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74–040 2012

FAILURE TO RECOVER: THE STATE OF HOUSING 

MARKETS, MORTGAGE SERVICING PRACTICES, 

AND FORECLOSURES 

HEARING 

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

MARCH 19, 2012 

Serial No. 112–134 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

DAN BURTON, Indiana 

JOHN L. MICA, Florida 

TODD RUSSELL PLATTS, Pennsylvania 

MICHAEL R. TURNER, Ohio 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

CONNIE MACK, Florida 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

ANN MARIE BUERKLE, New York 

PAUL A. GOSAR, Arizona 

RAU ́ L R. LABRADOR, Idaho 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

JOE WALSH, Illinois 

TREY GOWDY, South Carolina 

DENNIS A. ROSS, Florida 

FRANK C. GUINTA, New Hampshire 

BLAKE FARENTHOLD, Texas 

MIKE KELLY, Pennsylvania 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

EDOLPHUS TOWNS, New York 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

DENNIS J. KUCINICH, Ohio 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

MIKE QUIGLEY, Illinois 

DANNY K. DAVIS, Illinois 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

JOHN A. YARMUTH, Kentucky 

CHRISTOPHER S. MURPHY, Connecticut 

JACKIE SPEIER, California 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

ROBERT BORDEN, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

(III) 

C O N T E N T S 

Page 

Hearing held on March 19, 2012 ............................................................................ 1 

Statement of: 

Morgan, Morris, Deputy Comptroller for large Bank Supervision, Office 

of the Comptroller of The Currency ............................................................ 13 

Killian, Suzanne G., Senior Associate Director for The Division of Consumer and Community Affairs, Federal Reserve System .......................... 45 

Pollard, Alfred M., General Counsel, Federal Housing Finance Agency; .... 58 

Schuppenhauer Eric J., Senior Vice President, Mortgage Banking-Core 

Servicing and Borrower Assistance Executive, JP Morgan Chase Bank, 

NA; ................................................................................................................. 69 

Ohayon, Joe, Senior Vice President, Community Relations, Wells Fargo 

Home Mortgage ............................................................................................. 81 

Jaffee, Jeff, Chief Regulatory Affairs Officer, Citimortgage ......................... 90 

Sellers, Sheila ................................................................................................... 97 

3Schack, Arthur M., Supreme Court Justice, State of New York; ............... 122 

Faux, Meghan, Deputy Director, South Brooklyn Legal Services; ............... 132 

Pinto, Edward, Resident Fellow American Enterprise Institute .................. 145 

(1) 

FAILURE TO RECOVER: THE STATE OF HOUSING MARKETS, MORTGAGE SERVICING 

PRACTICES, AND FORECLOSURES 

MONDAY, MARCH 19, 2012 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, DC. 

The Committee met, pursuant to call at 9:30 a.m., in Borough 

Hall, 209 Joralemon Street, Brooklyn, New York, Hon. Darrell Issa 

(chairman of the committee) presiding. 

Present: Representatives Issa, Platts, Towns, and Cummings. 

Staff present: Linda Good, Chief Clerk; Christopher Hixon, Deputy Chief Counsel, Oversight; Justin LoFranco, Deputy Director of 

Digital Strategy; and Rebecca Watkins, Press Secretary. 

Chairman ISSA. Okay, if we can all start taking our seats we are 

going to start in about 30 seconds. Thank you. 

The committee will come to order. 

The Oversight Committee’s mission statement is that we exist to 

secure two fundamental principles: first, Americans have a right to 

know the money Washington takes from them is well spent; and 

second, Americans deserve an efficient, effective government that 

works for them. Our duty on the Oversight and Government Reform Committee is to protect these rights. 

[Disturbance in the hearing room.] 

Chairman ISSA. Please clear the room of anyone who is speaking 

out of turn. Please remove the protestors. 

[Disturbance in the hearing room.] 

Chairman ISSA. Please remove the protestors. 

[Disturbance in the hearing room.] 

Chairman ISSA. Please remove that gentleman. Thank you. 

[Disturbance in the hearing room.] 

Chairman ISSA. Ladies and gentlemen, as they finish clearing, 

this is democracy at work. This was the first 5-minute opening 

statement. These, of course, were unsworn testimonies and we will 

not have a chance for rebuttal. 

While they are leading, I would like to take a moment to thank 

Mr. Towns because, in fact, this is the second time we have been 

here on this subject. He, in fact, has been steadily working for 

every person who just left and for every person that remains. We 

will now——— 

[Disturbance in the hearing room.] 

Chairman ISSA. Okay, perhaps there were two opening statements. 

2 

Americans deserve an efficient, effective government that works 

for them. Our duty, on a bipartisan basis, on the Oversight and 

Government Reform Committee is to protect these rights. Our solemn responsibility is to hold government accountable to taxpayers 

because taxpayers have a right to know what they get from their 

government. Our job is to work tirelessly in partnership with citizen watchdogs to deliver the facts to the American people and 

bring genuine reform to the American bureaucracy. 

Today’s hearing continues the committee’s extensive efforts to explore the causes and consequences and ongoing problems plaguing 

the housing market. A year ago this month, the committee held a 

similar hearing in Baltimore, Maryland, with Ranking Member 

Cummings, who sits to my right. We did so on much the same subject and with a slightly different panel. Two years earlier, we were 

here in Brooklyn, a time in which prices were still dropping on 

homes and the eventual outcome was still unclear. 

I am pleased to note that last month we reached a 2-year high 

in national home prices, meaning it is possible the bottom is behind 

us. But as we look at our first and second panels today, it is clear 

that people in and out of this room are, in fact, still suffering. 

I might note that this committee 5 years ago, 2007, shortly after 

the Democratic majority was named, went to Cleveland with my 

good friend Dennis Kucinich. There we saw the beginning of a 

problem, one that perhaps Mr. Cummings and Mr. Towns have also 

seen. In 2007, Cleveland was reporting a significant blight. Home 

affordability was still technically there, you could get those loans 

that we talked about and will talk about today. But, in fact, the 

price of homes has stopped rising and suddenly there were a mass 

of people abandoning their homes and leaving to eventual foreclosure. 

Since 2009, the Obama administration has launched dozens of 

housing refinancing programs in an attempt to mitigate the foreclosure prices. But I believe there is universal agreement that 

these programs like HAMP have failed to help or at least have 

been not sufficiently up to the task of helping the hurting homeowner. 

Unfortunately, despite all this government’s interventions in the 

marketplace, conditions for homeowners across the country have 

not improved. And in some ways, until recently, they have gotten 

worse. Today, still 28 percent of all borrowers in this country are 

underwater. That is more than in 2009 when the President took office. 

We continue to examine the causes of foreclosure prices and assess the pain experienced by millions of homeowners now facing 

foreclosure. I am committed to find workable solutions to getting 

the government out of the housing market where appropriate and 

into the housing market if necessary. 

More than anything else we know that high unemployment will 

continue to lead to people not being able to afford homes regardless 

of whether they have equity or not. Only a broad-based economic 

recovery will ultimately be a significant cure to this wave of private 

sector foreclosures. 

It is fitting that we convene today here in Brooklyn, the district 

of my good friend and former chairman of the committee Ed Towns, 

3 

and a neighborhood where homeowners are no strangers to foreclosure. Doubtlessly a tough economy and consistently high unemployment in Brooklyn are linked to the foreclosures. Additionally, 

as America’s first suburb, many people in Brooklyn worked on Wall 

Street, and Wall Street earnings are certainly not what they were 

a few years ago. 

Currently about 6,000 homes are in foreclosure in this area. 

Against back drop we examine the causes and effects of the continued record foreclosures. 

Reports emerged almost 2 years ago of some mortgage servicers 

committing violations of the law. Clearly we have looked into this, 

the Federal Government has looked into it, state governments have 

looked into it, and we found wrongdoing. Most notably, the term 

‘‘robo-signing’’ is a buzzword for wrongdoing on that side. But let 

us understand, in many cases these were infractions after homeowners quit paying. They are, in fact, failures by a swamped organization or organizations who were unequipped to deal with the 

quantity of foreclosures and perhaps unwilling to make the investments in additional personnel and training necessary to do it and 

do it right. 

The Office of the Comptroller of Currency and the Federal Reserve were at the forefront of investigations of these allegations 

and have taken many remedial actions. The Committee has worked 

closely with both agencies throughout the year on their efforts, and 

representatives from both these agencies are here today to update 

the committee on compliance with the enforcement actions. 

We will also hear today from the Federal Housing Finance Agency, or the FHFA, on the role of Fannie Mae and Freddie Mac in 

the foreclosure crisis and what mitigation efforts are in place to 

deal with the foreclosures of properties owned or guaranteed by the 

American people. We must remember, however, that Fannie and 

Freddie played a large role in getting us into this mess. Not an exclusive role, perhaps not even the first to lead in that role, but a 

major role, and up until today have cost American taxpayers approximately $180 billion that will not be returned. 

The FHFA’s primary responsibility is to protect taxpayers 

against additional losses. And I look forward hearing from our witness on these efforts. 

Again, the primary responsibility of FHFA is to protect taxpayers. If, in fact, making or redoing loans is in the protection of 

those loans, it is their obligation to make those modifications. If, 

in fact, it is not in the best interests of the taxpayers and will lead 

to greater loss, it is their fiduciary responsibility not to do so. 

I stress that point because, in fact, we have not changed the law 

on bankruptcy in a major way since 1978 effecting home loans. We 

have not changed the responsibility of this agency before, during, 

or even til today. 

Chairman ISSA. We also will hear from the four largest mortgage 

servicing companies in the country. And I want to thank them for 

being here today. These witnesses are not here because they want 

to be here. They are here because they have a great obligation. 

They, in fact, have a history of both success and failure. We want 

to hear about both. We want to know that the servicing operations 

4 

and borrower assistance programs they have in place are helping 

struggling homeowners. 

I want to thank our witnesses for being here. I want you all to 

feel that this is a fair hearing, so I will announce in advance we 

will have a full round. We expect to have a limited second round 

if there is time. And we will invite all of you to extend your remarks and answer additional questions if you are willing in writing 

so that all of you will have a full and complete opportunity to be 

heard both today and in follow-up. 

And with that I will now recognize the ranking member, Mr. 

Cummings, for his opening statement. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. And Mr. 

Chairman, I sincerely thank you for bringing this hearing to Brooklyn. And I want to thank Congressman Towns for your tremendous 

hospitality in inviting the committee to your district, but I also 

thank you for all of your hard work on behalf of your district and 

for all Americans who are going through this dreadful thing called 

foreclosure. 

It is a pleasure to be here to examine the Nation’s housing market and to hear from four of the Nation’s largest mortgage 

servicers. According to the Federal Reserve as much as $7 trillion 

in household wealth may have been destroyed by the collapse of 

our Nation’s housing market, and home prices are still falling. The 

firm realty track is estimated there have been nearly 4 million 

foreclosures since 2007. Today there are 11 million homeowners 

who owe more on their mortgages than their homes are worth. 

That is more than 20 percent of all households with a mortgage. 

According to Mark Zandi, chief economist of Moody’s Analytics, 

the housing is ground zero for the economy’s problems, high unemployment and loss of jobs. The reason is simple: the purchase of a 

house is the largest, single investment most Americans will ever 

make. Experts agree that we cannot fully renew our Nation’s economic growth until families see these investments stabilized and 

eventually recover their value. 

In my opinion, stabilizing the housing market requires two key 

actions. 

First, the mortgage servicing industry has to stop abusing borrowers. The banks testifying today recently settled allegations by 

the Department of Justice and 49 state attorneys general—by the 

way, both Republican and Democrat—that they engaged in, and I 

quote, ‘‘Unfair and deceptive consumer practices,’’ end of quote, 

with respect to loan origination, loan servicing, and foreclosure 

management as well as violations of the False Claims Act and the 

Financial Institutions Reform and Enforcement Act and the Serviceman’s Civil Relief Act. I did not say that, the attorney general 

said that. 

The national mortgage settlement is the largest Federal/state 

settlement in history and requires services to provide $25 billion in 

relief and restitution to homeowners, states, and the Federal Government. 

The banks testifying today also owe monetary penalties in more 

than $1 billion to their Federal regulators, the Federal Reserve, 

and the OCC for their, and I quote, ‘‘Unsafe and unsound practices 

5 

and violations of applicable Federal and state law and requirements,’’ end of quote. 

As a result of the settlement and these enforcement actions, we 

will, hopefully, have a mortgage servicing industry that complies 

with the law, simply complies with the law, that services mortgages effectively and efficiently, and that immediately halts the 

widespread systemic abuses against homeowners. 

I applaud the steps that have finally been taken by the Obama 

administration, the independent regulators, and the states to resolve the abuses, but we must have a full accounting of the scope 

of these abuses to ensure that everyone who has been harmed receives relief. 

The second action I believe that is necessary to stabilize the 

housing market is to provide meaningful aid to borrowers who are 

underwater. Under the national mortgage settlement, the banks 

will provide at least $17 billion to borrowers who have the intent 

and ability to stay in their homes, 60 percent of which goes to the 

reducing principal balances for borrowers in default or at risk of 

default. 

This aid will help hundreds of thousands of borrowers, but the 

reality is that many families that call their servicers seeking aid 

may be disappointed. They will discover that their loans are not eligible because they are guaranteed by Fannie Mae for Freddie Mac. 

Their regulator, the Federal Housing Finance Agency, has forbidden them from offering loan modifications that include principal reduction. These families will discover that they are ineligible for 

principal reductions regardless of how strong their credit is. 

FHFA’s refusal to allow Fannie Mae and Freddie Mac to participate in this settlement is inexplicable. I have joined with Representative Tierney, who has been a tireless advocate for homeowners, in asking the acting director of FHFA, Mr. Ed DeMarco, 

to explain his blanket opposition to principal reduction. In response, Mr. DeMarco has asserted that principal reduction is not 

going to be the least cost approach for the taxpayer. By the terms 

of his own data, which he finally provided the committee in January, it appears that just the opposite is true. Principal reductions 

save more money than any other type of modification, including 

principal forbearance, particularly for Fannie Mae. For that reason 

FHFA should authorize Fannie Mae to offer principal reductions as 

soon as possible. 

Because of his ideological objections to providing the most effective aid available to underwater borrowers, Ed DeMarco may be 

the biggest hurdle standing between our Nation and the recovery 

of our housing market. It is time for him to become part of the solution or step aside. 

And with that, Mr. Chairman, I yield back. 

Chairman ISSA. I thank the gentleman. 

Chairman ISSA. And it is now with great pleasure that I recognize my good friend the former chairman of this committee, the 

man who brought us here today, Mr. Towns, for his opening statement. 

Mr. TOWNS. Thank you very much, Mr. Chairman. I want you to 

know that we are delighted to have you in Brooklyn. In spite of the 

6 

reception that you received, we are delighted to have you, no doubt 

about it. 

Chairman ISSA. Those people are from Manhattan, I am sure. 

[Laughter.] 

Mr. TOWNS. I am sure. I am sure. 

[Disturbance in the hearing room.] 

Mr. TOWNS. We are delighted to have you here. 

Let me just say that it is my pleasure to welcome the members 

of the Oversight and Government Reform Committee to the great 

borough of Brooklyn to discuss solutions to the national foreclosure 

crises. This is an issue that is critical to the economic stability of 

Brooklyn, the State of New York, and the Nation. Mr. Chairman, 

I thank you and Ranking Member Cummings and Congressman 

Platts for traveling to Brooklyn for this hearing. 

In 2011, the Federal Reserve Board of New York reported that 

one in eight Brooklyn home mortgages was either in foreclosure or 

in danger of being in foreclosure. In some neighborhoods, like Bedford-Stuyvesant, Crown Heights, Cypress Hills, East New York, 

and Canarsie, the foreclosure rate is one of every four homes. Families and homeowners in these communities were the subject of excessive subprime lending in 2003 and through 2007. This problem, 

coupled with high unemployment rates and loss of business income, 

has exacerbated the rate of foreclosure in these communities. As 

the number of foreclosures filed in Brooklyn rose from 3,000 in 

2006 to 7,000 in 2012, our witness, Judge Schack, has shown that 

he refuses to provide a rubber stamp on a deeply flawed process, 

and we salute him for that. 

As former chair of this committee, one of the causes I championed was ensuring that legal professionals would be available to 

provide foreclosure prevention and legal services in our neighborhoods across the country. Today in Brooklyn, we have a model that 

is being duplicated across the country. To that end I thank Legal 

Services of New York City for working with my staff to confirm 

that resources will continue to be available to keep BedfordStuyvesant Legal Services and Brooklyn Legal Service Corporation, 

Inc., operating in the heart of Bedford-Stuyvesant, Bushwick, Cypress Hills, East New York, and Canarsie. 

I also thank the Honorable Betty Staton and Catherine Asobie 

for Bedford-Stuyvesant Community Legal Services and all—and, of 

course, Mr. Bryan of Brooklyn Legal Services Corporation A for 

their outstanding work on foreclosure assistance to the community. 

I would be remiss if I do not encourage the growth of the newly 

formed New York State Foreclosure Defense Bar headed by Attorney Yolande Nicholson to ensure that legal services are available 

to all homeowners facing foreclosure no matter what their income 

bracket is. 

We are fortunate to have with us today Bank of America, 

CitiMortgage, JPMorgan Chase, Wells Fargo. It is my hope that 

the banks will explain what they have been doing to address the 

foreclosure crisis here in Brooklyn and nationally. The courts, the 

legal service providers, and most importantly Brooklynites are 

eager to hear from you. 

We will also hear from the Federal Reserve and the Office of 

Comptroller of the Currency, who are the government regulators 

7 

enforcing actions against servicers to address patterns of misconduct and negligence. The Federal Housing Finance Agency will 

also be with us to share their initiatives on how to help the 60 percent of borrowers nationwide whose mortgage they own. 

This hearing will address a serious problem that has great, 

great, great impact on the economic recovery of this country. I look 

forward to getting solid, workable answers from our witnesses. 

Again, let me thank you for coming to Brooklyn. And, of course, 

I think it is so important that we are able to listen to people right 

in the area where there is the epicenter, and Brooklyn is definitely 

the epicenter. And I am happy to have you hear and hope that as 

a result of our being here that we will be able to ascertain some 

information that we can go back to Washington to begin to work 

on the problem. Because in many cases a person’s home is the only 

thing that they have and we should make certain that they do not 

lose it. 

Thank you very much, Mr. Chairman. And thank you again for 

coming. 

[The information follows.] 

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Chairman ISSA. Thank you. And thank you for your leadership 

on this issue. 

At this time I would ask unanimous consent that the article in 

the January of this year verdict by Yolande Nicholson be placed in 

the record entitled ‘‘The Elusive Plaintiff Problem in Foreclosure 

Actions.’’ Without objection, so ordered. 

We now go to our first panel of witnesses. I would like to recognize Mr. Morris Morgan, who is deputy comptroller for large bank 

supervision at the Office of the Comptroller of the Currency. Ms. 

Suzanne G. Killian is senior associate director for the Division of 

Consumer and Community Affairs at the Federal Reserve. Mr. Alfred Pollard is general counsel of the Federal Housing Finance 

Agency. Mr. Eric—and it is Schuppenhauer? Close enough, okay. Is 

senior vice president of mortgage banking at JPMorgan Chase 

Bank. Mr. Joe Ohayon—oh, my goodness you just had a heck of a 

holiday. I have got to get the O right. [Laughter.] Ohayon is senior 

vice president for community relations at Wells Fargo Home Mortgage. Mr. Jeff Jaffee is Chief Regulatory Affairs Office of 

CitiMortgage. And Ms. Sheila Sellers, is national mortgage outreach executive for Bank of America. 

STATEMENTS OF WITNESSES 

Chairman ISSA. I would like to welcome you all here and I would 

like to ask that you please rise to take the oath pursuant to our 

committee regulations. 

[Witnesses sworn.] 

Chairman ISSA. Let the record reflect that all witnesses answered in the affirmative. Please take seats. 

Field hearings are exactly the same as hearings in Washington 

except we get more local color. So just as in Washington, for those 

who have seen it, ladies and gentlemen who remain, this is a hearing not run by Republicans or Democrats. This is a hearing in 

which the people of Brooklyn have a unique opportunity because of 

their member to participate in a respectful way. These individuals 

were brought here not because they necessarily wanted to be here, 

but because Mr. Towns and Mr. Cummings asked to have these 

witnesses. They represent regulators and banks. Many of the people who have left the room dislike the regulators because they have 

not done enough and the banks because they did not do it right. 

This is your chance to hear them being asked questions. 

They will, in fact, be held accountable. That is what we do here. 

I will ask that, please, from here on, understand that exactly the 

protestors’ sentiment is why we are here today. This is something 

that has been asked for and asked for by the very groups that left 

here after being disrespectful. 

So if you want to remain, please remain. Please limit your talk, 

whether you are a protestor or simply not as interested as you 

should be, please limit it to whispers at most. If we have disruptions, I will ask people to leave and they will have to leave. This 

is too important to the people of Brooklyn, the people of America 

not to get it right. 

Mr. CUMMINGS. Mr. Chairman? May I just——— 

Chairman ISSA. Yes, of course. 

13 

Mr. CUMMINGS. Thank you very much for yielding, Mr. Chairman. I would ask the same thing of the witnesses. This is a hearing that we had asked for and Mr. Towns has been very instrumental in that. And it is important, I agree with you, Mr. Chairman. There are people who have come out here to hear this. It is 

a very unique and special hearing. And I would ask those who may 

have disagreement that you keep those to yourselves and let us get 

through this, and we really would appreciate that. And thank you 

for your time. 

Chairman ISSA. Thank you. We ask that you observe the light in 

front of you, try to stay within the spirit of the 5-minutes or less. 

Understand that your entire opening statements, prepared statements, will all be placed in the record, so you need not make sure 

you read it all. You can ad lib if appropriate and you certainly can 

skip over areas, recognizing that if your statement is beyond 5 minutes, the last part will not be heard if you go substantially beyond 

it. 

So we will go down the row starting with Mr. Morgan and be recognized for 5 minutes. 

Mr. MORGAN. Chairman Issa——— 

Chairman ISSA. And see if you can get the mic a little closer. We 

cannot quite hear you. 

STATEMENT OF MORRIS MORGAN 

Mr. MORGAN. Chairman Issa, Ranking Member Cummings, and 

members of the committee, my name is Morris Morgan, and I am 

a deputy comptroller for large bank supervision at the OCC. I have 

been a national bank examiner for 26 years and I am responsible 

for overseeing the activities of several of the large mortgage 

servicers and their compliance with the OCC’s enforcement actions 

issued in April 2011. I appreciate the opportunity to appear before 

you this morning. 

Nearly a year ago, the OCC issued comprehensive enforcement 

orders against the major mortgage servicers we supervise to correct 

a wide range of deficient and unsafe and unsound practices documented in the orders, identify borrowers who may have suffered financial harm as a result of those practices, and provide any 

harmed borrowers with financial remediation. Simply put, we 

wanted to fix what was broken, identify borrowers who were financially harmed, provide compensation for that injury, and make sure 

this does not happen again. My written testimony details extensive 

work performed by our examiners and their findings that became 

the foundation for our enforcement actions. 

My statement also describes the wide range of mortgage servicing and foreclosure processing activities we have required 

servicers to correct. These efforts include improvements in mortgage servicing, foreclosure processing, and oversight in management of third-party service providers. 

The OCC has also required the servicers to retain independent 

consultants to conduct a review of each servicer’s foreclosure activities for 2009 and 2010. This review has two parts. First, a request 

for review process for borrowers who believe they were financially 

harmed by defective servicing and foreclosure practices; and second, a file review. 

14 

This is a significant undertaking. As of last week, more than 

121,000 requests for review have been received and the file review 

at national banks contain nearly 135,000 borrowers. Therefore, 

more than a quarter million files are currently slated for review 

and this number will in increase. 

The request for review process was launched last November 1st. 

Since then, more than 4.3 million letters have been sent to borrowers explaining how they can request an independent review. Requests for review may be submitted until July 31, 2012. 

Throughout the independent review process we have worked 

with a number of community and housing organizations. These discussions have influenced our decisionmaking in a number of areas, 

including marketing and research. The OCC has required servicers 

to use advertising, the website, toll-free number, and various other 

forms of outreach in both English and Spanish to increase awareness and understanding of the review process. To date, advertisements have appeared in more than 1,400 publications nationwide, 

including those that serve minority and underserved audiences, 

and the circulation covers all 50 states. The OCC has significantly 

complemented this effort with our own media outreach and public 

service advertising. 

As stated earlier, our enforcement orders also require independent consultants perform file reviews of identified segments of 

borrowers. They are using sampling and other tools to identify files 

for review subject to guidance and oversight of the OCC. We are 

requiring 100 percent review of some borrower segments, including 

cases involving the Service Members Civil Relief Act, bankruptcy 

cases involving foreclosures, and cases referred by state and Federal agencies. 

When independent consultants find errors, misrepresentations, 

or other deficiencies, the next step is to determine if those errors 

caused financial injury, then recommend remediation. We have provided guidance of what might constitute financial injury and we 

are finalizing a remediation framework which clarifies expectations 

about the amount and the type of compensation recommended for 

certain categories of harm. Importantly, there are no caps or limits 

to the amount of compensation that will be paid out or remediated 

by the servicers. 

Finally, we are pleased to see the finalization of the national 

mortgage settlement last week. We have been in regular communication with the Justice Department and other Federal agencies 

for more than a year to ensure that our enforcement actions did not 

interfere with and were complementary to actions required by national settlement. We will continue to work closely with Justice and 

others to ensure the servicing standards required by that settlement are met by the servicers we supervise. 

Again, I appreciate the opportunity to testify and am happy to 

answer your questions. 

[Prepared statement of Mr. Morgan follows:] 

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Chairman ISSA. Thank you. Ms. Killian? I am afraid you will 

have to pass the mics back and forth. Thank you. 

STATEMENT OF SUZANNE G. KILLIAN 

Ms. KILLIAN. Thanks. Chairman Issa, Ranking Member 

Cummings, Congressman Towns, and members of the Committee. 

Thank you for the opportunity to appear today to discuss the Federal Reserve’s progress in implementing both the foreclosure review 

process as well as its progress in implementing the requirements 

of the enforcement actions. 

Those actions were taken against 10 financial institutions in response to the patterns of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing. 

The Federal Reserve is strongly committed to ensure that past 

harms were mediated and proper action was taken. The Federal 

Reserve’s enforcement actions require the servicers to retain one or 

more independent consultants acceptable to the Federal Reserve to 

conduct a foreclosure review to determine whether borrowers suffered financial injury as a result of errors, misrepresentations, or 

other deficiencies in the foreclosure process. Where financial injury 

is found, the servicers must compensate the injured borrowers. We 

are requiring the independent consultants to include in the review 

all files for particular categories of borrowers who we have determined present a significant risk of being financially injured in the 

foreclosure process. 

To supplement the file review the enforcement actions require 

that the servicers implement a process for the receipt and review 

of borrower claims and complaints. Consequently, the servicers developed a borrowers outreach program which is intended to make 

eligible borrowers aware of the opportunity they have to have their 

foreclosures independently reviewed. Borrowers are eligible to request that their files be reviewed if their primary residence was in 

the foreclosure process in 2009 or 2010, whether or not the foreclosure was completed and even if they previously filed a complaint 

with their servicer about their foreclosure. 

Additionally, to allow an adequate period to submit claims for review and redress, on February 15, 2012, the Board and the OCC 

extended the April 30th deadline to July 31st. 

The Federal Reserve, working with the OCC, sponsored webinars 

to explain the process for submitting a request for review. The 

Board and the OCC will soon release joint guidance on how the 

servicers should provide remediation to borrowers for financial injury caused by the servicers’ deficiencies. The guidance will illustrate the kinds of payments and other corrective measures a 

servicer must undertake to address specific types of financial injuries suffered by borrowers as a result of errors by the servicer. We 

believe that there should be transparency for the process of borrowers’ remediation and a correct way to process deficiency. 

On February 27 and March 8, 2012, the Board publicly released 

the approved engagement letters nationally. The engagement letters describe how the independent control centers will conduct the 

foreclosure relief. The action plans and engagement letters are appropriate because of the compelling interest in assuring the public 

46 

that the pervasive and serious deficiencies found in the servicing 

and foreclosure processes of these institutions are being vigorously 

and fully remedied. We will continue to monitor on an ongoing 

basis the results of the independent reviewer corrective measures 

that are being taken by the servicers and bank holding companies 

it supervises. 

On February 9, 2012, the Board announced monetary sanctions 

against 5 banking organizations totaling $766.5 million for engaging in unsafe and unsound practices in their mortgage loan servicing and foreclosure processing. The amount of the sanctions takes 

into account the maximum amount prescribed for unsafe and unsound practices under applicable statutory limits. In an effort to facilitate a broad settlement of related state and Federal claims, and 

to maximize the effectiveness of assistance provided through an integrated set of remedial programs, the board decided to act in conjunction with the comprehensive settlement between those five 

firms, the U.S. Department of Justice, and the state attorney general. 

The Federal Reserve takes seriously its responsibility to oversee 

the implementation and execution of the requirements of its April 

2011 enforcement actions, including the foreclosure review and 

other requirements described. We understand that implementing 

and executing those requirements effectively is critical to ensuring 

that the identifying deficiencies are corrected, that future abuses in 

the loan modification and foreclosure process are prevented, and 

that borrowers are compensated for financial injury they suffered 

as a result of errors, misrepresentations, or other deficiencies in 

the foreclosure process. 

Thank you for the opportunity to appear before you today. I will 

be happy to answer any questions you may have. 

[Prepared statement of Ms. Killian follows:] 

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Chairman ISSA. Thank you. Mr. Pollard. 

STATEMENT OF ALFRED M. POLLARD 

Mr. POLLARD. Mr. Chairman, Ranking Member Cummings, Mr. 

Towns, and Mr. Platt, thank you for the opportunity to address a 

very, very serious and critical problem. The Federal Housing Finance Agency oversees Fannie Mae, Freddie Mac, and the Federal 

Home Loan banks. These firms collectively have nearly $6 trillion 

in mortgage-related business. Since the onset of the financial crisis 

these institutions have maintained operations and provided stability in financing to the vast majority of homeowners. This is an 

ongoing, important and often un-talked about fact. 

At the same time, it is altogether appropriate that we focus on 

those of our citizens who are distressed. Fannie Mae and Freddie 

Mac have been very active in loss mitigation efforts at the same 

time that they are operating the conservatorships with the support 

of taxpayers. The goal has been to avoid foreclosures and to keep 

homeowners in their homes. While the portfolios that I will describe from Fannie and Freddie were performing better than many 

large institutions, we remain vigilant in those efforts. I will briefly 

describe who they are in line. 

As to loan modifications on a nationwide basis, Fannie and 

Freddie own or guarantee 60 percent of the mortgages outstanding, 

but they account for a much lower proportion of serious delinquent 

loans, roughly 29 percent. Data from the Office of the Comptroller 

of the Currency show that in the 2 years ending in the third quarter of 2011, modifications on Fannie and Freddie loans accounted 

for 40 percent of all loan modifications. 

The Home Affordable Refinance Program, Fannie Mae, and 

Freddie Mac are at the forefront of refinance activity for current 

borrowers. They have completed more than 10 million refinances, 

accounting for 63 percent of refinance originations over that period. 

With respect to underwater borrowers, Fannie and Freddie account for less than half of underwater borrowers compared to their 

60 percent share of total mortgages services. But they were the 

only institutions that currently operate a large-scale refinancing 

program for underwater borrowers. We have completed over 1 million refinances of the Home Affordable Refinance Program and 1.9 

million streamlined refinances. In October 2011, we announced additional changes to the program. 

I do note a very significant development, which is the Servicing 

Alignment Initiative crafted by Fannie and Freddie under FHFA 

direction. This established new borrower communication requirements for servicers to ensure that borrower outreach occurs at the 

earliest stage of delinquency when foreclosure prevention measures 

are most effective. Under the SAI, servicers are expected to evaluate borrowers contemporaneous for the full range of loss mitigation 

options simultaneously. They are obligated to collect information, 

access their eligibility for a modification before a loan is referred 

for foreclosure, and foreclosure referrals may only occur after an 

independent review of the case to ensure that the borrower was, in 

fact, considered for an alternative to foreclosure. 

There are significant and substantial incentive payments to 

servicers to motivate and to meet the aggressive timelines in offerVerDate Aug 31 2005 11:10 Jun 07, 2012 Jkt 000000 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 C:\DOCS\74040.TXT APRIL
59 

ing loan applications, and the Treasury Department has acknowledged the benefit of the standard modification approach and amalgamating this approach. We are also taking initiatives on real estate loans. 

Mr. Chairman and members of the committee, I do want to highlight another issue, however, today, and that is an emerging problem as we look out over the past 5 years. 

States and localities face significant challenges from the housing 

crisis: homeowners losing their homes, erosion of the tax base, and 

curtailment of local services and, in many areas, blighted neighborhoods. The response, however, to this has been a rash of local laws 

and ordinances that while intended to assist homeowners, result in 

unintended consequences and fail, in many instances, to achieve 

their goals. Laws that stretch out the period for legitimate foreclosures after legitimate efforts have been made to avoid foreclosure and keep homeowners in their homes result in no added 

benefit for the homeowners and produce harm to the very housing 

finance on which those homeowners acquired their loans. 

Simply put, stretching the time period 5-, 600 here in the State 

of New York is the longest in the Nation’s by 1,019 days to undertake a foreclosure has a consequence of separating a continuing relationship. 

This is my testimony and I stop at this point, Mr. Chairman. 

[Prepared statement of Mr. Pollard follows:] 

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Chairman ISSA. Thank you. Mr. Schuppenhauer. 

STATEMENT OF ERIC J. SCHUPPENHAUER 

Mr. SCHUPPENHAUER. Chairman Issa, Ranking Member 

Cummings, and members of the committee, thank you for inviting 

me to appear before you today. It is an honor to join you in Congressman Towns’ district to talk about Chase’s foreclosure prevention efforts. 

My name is Eric Schuppenhauer, and I am the senior vice president for mortgage banking core servicing and borrower assistance 

at JPMorgan Chase & Co. Since taking over the borrower assistance program, I found the single most important factor in defending the foreclosure is whether the borrower is able to be contacted. 

For that reason we have invested heavily in personnel, bringing 

more locations and technology to help us reach the borrowers. Nationwide we have over 3,000 customer assistance specialists ready 

to help borrowers. We have opened 82 Chase homeowner centers 

around the Nation where we can work with our borrowers face-toface to prevent foreclosures. These centers are located in about 28 

states and in the District of Columbia and within driving distance 

of 70 percent of Chase borrowers. In fact, in New York City and 

Long Island, we have 28 trained counselors at 4 centers, including 

here in Brooklyn as well as in the Bronx, Queens, and Hauppauge. 

To address the special circumstances of our military customers 

we have opened six military homeowners centers in cities near 

major military basis. In these centers all of are specially trained 

counselors are either former military or their spouses. 

We also rely on our community and nonprofit partners. We do 

critically important foreclosure prevention work. We are in partnership with nearly 800 HUD-approved housing counseling, state 

housing agencies, and local nonprofit organizations. In partnership 

with them we have helped over 88,000 customers in 1,800 local 

multiday outreach events around the country. 

In addition, we host our own outreach events where we work 

side-by-side with borrowers and community partners. In fact, we 

have an event here at the Brooklyn Marriott at the Brooklyn 

Bridge April 12th to the 15th, where we have invited about 200 of 

our community partners and we expect to help over 1,500 customers. We can only succeed in preventing foreclosures if we are 

in touch and in tune with what borrowers are experiencing. 

Every day we listen to our customer services calls to make sure 

borrowers are getting good, clear information. Every week we meet 

to review complaints, spot trends, identify root causes, and find solutions. 

I receive copies of every single complaint when it is filed and 

when it is closed. Each borrower is unique, which is why we offer 

a wide range of foreclosure prevention programs. We are currently 

preventing foreclosures at a rate of two to one nationwide. Twice 

as many modifications are made outside of the government programs as through them. 

Over the last 2 years we have prevented over 775,000 foreclosures nationwide. Over the last 3 years we have made close to 

half a million permit modifications and we have approved and 

closed over 165,000 short sales to borrowers. Our investments in 

70 

personnel and systems have helped us to reach borrowers early. 

Most people hear from us by the time they are 15 days late. When 

an account is delinquent, we make repeated attempts to contact the 

borrower by letter and by phone so we can understand their situation and talk about foreclosure prevention options. 

We will not complete a foreclosure until we have made, on average, over 100 attempts to contact the borrowers. Helping borrowers 

understand their options is absolutely critical. We want to make 

foreclosure the last resort. We also understand that the loss of 

every home affects the committee at large. 

Homes that go through foreclosure can bring down property 

value in the neighborhood and contribute to community downgrading. 

To combat this troubling trend we have established the Chase 

Community Revitalization Program, which helps turn Chase Real 

Estate-owned properties into owner-occupied homes nonprofit partners. And Chase understands that keeping people in their homes 

is good for everyone: the borrower, their family, the investor, the 

neighborhood, the housing market and our economy. We are committed to ensure that every borrower is treated fairly and we live 

up to the high standards we set for ourselves. 

Chairman ISSA. Thank you, Mr. Schuppenhauer. 

[Prepared statement of Mr. Schuppenhauer follows:] 

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Chairman ISSA. I would like to thank all of you for being the best 

witnesses so far when it comes to the 5-minutes. 

STATEMENT OF JOE OHAYON 

Mr. OHAYON. Chairman Issa, Ranking Member Cummings, members of the committee, I am Joe Ohayon and I manage national 

community outreach for Wells Fargo Home Mortgage’s servicing 

business. Today I would like to outline four broad areas where we 

have focused our efforts to manage the challenges that our housing 

market continues to face. 

First, we engage with our customers in innovative ways to understand their unique circumstances. In 2009, we began hosting 

large-scale Home Preservation Workshops. At that event our customers have the opportunity to meet face-to-face with a Wells 

Fargo home preservation specialist who has the authority to make 

decisions on the spot in many cases, providing loan modifications 

and other payment relief options. We have found these types of 

face-to-face meetings with our customers to be very successful. We 

are typically able to provide a workout to about two out of three 

customers who attend a Wells Fargo Home Preservation Workshop. 

To date, Wells Fargo has conducted 57 Home Preservation Workshops nationally, meeting with more than 31,000 customers since 

late 2009. Wells Fargo is scheduling dozens of these Home Preservation Workshops in 2012 across the country to help homeowners 

who may be facing difficulty with their mortgage payments. 

I have personally attended at least 50 of our Home Preservation 

events, including one right here in Brooklyn in January 2011, 

where we met with nearly 1,000 of our customers. We are coming 

back to Brooklyn in July of this year. 

I sat down with customers, listened to the stories told by families, and have a better understanding of what brought them to the 

point of possibly losing their homes. It is not just about the numbers and their finances, it is about understanding what put their 

homes at risk. We have learned a lot at these events and we have 

applied what we found at our outreach events and to the way we 

serve our customers every day. 

Second, we collaborate with local leaders, community groups, and 

housing advocates to develop initiatives to address unique housing 

needs in their communities. There is great value in the strong relationships we have formed with groups such as NACA, HopeNow, 

HomeFree USA, and Neighborworks, who serve as another portal 

to reach customers individually. 

Our customer outreach and work with the communities have led 

to success in assisting customers that work with us by using a combination of our own refinance and modification programs along 

with the programs that have been made available through making 

homeS affordable, the hardest hit funds and other government programs. 

Our third area of focus is the recent announcement of a settlement by 5 of the Nation’s largest servicers with 49 state attorneys 

general and various agencies of the Federal Government. While the 

settlement is not final until it is approved by a Federal District 

Court judge in the District of Columbia, we believe that the various 

components of the pending settlement collectively represent very 

82 

important steps toward restoring confidence in mortgage services 

and stability in the housing market. 

Wells Fargo’s financial commitment toward the overall $25 billion agreement is $5.3 billion. It is comprised of programs that 

build on the significant refinance and consumer relief efforts we 

have made to date. 

Starting on March 1st, despite the fact that the settlement is still 

pending, we began actively communicating with borrowers who 

might qualify for consumer relief under the terms of the settlement. Also as of March 1st, we let customers know, upon request, 

if they may be eligible for the expanded first lien refinance program. And beginning in April, mailings will go out to customers 

who are current on their payments, have little or negative equity 

in their homes, but may qualify for the new refinance program. 

We are working diligently to finalize plans to quickly provide 

consumer relief to as many customers as possible. At this early 

date, it is premature to project which forms of relief will be provided to which customers. 

Our fourth area of focus as the Nation’s leading mortgage lender 

and servicer reflects our deep commitment to homeownership in 

America. Despite the challenges of recent years, we know that 

homeownership is still highly valued and desired by the American 

public. In February, Wells Fargo launched a pilot program called 

NeighborhoodLIFT, an initiative that includes down payment assistance, locally designed programs to address housing priorities, 

and local outreach events focused on home buying, education, and 

support. More than 2,000 prospective homebuyers attended the 

first NeighborhoodLIFT events in Los Angeles and Atlanta, and of 

those, 647 made reservations for down payment assistance grants. 

Another program we have launched is My Home Roadmap, a 

first of its kind service for customers who have met with one of our 

home mortgage consultants and were either turned down for credit 

or elected not to apply at the time. This program offers a referral 

for up to 2 hours of pre-purchase counseling with a certified national credit counselor paid for by Wells Fargo to provide them 

with options and support as they proceed down the path to homeownership. 

In conclusion, we remain fully committed to doing what we can 

to help stabilize the housing industry for the benefit of homeowners, individual communities, and the overall economy. 

Thank you for your time. We look forward to your questions. 

Chairman ISSA. Thank you. 

[Prepared statement of Mr. Ohayon follows:] 

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Chairman ISSA. Mr. Jaffee. 

STATEMENT OF JEFF JAFFEE 

Mr. JAFFEE. Good morning, Chairman Issa, Ranking Member 

Cummings, Congressman Towns, and Congressman Platts. My 

name is Jeff Jaffee. I am the chief regulatory affairs officer and I 

am a director of CitiMortgage. I am pleased to speak with you 

today about Citi’s efforts to assist homeowners. And on behalf of 

all of Citi’s employees I want to welcome you to our home town. 

At Citi, we are dedicated to helping families stay in their homes 

and devoted a number of resources to achieve its goal. Since 2007, 

we have nearly tripled the amount of our specially trained staff 

dedicated to working with at-risk homeowners. And we are pleased 

to note that since 2007, we have been able to help more than 1.1 

million distressed borrowers in their efforts to avoid potential foreclosure. 

Last year CitiMortgage launched a Road to Recovery tour, visiting 25 cities nationwide that were hard hit by the financial crisis 

to connect directly with distressed homeowners. During these 

events, CitiMortgage customers, some of whom we have previously 

not been able to reach, spoke face-to-face with representatives to 

get much needed relief. 

We kicked off our Road to Recovery program in Baltimore. In 

building on these successful efforts, the 2012 Road to Recovery tour 

is expected to begin in the coming weeks. 

Citi engages in multiple outreach programs designed to ensure 

that borrowers are aware of Citi’s loss mitigation solutions, working with numerous nonprofit organizations to help us reach borrowers at risk. These events are in schools, community centers, hotels, gymnasiums, personally anywhere that accommodate our borrowers and our associates. In fact, one of the first events that Citi 

sponsored was at the House of the Lord Pentecostal Church on Atlantic Avenue here in Brooklyn. 

Recently we have partnered with Hope Now, the Treasury, and 

Defense Department to sponsor borrower outreach events on military bases. Our first event was at Camp Pendleton. Citi fully supports HAMP and other Federal programs designed to help homeowners. 

CitiMortgage has also participated in the HAMP Principal Reduction Alternative Program since October 2010. Since being announced late last year, the Home Affordable Refinance Program, 

Version 2, has also generated significant interests from borrowers 

and applicants. Other programs are still in development to support 

the National Mortgage Servicing Settlement which was recently 

announced and is currently awaiting approval. 

For those customers who do not qualify for Federal assistance 

programs, Citi has developed its own programs to assist customers 

with specific challenges such as unemployment and other life 

events. For those borrowers who simply cannot sustain homeownership, Citi has programs customized to meet their needs, including 

dedicated short sale and deed foreclosure solutions. 

Foreclosure should always be a last resort. Citi recognizes the 

hardship that can be suffered by a family losing its home and we 

91 

do everything we can to make the transition for our customers as 

smooth as possible. 

In 2009, Citi self-identified opportunities to include its foreclosure processes and proactively took action to enhance its policy 

and controls, including centralizing our foreclosure operations into 

one unit, adding staff, and enhancing training through greater 

compliance and control. 

We were also deeply committed to working with our Nation’s veterans and military families whose loved ones are serving our country abroad. Citi has extensive policies and procedures on SCRA 

compliance, and maintains qualified staff to help service members 

dealing with mortgage issues. In addition, we have implemented 

robust internal controls that involve check loans against the Department of Defense’s manpower data center data base. We are 

committed to doing all we can to help service members and their 

families facing mortgage hardships. 

Citi recognizes that we have a responsibility to help navigate 

Americans through their financial troubles, especially in these 

challenging times. As part of this effort we will continually strive 

to provide homeowner assistance and keep families in their homes. 

We know we have more work ahead of us and are committed to 

partnering with Congress and other stakeholders. 

Thank you for your time and I look forward to your questions. 

Chairman ISSA. Thank you. 

[Prepared statement of Mr. Jaffee follows:] 

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Chairman ISSA. Ms. Sellers. 

STATEMENT OF SHEILA SELLERS 

Ms. SELLERS. Good morning, Chairman Issa, Ranking Member 

Cummings, Congressman Towns and Platts, members of the committee. Thank you for the opportunity to appear today. My name 

is Sheila Sellers, and as senior vice president for National Mortgage Outreach at Bank of America I work directly with families 

struggling to keep up with their mortgage payments. I do this at 

borrower outreach events across the country in some of the hardest 

hit communities, including right here in Brooklyn, and we have recently served the community of Brooklyn. 

While there have been challenges in responding to the unprecedented number of people seeking assistance, I need to share with 

you today that Bank of America is committed to doing the right 

thing for our customers and for our neighborhood. At Bank of 

America we have increased our staff nearly tenfold over the last 3 

years and today have 45,000 people dedicated to assisting our customers. We are also at the forefront of key issues such as targeted 

principal reduction and special assistance to military service members and to veterans. 

Here in the Greater New York Area, we are partnering with local 

leaders, like Christie Peel at the Center for New York City Neighborhoods, to make assistance more easily accessible and understandable and to invest in the future of the region. Our goal is to 

help customers stay in their homes whenever possible. When that 

is not possible, we offer short sale foreclosure options. Each allows 

customers to avoid foreclosure. 

At Bank of America foreclosure is the last option and we do everything to assist our customers before that happens. We do many 

things to help customers more easily understand their options and 

pursue what is best for their specific circumstances, including providing a single point of contact to work with them through resolutions. 

We hold events that bring a full loan modification process under 

one roof. We participate in events hosted by local organizations like 

the center. We also have a network of over 50 brick-and-mortar assistance centers across the country where customers receive faceto-face assistance. 

Here in Brooklyn, we have a center near the Atlantic train station where 10 of my teammates provide multicultural support to 

customers in the area. The manager of that Brooklyn center is here 

in the audience today, Nick Condo, and he is available if you have 

questions later. 

Additionally, we work hard to ensure the services we will provide 

our military customers and their families reflect the sacrifices that 

they have made. At Bank of America we believe the servicers expand support for military and their families, including providing 

more options for customers with a permanent change of station and 

greater access to financial education for those coming off of active 

duty. 

I know Chairman Issa, Ranking Member Cummings, and the 

committee have taken a leadership role in working for our military 

families, and I personally thank you for doing that. At Bank of 

98 

America we have an obligation to treat all of our customers fairly. 

When and where that has not happened we have accepted responsibility and have taken extensive steps to improve our service level. 

The completion of the settlement with Federal and state officials 

is another important step forward. It will allow us to build on the 

programs and services already in place and will result in additional 

support for homeowners. And at the same time, we will be able to 

continue to pursue additional ways to help those who are not eligible for modification to avoid foreclosure. 

The long-term health of the housing market and the economy begins by stabilizing our community and putting them on the path 

to recovery. One key is helping customers who are transitioning out 

of their home. Over a year ago, together with the United Way, 

Bank of America introduced a home transition guide. I have a couple of copies and I believe that we have provided you with materials as well. We produced this guide, so I think that you do have 

that. 

Chairman ISSA. I ask that unanimous consent that the entire 

guide be placed on the record. Without objection, so ordered. We 

have it all. 

Ms. SELLERS. Thank you, sir. And the guide provides educational 

information and access to community resources like counseling 

services. 

Through participation and partnership with cities, community 

groups, and nonprofits, we also help stabilize hard-hit communities 

by actively addressing our real estate owned properties. This includes rehabilitation and preservation programs and a donation in 

sales of property in discounted prices to those who are in need. 

I think my pages are sweating so they are kind of stuck together. 

I apologize. Along with all of this——— 

Chairman ISSA. Wait until summer in Brooklyn. [Laughter.] 

Ms. SELLERS. Along with all of this we continue to extend credit 

and invest in our neighborhoods in order to build for the future. 

At Bank of America our commitment to helping customers avoid 

foreclosure and doing what is best for our community is strongly 

enduring. There is no single solutions. But with the completion of 

the global mortgage settlement we have the opportunity to further 

strengthen our focus on helping homeowners and the housing market get back on track. 

I thank you for your time today and I look forward to your questions. 

Chairman ISSA. Thank you. 

[Prepared statement of Ms. Sellers follows:] 

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Chairman ISSA. I want to thank our entire panel. There was a 

lot of witnesses and very well done. 

Before I recognize myself, I will announce our intention is to do 

one full pass through the questioning and then a short second 

round. 

Additionally, I would ask can all of you stay while our second 

panel testifies? I think you will find that—okay, because obviously 

they are not going to agree with everything you say here, and I 

would like to make sure you hear it for all of us. 

Okay, I recognize myself for 5 minutes now. I am going to hold 

you accountable, Ms. Sellers, with only one question. When you 

said you tripled the staff is some of that the fact that you brought 

Countrywide or is that staff tripling the result of new hires at both 

the Countrywide unit and the Bank of America unit? 

Ms. SELLERS. That staff is the result of the need, and that is 

post-Countrywide acquisition. 

Chairman ISSA. So essentially both parts of B of A, now one company, have increased by that amount? 

Ms. SELLERS. Correct. And those 45,000 are focused on servicing 

our portfolio customers. 

Chairman ISSA. Well, I’m particularly sensitive, Mr. Ohayon, 

some people earlier mentioned that perhaps under 1 percent, not 

the 99 percent—before I came to Congress, Wells Fargo was one of 

my tenants in one of our units and I watched the mortgage unit 

close down exactly at the time in which you should have been staffing up, exactly at the time in which instead of processing new 

mortgages, essentially you had an increase in trouble mortgages. Is 

that something that in your role you are seeing as a lessen learned 

that all banks need to know for the next time, that it is no time 

to reduce the size of your mortgage unit at a time when mortgage 

origination and servicing exactly at the time in which you are likely to have a huge amount of mortgages in trouble? 

Mr. OHAYON. Mr. Chairman, we have learned a lot throughout 

the experience of the mortgage crises. Like Bank of America, we actually increased the staffing in mortgage servicing as well. 

Chairman ISSA. And when did that begin for you, from 2009, 

2010? 

Mr. OHAYON. Yes, it began in 2009. We increased staff by over 

10,000 team members. We now have had over 15,000 team members that are working every day with customers who are struggling 

on their mortgage payments. 

Chairman ISSA. I am not going to necessarily call on all of the 

banks because we have limited amount of time. 

Mr. Pollard, you and your boss are the subject of a lot of questions about Freddie and Fannie. Would you explain to me how I get 

the most for the taxpayer and the most for the consumer or public 

that finds themselves upside down? And before you answer, I understand that if you do mortgage modification, reduce principal, 

principal reduction, people will owe less. I understand that the programs in which this abatement is temporary, and ultimately we 

would like to receive the full amount, has not been universally embraced by those who still owe the whole amount. 

And I understand that if we allow somebody to refinance to today’s lower rates, by definition the income to Freddie and Fannie 

104 

would go down. So there are losses in all three ways, at least for 

the short run. 

Can you justify to me, one, which is the best solution cost effectively and why, and what your sources were? 

And second, if it is not across the board widespread resetting of 

rates to today’s prevailing rate, tell me if, in fact, the Federal Government is now telling people that they can walk away from a 

home and get out of it, but they cannot refinance if they are simply 

underwater, and on what basis, even if it costs the American people through taxes and money on what basis I can say no? 

Mr. POLLARD. I think your first question is about the process for 

us testing or trying these various programs. It is also important 

that we are transparent. We published a monthly and quarterly report of results so that people can see not only have we modified the 

loan, but has that loan re-defaulted or has it continued to perform? 

I think that has been probably the best way of looking what we 

are doing from the taxpayers’ perspective. And the three methods 

that we used has been to reduce interest rates at about 31 percent, 

which we believe is critical. We have looked at extension of various 

timeframes and at principal forbearance where the principal 

is——— 

Chairman ISSA. Principal reduction has never been chosen——— 

Mr. POLLARD. That is correct. 

Chairman ISSA. Okay. For the banks, and I would like to play 

a little bit off of each other, I asked the last question which was, 

I know it is your money, I know it is the taxpayers’ money, but how 

is it that we should not tell people who are willing to keep paying 

their loans, who have become ‘‘upside down in equity,’’ how is it we 

say to those people, you can walk away from your loan, but we will 

not refinance it if you have negative equity? How is that fair? How 

is that not inherently the first step? 

And I know that Freddie and Fannie have been leading it. But 

some of your banks have been trailing in willingness to refinance 

without additional equity. Why is it that those people find themselves adversely affected when, in fact, home affordability will increase if you did it? 

And anyone who would like to answer all four? 

Well, Bank of America will probably tell me how much you are 

doing. [Laughter.] I am Californian, so they used to be Californian. 

Ms. SELLERS. We are a little bit everywhere. 

Chairman ISSA. You are a little bit everywhere. 

Ms. SELLERS. For Bank of America and Bank of America-owned 

assets we offer a myriad of solutions that are designed specifically 

for the customer’s situation. 

Chairman ISSA. My question is much more narrow and we are 

out of time, so I only want the answer to the narrow one and probably catch you on the second round. The narrow question is, how 

is it that the consumer should not expect that they should be treated as well as the person who chooses not to pay their mortgage if 

they choose to pay their mortgage in the sense of being able to refinance at today’s lower rates? 

That is one of the things that—and I know all of us have constituents, but it is one of the things I hear constantly is that I am 

doing the right thing. I am underwater. I do not want to walk away 

105 

from my loan, but why am I paying 71⁄2 percent for something that 

I can go out and get a lower rate today? So briefly, either what you 

do or how you justify not doing it today? 

Mr. POLLARD. Mr. Chairman, I think we will be doing more in 

terms of refinancing. We will be doing more, so we will be refinancing. And if you really look at the statistics, if you look at it 

nationwide, approximately 70 percent of underwater borrowers are 

actually paying their mortgages. So it is critically important that 

we get them refinance alternatives and get them to lower rates. 

I know this is part of the consumer benefits under the settlement 

agreement. We will be doing more for those that are in our own 

book. That combined with HARP, which has 60 percent of the 

mortgages in the United States under the GSE control, that should 

get to a broad range, and then what you are left with happens to 

be mortgages and private label securities. 

Chairman ISSA. Okay, I will catch the rest on the second round. 

I want to be respectful of time. Mr. Cummings. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. I am hoping that you all will follow up on that question on the second round 

because it is a very important question and I would encourage you 

all to find ways to get that done. 

Mr. Pollard every single bank on this panel has done some form 

of principal reduction for mortgages they own. In addition, under 

the $25 billion settlement with the 49 states the banks have agreed 

to do additional principal reductions. The chairman of the Federal 

Reserve, the president of New York Fed, countless economists, and 

even the former special inspector general for TARP have all called 

for principal reduction as the best way to end the housing crisis, 

help homeowners, and save taxpayers money. 

Right now, your boss, Ed DeMarco, is the acting head of FHFA 

and he seems to be the only one who disagrees with this approach. 

As a result, any loan guaranteed by Fannie Mae or Freddie Mac 

is ineligible for principal reduction and modifications. 

When Mr. DeMarco appeared before this committee last fall, he 

said he lacked the authority for principal reductions, but that is 

not true. In 2008, Congress passed the Emergency Economic Stabilization Act and redirected FHFA to, ‘‘Maximize assistance for 

homeowners.’’ 

We explicitly authorized the use of principal reductions. So as 

the chief counsel of FHFA have you now abandoned the legal argument that FHFA lacks the authority to do principal reduction? 

Mr. POLLARD. I think the position that the director took at the 

time in explaining that fully was that we have several legal obligations, one of which is to also monitor carefully the expenses and to 

preserve and conserve the assets of Fannie and Freddie which are 

supported by the taxpayer. Therefore, Mr. Cummings, we take very 

seriously your inquiries, absolutely. 

And this principal reduction that has been talked about, there is 

no debate about that. We have studied it. We have looked at the 

methods we currently use. We have looked at—and I think this 

HARP 2 that the banks have mentioned that is a new program is 

being widely looked to. 

The difference is, is the portfolios of the GSCs are different from 

those of the banks in terms of both performance and the number 

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of borrowers underwater. The taxpayer in principal forgiveness, the 

taxpayer that we deal with, not shareholders, gives up the upside 

if there is principal forgiveness rather that forbearance. I think the 

chairman was referencing that. 

There has also been indications that the acceptance rate is not 

necessarily higher for forbearance. Customers are looking to lower 

the interest rate. It requires more complex calculations than simply 

forbearing where you simply move principal to try and figure out 

who is eligible, who is not eligible, who should or should not be eligible. Where does it stop and how much should be done makes it 

much more complex——— 

Mr. CUMMINGS. But that does not mean we should not try to do 

it because it is hard to figure out, right? 

Mr. POLLARD. Well, and let me add one thing and I want to answer that point. And I think there are also operational deployment 

issues of deploying these programs. One thing that has been criticized of all the programs, be it HAMP or any program, has been 

the actual deployments. What does it take to restructure your departments? What I would say——— 

Mr. CUMMINGS. Well, let me ask you this because I have a limited amount of time. But let me just ask you. Do you have the authority? I guess that is what I—do you—are you saying that you 

do not have the authority or you do? 

Mr. POLLARD. What I think we have been trying to say is that 

we have broad authority, but in looking to what our authorities 

are, we are driven to do the most cost-effective method. 

Mr. CUMMINGS. So you do have the authority but—so you—but 

based upon the circumstances, you chose not to? 

Mr. POLLARD. We operate under several requirements under 

HARE and VISA, but I do want to conclude because you asked 

something I do want to answer, I do not want to leave today. 

One, is that, you know, we have conveyed the reports that we 

have done to the committee. 

Mr. TOWNS. Could you talk into the mic? I am having trouble 

hearing you. 

Mr. POLLARD. I am sorry, Mr. Towns. We have conveyed the 

analysis we have done and we are undertaking another review per 

your request and that work is moving apace. 

Mr. CUMMINGS. And how soon do you think we will have that response? 

Mr. POLLARD. I hope we would have that by the end of the 

month. 

Mr. CUMMINGS. By the end of week? 

Mr. POLLARD. End of the month. 

Mr. CUMMINGS. End of the month? So, let me be real clear. Do 

you have the—you do have the authority for principal reduction? 

Mr. POLLARD. Well, I do not want to obfuscate or make it more 

complex. 

Mr. CUMMINGS. I am not trying to attack you. I just want to 

make sure——— 

Mr. POLLARD. I think we have authority to undertake a broad 

range of activities, but those are circumscribed by other requirements about how we undertake our activities. 

Mr. CUMMINGS. I see. 

107 

Mr. POLLARD. So putting the two together leads us to be somewhat constrained to take the most cost-effective approach. 

Mr. CUMMINGS. Mr. Chairman, I do not know how much time we 

have. I do not know——— 

Chairman ISSA. Well, I would ask unanimous consent the gentleman have additional 30 seconds, please. 

Mr. CUMMINGS. Thank you. Thank you. So to the banks, we see, 

you know, some of these people suffering and I have heard, you 

know, what you all are doing. I just want you to—I want to just 

pick up where the chairman left off, that whole issue. People 

should be able to get now lower interest rates and people should 

have—I hope you do not mind, Mr. Chairman? 

Chairman ISSA. No, go ahead. 

Mr. CUMMINGS. And people should—it seemed like they should 

have an opportunity to take advantage of those rates, it might be 

a difference of as many of 4 points. That is a lot of money, and 

would keep somebody in their houses. So we should just pick up— 

I think you tried to answer and then the others if you do not mind. 

Mr. OHAYON. Yeah, Congressman, we certainly support giving 

customers the opportunity to refinance and part of the expanded 

relief options, specifically the refinance option under the settlement, will provide that opportunity for customers who have little 

or no equity in their home to refinance. 

In addition, Wells Fargo is working on a portfolio product that 

would create additional opportunities to refinance for those that 

are in our books, in our portfolio. We also participate fully with 

HARP and HARP 2 on investor owned—— 

Mr. JAFFEE. Yes, Mr. Cummings, at Citi we do participate in 

HARP 2. We also have portfolio products. To take Chairman Issa’s 

example, for someone that was at 71⁄2 percent interest rate and was 

underwater, up until a few months ago we did not have a solution 

for them. Now under HARP 2 we can, we can say thank you for 

doing the right thing. Thank you for making your payments. We 

are able to give you a lower rate. And we can do that regardless 

of the loan and the value. 

Ms. SELLERS. Mr. Chairman, from the Bank of America perspective, we have participated in the Federal programs both HARP and 

now HARP 2. Underneath the proposed settlement we have opportunity to institute additional options, and that is for our current 

performing customers. 

And then for our delinquent customers we can adjust the interest 

rate as part of the modification agreement. 

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

Chairman ISSA. Thank you. Mr. Platts. And by the way, Mr. 

Platts, I want to thank you for driving up here. The rest of us took 

the train, but you braved the morning commute. So thank you. 

Mr. PLATTS. Mr. Chairman, thank you. Thanks for hosting this 

or holding this hearing and, Mr. Towns, I appreciate your bringing 

us here to Brooklyn. Good to be back in Brooklyn with you as well 

as the ranking member, Mr. Cummings. And appreciate everyone’s 

interest in this. 

I want to start by associating myself, Mr. Chairman, with you 

and the ranking member’s comments about the importance of us 

doing better with those individuals who are paying their bills, they 

108 

are meeting their obligations, but are underwater and they are trying to refinance. To say we are going to help those who have 

walked away from their obligations, but not do a better job to helping those who are accepting their responsibilities, is just wrongful 

policy. So the importance of us getting that right I think is very 

important and that means a greater opportunity to refinance for 

those who have not walked away from their responsibilities. 

I want to start here and get through as much as I can, starting 

with Mr. Morgan. In your testimony, and I appreciate the written 

testimony and the detail you have given, but you talk about that 

4.3 million letters have gone out. You say that you anticipate a 

quarter of a million reviews of which about 210,000 have been done 

so far between the independent requested—or the independent 

look-back and those requested. 

You referenced 121,000 that have been requested and about 

90,000 independent. 

How do you first come up with that 250,000 number in your testimony that you expect that number of reviews to be conducted? 

Mr. MORGAN. The 250,000 number is comprised of two components, the first of which is the current sample size that is the part 

of the file review. There is about 130,000 borrowers that are part 

of that file review. 

And then to date, I believe the testimony says that approximately 116,000 requests for review has been received. And so we 

were putting those two together to make up the current slate of 

250,000 slated for review. 

Mr. PLATTS. So you do not have a—that 250 is not what you anticipate, just where we are not knowing where we will end up? 

Mr. MORGAN. Correct. That is where we are today. We have till 

July 31st for additional requests for reviews to come in. 

Mr. PLATTS. And this refers to the enforcement actions of 2009, 

2010. Anybody who may have been improperly foreclosed on during 

that time period is the relevant scope of borrowers we are talking 

about, right? 

Mr. MORGAN. The scope is actually a little broader than that. It 

does not require that people were foreclosed on during that time 

period, just if they were in the foreclosure process at any time during that time period. 

Mr. PLATTS. Right. Can you talk how you set that timeframe, 

January 1, 2009, December 31, 2010? What if somebody is out 

there that believe they are treated the same in, you know, February 2011? How did, you know, OCC and the Feds settle on December 31, 2010? And are you still willing to consider those who 

believed they have been treated wrongly beyond that date? Is that 

still an option? 

Mr. MORGAN. Yes. The timeframe in our consent orders are 

matched to the timeframe of our examinations that occurred in the 

fall of 2010. And the timeframe that was the scope of our examinations we thought was set to match the period of time in which the 

greatest operational strains were on the system due to the high 

volume of delinquencies and the extreme ramp up in the foreclosure processes. 

I would note that our review will pick up borrowers who were in 

the process of foreclosure prior to 2009 because of the length of 

109 

time foreclosure takes. For those, to your other questions, for those 

that entered the foreclosure process after our timeframe, we are encouraging those borrowers to, you know, file their complaints, if 

you will, with their servicers and also with our consumer assistance group. 

Mr. PLATTS. My concern here is probably an obvious one, is that, 

you know, we do not arbitrarily treat somebody who is treated the 

same wrongly in January 2011, you know, from somebody who is 

in 2009 or 2010, so that we get equity that we are trying to make 

right and do right by everybody. 

A quick follow-up, in your testimony and also with the Feds, the 

discussion about later this month or in a month guidance about 

what type of compensation should be paid. If I understand the testimony correctly, it relates to where the independent, you know, 

look-back is done, that if they find—that independent entity finds 

wrongdoing, they can then recommend certain compensation. And 

that is what the guidance is going to relate to. 

Will that guidance also, or something similar, be given to where 

the borrower requested the review and then there is wrongdoing 

found? You know, what type, if any, guidance are we giving where 

there is wrongdoing in those circumstances? 

Mr. MORGAN. Yes, the joint guidance for remediation will apply 

to both borrowers that are in the file review and those that have 

requested an independent foreclosure review. 

Chairman ISSA. Thirty additional seconds. 

Mr. PLATTS. Any appeal process if—based on that independent 

look back there is a recommendation of certain amount of compensation to the borrower. If the borrower thinks that that is not 

acceptable, what is their ability to contest it as not being adequate 

or appeal it in a formal manner? 

Mr. MORGAN. Our consent orders do not contain a specific appeal 

process. Obviously borrowers would have a choice to accept the 

offer or to pursue their interests through other means. And additionally, they would be able to file complaints with the servicer or 

our consumer assistance group, but there is not a formal appeal 

process as part of the consent order. 

Mr. PLATTS. Okay, thank you. Thank you, Mr. Chairman. 

Chairman ISSA. Thank you. Former chairman of the full committee, Mr. Towns. 

Mr. TOWNS. Thank you very much, Mr. Chairman. Let me begin 

by saying every mortgage servicer testified today has talked about 

how great an effort they have made to work with the delinquent 

borrowers on modifications as a method of foreclosure prevention. 

However, every single day I get calls in my offices, and of course 

people coming in and visiting, talking about how difficult the process is, and that almost making it impossible for them to obtain a 

modification. I hear from the legal community also that are working with services toward a solution, even when the foreclosure case 

has been pending in court for a while, it is extremely difficult. 

I have in my hand right here now the loan modification paperwork for Mr. Nathaniel Barton, who lives in the 10th Congressional District which I represent. The letter from the attorney to 

Mr. Barton starts out encouragingly enough because he is, and I 

110 

quote, ‘‘informed that the borrower has been approved for a loan 

modification.’’ 

Here is the problem: the good news falls apart very quickly. For this reason Mr. Barton is about $79,000 delinquent in his mortgage 

and owes another $11,000 in late charges and attorney fees. According to the letter he can make 3 months of trial payments totaling about $10,000 a month. However, once the trial period is over, 

Mr. Barton has to pay the remaining balance of $80,000. What 

kind of modification is that? [Applause] 

If he does not pay the balance, he must sell his home. I am told 

by the community that this is a rising trend among servicers. The 

situation is bad to begin with and impossible to work out. Let me 

begin with you, Mr. Jaffee. If Mr. Barton did not have $80,000 to pay when he became delinquent, but now has a job and can make his mortgage payments, 

why is he being expected to pay the $80,000 as a condition for his 

modification when he probably makes 50,000 or $40,000 a year? 

Tell me. If he had $80,000 he probably would not have be in— 

would not even have the problem. [Laughter.] 

Mr. JAFFEE. Congressman Towns, I am not personally familiar 

with that particular transaction, but I would say that generally we 

try and sell for affordability. The first thing we do is look and see 

how much money someone makes and then we try and solve it 

using the 31 percent ratio that is in the HAMP guidelines. And if 

that does not work, then we look for city proprietary products. 

I am happy to chat with your staff about specific transactions. 

But what we are trying to do is find affordable solutions that allow 

people to remain in their homes. 

Mr. TOWNS. But do you agree that that is not affordable solution? 

You agree with that, right? Because if he had $80,000 he probably 

would not have the problem. 

Mr. JAFFEE. I would say probably. 

Mr. POLLARD. Mr. Towns? Can I weigh in just as someone who 

is not—even though I work with the Federal Government here. 

Part of the servicing alignment—the letter you just read I find very 

troubling. 

Mr. TOWNS. I did not hear you. 

Mr. POLLARD. I said the letter you just read I find very troubling. 

Mr. TOWNS. Yes. 

Mr. POLLARD. Part of the servicer alignment was to make uniform those forms that are used for people, some of them are three 

pages long, and include models for letters for law firms that are to 

be followed. 

So what I want to convey is I think what Mr. Jaffee is saying 

is when you see some of these items and they are referred to us 

as an agency that we pass along to Fannie and Freddie or to one 

of these institutions, I would tell you we spend a lot of work on 

mortgage fraud in our agency. We spend a lot of time on mortgage 

scams in our agency. And we are committed to making sure that 

the initiative that we have put in place is followed by the servicers. 

I would note that the consent orders of the bank regulators recognize this alignment initiative, that there needs to be early action. 

There needs to be uniformity in the forms and even in the model 

letters that lawyers send out. 

111 

So I have not seen this letter in particular, but I just want to 

give you some background that that is what this effort is about, is 

to get in early, to do it clear and concise to get the modification 

done. 

Now, I would way one final thing. We also recognize that under 

every scenario there is a possibility, and even under all the ones, 

including the ones Mr. Cummings has talked about today, there 

may be scenarios where people do not qualify and that is a reality. 

But I think what you have described to me gives me some concern. 

Chairman ISSA. I ask the gentleman have an additional minute. 

Mr. TOWNS. Thank you. Thank you very much. You know, based 

on, you know, what I am getting from my staff and what I am getting when I go to churches and when I talk to people in the community, this is a common practice. This is not a modification that 

is going to help people. And it is a modification that is suppose to 

help. I mean, this does not get us there??????? 

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

for the extension. 

Chairman ISSA. Yeah, I would like—if the gentleman would 

yield. 

Mr. TOWNS. I would be delighted to. 

Chairman ISSA. If I could ask each of four banks, and Allied who 

is not here we will reach out to in a letter, would you agree to deliver to us a full sampling of the letters going forward, format that 

you intend to offer? 

I think Mr. Towns has hit on a very important point. That is, 

this is a historic letter from one of your banks. But if you are not 

giving either your first offer being a fair offer designed to be reasonable by comparison to this or if you are giving one like Mr. 

Towns showed, it does not seem to have, it does not have, on the 

bottom some sort of although this is a first offer we stand ready 

to negotiate a payment scheme. If you do not either give a better 

offer that is likely to be affordable or let the borrower know that, 

in fact, there is an opportunity to work out an affordable scheme 

to get caught up, if you do not do that, then to a certain extent we 

are going to be back in court, we are going to be back in Congress 

looking at what you are doing going forward, not just because it 

was a lot of crowd pleasing on Mr. Towns’ part, but because I am 

concerned and Mr. Towns is concerned. Would you all agree to deliver us, and we will give you, you know, 30 days, I realize this is 

still ongoing, to deliver us a go forward sample of this unified and 

consistent set of letters so the committee can have that for the 

record? 

[A chorus of yeses.] 

Chairman ISSA. Thank you. I got all yeses. And I will contact the 

one major handler that is not here by letter. 

And with that we have done well. So we are going to do a second 

round. Now I will recognize myself for 5 minutes. 

Mr. Pollard, I am talking advantage of your being here representing 60 percent of mortgages and between the rest of you we 

are up in the 75, 80 percent. Your organization is resisting principal reduction. But let me ask you the question, what is your effective borrowing rate as an agency and conservatorship, your agencies and conservatorship? Is your effective borrowing rate today 

112 

less than 1 percent? Is that roughly what it costs Freddie and 

Fannie to borrow money? 

Now, the Fed is next to you, so they will probably quickly tell 

us how cheap they are borrowing money. I realize that is the shortterm cost, but do you not have a cost that is, even in the midterm, 

below 2 percent cost of money? 

Mr. POLLARD. Mr. Chairman, I do not want to speculate on a precise number. 

Chairman ISSA. You got to really get closer. 

Mr. POLLARD. I am not going to speculate on the number because 

I do not want to give you a misinformed number. 

Chairman ISSA. Ms. Killian——— 

Mr. POLLARD. Let me get that for you. 

Chairman ISSA [continuing]. The Fed notoriously borrows at an 

incredibly low rate today, do they not? 

Ms. KILLIAN. Again, I am sorry, that is not my area of expertise 

at the Fed, so I do not know. 

Chairman ISSA. Okay. Well, let me just say as somebody who 

was described as the 1 percent, I look at these things. And between 

LIBOR and the Fed you are borrowing money at an incredibly low 

rate. So if you borrow at that rate, why would it not be—assuming 

you forget about future going forward profits. 

But if you got, if you got a mortgage that is at 7, 6, 6–1/2, even 

5 percent, is it not true that you can go to the Fed window, you 

can get the money, you could refinance and still make a profit on 

that mortgage with your current cost of money? [Applause] 

We will assume that I am correct that your cost of money is well 

below 3 percent. 

Mr. POLLARD. Well, first I note that Fannie Mae and Freddie 

Mac do not originate mortgages. That is a market function of the 

banks that do the origination. 

Chairman ISSA. Yeah, please get as close as you can. There is 

nothing worst than a mild-mannered lawyer. It throws us off. 

[Laughter.] 

Mr. POLLARD. I know. I would note Fannie and Freddie do not 

originate mortgages. They purchase mortgages and guarantee 

them. So the rates that are set in the market and how that is calculated I am just not going——— 

[Disturbance in the hearing room.] 

Chairman ISSA. Yeah. Okay. No, I understand, Mr. Pollard, but, 

you know, you knew this was not going to be necessarily the easiest day when you got your invitation——— 

Mr. POLLARD. That is right. 

Chairman ISSA [continuing]. And a repeat invitation from Mr. 

Towns, Mr. Cummings, and myself. 

The fact is you own these mortgages now. You have the right to 

write them down. I think Mr. Cummings made that pretty clear. 

You are choosing not to write them down because it is not in the 

best interest of the other part of your requirements, which is to 

minimize the loss to the taxpayer. 

On the other hand, if your entire portfolio, if every one of these 

mortgages that you currently—it is been sold to you, many of them 

by Countrywide—our investigation has not finished, Ms. Sellers, on 

to Countrywide, before you brought them—but the fact is that you 

113 

own them. You could refinance every one of them to a new rate and 

you would own a lower paying rate. So that is within what you can 

do. The only question is what would it cost, right? 

Mr. POLLARD. I think that is correct. 

Chairman ISSA. Okay. Now, I understand that the estimates of 

principal reduction would be north of $100 billion of loss if you did 

that. Is that your estimate today? 

Mr. POLLARD. I think the estimate, that is the range that we 

have——— 

Chairman ISSA. What is your estimate to mark to market, if you 

will, the interests rates of the entire portfolio? If everybody were 

able to get a close to market, current market rate from your portfolio, that entire $6 trillion? 

Mr. POLLARD. I would want to get that number for you. 

Chairman ISSA. Would you please get that for us? 

Now, for the rest of you, you know, Citi and all of you, your cost 

of money is higher, there is no question at all. But is there any reason that it is not in the best interest for people to be able to exercise both in and out of what will soon become a court settlement? 

If you run out of court settlement money, are you going to continue to allow people to refinance even if it has a short-term loss 

to your bank but a long-term benefit to your community, or we 

would expect that when you run out of this different figures, we 

will call it $17 billion initially, that when you run out of that or 

a 5.3 each of your sections, that this will stop? 

My biggest question today is, I see there is a sunny side to a 49- 

state lawsuit, I want to know what the other side is. Are you going 

to do the things you talked about today when you run out of that 

money or are you going to use it until you are done with it and 

then say the program is over? And I will go right down the line. 

And I realize you are not the CEOs, but we chose to have you 

all here today because you were the best qualified to answer current questions. This committee, no matter who is sitting at the 

dais, will have your CEOs back subject to what you answer today 

if it does not happen, so no pressure. [Laughter.] 

Mr. SCHUPPENHAUER. Mr. Chairman, even with the pressure, I 

will go ahead and answer. So we have actually refinanced millions 

and I think you know that. There has been a massive refinance 

boom and so the one population has been that underwater borrower, particularly in areas where you live, for instance. 

Chairman ISSA. Or in Stockton, California. 

Mr. SCHUPPENHAUER. Or in Stockton or Modesto or wherever, as 

well as here in Brooklyn. And we are firmly committed to a refinance program for underwater borrowers on our own book and we 

are firmly committed to following through with HARP and HARP 

2.0 programs and we actually lead at JPMorgan Chase the statistics in HARP refinances. And we will continue to do so as we go 

forward. 

Chairman ISSA. Right down the aisle. Mr. Ohayon. 

Mr. OHAYON. Mr. Chairman, I mentioned earlier that we are implementing the expanded relief program, specifically the refinance 

program, under the terms of the settlement. 

114 

In addition, to complement that, we are utilizing HARP, HARP 

2, and then on our own portfolio developing a refinance program 

for borrowers who have little to no equity in their home. 

On the loan modification side, because I think you asked the 

question earlier, we have been utilizing principal forgiveness on 

our owned assets for customers who are experiencing financial 

hardship as a means to create affordability. Typically it is done in 

conjunction with reduction of rate or term extension. But the key 

for us is try to find an affordable payment and utilizing all those 

different items is important. 

Chairman ISSA. Mr. Jaffee. 

Mr. JAFFEE. Yes, Chairman Issa, we are spending significant resources now ramping up our staff. We have started taking applications, since March 1st, in relations to the then proposed settlement. 

We are working to get that rolling. One thing we have learned 

through the crisis is it is a very big organization and it is hard to 

turn around. Our objective is not just to turn it around, to spend 

our money, and then be done with it. That is going to be the way 

we will move going forward. 

Chairman ISSA. Ms. Sellers. 

Ms. SELLERS. Mr. Chairman, Bank of America has announced 

since the global settlement additional provisions that it will take 

on both principal reduction and its commitment to refinance on our 

own portfolio and those situations where we act as delegated authority, as servicer, for our investor customers. 

Chairman ISSA. So as we go to Mr. Cummings it is fair to say 

that whether it is on the Federal Government side or the private 

sector side, if somebody has a mortgage, they are currently underwater, this is the time they should—and they are making or not 

making their payments, this is the time to go in and begin the 

process of asking to refinance to today’s lower rates, correct? 

I got all yeses. Mr. Cummings. 

Mr. CUMMINGS. And I just wanted to say we are going to hold 

you to that. Mr. Chairman, is there some kind of way we can get 

some kind of report, a follow-up, as to them doing what they just 

said they would do? 

Chairman ISSA. Oh, absolutely. Like I say, we have operatives, 

good high-ranking operatives, in lieu of their CEOs. Their CEOs 

have been before our committee before. If we do not get satisfaction, we will invite them back. 

Mr. CUMMINGS. Thank you very much. Let me just ask you something, a very practical question. A lot of people—we have a person 

in our office, all she does is helping people with foreclosure. But 

there is something that used to happen, and I hope it is not still 

happening, where people would go to the library, fax their papers 

in to you all, and then they check on them and they get no response, and then come to find out you never received them. [Applause] And then they send them again, they send them again, and 

send them again. And then they come to my office and we send 

them for them, and then the company still claims they never got 

them. And I mean, we had so much of that. 

And I am wondering have you all resolved that issue because it 

is almost like there was something, a big machine eating up the 

papers. [Laughter.] And I am very serious about this. 

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I mean, and we got disgusted. 

I mean, have you all been able to resolve that? Because a lot of 

the things that we are talking about, you know, these people do not 

have a lot of money because they take off from work, they do not 

have a fax machine at home. And so they are trying to get this 

stuff done. And then they are disgusted because they find that it 

is like a deep hole on the end of their fax machine. 

So, what is going on here? I mean, can you all—has that issue 

been resolved? It sounds like a little issue, Mr. Chairman, but this 

is a major issue. Have you all been able to resolve that? I know 

you have heard the complaints. We will start with you, very quickly. 

Ms. SELLERS. We have definitely taken steps to resolve that, sir. 

One of the challenges for our customers is to understand what they 

need to be sending in and making sure that they have full packages when they send that in. At our customer assistant centers and 

at our outreach event, one of my personal biggest challenges is to 

get customers to provide the information as requested. So we have 

taken a lot of steps to reduce that type of situation that occurred 

in the past. 

Mr. CUMMINGS. The others of you just yes or no, you have heard 

about it, but have you tried to resolve that? 

Mr. JAFFEE. I think we have made significant progress there and 

I think that is why we do a lot of outreach events we do. That is 

why we participate with Hope Loan Port, which allows electronic 

transmittal of documents. We are trying everything we do. 

And, in fact, the complaints we have on missing documents have 

reduced dramatically. What we see now is you got the documents, 

they may not like the answer they get from us, but it is not that 

we have lost the documents. 

Mr. CUMMINGS. And just very quickly. 

Mr. MORGAN. Congressman, we have done a number of things to 

mitigate the chances of lost documents, including the implementation of single point of contact. So the customer knows who the point 

of contact is, what the phone number is, and who to direct all correspondence to. 

Mr. POLLARD. And I would say the same thing. From a 

JPMorgan Chase standpoint, looked at it and believed we fixed it. 

We would love to hear any inquiries that are coming into your office and we will deal with them effectively. 

And furthermore, we will actually, as part of the settlement, be 

further developing a borrower portal that should help with that 

issue as well. 

Mr. CUMMINGS. Now, Mr. Pollard, just one quick question. In answer to the chairman’s question about the statement that Mr. 

DeMarco made when he said it would cost $100 billion if you all 

were to do principal reduction. The question is, is what would it 

cost if we allow people to just be foreclosed upon? I mean, you have 

not done an estimate on that because you are destroying communities. [Applause] 

I mean, the communities—I mean, people are put out of their 

houses and, and the tax base goes down. It is just a whole list of 

things that happen as a result of foreclosure. And I am just wonVerDate Aug 31 2005 11:10 Jun 07, 2012 Jkt 000000 PO 00000 Frm 00119 Fmt 6633 Sfmt 6633 C:\DOCS\74040.TXT APRIL
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dering, that is $100 billion in one instance, but what about, you 

know, what it cost, the price of foreclosure? 

Mr. POLLARD. The price of foreclosure is high. And we believe 

that the programs that we have undertaken have proven to be the 

most——— 

Mr. CUMMINGS. Keep your voice up. I cannot hear you, I am 

sorry. 

Mr. POLLARD. We believe that the price of foreclosure is high. No 

thoughtful person wants to foreclose. No lender, no investor wants 

to foreclose, okay. So every effort made to avoid that is in the best 

interests of those parties. But we have to look at what is the most 

cost-effective method and the methods that we are using are having results. They have been proven and tested. We have this principal forbearance that seems to work. We are getting people to the 

31 percent. We have done this HARP 2, which I think the banks 

are seeing a quick uptake in acceptance. And I think that is what 

has been driving it. 

Mr. CUMMINGS. And last by not least, how do you define success 

so that we can hold you accountable? I mean——— 

Mr. POLLARD. Well, can I make——— 

Mr. CUMMINGS. And really, I want to applaud the chairman, because one of things I have noticed throughout this hearing is he 

has been trying to make sure that you do not come here and make 

some nice statements and then just go away and then the people 

are still suffering with no accountability. And I do, I do want to 

thank you, Mr. Chairman. 

And I am just trying to figure out how can we hold you all accountable if you make these kind of statements? You follow me? 

Because other than that——— 

Mr. POLLARD. Yes, sir. Let me just say today, later today I believe, we will be announcing——— 

Mr. CUMMINGS. Nice and loud. You are going to make an announcement. 

Mr. POLLARD. We will be making an expansion of our quarterly 

Foreclosure Prevention and Refinance Report. This is our report to 

you required by law that provides detailed analysis. We are expanding that analysis. It will show the numbers of loans owned or 

guaranteed by Fannie and Freddie, delinquencies, foreclosure prevention activities, success rate, REO properties, and refinancings in 

each state. It will have delinquent loans by state for the first time 

and profiles of key states. And New York is one of the key states, 

and California and Florida are the ones we all know about. 

It will enhance our disclosure to you of the activities that we are 

taking. We already do this report, but today it will be—and I hope 

this will happen today after I said it, but it is planned for today, 

that you will be able to have. We do a conservator’s report that details all of this. 

I would like to make sure you have that. I would like to make 

sure it is in the form that you find digestible and usable. And so 

I would be happy to follow up on that with your staff after this 

hearing. But this is coming out later today that we will have this 

in hand——— 

Mr. CUMMINGS. So this is hot off the press? 

117 

Mr. POLLARD. I hope it gets to the press as quickly as I am releasing it. 

Mr. CUMMINGS. All right. 

Chairman ISSA. We will hold the record open in order to make 

sure it is included in today’s record. With that we will go to the 

gentleman of Pennsylvania, Mr. Platts. 

Please see report at the following site: http://www.fhfa.gov/ 

webfiles/23522/4q11lfpr finalv2i.pdf 

Mr. PLATTS. Thank you, Mr. Chairman. I want to echo the words 

of the chairman, the full committee ranking member, and Mr. 

Towns as the subcommittee and financial management ranking 

member, which I had the privilege to chair, that Mr. Towns is 

bringing us here today is not to have a 1-day focus on this, but to 

make sure we have a long term permanent solution. And I think 

what you are hearing from all of us is that is what we are looking 

for from our colleagues in the Federal Government as well as our 

witnesses here today in the private sector, that the commitments 

you are making are followed through on and that we do right by 

your customers, our constituents, and in the end have a good resolution for all in good faith. 

And I would emphasize, to me, as we have discussed issues here, 

Mr. Towns’ focused on good faith modification efforts. It is one 

thing to say we are willing to do modification, but it has got to be 

good faith and it has got to be legitimate. 

And as the example he highlighted, that clear was not a good 

faith modification effort. At least from what we know here today, 

that was one that was just put out there with a knowledge when 

it was put out that it was not going to be able to be achieved, so 

I would not consider that to be good faith. So we want to see good 

faith modification. 

And I would emphasize, again, the refinance issue. As the chairman well documented to Fannie Mae and Freddie Mac the ability 

to borrow today, minimal cost, and even to the private sector that, 

you know, these are people who want to pay and meet their obligations if we can help them refinance. 

And if we go that route, which I will contend should be the first 

and most important route ahead of any write-down, we not only do 

right by those who are refinanced, but we do right by all American 

taxpayers, including those who are not looking to refinance, who 

are making their obligations. 

Because I will tell you, in my district one of the concerns that 

has been raised to me is while we help those who have been wrongly harmed by bad faith in the lending industry, we do so in a way 

that does not unfairly hurt those who have been paying their bills 

all along. And why I say that is a constituent came to me and says 

if my neighbor is struggling, I want them to get help, but I want 

them to get help in a way that is not punishing me. 

And the concern is, on the write-down issue, that their neighbors 

will be written down and they will pay—and they may have bought 

the identical house in a development for the same price, and the 

guy who is always paying his bills is still paying a mortgage on the 

full amount and the neighbor got a write-down as paying a mortgage on a lower amount, you know, even though same house, same 

value, everything. 

118 

So I, I think the emphasis by Mr. Towns—and Mr. Towns and 

I have had the privilege to work as chair and ranking member. He 

has been chairman in the past and I have been ranking member 

of the Subcommittee Financial Accountability. I am now chairman 

he is now ranking member because of the shift in the overall majority in the House. But our focus as with the chairman and the 

ranking member of the Full Committee is we do not want just 

words, we want results. 

And I think that is what you have committed to here today; private sector as well as public sector. And we want to work with you 

to make sure that happens. Because in the end it is good for business, it is good for government doing right by our constituents, and 

everybody gets a win, especially the American people. So I appreciate that. 

I want to add one other issue and it has been referenced here 

again by Federal partners as well as private sector, and that is the 

issue of focus on service men and women. You know, I have not 

worn the uniform. What I do pales in comparison to those who 

wear the uniform past and present. And the fact that we have men 

and women who are in harm’s way defending this great Nation 

while their families were being improperly, you know, provided for 

regarding their home mortgages is outrageous. 

And that 100 percent review of those who were—you know, related to the service personnel is outstanding. We need that across 

the board, whether it is public, private, you know, that we make 

a commitment that no man, no woman, or their families, because 

the families have sacrificed on the home front while their loved 

ones are in harm’s way, that we do right by every one of them to 

make them whole. Because all individuals who have earned our 

greatest respect and absolute gratitude is those who defend us. 

And the fact that we have those individuals in this category of 

those who were wrongly treated is outrageous. 

So I commend the 100 percent review of the regulatory approach 

and the commitment to make sure we do that in the private sector 

as well. But we need to do right by these men and women and 

their families. 

So, Mr. Chairman, I yield back. 

Chairman ISSA. I thank the gentleman. We now recognize Mr. 

Towns for his second round. 

Mr. TOWNS. Thank you very much, Mr. Chairman. Let me direct 

this to you, Mr. Pollard, the chairman of the——— 

Chairman ISSA. Ed, now we need you to get the mic closer. 

Mr. TOWNS. Okay. Thank you very much. The chairman of the 

Federal Reserve, the president of the New York Feds, countless 

economists, and even the former special inspector general for TARP 

have all called for the principal reduction as the best way to end 

the housing crisis and to help homeowners and save taxpayers 

money. 

Right now your boss, Mr. DeMarco, is the acting head of FHFA 

and he seems to be the only one who disagrees with this approach. 

As a result, any loan guaranteed by Fannie Mae, Freddie Mac is 

ineligible for principal reduction modification. When Mr. DeMarco 

appeared before this committee last fall, he said he had lacked authority for principal reductions. 

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Now, and I know that this was raised by the gentleman from 

Maryland, but I did not quite get your answer. But that is not true. 

In 2008 Congress passed the Emergency Economic Stabilization 

Act and redirected FHFA to maximize assistance for homeowners. 

We explicitly authorized the use of principal reductions. 

As the chief counsel of FHFA, have you now abandoned the legal 

argument that FHFA lacks authority to do principal reductions? 

Chairman ISSA. Will the gentleman yield for a second? 

Mr. TOWNS. I would be delighted to yield. 

Chairman ISSA. You know, as you hear the same question again 

and again it is because we are not getting the answer of do you 

have the authority, not do you have the authority and there are 

some other areas in which your judgment is that you would be 

missing some other part. So if you could answer for the former 

chairman the explicit question of—assuming for a moment that the 

best avenue for the taxpayer was loan modification by reducing 

principal, do you have the authority? Because the chairman is asking this for the third time, along with all of us on the bench, because they want that narrow answer not the broader answer of are 

their conflicts? 

I thank the gentleman for yielding. 

Mr. TOWNS. Thank you very much. I appreciate that. 

Mr. POLLARD. Clearly, EESA provided for a number of alternatives, including principal reduction, as a vehicle for assisting 

homeowners. 

Chairman ISSA. So that is a yes? That is a yes you have the authority? 

Mr. POLLARD. We have authority to take these various actions. 

Chairman ISSA. You got the question. 

Mr. TOWNS. So your answer to that question is yes? 

Mr. POLLARD. Yes, we have authority to take a different range 

of actions, that is correct. [Laughter.] But I just have to put it back 

in the context. 

Mr. TOWNS. I am afraid you might be asked again. That is the 

reason—I know the gentleman from Maryland asked the question, 

too, and that is the reason I am raising it again. Is it a yes or no 

that you have the authority to do this? 

Mr. POLLARD. It is a yes that we have authority to take the 

range of actions in EESA, yes, sir. [Laughter.] 

Chairman ISSA. Okay, folks——— 

Mr. TOWNS. Let the record reflect I tried. 

Chairman ISSA. The chair will stipulate, if the gentleman will 

yield, the chair will stipulate that it is within the congressional action and authority granted and that it has been answered in the 

affirmative. 

Now you can follow up with other questions Mr. Chairman and 

I appreciate that but we are stipulating at this point. 

Mr. TOWNS. Thank you very much. Mr. Pollard, if your agency 

could be saving the American taxpayers $500 million right now, 

today, by doing principal reductions, why are you contradicting the 

Federal statue and refusing to do so? 

Mr. POLLARD. The calculations we have made today, as I stated 

earlier, do not show that benefit and did show actual problems 

120 

with adopting such a program, and that is the best I can tell you 

in terms of why we have not adopted it. 

Mr. TOWNS. I did not hear the first part. 

Mr. POLLARD. I said the problems with deploying it, the potential 

benefits we see from the tried-and-true methods that we have employed so far give us comfort in these as fitting with in our mandate to do this in the most cost-effective fashion. 

Mr. TOWNS. Let me close with this question. Mr. DeMarco wrote 

in his January 20th letter to Representative Tierney, of course, and 

I was on that letter as well, that we would’ve consider principal reduction if other funds became available. 

So, Mr. Chairman, on that note I yield. 

Chairman ISSA. I thank the gentleman. I thank all of our witnesses. I will ask just one last indulgence besides that you remain 

for the second panel. Would you agree to take additional questions? 

Because I think—and not that same question again, although we 

would like a more clearly answer, but additional questions that we 

place in writing within the next 5 days? 

[A chorus of yeses.] 

Chairman ISSA. I get a yes from everyone. I thank our first 

panel. We are going to take a short recess while they set up for 

the second panel. 

[Recess] 

Chairman ISSA. We will now recognize our second panel. The 

chair will now recognize the Honorable Arthur Schack. He is a Justice of the Supreme Court of the State of New York. Ms. Meghan 

Faux is deputy director of South Brooklyn Legal Services. Mr. Edward Pinto is a resident fellow at the American Enterprise Institute. 

Chairman ISSA. Pursuant to the rules, if you would please rise 

to take the oath. 

[Witnesses sworn.] 

Chairman ISSA. Let the record indicate all members of the panel 

answered in the affirmative. Please take your seats. 

Again, as the first panel, there is a set of lights in front of you. 

And as my predecessor Mr. Towns says, everywhere in American 

we know that green means go, yellow means it is going to change 

to red, and red means stop. So do not be long overdue, as my predecessor also would say to people who went past red. 

Your entire statements will be placed in the record so that not 

a word will be missed by the transcribers. 

And with that, Justice, you are recognized for 5 minutes. 

STATEMENT OF THE HONORABLE ARTHUR M. SCHACK 

Judge SCHACK. Good morning. Thank you, Chairman Issa. I want 

to thank Ranking Member Cummings, Congressman Towns whose 

home district we are in, and Congressman Platts for this opportunity to speak. 

At the present time we are here in the Borough of Brooklyn, 

which is also known as Kings County, so I will use those terms 

interchangeably. 

And as a sitting Justice in the Supreme Court of Kings County, 

we have right now pending about 14,000 foreclosure cases. Of these 

about 4– to 500 approximately right now are assigned to me. 

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Starting about 2007, I started to observe the bursting of the 

housing bubble and the growth in foreclosure filings. We went from 

about 3,000 to 3,500 foreclosures per year in this county to more 

than 7,000 filings per year. New York is a judicial foreclosure state 

and the power to order a judgment of foreclosure is vested in the 

Supreme Court by the State of New York, which despite it is lofty 

title is actually the court of general jurisdiction in this particular 

state. 

I am one of about 300 Supreme Court justices about 15 percent 

of the Supreme Court justices in our state are in this county because we have about 15 percent of the population. And my experience in dealing with residential foreclosures has given me a unique 

perspective on what is happening with the housing market. 

I am not going to discuss any specific cases, lenders, or homeowners, but I observed many problems, including but not limited 

to the shoddy paperwork executed by lenders or their mortgage 

services, determining the actual owners of mortgages and notes, 

and the disproportionate impact of foreclosures upon minorities 

and neighborhoods that have predominant minority population. 

As a judge I am the neutral. My role is to apply the law equally 

to all parties so we have a level playing field. And for a lender to 

receive a judgment of foreclosure, similar to any other type of judgment, due process of law must be followed. I have taken an oath 

to uphold this. And my job is to apply justice to each individual 

case no matter how the chips fall. 

Now, for a plaintiff to receive a judgment of foreclosure, it must 

demonstrate three things to the court: the existence of a mortgage 

and note, the plaintiff’s ownership of the mortgage and note, and 

the default of the defendant. This might sound relatively simple, 

but in this age of mortgage securitization and numerous assignments of mortgages and notes, it is not easy in many cases to demonstrate the plaintiff’s ownership of the mortgage and note. 

Further, the plaintiff must demonstrate standing. That means 

that it or its predecessor of interest own the mortgage and note 

when the foreclosure case commenced. 

I have been confronted many times with the problem of determining who actually owns a particular mortgage and note. I have 

seen a plethora of cases with defective assignments of mortgages 

and notes by robo-signers. And I continue to see conflicts of interest. Numerous cases I will see that an individual might have 

signed a mortgage and note as an officer of entity A and then days, 

weeks, or months later sign an affidavit on behalf of mortgage entity B. So I have also noticed defects in the notarization of assignments and affidavits missing powers of attorney, defective powers 

of attorney for mortgage services who submit affidavits on behalf 

of alleged plaintiffs, attempts to retroactively assign mortgages and 

notes to attempt to legitimatize foreclosure actions, and a failure 

to produce pooling and servicing agreements that detail the powers 

that are allegedly given to mortgage services. 

One of the things that I found to be quite amusing at times, but 

certainly a major problem, that I try to conduct conferences to try 

to modify mortgages and we come up with some numbers. I propose 

numbers to bank lawyers. I am told it has to be—they have to 

122 

check with the lender. And that always piques my curiously—I am 

sorry, the investor, my mistake. My mistake. 

And then I say, who is the investor? And many times the bank 

lawyers look very puzzled at me and say, I do not know. So we 

have this problem determining what happens. 

A lot of it is also related to the fact we have the MERS system, 

which I think the committee is familiar with. And we have major 

problems as MERS move mortgages around without recording 

them. We have major problems because mortgage assignment as 

well as mortgages are not necessarily recorded because they do not 

have to be. 

So I want to propose to the committee that we have some kind 

of legislation in this country which would reduce the abuse, also increase the fees received by localities and counties with reporting 

that to be enforceable in court that all mortgages and assignments 

have to be recorded. The localities would receive payments to improve their bottom line for the fees and it will add up to billions 

of dollars, the bank’s the MERS system, that localities have not 

gotten in this country. 

So I see the amount of time. I will be very happy to answer any 

questions that the committee has. 

Chairman ISSA. Thank you, your Honor. 

[Prepared statement of Judge Schack follows:] 

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Chairman ISSA. Ms. Faux. 

STATEMENT OF MEGHAN FAUX 

Ms. FAUX. Thank you, Mr. Chairman. I would like to thank the 

committee for holding this hearing; Chairman Issa, Ranking Member Cummings, Representative Towns for extending an invitation 

to us and Representative Platts. 

Legal Services, I will be testifying today on behalf of Legal Services NYC and I prepared this testimony in collaboration with our 

Bedford-Stuyvesant Community Legal Services Office and our 

Brooklyn Legal Services Corporation A Office. And together we 

have been addressing the foreclosure crisis in Brooklyn for more 

than a decade. 

Our Legal Services NYC now operate six dedicated units, foreclosure prevention units, across the city. We have more than 45 attorneys and paralegals working with homeowners. And we have assisted more than 6,000 homeowners in the past years. Our BedfordStuyvesant office alone has helped almost 300 homeowners in Congressmen Towns district. 

But yet still, with all of our efforts and with the many investigations and regulations that have been implemented, communities in 

Brooklyn are struggling more now than ever. Our neighborhoods 

continue to endure catastrophe as record numbers of families face 

foreclosure. And in New York City the economic down turn and rising unemployment have deepened a crisis that was caused by abusive subprime lending. For years, low-income communities of color 

were aggressively targeted for abusive unaffordable mortgages, including adjustable rate mortgages, stated income loans, and payment options adjustable rate mortgages. 

As the foreclosure crisis deepened and the economy declined, 

more homeowners fell into foreclosure due to unemployment and 

underemployment. These are not homeowners who are walking 

away from their responsibilities. These are homeowners who are 

trying to make ends meet. These are homeowners who need our assistance. 

For most of our clients, approximate cause of the default is the 

economic hardship, but the fundamental problem was this mortgage was never affordable from its inception. And so today, we face 

in Brooklyn alone more than 27,000 mortgages that have gone into 

default in 2011, on top of the 14,000 pending foreclosure cases that 

Judge Schack testified. That means in some Brooklyn and Queens 

neighborhoods one in three homes is in foreclosure. One in three 

homes is at risk of being vacant and deteriorating. One in three 

families are going to lose their long-time home and their long-time 

community. 

And the map that I attached to my testimony really depicts very 

clearly the neighborhoods that are hardest hit: Canarsie, Brownsville, Bushwick, Bedford-Stuyvesant, and Flatbush. 

Every day our advocates see the terrible impact the foreclosures 

have on individual families, the stress, the terror, the fear. Yet vacant and deteriorating houses, increased crime, drastic home depreciation, and disappearing affordable rental housing threaten our 

community at the core. If continued vigilance and aggressive reVerDate Aug 31 2005 11:10 Jun 07, 2012 Jkt 000000 PO 00000 Frm 00134 Fmt 6633 Sfmt 6633 C:\DOCS\74040.TXT APRIL
131 

form are not implemented and implemented now, communities like 

Bedford-Stuyvesant and Canarsie will take decades to rebuild. 

Our clients and our communities, as I just said, are trying to 

work with servicers. They are trying to meet their obligations. 

They are trying to obtain affordable housing. That is all they want, 

is a mortgage they can afford to repay. And yet many of our clients 

who come to us have been trying to work with their servicer for 

more than a year, denied more than once for a mortgage modification. Over 80 percent of our clients came to us after trying to work 

with their servicer for many, many years. 

And while there is lots of talk about HARP and there is lots of 

talk about refinancing programs, the reality is that most of our clients, not some, but most of our clients, have no hope of refinancing. 

There is not access to fair credit in the low-income communities of 

color in Brooklyn. There is not. And there is not from the banks 

that were sitting here today and there is not from most of the other 

banks who are not here today. And deed the hardest hit areas of 

Brooklyn, the only hope they have is an affordable modification, 

and that is what they deserve. 

Now more than 4 years into the foreclosure crisis, deliberate 

delays and improper denials remain the servicers’ primary response. And I am going very briefly outline the barriers that we see 

that most prevent our clients from getting modification. 

First, is unnecessary delays. It does take a long time to get 

through the foreclosure process in Brooklyn, but almost 2 years of 

that is spent in settlement conferences, and the bulk of that delay 

is because of servicers failing to respond to repeated loan modification applications and properly reviewing clients for modifications. 

Unexplained and excessive fees continue to remain a huge problem. Improper denials and failure to look at the applications before 

them remain a huge problem. 

And I know I am out of time, but I would just ask your indulgence for one more moment. What we need is an aggressive enforcement of strong servicing standards for everyone. Servicers 

should not be above the law and they need to be enforced and held 

accountable for their actions. 

And as the committee members have talked about earlier, we 

need principal reduction. It needs to be mandatory when it is in 

the best interest of the investors. Voluntary programs are not 

enough. Servicers coming here and saying that they will abide by 

the law is not enough. Our communities and our economy need 

more. 

Thank you. [Applause] 

Chairman ISSA. Thank you. 

[Prepared statement of Ms. Faux follows:] 

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Chairman ISSA. Mr. Pinto. And please pull the mic as close as 

you can. 

STATEMENT OF EDWARD PINTO 

Mr. PINTO. Chairman Issa and Ranking Member Cummings, 

thank you for the opportunity to testify today. 

The failure of the housing market to recover is the result of two 

errant policy initiatives. The first was pushing broad affordable 

housing mandates that started in the early 1990’s, which along 

with other government policies drove an unsustainable home price 

boom. Second, once the housing market collapsed many of the supporters of these policies effortlessly switched gears and undertook 

a multiyear effort to prolong the market clearing process. 

Ominously, the FHA has already announced plans to expand 

lending practices destructive to borrowers and neighborhoods alike. 

Additionally, the Fed recently approved Capital One Financial Corporation’s acquisition of ING Direct. Capital One committed to a 

$180 billion Community Reinvestment Act commitment. This included an agreement to originate FHA loans to borrowers with 

FICO scores as low as 580. Loans with a 580 to 599 FICO score 

have an estimated claim rate of 30 percent. A failure rate that in 

good times would be 30 percent. Rather than protecting consumers 

and neighborhood by avoiding such destructive lending, FHA is 

planning a major expansion. 

Here are my four simple principles to guide FHA reform. Step 

back from markets that can be served by the private sector. Two, 

stop knowingly lending to people who cannot afford to repay their 

loans. Three, help homeowners establish meaningful equity in their 

homes. And four, concentrate on homebuyers who truly need help. 

We are now 6 years into the housing bust. what should we do? 

First, do no harm. After the national mortgage settlement was announced HUD Secretary Donavan sat down with the Wall Street 

Journal. He was asked, how many borrowers current in their mortgage were booted out of their homes? He could not provide a number, but estimated it would be a tiny fraction of the robo-signed 

foreclosures. That is a remarkable admission. 

Worst of all, the settlement and other misguided policies have 

harmed those who have done the right thing. They did not overleverage their homes. They paid their mortgages on time. They did 

not borrow more than they could afford. They saved all their lives. 

They are now being punished by near zero interest rates. They 

were not friends of Angelo and they were not Fannie Mae crony 

capitalists. 

The housing recovery has been stymied for three reasons: policies 

preventing the market from clearing, inadequate demand relative 

to supply, and too much leverage. In my written testimony I note 

numerous initiatives that have contributed to preventing the market from clearing. 

I propose two steps that would have a huge upside potential and 

minimal downside potential. First, promote the conversion to rental 

of properties resulting from short sales, REOs, and foreclosures by 

expanding Fannie’s and Freddie’s individual investor loan limit. 

Fannie currently limits to a single investor of 10 loans from any 

source and Freddie to 4. Why not increase the limit to 30 with a 

144 

maximum loan to value of 65 percent? Hundreds of thousands of 

investors will be instantly mobilized to action the day this change 

is announced. If only 15 percent of the some 3 million individual 

investor property owners were able to purchase an average of 4 

more properties each, 1.8 million properties would be absorbed. 

Second, what to do about refinances. This was a topic earlier in 

the first panel. HARP, FHA, and GSA-assisted refinances have 

done almost nothing to reduce leverage. They have cut a stagnant 

economic pie into smaller pieces and then the savings are called 

stimulus. This presents four problems. 

One, it is an extremely weak form of stimulus. The administration estimate annualized savings of $27 billion from 14 million refinances. That is less than two-tenths of 1 percent of the GDP. To 

paraphrase Winston Churchill, that is like standing in a bucket 

trying to lift one’s self up by the handle. 

Compare this to any number of sound private sector job growth 

ideas that have been rejected by the administration. These new 

jobs, if they were undertaken, would grow the economic pie while 

refinance is merely distributed. 

Last, underwater HARP borrowers who have generally left even 

more underwater than when they started. The solution is a simple 

one: help underwater borrowers who have done the right thing and 

made loan payments for the last five-plus years get the benefit of 

a lower rate, but let them keep or require them to keep the same 

monthly payment. This way the loan will amortize much faster, 

helping the homeowner get himself out from underwater very 

quickly. 

For homeowners who are 20 percent or more underwater, Fannie 

and Freddie could modify these loans on their own initiative today 

to a rate of, say, 3.75 percent and a resulting term of about 17 

years, keep the payment the same, and put the loans on track to 

get out from underwater. The day that program is announced it 

would start solving the problem rather than kicking the can down 

the road. 

I will be happy to answer questions at the appropriate time. 

Thank you. 

Chairman ISSA. Thank you. 

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Chairman ISSA. And reserving time so that I will both use my 

last 5 minutes to close and for my questions, I would like to go to 

the ranking members, Mr. Cummings, for his round. The gentleman is recognized. 

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

Ms. Faux, let me just go back to some of the things that you said. 

You know, some people have the impression that folks got into 

these loans and found themselves in trouble because they were people who simply took advantage of a system of no docs and whatever. But it seems to me that when you look at someone who is underwater, in many instances it is probably no fault of their own. 

Because if you have a situation, like in the block that I live in, I 

often say where The Wire is filmed in Baltimore, where across the 

street from me out of 15 houses, 6 of them are in foreclosure, and 

the property value has gone down 50 percent in the last 3 or 4 

years, it is no fault of my own that I could be underwater. Am I 

right, is it? 

Ms. FAUX. There are a lot of homeowners who are now underwater because of declining home values. And there are many who 

are underwater because of over appraisals, but there are many who 

are now underwater because of the foreclosure crisis and bringing 

home prices down. 

Mr. CUMMINGS. But a lot of these people, they are not looking for 

somebody just to give them a gift. They are trying to figure out how 

to stay in that house, is that right? 

Ms. FAUX. Yes. 

Mr. CUMMINGS. I mean, and they do not mind trying to pay what 

they can, am I right? 

Ms. FAUX. I mean, all of my clients that we represent want to 

pay a mortgage. They want to pay a mortgage they can afford and 

that fits within their monthly budget. 

And, you know, the principal reduction, I think, makes sense as 

a public policy, but many of our clients are accepting mortgages— 

I mean, modifications that are hundreds of thousands of dollars, 

you know, the principal balances are hundreds and thousand of 

dollars over the actual value of the home because they want to stay 

in their house and they want to stay in their community. And, you 

know, what principal reduction will allow are bringing those modifications to a more affordable level and then allow people the freedom to move if they need to sell their house because of family or 

a job they got somewhere else. It is good public policy, but it is not 

even what our clients asked for in the first instance. 

Mr. CUMMINGS. I think there is something that people often forget, too, is when a house is underwater several things happen: one, 

you cannot sell it; two, you cannot go and buy another house; and 

three, the neighborhood goes down; four, you are losing municipal 

and state taxes. I mean, just a whole range of things. 

And I think you, Judge, I think it was you, who said that—I 

think you were talking about—it was one of you talking about how 

we lose tax dollars. Was that you, Judge? 

Judge SCHACK. This is with the subject of assignments——— 

Mr. CUMMINGS. Oh, the MERS thing. Because, I mean, that is 

very significant. 

160 

Judge SCHACK. Because we have lost about $3 billion for all the 

counties or whatever the local recording authority is around the 

country, so this is a national issue. It is not only New York. 

Mr. CUMMINGS. Right. 

Judge SCHACK. Florida, California, Pennsylvania, Maryland, 

wherever. And our counties and the localities are hurting, and this 

could help them besides trying to end abuses with fraud as well. 

Mr. CUMMINGS. And Judge, if you had to—if you were—if you 

could—you know, just based upon what you have seen, and you 

said that you see that there are certain communities that are affected disproportionally than others, I mean, what would you like 

to see to try to—I mean, if you could figure out a way to kind of 

correct this situation? 

Judge SCHACK. If I can do that, I would be making a lot more 

money than what I make now. [Laughter.] All of us would. But on 

a serious vein, in this particular county—because, you know, I am 

dealing with foreclosures throughout Brooklyn, Brooklyn is approximately 21⁄2 to 2–3/4 million people. But I say that probably 90 

percent of those 14,000 foreclosures are in predominantly minority 

communities. 

And some of the speakers have named the neighborhoods: East 

New York, Canarsie, Brownsville, Bushwick, Bedstuy, Crown 

Heights, et cetera. And then there is other parts of Brooklyn, like 

Bay Ridge, I will pick on Bay Ridge, very rare. 

I mean, you see foreclosures there. Some people fall into problems. But predominantly the majority of the community it is very 

rare to see foreclosures. So there is an impact on a minority community. 

There is a variety of reasons I think that are more economic than 

anything else with more families taking two and three jobs because 

they want to achieve that American dream of owning their own 

house. They want to be in the house. People lost jobs. People fell 

on hard times. People signed these adjustable rate mortgages, the 

rates went up. A whole variety of reasons that caused these problems. And we are faced to deal with it, at least I know lawyers already deal with this, the court system. And, you know, we cannot 

escape from it. 

I mean, I like to—well, I will use an analogy in a way. I used 

to use this when I sat on the criminal side. I am like the doctor 

in the emergency room: there is a problem, I have to deal with it. 

I cannot duck. I cannot hide. It is what it is and it comes before 

me and I got to do something, and so do the other judges. And we 

face the society and we face this as the ills of society in our courtroom. So this is one of these we have to deal with one way or another. 

Mr. CUMMINGS. Thank you very much. 

Chairman ISSA. Thank you. Mr. Platts. 

Mr. PLATTS. Thank you, Mr. Chairman and certainly thank each 

of you for your testimony. And is it Folk? 

Ms. FAUX. Faux. 

Mr. PLATTS. Faux. Okay. I want to especially thank you for your 

work with Legal Services. As an attorney by training I know that 

for our judicial process to work well the parties that come before 

the system need to basically try to be on a level playing field to 

161 

make sure the system works as we intend. So the work of you and 

your agency is most appreciated. 

One of the most historic statements in your written testimony 

that just kind of undercuts our first panel about how we are changing things was you say, ‘‘Despite countless investigations, regulations and initiatives, our offices have seen little change in the dayto-day practices of servicers.’’ And that is why we are here, as Mr. 

Towns in Brooklyn and on the broader issue as a committee trying 

to look at this issue because it has to change. 

Ms. FAUX. Right. 

Mr. PLATTS. You referenced that despite the attention that there 

continues to be routine violations of Federal and state regulations. 

Could you identify what would be the most common violation of am 

actual law, state or Federal, or Federal or state regulations, that 

is most routine that you see? 

Ms. FAUX. The regulations I was speaking to are the HAMP 

guidelines and the state servicing regulations. And what we still 

see routinely is despite, you know, a complete modification package 

put in, many months delays before we receive an answer; we see 

denial responses that do not relate to the reason the homeowner 

was actually denied; and we see servicers who, you know, are, you 

know, making mistakes in the review process. But that is many, 

many months later that we realize why the homeowner was denied, 

and it is very costly to our clients in terms of interests and fees. 

And then, you know, putting forth a denial because of an investor 

restriction. And then, you know, while this is not—we wish this 

was a violation, but failing to disclose the investigator restriction 

to us, and then once we investigate they are not actually being an 

investor restriction. 

And, you know, I should say I have worked with many of the 

panelists who were on the first panel for years, and many of the 

lender representatives in this room. And we can come to an agreement about what a lot of these problems are, but then when we get 

back to the frontline staff and in the community, we see the same 

problems over and over and over again. And I do think that is because the enforcement of the regulations has been minimal. 

Mr. PLATTS. Yes, and that actually touches on two follow-ups. 

One, have you ever seen a consequence to a lender or servicer for 

failure to comply, a penalty not through this global agreement, but, 

you know, on an individual case where there was a violation and 

there was a consequence to the person or the entity that failed to 

comply? 

Ms. FAUX. Yes, when we are in court. We have the judges in 

Brooklyn will consider totaling interests and fees if the servicers 

are not negotiating in good faith in the contacts of settlement conferences, but outside that, no. 

Mr. PLATTS. And I guess, Your Honor, how common would you 

say that is the case, you know, that you are able to impose those 

type—because to me for this to change there has to be consequences. 

Ms. FAUX. Yes. 

Judge SCHACK. Funny you should ask me, you know, because of 

my reputation, but I have sanctioned banks. As I said, I do not 

want to talk about specific cases. You want to go Westlaw, feel free 

162 

to read what I have written and that is a matter of public record. 

But I really do not want to comment because there also pending 

cases that are on appeal. But there are unique cases. 

You know, every case is unique, obviously. And that is one of 

the—you know, it is great to hear the first panel talk in broad generalities about what they would like to do, but I have to deal 

with—you know, I have a case in front of me, this is a real homeowner, a real property, and that person or their family have to deal 

with it on a case-by-case basis. 

And I also have to say there are other homeowners where I have 

signed judgments of foreclosure and people have been evicted and 

moved out. So every case is unique. But there are cases where I 

have had to sanction lenders for some of their practices. 

Mr. PLATTS. But by your testimony and, Ms. Faux, your statements in line with the previous panel that there seems to be a 

breakdown in communication you referenced with working with 

some of those individuals, but when you get to the front lines. And 

so I know most, if not all, of the previous panel members are here, 

is I would encourage each of you to make sure that Ms. Faux has 

not just your contact information, but who is the troubleshooter in 

your entity, you know, within your bank. Who should she talk to 

to make sure that the front line is dealing what we heard pledged 

to us today because that seems to be the issue. We have the senior 

management making the commitment, but unless the guys on the 

front lines are actually delivering on it, they are going to keep coming before the judge, you are going to continue to devote, you know, 

months and months and months of, you know, effort that means 

you are also taking from other important legal services. 

So for those witnesses here from the first panel, I would encourage you to make sure that Ms. Faux and her colleagues have a direct line to whoever can troubleshoot to make sure that we line up 

front line service with the commitments we heard today. Mr. 

Chairman, thank you. 

Chairman ISSA. Thank you. I now ask unanimous consent that 

the then minority report from February 25, 2010, entitled Treasury 

Department’s Mortgage Modification Program, be entered into the 

record. Without objection, so ordered. 

We now recognize Chairman Towns for his round of questions. 

Mr. TOWNS. Thank you very much, Mr. Chairman. Let me just 

recognize, because I want you to know that I am really impressed 

with the fact that we have some judges, you know, in the room and 

I want you to know that that to me is very, very important. Aside 

from Judge Schack we have others that are here. We have Judge 

Slyvia Hines Reddick, supervising Justice of the Civil Term Brooklyn Supreme Court is in the room. [Applause] 

Chairman ISSA. How often do you hear judges get applause? 

[Laughter.] 

Mr. TOWNS. Is that not something? Yes. We also have former 

Family Court Judge Betty Staton is also in the room. Judge Staton, 

Family Court, is also in the room as well. [Applause] And I want 

to thank you for being here. 

And, of course,the person that has done so much of this, Cathy 

Asobiey, it is always—you know, who has done so much of this 

kind of work on behalf of the people in Brooklyn. [Applause] 

163 

Let me just move forward by, first of all, Judge Schack, you 

talked about conflict of interest and fraud. What are some of the 

most frequent kinds of conflicts you see? What? I am sorry. 

Chairman ISSA. These are really great mics. They are just—you 

got to get up close and personal with them. 

Judge SCHACK. I know that. Thank you. 

Mr. TOWNS. What are some of the most obvious conflicts of interest and fraud that you see in your court? 

Judge SCHACK. Well, we will come back to the MERS system for 

a moment. Many times you will see someone sign a document, particularly an assignment of a mortgage from MERS to whoever becomes the plaintiff in a foreclosure, and they will sign it as an officer of MERS. And that conflict would be as an assistant—usually 

an assistant secretary to assistant treasurer in court. But then you 

find out they are not an employee of MERS. In some cases I found 

out they do not even know what MERS is, they just signed the 

thing with the robo-signers. And then a month, 2 months, 3 

months, whatever it is later on, then the present owner of the 

mortgage will file with their papers for a foreclosure what we call 

an affidavit of merit. Typically that is on a default case because the 

plaintiff has to attest to the facts in the filing. And it will be the 

same person with a different title. Now they are the vice president 

of bank X or mortgage servicer X. So now they wear two hats. I 

have had cases where they wear three hats, or I have had cases 

with some particular law firms where a lawyer who works for that 

particular law firm signs as an officer of MERS and then that is 

the assignor who signs the mortgage, and then suddenly that law 

firm is now the lawyer for the lender who is the assignee. So, that 

is a conflict. 

So those are some of the typical conflicts that not only have I 

seen, but I continue to see despite everyone is talking about doing 

these wonderful things, but I continually see this day-in and dayout. 

Mr. TOWNS. Thank you very much. Ms. Faux, you mentioned 

that servicers should not be above the law. Could you sort of expound on that a little bit? 

Ms. FAUX. I mean, it is the HAMP guidelines and, you know, the 

New York State servicing regulations, which are some of the 

strongest in the country, you know, even if only those regulations 

were followed, we would be well further along in resolving the foreclosure crisis. 

And I think that the AG settlement, you know, the servicing 

standards there are, you know, very commonsensical. Yet, you 

know, what we need, they are going to have to be aggressively enforced. You know, it takes us months to litigate a case, you know, 

in the courts about whether the servicer and the plaintiff, you 

know, failed to negotiate in good faith. There are dozens, if not 

hundreds, of other cases pending where those homeowners do not 

have that same type of relief, and all homeowners should be treated fairly. Servicing should be transparent and they should get 

prompt review of modification packages. 

Mr. TOWNS. Right. Sitting right next to you is Mr. Pinto, who has 

stated during an interview last month, and I quote, ‘‘There are not 

any damages that have been demonstrated.’’ A few days later, he 

164 

stated that the settlement, and I quote again, ‘‘Really is not based 

on damage that was actually done that was proven.’’ He said, the 

settlements, and I quote, ‘‘Deals with some nebulous claims that 

were made by state attorney generals and regulators.’’ 

Do you still stand by that? 

Mr. PINTO. Not only do I stand by it, but Secretary Donovan said 

the same thing. I quoted him in my testimony. 

Mr. TOWNS. Judge Schack and Ms. Faux, what do you say to 

that? I do not want to start a fight up here, but I sure want to get 

to the point. 

Chairman ISSA. We just need a bench ruling. 

Judge SCHACK. I know you want that, Mr. Chairman. But on a 

serious vein on this, you folks have more First Amendment rights 

than I have since I am a neutral. As a judge I really cannot talk 

publicly about a lot of things, but I will just leave it that the 

abuses that we have read about in the media or heard about, they 

continue on a day-to-day basis. So I will leave it at that. 

Ms. FAUX. The abuses continue and, I think, homeowners are the 

one who are harmed the most. You know, they—while during the 

delays or the, you know, improper foreclosure filings and the refusal to negotiate in good faith, homeowners get hundreds of thousand of dollars of accrued additional debt, and that means it is just 

that much more difficult for them to save their home. 

And we still see, you know, questionable assignments and affidavits. We still see foreclosures being filed where it is unclear whether the plaintiff owns the debt. And we have no idea who to negotiate with. 

And all of those actions, all of that fraud, and the deception that 

underlie origination, and then throughout the foreclosure process is 

incredibly costly to the community. 

Mr. TOWNS. Two years in settlement, that seems to be a long, 

long time in settlement conference? 

Ms. FAUX. Yes. 

Mr. TOWNS. What do you think we can do to sort of shorten that? 

Ms. FAUX. I mean, there is a number of recommendations that 

we have to streamline the process, and we are working with the 

Office of Court Administration to implement those procedures. But 

what the bulk of these conferences, you know, six to eight appearances per case over twice as many months, you know, are about, 

you know, servers who say the package is complete and then come 

back 2 months later having not reviewed it asking for more documentation at the conference instead of in between and asking for 

unnecessary documents or documents that we provided over and 

over and over again. And they need to be held accountable for failing to review in a timely fashion. And they need to just know what 

they need up front and then not change their mind later. 

And, you know, homeowners are perfectly willing to document 

their income to provide complete modification applications. They 

should not have to do it four and five times before they are able 

to obtain a mortgage modification. 

Mr. TOWNS. Thank you very much. Mr. Chairman, thank you. 

Let me thank you for bringing the hearing to Brooklyn. I want to 

thank the witnesses for their participation. And we look forward to 

165 

working very close with you in the days and months ahead to try 

to bring about a solution to this very serious problem. Thank you. 

Chairman ISSA. Thank you, Mr. Towns. And this is the second 

time you have brought me to this beautiful, ornate, and historic 

building on this subject, so I thank you for inviting us back to 

Brooklyn. 

I will now recognize myself. And there is a number of things. 

First, Justice, you have, at least on a preliminary basis, looked at 

the settlement. Do you think it is going to change the behavior of 

the banks that you see before you and other mortgage owners? 

Judge SCHACK. I hate to say it but probably not. I mean, you 

know, I said Brooklyn, maybe I should be in Missouri because they 

are going to have to show me. I do not know. Time will tell. 

Chairman ISSA. Ms. Faux, how about you? Do you think that the 

behavior, what you are describing, sounds not like they do not have 

the tools or that they have not successfully done—and if we counted up all the banks we would have several million modifications, 

successful refinancing, and, of course, you add Freddie and Fannie 

you get several million more. But the 5- or 6 million successes that 

were spoken of in the first panel, you do not see the successes, you 

see the failures for the most part, do you not? Do you think this 

is going to change with tens of billions of dollars committed to the 

process? 

Ms. FAUX. I guess I have slightly more hope. But it will depend 

if the attorney generals are willing to aggressively enforce this. Obviously it would help if homeowners could enforce the agreement 

themselves, if there was a private right of action, if there was a defense to foreclosure for violating these agreements. But, you know, 

we are also looking forward to partnering with the attorney generals, with the CFPB, and the other enforcement agencies to ensure that servicers, now that they have again agreed to this, actually follow through. 

Chairman ISSA. Now, you are an economist, Mr. Pinto. The two 

of you are obviously attorneys. Have you looked at the 1978 Reform 

Act? Are you familiar with it? 

Mr. PINTO. No, I am not. 

Chairman ISSA. It is perplexing to me. And this is not to say that 

I am not trying to find solutions that are outside historic. 1978, 

Democrat President, Democratic House, Democratic Senate, the reform specifically eliminated cram-down or principal reduction even 

in bankruptcy. 

As we try to find the right way—and I am going to get to Mr. 

Pinto on a number of his proposals, but as we try to find the right 

way—do you know of any statutory history of what used to be 

called cram down because it did exist in bankruptcy, but specifically excluded in order to make mortgages more desirable essentially and more reliable? Do you know of any statutory basis, either 

as a Justice or as a consumer attorney, do you have any basis for 

us to order that in the private sector notwithstanding a settlement 

where they have agreed to it or the 60 percent that is controlled 

by Congress? 

Judge SCHACK. As far as I know, and I do not—without doing 

any kind of legal research, I am not familiar with any statute that 

would require that. 

166 

Chairman ISSA. Ms. Faux, you do not know of any either? 

Ms. FAUX. I do not, but it would be great if there could be bankruptcy reform that allow it. 

Chairman ISSA. Well, and it is one of the questions. I serve on 

Judiciary. It is one of the questions of do we relook at the 1978 act? 

And if we do, Mr. Pinto, I now close with you. 

First of all, as an economist, what would that change do? In 

other words, the anticipation that there could be if the market goes 

up, the consumer takes the profit; if the market goes down, the 

principal is reduced on a relatively consistent basis and yet the 

owner keeps it. What is that going to do to the cost of a mortgage 

in your estimate as an economist? And you obviously served in that 

capacity at high level. 

Mr. PINTO. My estimate would be it would raise the cost of financing. In my testimony I talked about a slightly different Catch– 

22, which is having low down payments, virtually no down payments, that was proposed by Mr. Belsky, who is the head of the 

Joint Center for Housing at Harvard. And he was speaking before 

the FDIC and he said while the advantage to getting a home with 

a very small down payment is you have a tremendous upside potential, as you have just indicated, and your downside potential is 

also advantageous because it takes so long to foreclose. And if you 

added cram down to that, I think you would just be creating additional problems. 

Chairman ISSA. Well, leverage always works hard. It just sometimes works hard for you and sometimes against you. 

In closing though, if your principal concept that you had, which 

was that basically we should refinance people to today’s lower 

rates, keep the payment, if they can make it, the same, thus they 

get out a hole or if they stop being upside down and go right side 

up quicker, I found it interesting only for one reason. In virtually 

every mortgage these days, modern mortgage, and all of you can 

weigh in, they almost all have an absolute right to, in a relatively 

short period of time, refinance, close out with little or no penalty, 

right? 

Judge SCHACK. That is correct. 

Chairman ISSA. So home mortgages start off with the presumption of an absolute right by the homeowner to go out and refinance 

them. 

So my closing question to all of you is—and by the way, I will 

talk a little more about the questions afterwards, but is not what 

we should have looked at from day one, all the way back when the 

mortgage rates started going down in 2008, the ensuring that people, even if they are underwater, could take advantage of the affordability that was coming and reasonably expected within their 

mortgages through refinancing to prevailing rates that were lower? 

My closing question for each of you, because you did not agree 

in your opening statements. Can we agree in the closing statements that that would have dramatically made homes more affordable and reduce the amount of blighted communities? 

Mr. Pinto. 

Mr. PINTO. What I actually suggested was that loans be modified 

that are underwater 20 percent or more. There are restrictions on 

167 

Fannie and Freddie and I specifically talked about Fannie and 

Freddie. 

Chairman ISSA. Well, no, my question is very limited, and you 

can answer further what you think I asked for the record. But my 

question was if we in the government had alleviated any limitations on Freddie and Fannie, if we in the government had encouraged from day one and encouraged from day two, being today, 

banks to, in fact, allow people to exercise the reasonable expectation they had, which was that they could refinance with a point or 

two, whatever the normal refinancing was, if, in fact, rates went 

down, they had that expectation, it was explicitly in their contracts 

that they could do in virtually every home mortgage, would that 

not, as an economist, have dramatically reduced the problem of 

people not being able to afford their homes and the blighted communities? 

Mr. PINTO. It is not that simple. Sorry. 

Chairman ISSA. Okay, perhaps for a lawyer it is simpler. 

Ms. FAUX. I think access to, you know, that kind of affordable 

credit would have helped a number of people prevent—who are 

now going into foreclosures. And just I think you need to ensure 

that really every community has access to that fair and affordable 

credit. 

Chairman ISSA. Judge. 

Judge SCHACK. I am going to agree partially with Mr. Pinto that 

it is not as simple as——— 

Chairman ISSA. It does not take care of everyone is what you are 

saying? 

Judge SCHACK. Right. Because there are people who have individual credit problems. So assuming people are working, they have 

the correct credit rating, that might be the way to go if it is high 

enough. 

Chairman ISSA. My question was not that simple, you know. My 

question, and I asked it to the first panel was, in fact, yes, their 

credit in some case diminished, yes, they were behind in their payments or barely keeping up. The fact is there was a reasonable expectation within the contract that they could refinance. If we said, 

if we encouraged—let us just take—and I have got Mr. Pollard still 

patiently here. 

If we said to Freddie and Fannie thou shall refinance since you 

are getting your money cheaper with Fed paper, we want you to 

refinance to that 31⁄2 percent from the 7 percent, if we had done 

that, it certainly would have had an adverse effect. All of us understand there was a revenue loss. But would it not have dramatically 

reduced the amount of people in front of you? 

Let us just assume they are 525, they did a no docs loan, all the 

other things that I talked about, but it is in Mr. Pollard’s, the companies he represents, it is in their hands. And they are making a 

decision, oh, you are underwater—and I hope you do not mind me 

going over just a little—you are underwater and you got a 525 

FICO score, so we are not going to refinance you. As a result they 

end up turning in the home because they cannot afford it at 7 percent. The fact is in your court would that not have dramatically reduced the amount of people that would have been in front of you 

simply because they could have refinanced? 

168 

Judge SCHACK. Well, a certain percentage of people you are correct. Obviously there are people because of the credit problems they 

would not do it for. But certainly, I do not know what the numbers 

would be, but I believe you are correct, Mr. Issa. 

Chairman ISSA. Okay. Now, I am going to ask something of the 

two panels, because I asked you to remain and the first panel remained. 

I know that the three of you, probably particularly two of you, 

Justice, you may not want to ask questions, but you may have 

questions that you did not feel we asked on the first panel. If you 

do, and you submit them to us, we will forward them to the first 

panel. 

Vice versa, anyone on the first panel, if there is something that 

would complete the record by either a comment or a question to the 

second panel, I want to make sure our record today is full and complete. 

We have been doing this since 2007. The intention of this committee is to publish a record of the many hearings held under both 

majorities and minorities. And Chairman Towns was very helpful 

when I was the ranking member in minority. 

We want, we want to come out with something because, quite 

frankly, between the failures of HAMP, and today the good word 

we are hearing about, you know, HARP 2, you know, we want to 

make sure that we spell the record out so that future—if this happens in the future, some of these fixes, some of the upsides and 

downsides are better understood. 

My greatest concern is that, in fact, if we were to have 10 years 

of good times and go back into bad times, we would all be back in 

this beautiful building with very little changed other than who was 

sitting in our seats. 

So the first panel has been very kind. I extend it to you so that, 

in fact, you can have answers to questions you could not ask. We 

will make the record complete. We will hold it open, at least the 

question portion, for 5 days, and then the answers a reasonable 

time thereafter. 

I want to thank all of our panelists for remaining. And for all of 

you in the audience, the remaining people who sat patiently and 

attentively, I want to thank you. This is what democracy is suppose 

to be about. This is the reason Chairman Towns asked me to come 

here and that I came here a second time. 

With that we stand adjourned. 

[Whereupon, at 12:34 p.m., the Committee was adjourned.]