secretary Allison can be 

found on page 58 of the appendix.] 

The CHAIRMAN. Next is Mr. Krimminger. 

STATEMENT OF MICHAEL H. KRIMMINGER, SPECIAL ADVISOR 

FOR POLICY, OFFICE OF THE CHAIRMAN, FEDERAL DEPOSIT 

INSURANCE CORPORATION (FDIC) 

Mr. KRIMMINGER. Chairman Frank and members of the committee, thank you for the opportunity to testify on behalf of the 

FDIC about the private sector and government response to the 

mortgage foreclosure crisis. 

Mortgage credit distress and declining home prices have been 

fundamental causes of uncertainty. Structurally unsound mortgages and historic home price declines, which precluded refinancing, have led to unprecedented increases in mortgage defaults 

and foreclosures. 

Chairman Bair recognized the problem early on, and strongly advocated for a program of systematic modifications in 2007. Her proposal rested on a central premise. Simply, foreclosing on defaulted 

loans would only add to the excess supply of housing, push down 

home prices, and make the mortgage credit problem worse. Where 

a sustainable modification can be achieved that reduces losses compared to foreclosure, it is only good business to modify the loan. 

Unfortunately, the crisis has shown that the large-scale modification effort that we need is hampered by contradictory incentives in 

securitization, inadequate resources, and, far too often, a failure to 

take action with new approaches to working with borrowers. 

In 2008, the FDIC needed to implement these principles advocated by Chairman Bair when it was named conservator for 

IndyMac Federal Bank, which had tens of thousands of delinquent 

mortgages on its books. The goal of the FDIC’s loan modification 

program was to achieve the best recoveries possible by converting 

distressed mortgages into performing loans that were affordable 

and sustainable over the long term. To date, almost 24,000 borrowers have received a modification through this program. 

The problem nationwide, however, is immense. While some 

servicers have been effective, much more must be done. Last fall, 

the FDIC issued a guide to implementing streamlined loan modiVerDate Nov 24 2008 18:27 May 20, 2010 Jkt 056236 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\56236.TXT TERRIE
38 

fication programs which we call ‘‘Mod in a Box,’’ to spur servicers 

in applying similar modification programs. 

Earlier this year, the FDIC applied its practical experience in 

loan modifications in working with Treasury and other agencies on 

recommendations for the Home Affordable Modification Program, 

or HAMP. The FDIC supports HAMP as part of the solution. 

In addition, we continue to remain open to new approaches that 

may be necessary to respond to the scope and changing character 

of the mortgage problem. 

Our loss sharing agreements for failed banks require either the 

FDIC mod program or HAMP. Here, too, we have continued to 

push for innovative responses. For example, we have urged temporary forbearance for borrowers who lose their jobs in the recession. We also will provide loss share incentives to support principal 

write-downs to maximize net values. 

The FDIC’s experience has provided a number of lessons learned 

that we would like to share with the committee, and I would like 

to emphasize one key point: mods make good business sense, and 

help consumers where they maximize recoveries on troubled loan 

mortgages. 

First and foremost, early communication in modification efforts 

give the best chance of success. Success is much more likely if you 

contact the borrower early, give a specific mod offer, and complete 

the mod before an extended delinquency. Effective communication 

with borrowers requires an effective information technology infrastructure, thorough staff training, and a consumer support or consumer service focus. 

Second, the more affordable the modification, the lower the redefault rate. Until recently, far too many mods actually increased 

the monthly payments. No wonder they often failed. We also must 

address second liens as part of the affordability question. 

Third, close working relationships with HUD-approved counseling groups improve borrower response and modification success. 

Nor surprisingly, counselors have much more credibility with borrowers. 

Fourth, lenders and servicers must be flexible to address new 

challenges. Problems caused by job loss or deeply underwater loans 

will require lenders and servicers to employ new approaches. 

Finally, modification programs should be kept as simple as possible, so that servicers can apply a streamlined approach, and borrowers can understand their options. 

Throughout the financial crisis, the FDIC has worked closely 

with consumers and many others to reduce unnecessary foreclosures and the devastating consequences they impose on our communities. Loan modifications, refinancing, temporary forbearance 

for out-of-work borrowers, and principal reductions are all tools to 

achieve these goals. 

We continue to support Treasury’s HAMP as a major part of the 

solution. But we all know that we must remain open to new approaches to respond to growing unemployment and increasing 

numbers of underwater loans. Above all, the FDIC remains committed to achieving our core mission: protecting depositors and 

maintaining public confidence in our financial system. Thank you 

39 

for the opportunity to testify today. And I would be happy to take 

any questions. 

[The prepared statement of Mr. Krimminger can be found on 

page 95 of the appendix.] 

The CHAIRMAN. And finally, Mr. Douglas Roeder. 

STATEMENT OF DOUGLAS W. ROEDER, SENIOR DEPUTY COMPTROLLER FOR LARGE BANK SUPERVISION, OFFICE OF THE 

COMPTROLLER OF THE CURRENCY (OCC) 

Mr. ROEDER. Chairman Frank, and members of the committee, 

on behalf of the Comptroller of the Currency, I appreciate the opportunity to discuss the state of national bank residential mortgage 

modification efforts. 

I am the Senior Deputy Comptroller for Large Bank Supervision 

at the OCC. Many of the large banks supervised by the OCC are 

major mortgage servicers, so we have direct supervisory experience 

with the actions they have taken, and the issues that present challenges to sustainable mortgage modifications. 

In 2008, as part of our oversight, we initiated the mortgage 

metrics project to gain comprehensive, reliable, and comparable 

data on the performance of mortgages serviced by national banks. 

Our mortgage metrics report, which is based on validated data 

from 34 million loans, assesses the performance of mortgages and 

various foreclosure mitigation strategies, including detailed information regarding loan modification efforts. It is a valuable tool that 

helps us focus our supervisory actions based on validated data. 

For example, in March 2009, in response to high redefault rates 

on modifications, we directed the largest national bank servicers to 

review their modifications and policies for future modifications to 

improve their sustainability. Subsequent to that direction, we have 

seen both the volume and quality of loan modifications and payment plans improve. 

During the second quarter, home retention actions—payment 

plans and loan modifications—increased by more than 20 percent. 

We are still finalizing our next report, but we expect an even greater increase of nearly 70 percent in the third quarter. 

Actions taken under the Administration’s Home Affordable Modification Program represent a portion of homeowner assistance provided today. National banks also help homeowners through programs that do not require taxpayer-supported incentives. Between 

January 1, 2008, and June 30, 2009, national banks and thrifts implemented more than 1.8 million home retention actions. Of these, 

less than 115,000 were made under HAMP. HAMP numbers increased in the summer and fall of 2009, but still represent only a 

portion of national banks’ homeowner assistance efforts. 

In addition to the increasing volume, the character of home retention actions is changing. More than 78 percent of modifications 

made in the second quarter of 2009 reduced borrowers’ monthly 

principal and interest payments. As a result, delinquency rates 

subsequent to modification are improving in more recent vintages. 

Improving sustainability of modifications and returning borrowers 

to a positive cash flow reduce eventual foreclosures, provide homeowners an opportunity to keep their homes, and minimize losses to 

banks and investors. 

40 

The OCC fully supports servicer participation in HAMP and the 

Administration’s second lien modification program. But regardless 

of the types of programs implemented, national banks have an obligation to ensure that their regulatory reports and financial statements accurately and fairly represent their financial condition. 

On Monday, we issued guidance to our examiners stating that we 

expect banks to follow generally accepted accounting principles, 

and maintain adequate allowance for loan and lease losses, regardless of whether a loan is modified. Adherence to sound underwriting practices, including adequate documentation of borrower’s 

qualifications for and ability to repay a modified mortgage is also 

essential. 

While home retention actions are improving, we hear too many 

consumer complaints of lost paperwork, bad guidance, long waits, 

and difficulty in simply contacting servicers. The volume of complaints is unacceptable. We have directed national banks to improve operational efficiency to keep up with volume, improve their 

internal processes, and answer their customers’ concerns accurately 

and promptly. 

As a part of our ongoing supervision, our examiners assess 

banks’ complaint resolution processes, and require corrective action 

for identified deficiencies. At the same time servicers need to improve operations, other factors contribute to the low number of 

HAMP trial plans being converted to permanent modifications. 

Servicers report consumers often fail to provide necessary and 

verifiable documentation of ability and willingness to repay their 

debt. In some cases, loans are already considered affordable under 

HAMP’s 31 percent debt-to-income guideline. In other cases, borrowers cannot demonstrate a valid financial hardship. Increasingly, 

the financial condition of many borrowers has deteriorated so far 

that it is not possible to modify a loan and meet HAMP’s net 

present value requirement. 

While HAMP and other programs show progress, we must be realistic about the continuing effects of high unemployment and depreciated home values. These macroeconomic factors weigh on the 

performance of the residential mortgage portfolio, and they drive 

delinquencies and foreclosures. In these difficult economic conditions, effective loan modifications will be an important tool to help 

responsible homeowners avoid preventable foreclosures. 

But they will not help everyone. As a result, we will see further 

deterioration in loan performance in the months ahead. My written 

testimony provides additional detail on these issues. 

Again, I appreciate the opportunity. 

[The prepared statement of Mr. Roeder can be found on page 119 

of the appendix.] 

The CHAIRMAN. All right. We will now take a recess and return. 

And then, the gentlewoman from California will be presiding, and 

we will have a chance to ask some questions. I appreciate your 

staying with us. 

[recess] 

Ms. WATERS. [presiding] The committee will come to order. Having heard from our witnesses, I will recognize myself for 5 minutes 

for questions. 

41 

Mr. Allison, the Honorable Herbert M. Allison, Jr., Assistant Secretary for Financial Stability, U.S. Department of the Treasury, I 

did have an opportunity to hear your testimony. And I heard you 

describe the efforts that have been put forth by the Treasury to 

talk with the servicers, and to encourage them to do better. 

Mr. Secretary, don’t you think that’s a waste of time? 

Mr. ALLISON. Well, Congresswoman Waters, thank you very 

much for your question, and for your tremendous interest in this 

program. 

And, no, we don’t think it’s a waste of time. We have seen—first 

of all, let me say again, as I said in my testimony, we are not satisfied yet with how this program is unfolding. We still have a lot of 

work to do. The servicers have a lot of work to do. And we are holding them accountable for their performance. 

I think we have to look at this program in stages. In the early 

stages, our main emphasis was on bringing in as many people as 

possible to this program to help keep people in their homes. Now, 

the real challenge is to migrate them from trial modifications to 

permanent modifications. And— 

Ms. WATERS. Excuse me, if I may— 

Mr. ALLISON. Yes, ma’am. 

Ms. WATERS. But you have not been doing that. We have people 

who have been in trial modifications, and somehow we can’t get 

them into permanent modifications. It doesn’t appear to be working 

very well. 

Mr. ALLISON. And to date—you’re absolutely right. We are not 

satisfied with that, either. We have a relatively low number who 

are in permanent modifications. That’s why we brought the 

servicers— 

Ms. WATERS. And, again— 

Mr. ALLISON. Yes, ma’am. 

Ms. WATERS. —if I may interrupt— 

Mr. ALLISON. Yes. 

Ms. WATERS. —because, you know, I just have to get this out of 

my head— 

Mr. ALLISON. Please. 

Ms. WATERS. —you have modifications going on. You have foreclosures going on while people are supposedly in modifications. 

What are you doing about that? 

Mr. ALLISON. Well, actually, as I mentioned, these servicers are 

prohibited under this program from foreclosing on people— 

Ms. WATERS. But it’s a voluntary program. So if they don’t do it, 

what do you do? 

Mr. ALLISON. We can take actions, such as— 

Ms. WATERS. Such as? 

Mr. ALLISON. Such as not paying them, such as clawing back 

prior payments, such as— 

Ms. WATERS. You think that $1,000 is going to be a deterrent? 

Mr. ALLISON. Well, I think what also helps here, Congresswoman 

Waters—and we totally agree with you, that we have to take whatever actions we can to assure that they are going to make these 

modifications permanent. So we have, right now, a program where 

we’re in with the servicers in their offices where they’re doing the 

modifications, to watch exactly what they’re doing. 

42 

We have Freddie Mac, who is auditing this process. We are publishing monthly reports on each servicer’s performance. We are 

going to be expanding those reports to deal with how rapidly they 

are achieving modifications. We have targets for every one of them, 

which we outlined again yesterday, to make sure that, where they 

have all documentation, they will complete those modifications, or 

at least the decisions on the modifications, by the end of this 

month. 

And about a third of these trial modifications are ones where the 

servicers already have all the documentation. 

Ms. WATERS. Okay. 

Mr. ALLISON. So there is no excuse for them not to complete— 

Ms. WATERS. Well, we appreciate that. However, these foreclosures have been going on for a long time now. 

Mr. ALLISON. Yes. 

Ms. WATERS. An awful lot of people have lost their homes. And 

while we appreciate the stages of—people are out of their homes. 

Mr. ALLISON. Yes. 

Ms. WATERS. And so, we are concerned about principal reduction, 

for example. What have you done about— 

Mr. ALLISON. Yes. 

Ms. WATERS. —principal reduction? 

Mr. ALLISON. Well, you know, what is not widely understood— 

and I think we have to do a better job of communicating this—is 

that from day one, last March, in our guidance for the servicers, 

we allow them to reduce principal as the first step in a mortgage 

modification— 

Ms. WATERS. But they don’t do it. 

Mr. ALLISON. Well, we are dealing with that now. And we are 

talking with the servicers about the need to take a broader view 

of what is the best solution for each homeowner. And for some, it 

can be a principal modification at the outset, or a combination of 

principal modification and interest reduction. 

So, that’s another area that we’re going to be looking at, is are 

the servicers looking broadly enough at what the potential solutions are for each homeowner. 

Ms. WATERS. Quickly, let me just say to FDIC, Mr. Krimminger, 

we—Barney Frank and I—signed a letter to the Administration, 

because we were very pleased when you took over IndyMac, and 

the way that you did loan modifications. And we thought, at that 

time, somehow it should be organized in ways that you guys should 

be in charge of the loan modification program. 

Can you identify for us what you have discovered that really 

works? Don’t you have some ideas about how we could do this better? I hope all of the agencies are talking to each other, and you 

have had some opportunity for input. But it’s not evident. What 

would you advise? What have you done to make these loan modifications real? What should be done? 

Mr. KRIMMINGER. Well, thank you, Chairwoman Waters. We appreciate your support on this. We do support Treasury’s following 

up with the HAMP program to make sure that it works. Certainly, 

there are times—and I think this is clearly one of them, and I 

think Treasury agrees—for innovations and innovative thinking. 

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43 

ment of HAMP. As you may know, the HAMP itself includes a waterfall of options which were really modeled on the ones that we 

used at IndyMac. 

I think the lessons that we learned at IndyMac—and are working 

to implement even more so in HAMP—include things like, early on, 

getting a dollar amount of the modification into the borrower’s 

hands, making sure that, if possible, you’re able to get the information to begin the verification of income immediately, the first payment from the borrower, as well as a signed agreement, so that the 

borrower knows what their obligations are. We think it’s very important to have very continuous and very early contact with the 

borrowers to really make these programs work. 

One of the things I think that servicers are learning now that 

they may not have understood fully is the need for a real refocus 

of the servicer’s whole loss mitigation process away from collections, much more to a consumer-oriented type of process, so that 

you reach out to borrowers. Also, servicers should be utilizing much 

more the counseling groups, HUD-approved counselors. We found 

that to be a very effective tool at IndyMac. 

Ms. WATERS. Let me just interrupt you for a moment. As I understand it, one of the things that you did was you sent out notices 

to the borrowers, and you showed them in the notice what you 

could do for them. 

Mr. KRIMMINGER. Right. 

Ms. WATERS. For example, when some of the servicers—when the 

notices went out early on, when we first started doing the modifications, it would ask people to come in. ‘‘We want to talk to you.’’ And 

people said, ‘‘Uh-uh, I’m not going in, because I know they want 

to tell me they’re going to take my home.’’ 

But when you send out a notice that says, ‘‘You owe X amount 

of dollars on your loan, and we have a loan modification program 

that could help you reduce that loan by some percentage, and this 

is how it works,’’ or something, that you get more people responding. Is that true? 

Mr. KRIMMINGER. That is absolutely true. We have had a response rate with providing those types of notices to people with an 

actual dollar amount of the new modification amount of around 70 

percent, which is very high for the industry. That was one of the 

biggest lessons we learned at IndyMac. 

Ms. WATERS. Well, has that been adopted by the Administration, 

or the banks, or the servicers, or anybody as a way by which to get 

people coming in to talk to you about a loan modification, and not 

being afraid that this notice is only simply to take away their 

homes? 

Mr. KRIMMINGER. I will have to defer to Secretary Allison, but 

I believe a number of servicers have begun to adopt that approach. 

But some have not. 

Ms. WATERS. Well, Mr. Secretary, why haven’t you included 

something like that? 

Mr. ALLISON. Well, actually, the servicers are reaching out in a 

much more effective way today. The— 

Ms. WATERS. No, I asked something specific. This notice that 

they learned to use at FDIC that said, ‘‘This is what we can do for 

44 

you,’’ has that been adopted as a practice, as a way of encouraging 

participation? 

Mr. ALLISON. Well, they have sent out more than 900,000 offers 

to homeowners with the terms, in many cases, indicated. And, 

therefore, people have an opportunity to see what the benefit for 

them will be from participating in the modifications. I think that 

the outreach is going much better than it was. 

The challenge now, as I mentioned, is to convert these trial modifications, where people are benefitting. We have almost 700,000 

people who have received reductions in their monthly mortgages, 

on average, of $550. So we have all those people benefitting today. 

The issue now is to convert them to permanent modifications, so 

those benefits continue. 

Ms. WATERS. Well, you’re right. That’s a big issue, a huge issue. 

Mr. ALLISON. It is. 

Ms. WATERS. And I want to thank you. I have more than used 

up my time. And I am now going to yield to the gentlelady from— 

Mrs. CAPITO. West Virginia. 

Ms. WATERS. West Virginia, I have been there, I should know 

that. Ms. Capito? 

Mrs. CAPITO. Thank you. I would like to thank the panel. I’m 

sorry if I missed your testimony, but I have certainly read through 

most of it. 

One of the questions that I think is complicating this issue that 

we haven’t really—and I’m interested to see what kind of innovations you’re working on, how you’re addressing the issue of a second lien. Most people who are in danger of being foreclosed upon 

have probably run their credit cards up as high as they can to keep 

the payments going. They have a home equity loan going. They 

have other issues with their finances. And I know the second lien 

issue has been complicating these loan modifications. 

Could Secretary Allison talk about that? Or any of the rest of 

you? I would be interested to hear your ideas on how we get 

through that issue. 

Mr. ALLISON. Thank you very much, Congresswoman Capito. 

Yes, that is a real concern. And I know that this week—and perhaps Mr. Roeder could talk to this—the OCC is issuing guidance 

to the banks on how to deal with the accounting for second liens. 

And that’s a major step, we think, toward coming up with a more 

comprehensive solution for homeowners who have both a first and 

second lien. 

And, obviously, there is going to be a need, too, in cases where 

one bank may hold the first, and another hold the second, for some 

type of a clearinghouse, so that banks can find out who has the 

other mortgage on a particular homeowner’s house. 

Mrs. CAPITO. Wouldn’t they— 

Mr. ALLISON. So that they can come up with a unified solution 

for that particular homeowner. 

Mrs. CAPITO. Is that—is the borrower—when the documents that 

they’re required to bring in to get the permanent modifications, do 

they bring in the documentations for what other liens they would 

have on that property? Certainly that would be a part of that. Is 

that correct? 

45 

Mr. ALLISON. I don’t know that in all cases they are, at least initially. The requirements for HAMP are to provide information 

about income, about residence, the hardship affidavit, and so forth. 

But I think that servicers that are doing a thorough job are inquiring about the overall financial position of the homeowner. 

Mrs. CAPITO. Mr. Roeder, did you have a— 

Mr. ALLISON. But— 

Mrs. CAPITO. I’m sorry. 

Mr. ROEDER. Yes, a couple of points dealing with your question. 

First, on the examiner guidance, we sent the guidance to examiners. We didn’t send it to the industry. The reason is, with this 

modification effort being so significant, we many times will go to 

our examiners with guidance. We have asked the examiners to 

share it with their banks. But it’s not a broad distribution. We’re 

dealing with a fairly focused group of institutions. 

So, it was examiner guidance, not banker guidance. But we did 

share it with the bankers, so they are aware of our expectations. 

And that guidance was simply to remind and clarify for our examiners that GAAP and existing supervisory policies should be followed in working with bankers to ensure that the accounting and 

the asset quality assessments being done are done in accordance 

with safe and sound banking. So that’s one piece. 

On the second lien issue, one of the things we don’t hear from 

the servicers is that there is an inhibition to modify the first mortgage when there is an existence of a second. Early on in the crisis, 

that was more of a prevalent comment. We don’t hear that from 

the servicers directly. The focus in most cases is getting that first 

mortgage modification done, and not worrying about the second. 

To Mr. Allison’s point, there is a complication here. Sometimes 

the servicer who is doing the mod on the first, and the bank that’s 

holding the second may be different parties. And—unless it’s surfaced by the borrower or some other means—there is not a good 

mechanism to clearly know that servicer ‘‘A’’ has a mortgage and 

servicer ‘‘B’’ has a second lien, and they should hook up. 

What we have asked examiners to be mindful of is that everything they should do—if they’re holding that second lien, and 

they’re not in a position where the bank is also the first lien holder 

doing the mod, they have to do their best in their process to ensure 

that they have done diligence to seek the existence of that first 

lien, and appropriately account for that second lien and the risk in 

that, assuming that there was a mod done on the first. 

If there is not a mod done, they still have the responsibility to 

make sure that the accounting and the reserve and provisioning is 

accurate, given potential risk in that portfolio, alone. 

We don’t see the servicers complaining that they’re inhibited to 

do a first when there is an existence of a second. 

Ms. WATERS. Thank you very much. Mr. Green? 

Mr. GREEN. Thank you, Madam Chairwoman. I thank the witnesses for appearing. 

Friends, I sincerely believe that Dr. King was right when he 

said, ‘‘knowing that the arc of the moral universe is long but it 

bends toward justice.’’ And I believe that President Kennedy was 

right when he said, ‘‘here on earth, God’s work must truly be our 

own.’’ 

46 

You three fine men, in my opinion, are doing God’s work today. 

And, as such, you have an opportunity to make a difference in the 

lives of people that you will never meet and greet. 

So, I start by asking you this: Are you familiar with the term, 

disparate impact? You are. And I will ask you, Mr. Allison, just for 

the record, tell us what this term means. 

Mr. ALLISON. It impacts more on some segments of society than 

on others, for example. 

Mr. GREEN. All right. That’s an acceptable definition, I believe. 

Now, with reference to the foreclosure crisis, is there a disparate 

impact? 

Mr. ALLISON. Yes, sir. There is. 

Mr. GREEN. Tell us the sector or segment of society that is experiencing the disparate impact, please. 

Mr. ALLISON. People who are in lower-income communities, I 

think, have been more devastated by this crisis, even than the average American. 

Mr. GREEN. Define for me who these people are who are most 

likely to be in the lower-income communities. 

Mr. ALLISON. Most often they are minorities, African American, 

Latinos— 

Mr. GREEN. Define minorities, please. Say again. 

Mr. ALLISON. African Americans and Latinos, for example. 

Mr. GREEN. Hold your point for just a moment. 

Mr. ALLISON. Yes, sir. 

Mr. GREEN. Let’s go to our next person who is going to bend the 

arc of the moral universe toward justice. Do you agree with what 

Mr. Allison said? 

Mr. KRIMMINGER. Absolutely. There is clearly evidence that there 

is a disparate impact upon lower-income and minority communities. 

Mr. GREEN. Define minorities. 

Mr. KRIMMINGER. I would define it in terms of ethnic minorities, 

such as African Americans. 

Mr. GREEN. Define ethnic minorities. 

Mr. KRIMMINGER. African Americans, Latinos, and other ethnic 

minorities, in particular. 

Mr. GREEN. Let’s go to our next forger of justice. Do you agree 

with your two colleagues? 

Mr. ROEDER. Yes, I agree there is a problem. 

Mr. GREEN. Now, assuming that we do 100 percent of what has 

been called to our attention, that we are as efficacious as humanly 

possible, will this negate the disparate impact that we are discussing currently? 

Mr. ALLISON. I don’t believe that these programs, by themselves, 

are going to negate the disparate impact on those communities. 

Mr. GREEN. Thank you. 

Mr. KRIMMINGER. No, because when we were doing work at 

IndyMac, I have seen communities throughout southern California 

that are already dramatically impacted. So, even what we do in the 

future won’t affect those who have already been affected. 

Mr. GREEN. Thank you. 

47 

Mr. ROEDER. And I would agree with that. There is much more 

work that needs to be done. We are not anywhere near the solution. 

Mr. GREEN. If we are going to bend the arc of the moral universe 

toward justice, and if, here on earth, God’s work must truly be our 

own, would you agree that we must and should do more to negate 

the negative disparate impact, the invidious impact that is being 

felt on some communities? Do you agree that we should do more? 

Mr. ALLISON. I fully agree. 

Mr. GREEN. Yes, sir? 

Mr. KRIMMINGER. I would concur. 

Mr. GREEN. Yes, sir? 

Mr. ROEDER. And I agree. 

Mr. GREEN. Do you agree that a way can be forged if we have 

the will to do it, that a way can be found to negate this disparate 

impact? Mr. Allison? 

Mr. ALLISON. Yes, sir, I do. 

Mr. KRIMMINGER. I do, yes. There are difficulties, but there are 

ways to overcome difficulties. 

Mr. GREEN. Mr.— 

Mr. ROEDER. And I agree. There are challenges, but you have to 

keep going after it. 

Mr. GREEN. Now, the ultimate question becomes this. Given that 

we acknowledge the condition, if we use a scientific approach, given 

that we acknowledge the condition, and given that we know that 

a solution can be forged, what are we going to do about it? 

What will we do, beyond using the rising tide raising all boats 

theory, which we find fatally flawed, as it relates to some who don’t 

have boats, and who have boats that are not seaworthy? What will 

we do? Mr. Allison? 

Mr. ALLISON. Congressman Green, I think, first of all, we have 

to recognize that this is a real problem. 

Mr. GREEN. Yes, sir. 

Mr. ALLISON. And we have to focus on it. 

Mr. GREEN. Yes, sir. 

Mr. ALLISON. And devote ingenuity, and I think— 

Mr. GREEN. Do this for me. 

Mr. ALLISON. Yes, sir. 

Mr. GREEN. My time is almost—listen, you’re excellent, and I appreciate what you have said, all three of you. But when you say 

‘‘we,’’ define we. You said, ‘‘We have to focus.’’ Not putting you on 

the spot, but we need, for the record, to define these things. Who 

is the ‘‘we’’ that should focus, please? 

Mr. ALLISON. Well, Congressman Green, I would first start with 

the American people as a whole. Also, there are government representatives and people in the Administration, for example, who 

are working very hard to make sure that, with this program, we 

are reaching people who need it the most. And that’s why we’re 

working with State and local officials, and also community groups, 

as well as counselors, to reach the areas most affected. And many 

of those, of course, are minority communities. 

Mr. GREEN. My time has expired, and I thank you, Madam 

Chairwoman. I will not be impolite and encroach on the time. 

Thank you. 

48 

Ms. WATERS. Thank you very much. Mr. Cleaver? 

Mr. CLEAVER. Thank you, Madam Chairwoman. To Mr. Allison 

and Mr. Krimminger, I don’t think either one of you are the—none 

of the people at the table are the villains here. I think you represent agencies that are probably not fulfilling their responsibilities. 

Do you believe that the mortgage companies and the banks are 

doing the best they can? 

Mr. ALLISON. Congressman Cleaver, I think the banks have a 

long way to go to get up to their full potential to help alleviate this 

problem. They have been making progress, to be fair. 

We have people from Treasury and from Fannie Mae in the offices of the top seven servicers right now. They are stationed there, 

working with them, finding the facts about why this program isn’t 

working even better. We are not satisfied, by any means. They are 

on notice that we are not. 

We intend to publish more and more information, as fast as we 

can, reliable information about their performance, so the public and 

the Congress can judge for themselves. 

Mr. CLEAVER. Well, your— 

Mr. ALLISON. Much more has to be done. 

Mr. CLEAVER. Well, yes. We have, legislatively and administratively, forced them to work with homeowners who are in trouble. 

We forced the lion to lie with the lamb. But if you look closely, 

when the lion gets up, the lamb is missing. And we are saying, 

‘‘Here, kitty, kitty.’’ 

What I think needs to happen is something needs to happen to 

the lion. I wrote down a quote one of you said, ‘‘We are reaching 

out to the banks.’’ You are reaching out—most of us are outraged. 

If a homeowner does not comply with the requirements of the 

mortgage company, they lose their home. If the mortgage companies don’t comply with the requirements of Congress, what do they 

lose? Any of you? 

Mr. ALLISON. If I may try to respond to your question, Congressman Cleaver, first of all, we do have some financial remedies that 

we can apply to these servicers. One is we can deny them payments. We can claw back prior payments if they are not seen to 

be following the rules of the program. 

I think what’s extremely important is to shine a light on the performance of each one of these banks, and that’s exactly what we 

are doing. 

I think that one has to also recognize that the servicers, until 

this year, were in the business of collecting payments and foreclosing on people. They are having to change their entire business 

model. They have to engage with homeowners. They have to help 

homeowners. This has required them to change their systems, to 

retrain their people, to hire more people. 

They have moved in that direction. They have to do much more. 

And we are constantly pushing them in every way possible to do 

the best possible job. 

Mr. CLEAVER. Yes, but maybe the system of pushing is not working. I have twin boys. And I found out early on that if I spanked 

one of them when they were doing something, the other would 

straighten up. The other one—you know, it had an impact on the 

49 

other. I just think in this situation, we haven’t spanked anybody. 

So I think they have come to the conclusion that spankings are not 

on the agenda. 

I don’t miss hearings. I am here. We are here. 

Mr. ALLISON. Yes. 

Mr. CLEAVER. I have been to a lot of these hearings. We have 

asked a lot of these questions over and over and over again. We 

have had that table packed with witnesses, and witnesses sitting 

behind them. We go through this over and over again. And I have 

to tell you that, as we move through this holiday season, this will 

be the second holiday season that I have been asking these questions, that we have been asking these questions. Nothing has happened. 

Why can’t something happen to these lending institutions who 

took taxpayer money? They took our money. And they are—and we 

are talking about, well, we are—you know, we’re issuing guidance, 

and we are reaching out to them, we are giving them some Coke 

and some water, and why can’t we do something to one of them? 

And I think everybody—excuse me. 

You know, I was approached last night by somebody who is 

about to lose his business because the bank is now requiring more 

of him. And I am frustrated. And I get even more frustrated because you guys can’t say, ‘‘The next time we find somebody who is 

not doing their job, we’re going to come back and recommend that 

the money be taken from them, the TARP money.’’ Thank you, 

Madam Chairwoman. 

Mr. ALLISON. May I answer you, Congressman Cleaver? Let me 

talk very straight about this. We have worked with them to try to 

get them up-to-speed. We have Freddie Mac auditing their performance. Are they following the rules? Are people being denied a mortgage modification who should get one under the plan? 

And, as we move forward, we are putting them on notice. And 

then we will exact penalties of them, and be publicly outspoken 

about who is performing well and who is not. And you’re absolutely 

right. We have to—we are going to move to the point where we are 

disciplining the banks if they don’t perform better than they are 

today. While they are getting better, it’s not nearly good enough, 

and it’s not fast enough. 

We have given them clear targets for how many mods they have 

to make permanent by the end of this year. And in every case 

where they have existing documentation, there is no excuse for not 

getting that mod done by the end of the year—at least from their 

standpoint, deciding whether to make the mod or not. 

Ms. WATERS. Mr. Scott? 

Mr. SCOTT. Yes. Let me ask a couple of questions. In the program, why can’t we stop foreclosure proceedings while the modification is going on? 

Mr. ALLISON. Congressman Scott, the way the program works 

today is that the servicers are prohibited from foreclosing during 

the process. And we are enforcing that, and we are auditing that, 

to make sure that they do comply. 

The question you’re asking, though, I think goes beyond that, 

which is, why don’t we simply stop the entire foreclosure process? 

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50 

neys, as well as government officials and others with an interest 

in this problem, to try to see what more we can do to help avoid 

people being frightened by a foreclosure process underway, at the 

same time that they’re being considered for a modification. And 

there is no doubt that this is confusing people, and scaring them 

unnecessarily. 

So, I think we have to find a better way of dealing with the problem that you are rightly pointing out. 

Mr. SCOTT. To be clear now, my information says to me that the 

foreclosure proceedings are continuing to go ahead, even while the 

modification is going forward. That’s not an accurate statement? 

Ms. WATERS. It is. 

Mr. ALLISON. I think that is the case— 

Mr. SCOTT. Yes. 

Mr. ALLISON. —that there may be a procedure underway at the 

same time as a person is being considered for a mod. That is the 

issue that we need to engage further about. Right? And to see 

whether more can be done to provide assurance to the homeowner 

that the first priority is to modify that loan. 

Mr. SCOTT. All right. Here are the major complaints with the 

program. 

First of all, it includes, one, a lack of transparency about the criterion, the net present value test used to evaluate borrowers’ eligibility, the lack of capacity of servicers to process loan modification 

requests on a timely basis. There is nobody there to respond in the 

person of a live person. There is no—in this most critical, this most 

essential of needs, a family going through the process of losing 

their home, even at the extent of calling, they get a computer. 

And the people most affected are the people at the middle to 

lower economic—and lower economic extreme. And they get a recording, no live person, and in cases where the foreclosure action 

is taking place while the homeowner is going through the HAMP 

approval process. 

So, Mr. Allison, I think we have to come to the conclusion that 

that is an area that we need to address, that we need to address 

that area in at least stopping the whole foreclosure procedure until 

we’re going through. Does that require legislative action on our 

part? Is it something that you all can do? This program, in order 

to be effective, should do that. 

Now, my other question. Another area. We use the 31 percent. 

Now, how did we arrive at 31 percent? Thirty-one percent of a 

monthly income is the criterion for this program. In these tough 

economic times of soaring unemployment where, in fact, that 

monthly income, in many cases, goes to zero, is it practical not to 

be able to have an adjustment factor in there, where we can lower 

that 31 percent threshold? 

Mr. ALLISON. Thank you, sir. Thank you for those questions, 

Congressman Scott. Let me try to go down the list, one by one. 

In terms of lack of transparency of the program, we are making 

more information every available every month in our monthly reports. We are also publishing information on 

makinghomeaffordable.gov. 

With regard to the NPV tests, we intend to make the NPV model 

available to counselors in the first quarter of next year, and—which 

51 

is coming up very soon, so that they can see how the model works, 

and work with homeowners to see whether they would qualify. 

Now, this is a complex issue, and we want to make sure that people are properly acquainted with how to use the model. But we intend to make that model available to them. And I think that will 

be a big step forward. 

In terms of the capacity of the servicers, we are looking at the 

relative capacities of the different servicers, comparing them, seeing who is doing the better jobs, what their capacity is, how many 

people they have devoted per eligible mortgagee, so that we can 

work with them on best practices to ramp up their capacity, and 

to have standards for what their capacity needs to be. 

In terms of no live person answering the phone, I think that has 

been a real problem. People can go to makinghomeaffordable.gov, 

they can look at our hotline. They can call our hotline if they need 

to get a person on the phone to work with them. And we can work 

with the servicers to make sure that they are being heard. 

In terms of facilitating—of foreclosure actions taking place while 

the person is still up in the air about whether they’re going to have 

a mod or not, as I mentioned before, we have convened a group to 

work on that issue. 

Now, foreclosures can’t take place before people have a decision 

about their MHA modification. Nonetheless, they’re concerned that 

the process may be going forward while they’re being considered. 

That is the issue where we want to work with servicers, and see 

what more can be done to provide more assurance to people that 

they are going to be considered. 

And lastly, and very quickly, on the 31 percent debt to income 

ratio, and the fact that many people now are unemployed, they 

don’t have income, the program today provides that if they have at 

least 9 months of unemployment insurance coming their way, they 

can qualify for a mod if all the other qualifications are met. 

Nonetheless, as I said in my testimony, there are many people 

who won’t be able to qualify because they have lost their jobs. So 

what can we do, and what can the servicers do for them? That’s 

something we are looking at now, and we are exploring different 

alternatives, such as the Pennsylvania model and others, to see 

whether there is more that might be done. Some of this might require legislation, however. 

Mr. SCOTT. All right. Thank you. 

Ms. WATERS. Thank you very much. I request unanimous consent 

for 1 minute for a closing on this, because I think it’s very important that you gentlemen at the table understand that we are very 

unhappy. Our constituents are in pain. Our communities are at 

great risk. 

Treasury, you’re just too slow. You talk about all of the things 

that you are going to do, how you are going to improve. We have 

been listening too long. 

FDIC, we are appreciative for what you have shown can be done. 

I don’t know who is talking to whom, but it appears to me that 

some of the advice that the FDIC should be giving to others who 

are involved in trying to deal with this foreclosure issue is advice 

that needs to be shared. It doesn’t appear that it’s being looked at. 

52 

And for OCC, I don’t get a real sense of what you do. You do 

advisories. You look at what has or has not been done, and then 

you issue information that says what should be done, or what could 

be done. This is not good enough. 

And we did not hear a lot—do you know about the legislation tomorrow that we have, H.R. 4173, the Wall Street Reform and Consumer Protection Act? Do you know about what we have in there 

for the unemployed? Do you support that, Treasury, Mr. Allison? 

Mr. ALLISON. Yes, ma’am. In fact, we are working closely with 

staffs of the various leadership Members in the Congress on that 

legislation and others. 

Ms. WATERS. What about you, Mr. Krimminger, do you support 

that— 

Mr. KRIMMINGER. I— 

Ms. WATERS. —legislation that deals with the—that portion that 

deals with the unemployed? 

Mr. KRIMMINGER. I have to apologize to you, Madam Chairwoman. I will have to get back to you on that, because I am not 

familiar with that specific provision of the bill. 

Ms. WATERS. Mr. Roeder? 

Mr. ROEDER. Nor am I familiar with that bill, so I cannot comment. 

Ms. WATERS. Okay. Well, this is—we are taking a strong look at 

what we do for people with emergency medical problems, the unemployed. 

But what we want to hear from you is what you are going to do 

to penalize. We want some specifics. We want to know what you 

are doing to encourage face-to-face involvement with the borrowers 

and the servicers. We want to know what you are doing about principal write-down. We really do need some creative proposals. We 

did not hear that. 

What we do hear is a lot of talk about how you are going to encourage the banks. The banks thumb their noses at all of us. They 

don’t care about what you’re saying. We bailed them out, and they 

turned around and reduced the credit limits, increased the interest 

rates, and said, ‘‘We will pay you your money back, don’t tell us 

what to do about our bonuses and our payment practices.’’ And so, 

we are not encouraged at all when you talk about working with 

them and the servicers to make them do the right thing. 

Having said that, the Chair notes that some members may have 

additional questions for this panel, which they may wish to submit 

in writing. Without objection, the hearing record will remain open 

for 30 days for members to submit written questions to these witnesses, and to place their responses in the record. 

We thank you, and this hearing is adjourned. 

[Whereupon, at 1:59 p.m., the hearing was adjourned.] 

(53) 

A P P E N D I X 

December 8, 2009 

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