FORECLOSURE PREVENTION PART II: ARE LOAN

SERVICERS HONORING THEIR COMMITMENTS

TO HELP PRESERVE HOMEOWNERSHIP?

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

SECOND SESSION

JUNE 24, 2010

Serial No. 111–97

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FORECLOSURE PREVENTION PART II: ARE LOAN SERVICERS HONORING THEIR

COMMITMENTS TO HELP PRESERVE HOMEOWNERSHIP?

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FORECLOSURE PREVENTION PART II: ARE LOAN

SERVICERS HONORING THEIR COMMITMENTS

TO HELP PRESERVE HOMEOWNERSHIP?

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

SECOND SESSION

JUNE 24, 2010

Serial No. 111–97

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

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

JUDY CHU, California

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN L. MICA, Florida

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

BLAINE LUETKEMEYER, Missouri

ANH ‘‘JOSEPH’’ CAO, Louisiana

BILL SHUSTER, Pennsylvania

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on June 24, 2010 ............................................................................... 1

Statement of:

Das, Sanjiv, CEO, Citimortgage, Inc.; Barbara J. Desoer, president, Bank

of America Home Loan; David Friedman, president and CEO, American

Home Mortgage Servicing, Inc.; Michael J. Heid, co-president, Wells

Fargo Home Mortgage, Wells Fargo & Co.; David Lowman, CEO, Chase

Home Finance, Inc., JPMorgan Chase Bank; and Edward J. Pinto,

Real Estate Financial Services Consultant ................................................ 15

Das, Sanjiv ................................................................................................. 15

Desoer, Barbara J. ..................................................................................... 26

Friedman, David ........................................................................................ 35

Heid, Michael J. ........................................................................................ 51

Lowman, David .......................................................................................... 63

Pinto, Edward J. ........................................................................................ 74

Letters, statements, etc., submitted for the record by:

Connolly, Hon. Gerald E., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 122

Das, Sanjiv, CEO, Citimortgage, Inc., prepared statement of ...................... 18

Desoer, Barbara J., president, Bank of America Home Loan, prepared

statement of ................................................................................................... 28

Friedman, David, president and CEO, American Home Mortgage Servicing, Inc., prepared statement of ................................................................... 37

Heid, Michael J., co-president, Wells Fargo Home Mortgage, Wells Fargo

& Co., prepared statement of ....................................................................... 53

Issa, Hon. Darrell E., a Representative in Congress from the State of

California, prepared statement of ................................................................ 120

Jordan, Hon. Jim, a Representative in Congress from the State of Ohio,

prepared statement of ................................................................................... 9

Lowman, David, CEO, Chase Home Finance, Inc., JPMorgan Chase

Bank, prepared statement of ....................................................................... 65

Pinto, Edward J., Real Estate Financial Services Consultant, prepared

statement of ................................................................................................... 76

Towns, Chairman Edolphus, a Representative in Congress from the State

of New York:

Letter dated June 30, 2010 ...................................................................... 104

Prepared statement of ............................................................................... 4

(1)

FORECLOSURE PREVENTION PART II: ARE

LOAN SERVICERS HONORING THEIR COMMITMENTS TO HELP PRESERVE HOMEOWNERSHIP?

THURSDAY, JUNE 24, 2010

HOUSE OF REPRESENTATIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The committee met, pursuant to notice, at 10:06 a.m., in room

2154, Rayburn House Office Building, Hon. Edolphus Towns (chairman of the committee) presiding.

Present: Representatives Towns, Cummings, Kucinich, Clay,

Watson, Lynch, Connolly, Quigley, Kaptur, Norton, Davis, Cuellar,

Speier, Driehaus, Chu, Issa, Duncan, Turner, McHenry, Bilbray,

Jordan, and Luetkemeyer.

Staff present: John Arlington, chief counsel—investigations; Beverly Britton Fraser, counsel; Kwame Canty and Gerri Willis, special assistants; Velginy Hernandez, press assistant; Adam Hodge,

deputy press secretary; Caria Hultberg, chief clerk; Marc Johnson,

assistant clerk; Mike McCarthy, deputy staff director; Jason Powell, senior counsel; Brian Quinn and David Rotman, investigative

counsels; Ophelia Rivas, assistant clerk; Shrita Sterlin, deputy director of communications; Lawrence Brady, minority staff director;

John Cuaderes, minority deputy staff director; Jennifer Safavian,

minority chief counsel for oversight and investigations; Adam

Fromm, minority chief clerk and Member liaison; Benjamin Cole,

minority policy advisor and investigative analyst; Seamus Kraft,

minority director of new media and press secretary; Justin

LoFranco, minority press assistant and clerk; Christopher Hixon,

minority senior counsel; Hudson Hollister, minority counsel; Mark

Marin, minority senior professional staff member; Brien Beattie,

minority professional staff member; and Sharon Casey, minority

executive assistant.

Chairman TOWNS. The committee will come to order. Good morning, and thank you for coming.

It took massive Federal intervention, using billions of taxpayer

dollars, to save the banks from the edge of complete disaster. The

banks and the financial system are now stabilizing, and, in fact,

the major banks are even beginning to make money again. Unfortunately, the same cannot be said for millions of people who are

unemployed or who are in danger of losing their homes.

The threat of foreclosure is still at an all time high. More than

3.1 million Americans are delinquent on their mortgages by 60

2

days or more. A letter from the banks or phone call from the mortgage company is still keeping many homeowners awake at night

agonizing over the potential loss of their home. For these people,

the economic crisis is far from over.

As I have said before, to its great credit, the Obama administration recognized early on that an important part of the Nation’s economic recovery is keeping as many people as possible in their

homes. This makes sense from both an economic standpoint and a

public policy standpoint, and I salute him for that.

The Home Affordable Modification Program [HAMP], is a central

piece of the Treasury Department’s effort to carry out that objective. HAMP had a troubled start, but it appears that some significant improvements have recently been made.

More than 1.2 million homeowners have now started a HAMP

trial modification, and 346,000 have obtained a permanent modification. The median savings to these homeowners is a little over

$500 per month. Moreover, the number of permanent modifications

has more than doubled in the last 3 months.

But there are still major problems with HAMP. The chief complaint is the slow pace at which servicers are permanently modifying troubled mortgages. There is still considerable concern over

confusing and conflicting communications from loan servicers to

borrowers. And while more permanent modifications are being

made, fewer delinquent borrowers appear to be qualifying for

HAMP.

Perhaps most important, many of the borrowers who obtain a

trial modification drop out of the program later. In fact, it appears

that a majority of the mortgage modifications obtained under

HAMP may not be successful.

A separate and deeply troubling issue is raised by a new study

by the Center for Responsible Lending, which found that minority

communities continue to experience significantly higher foreclosure

rates than whites, regardless of their income levels. This confirms

similar findings reported by the National Community Reinvestment Coalition in the committee’s last hearing on HAMP. Today,

I would like to hear from the banks exactly how this disparity can

be addressed. Clearly, we need to do a lot better than we have done

in the past.

But this is not just about HAMP. I think the mortgage banking

industry has to recognize that HAMP cannot be the only solution

to the foreclosure crisis.

Some of the banks appearing today have begun to save homes

from foreclosures with principal reductions, second lien modifications and other help for the unemployed. These sound like good

first steps, but I want to hear more, and I want to see broad participation throughout the mortgage loan industry.

Foreclosure is a losing proposition for everyone involved if you

stop and analyze it. The homeowner loses the house, the bank loses

a big chunk of its investment, and the community loses a family

with a stake in the community. What I am asking the banks to do

is to help us find an effective way to stop these foreclosures.

I want to thank our witnesses today for appearing, and I look

forward to your testimony.

3

I will now yield 5 minutes to the committee ranking member, but

let me just say this before we move any further that we are going

to give 5 additional minutes on each side, of course after your opening statement, we will give 5 minutes on the Democratic side and

5 minutes on the Republican side, and that can be split up five

ways, six ways, as many ways as you want to split it up. But you

have 5 minutes.

[The prepared statement of Chairman Edolphus Towns follows:]

4

5

6

7

8

Mr. JORDAN. Thank you, Mr. Chairman.

Mr. Chairman, thank you for holding today’s hearing to examine

the continuing failure of this administration’s response to the foreclosure crisis.

At the outset, I must express my extreme disappointment that

the committee will not hear from the Treasury Department today.

Since the committee’s last hearing on HAMP 3 months ago, Treasury has continued its pattern of secrecy, dishonesty, and failure.

Treasury has refused to implement the Special Inspector General’s recommendations for reform of the program; it continues to

misrepresent the original goals of the program so as to disguise its

ineffectiveness; and, most importantly, the Obama administration’s

technocratic tinkering in the housing markets has continued to fail

the American people.

Just this week, we learned that Treasury has kicked substantially more people out of the HAMP program than have received

sustainable mortgage modifications. As the Wall Street Journal recently reported, many of these Americans are actually worse off for

relying on the administration’s promises.

I look forward to hearing from the mortgage servicers here today.

They play a vital role in the process, and their perspective is necessary and helpful in examining this Federal program. But inviting

the implementers of the program while ignoring the designers of

the program and the people ultimately responsible for the waste of

$75 billion of taxpayer money is simply a failure of oversight.

I am also disappointed, Mr. Chairman, that GAO was disinvited

from today’s hearing. GAO has been investigating HAMP on an ongoing basis and they published a report this morning focused on

the performance of mortgage servicers to coincide with their expected testimony at this particular hearing. Their perspective

would also have been valuable for this committee to hear.

Mr. Chairman, I respectfully urge you to invite the Treasury Department to answer for its failures at another hearing in the near

future. We have a joint responsibility to the American people to

hold this administration accountable, regardless of political affiliations.

The servicers we hear from today have worked to comply with

800 HAMP rules issued in over 15 different sets of guidelines. Not

surprisingly, they have been able to offer far more mortgage modifications privately outside of HAMP than within it. Ultimately,

however, the best mortgage modification is a job, and, unfortunately, this Congress and this administration has stifled private

sector job creation through their big government anti-economic

growth agenda. The implications of these policy mistakes are being

felt by former homeowners across this great country.

Thank you, Mr. Chairman, and I yield back.

[The prepared statement of Hon. Jim Jordan follows:]

9

10

11

Chairman TOWNS. I thank the gentleman for his statement. But

let me just indicate to you that we did have Treasury in, we did

have GAO and we had SIGTARP. And, of course, you can’t do but

so much in 1 day.

Mr. JORDAN. GAO’s report came out this morning, Mr. Chairman. That is what we needed to hear about.

Chairman TOWNS. The gentleman from Maryland, Mr.

Cummings.

Mr. CUMMINGS. Thank you very much, Mr. Chairman. Mr. Chairman, first of all, thank you for holding the hearing.

I am concerned about the claims published in the Washington

Post this past Monday that a growing number of borrowers are failing to move from the HAMP program’s initial stage into a permanent loan modification.

More than 100,000 borrowers lost their mortgage aid in May.

About half of those dropped from the Federal program received another type of loan modification from their banks, according to the

government data. But housing counselors have complained that

those alternative loan modifications are typically not as generous

as what the government program offers and often come with hefty

up-front fees.

I am interested to see how these options have been communicated with the borrowers. Getting started and understanding the

process can be one of the toughest steps in loan modification efforts.

Mr. Chairman, for over the last 15 months I have held four foreclosure prevention workshops in my district, and I can tell you that

the key is that we have to have effective and efficient programs.

It is one thing to talk about them. It is another thing to actually

carry them out. Hopefully, the people who are testifying before us

today can help us get better insight as to how we can keep people

in their homes.

I have told my constituents that they must protect their house.

The house is their No. 1 investment in most instances, and a very,

very important investment, and I think that we need to be doing

more and more to help people retain their home so that they can

have stability, and so they can keep their families stable and also,

of course, so that we can keep neighborhoods stable.

With that, Mr. Chairman, I yield back.

Chairman TOWNS. The gentleman yields back. I now recognize

Mr. Turner.

Mr. TURNER. Can you clarify for us how the time is allocated?

Are you saying there is 5 minutes over there and there is 5 minutes over here?

Chairman TOWNS. He yielded back. We still have 3 minutes left

on this side. Now you have your entire 5 minutes on your side.

Mr. TURNER. OK, great.

Mr. Chairman, you said, as you know, you acknowledged the request by the ranking member for a representative from Treasury,

and you said we can only do so much in 1 day. I can tell you that

we would come back. We are a hard-working committee and everybody would be delighted to be here.

Chairman TOWNS. Would the gentleman yield for a second? We

have had Treasury.

12

Mr. TURNER. You haven’t had them since Monday when they had

their report issued that said that this program is failing, and I

have some very serious questions. You know, just yesterday, just

yesterday, the Treasury Secretary appeared before the congressional oversight panel where he was asked a question about

HAMP, and do you know what he said?

He said, ‘‘This program was not designed to prevent foreclosures.

It was not designed to sustain homeownership at a level that would

be unachievable, imprudent to try to do.’’ He goes on to say when

someone asked him, ‘‘Well, do you think it should go to 65 percent

of homeownership level?’’ He said, ‘‘I think you are describing exactly the objectives that have shaped this program.’’

The chair of the congressional oversight panel responding to his

comments said this: ‘‘I was very surprised and very frustrated by

the notion that the Secretary seemed to be saying that a program

that helps only a tiny handful of families facing foreclosures is a

successful program because in effect the rest deserves to lose their

homes.’’ She says, ‘‘I thought that was shocking.’’

I find it shocking. I find it inconsistent with the chairman’s opening statement about what this program is to do, and certainly Secretary Geithner is responsible for ensuring the success of the program. I also find it inconsistent with what the President told the

American people this program was going to do.

Now, we have an absolute crisis, and it is not over. I am from

Montgomery County, OH, and the foreclosure rate is staggering in

my community. Ohio has seen the foreclosures continue to mount.

And clearly this needs to be addressed, not only by Treasury addressing this program and giving people real answers as to its

goals and objectives, but also for the financial institutions, because

we cannot lose focus here that the financial institutions got us in

this mess, this is not a government-created mess, by their lending

practices that did not make sense, that were not sound business

decisions, that did not protect the banks, and did not protect capital investments.

The concern that I have as I looked at Treasury and then to the

financial institutions is that decisions are being made currently

that don’t protect capital. Every Member of Congress can tell you

that the realtors in their communities tell them that it is virtually

impossible to get loan servicers, banks, financial institutions, to

work with the home buyer, to get a short sale, to do things that

would avoid foreclosure. This is what I don’t understand, and I am

looking forward to some information today.

The test under the HAMP program, it is supposed to preserve

capital for the banks, but apparently it is not a program that even

the banks are with zeal pursuing.

When you look at the market, any time that we can avoid foreclosure, you make more, you preserved your capital; the market

sustains more because when the home goes into foreclosure, prices

in the neighborhood drop; and families are sustained.

So I am interested today in why isn’t this program working, why

isn’t Treasury here, but also from you guys, why aren’t you operating in what we would all believe a market standard of capital preservation, because we are continuing to proceed toward foreclosure

at rates where we all know people are approaching the financial inVerDate 11-MAY-2000 12:01 Feb 15, 2011 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\63041.TXT KATIE PsN: KATIE
13

stitutions with deals and offers that are being rejected that would

have a higher return than foreclosure does. I am interested in some

of those answers today.

I yield back.

Chairman TOWNS. I now recognize Mr. Kucinich.

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

Chairman TOWNS. You have 3 minutes.

Mr. KUCINICH. I am going to take 1 minute, if you will let me

know when that is done.

We know that the State of Ohio received another $172 million so

that people could be counseling individuals on how to stay in their

home, and I am grateful to the administration for that. But we also

know that servicers have been referring eligible borrowers to foreclosure until they have been evaluated for HAMP. Treasury had to

intervene to try to put a stop to that practice.

We know that Bank of America has 13 percent permanent modifications; JPMorgan Chase, 20 percent; Wells Fargo, 22 percent;

CitiMortgage, 23 percent; American Home Mortgage Servicing, 16

percent. This whole program is about keeping people in their

homes, and yet we are finding that the servicers apparently are not

stepping up in a way that can encourage more and more people to

stay in.

We know that people are not given reasons, understandable reasons, why their home affordable mortgage modification program is

denied, that it is sketchy as to how people appeal a denial, and to

have their denials reviewed before they face foreclosure. These are

all things that this hearing is going to get into. We are glad you

are doing what you are doing, but it is not enough.

Chairman TOWNS. The gentleman’s 1 minute is up.

The gentleman from Virginia, he has 2 minutes left.

Mr. CONNOLLY. I thank the chairman.

I just want to say I appreciate the steadfastness of our friends

on the other side of the aisle in wanting to look at a program and

make sure it is better and working. But I think it is important to

remember that our friends on the other side of the aisle are the

same ones that stood by and allowed for no or loose regulation that

created the subprime mortgage bubble in the first place, and to a

person they opposed helping anybody who was under water or

threatened with foreclosure, including in Ohio. Not one person in

America would have been helped if their vote had actually been the

majority vote when we looked at the Recovery and Reinvestment

Act.

So when we are looking at the subject and we are looking at imperfect models——

Mr. TURNER. Will the gentleman yield?

Mr. CONNOLLY. I will not yield—that are not succeeding to the

fullest extent. Lets’s remember that there are some among us who

it would have helped not at all.

Thank you, Mr. Chairman. I yield back.

Mr. MCHENRY. Mr. Chairman.

Chairman TOWNS. The gentleman from North Carolina has 1

minute.

Mr. MCHENRY. I would just say to the chairman that my colleague on the left is flat wrong. What he is saying is actually not

14

the case. We want a workable program that will actually help

homeowners, not a failed program that is expensive to the taxpayers and doesn’t actually help homeowners. It has been an absolute failure.

GAO report after report, if we talk to folks in our communities

and our districts, they will tell you it is not working. And I have

been front and center on this issue trying to help homeowners at

home and here in Washington with policies, and it was the party

over there that would do nothing about Fannie Mae and Freddie

Mac, which really added fuel to the fire of subprime and this mortgage crisis that we are inheriting and that we are trying to work

through right now.

So rather than this guy blaming Bush, let’s move forward. Let’s

try to do something reasonable for homeowners. They are sick and

tired of this kind of petty politics. We want to fix this problem, not

simply throw some money at it. We want a workable solution, not

some empty rhetoric.

So, with that, I would be happy to yield back.

Chairman TOWNS. The gentleman’s time has expired.

Let me just say to all of the members of the committee, there is

enough blame to go around. I want you to know that. We just have

sort of put things in the proper context.

We have had the Treasury Department, GAO and the SIGTARP

to testify at our first hearing on this issue. Treasury was questioned by the committee for more than 3 hours on the performance

of HAMP at the first hearing. Now it is the banks’ turn, and we

are going to hear from them today.

But more importantly, let me state, HAMP is not the only way

to address the foreclosure problem. HAMP is just a part of the solution, but not the whole solution. We need the wholehearted cooperation of everybody across the board, even this committee.

On that note, I see no recognition. We have a minute left on this

side. Yes, 1 minute to the gentlewoman from California, Ms.

Speier.

Ms. SPEIER. Thank you, Mr. Chairman.

I think the American homeowners who are grieving right now

and pleading for some kind of modification don’t care if it is HAMP

or something organized by the bank. They just want some relief.

And I think it is shameful that my colleagues feel compelled to

point fingers one way or the other.

The one issue that is really critical that we have to look at is the

conflict of interest that exists where there is a mortgage and a second mortgage and the servicer has an interest in the second mortgage and therefore will not negotiate a modification with the first

mortgage. That is a really serious issue and one we should address

here today.

I yield back.

Chairman TOWNS. All time has now expired. We will turn to our

panel of witnesses.

It is committee policy that all witnesses are sworn in. If you

would stand and raise your right hands.

[Witnesses sworn.]

Chairman TOWNS. Let the record reflect that all witnesses answered in the affirmative.

15

Mr. Das is the chief executive officer of CitiMortgage, Inc. Welcome, Mr. Das.

Ms. Barbara Desoer is the president of Bank of America Home

Loans, which is the Nation’s largest home mortgage servicer.

Thank you, Ms. Desoer.

Mr. David Friedman is the president and chief executive officer

of American Home Mortgage Servicing, which is the Nation’s largest independent non-prime servicer.

Welcome, Mr. Friedman.

Mr. Michael Heid is the co-president of Wells Fargo Home Mortgage, which services one out of every six mortgage loans in the Nation.

Welcome, Mr. Heid.

Mr. David Lowman is the chief executive officer of Chase Home

Finance.

Welcome, Mr. Lowman.

Mr. Edward Pinto is a real estate financial services consultant.

Welcome. We are delighted to have you here as well.

At this time I would ask the witnesses to deliver their statement.

Let me just explain, just in case you don’t know how it works.

There is a light that comes on and it is green, and then after 4

minutes it becomes caution, and then it turns red. Now, red means

stop. I just want to sort of remind you how it works so we have

that straight.

Mr. Das, why don’t we start with you and come right down the

line. This will allow us an opportunity to raise questions.

STATEMENTS OF SANJIV DAS, CEO, CITIMORTGAGE, INC.; BARBARA J. DESOER, PRESIDENT, BANK OF AMERICA HOME

LOAN; DAVID FRIEDMAN, PRESIDENT AND CEO, AMERICAN

HOME MORTGAGE SERVICING, INC.; MICHAEL J. HEID, COPRESIDENT, WELLS FARGO HOME MORTGAGE, WELLS

FARGO & CO.; DAVID LOWMAN, CEO, CHASE HOME FINANCE,

INC., JPMORGAN CHASE BANK; AND EDWARD J. PINTO, REAL

ESTATE FINANCIAL SERVICES CONSULTANT

STATEMENT OF SANJIV DAS

Mr. DAS. Thank you. Chairman Towns, Ranking Member Issa,

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

discuss Citi’s efforts to help families stay in their homes and describe our progress in implementing the Home Affordable Modification Program [HAMP]. I am Sanjiv Das, CEO of CitiMortgage, and

I am honored to be speaking with you today.

As Citi CEO Vikram Pandit has said, we owe a debt of gratitude

to the American taxpayer and our government for providing Citi

with TARP funds. We believe it is our responsibility to help American families in financial distress, and in particular to help families

stay in their homes. As one recent example, just last week Citi became the first major lender to announce a 90-day moratorium on

mortgage foreclosures in the Gulf Coast region. Our goal is to help

families who have been hard hit by the devastating oil spill to remain in their homes.

At Citi, we are focused on two key priorities: Working hard to

make the HAMP program as successful as possible; and providing

16

solutions for distressed borrowers that do not qualify for, or have

fallen out of, the HAMP process. Our focus has produced significant

results. Citi is consistently ranked among the top performing

servicers, and since 2007 we have assisted more than 900,000 families in their efforts to avoid foreclosure.

We know that the HAMP process can be somewhat complicated,

so we strive to make it easier for our customers. We have hired

special staffers to focus solely on the HAMP process and given

them detailed training. In addition, we have added more than

1,400 new employees to support our foreclosure prevention efforts.

We have invested in our HAMP processing systems so that

HAMP applicants can now view their application status and documents online. Customers are also notified electronically when they

meet key milestones in the application process.

We have learned that borrowers can be reluctant to work directly

with servicers, so we increasingly work with third parties in local

communities on mortgage modification outreach. We have also

partnered with HOPE NOW to conduct document collection events

in face-to-face meetings with borrowers who need help. Our goal is

to give every, every distressed borrower the opportunity to reach us

for assistance.

We have designed and implemented procedures to ensure the fair

application of HAMP standards for all applicants.

Despite these initiatives, challenges remain. For example, HAMP

has been revised multiple times since March 2009. With each

change additional training and systems are required, which in turn

impact program efficiencies.

Further, factors beyond our control often prohibit customers from

moving from a trial modification to a permanent HAMP modification. In the majority of these cases, the required documents are not

submitted, required trial payments are not made, or the borrower

is ineligible for the program.

Since the HAMP program does not fit every distressed borrower’s

needs, Citi is providing solutions that helps borrowers who do not

qualify for the HAMP process or who have not achieved HAMP

modifications. As part of this effort, we offer a number of supplemental modification programs that are designed to address customer needs on a case-by-case basis. These solutions are tailored to

homeowners’ unique circumstances and deliver an outcome that is

affordable and lasting.

Citi’s own proprietary programs assist customers with a variety

of solutions, addressing challenges such as unemployment and imminent risk of default and utilizing a variety of strategies to solve

for affordability of payments. These solutions are described in the

appendix attached to this testimony in more detail.

We believe the issue of affordability is the most important consideration in modifications. We do not believe there is one-size-fitsall approach to affordability. The proof of this is in our low default

rate, which continues to be significantly below industry averages.

For those borrowers who face severe hardship, Citi introduced

dedicated Short Sale and Deed in Lieu teams in 2009, which offer

a number of customized solutions. Further, we are participating in

HAFA and will participate in the Second Lien Modification Program when it becomes available this summer. These programs enVerDate 11-MAY-2000 12:01 Feb 15, 2011 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\63041.TXT KATIE PsN: KATIE
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able borrowers to avoid foreclosure and allow for a dignified transition to the next phase of their lives.

I understand there is much more work to be done. Citi remains

focused in achieving affordability, and we support the Treasury’s

programs to help consumers.

Thank you for the opportunity to speak before this committee. I

would be happy to answer any questions you might have, sir.

[The prepared statement of Mr. Das follows:]

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Chairman TOWNS. Thank you very much.

Ms. Desoer.

STATEMENT OF BARBARA J. DESOER

Ms. DESOER. Chairman Towns, Ranking Member Issa, and members of the committee, thank you for holding a hearing on this very

important issue.

Since January 2008, Bank of America has completed more than

630,000 loan modifications. We continue to innovate, first with our

own proprietary loan modification programs, and more recently

with the adoption of 2MP and our own principal forgiveness program.

With the acquisition of Countrywide in July 2008, Bank of America’s servicing portfolio changed dramatically, both in loan type and

in volume, more than tripling to nearly 14 million customer loans.

We have undertaken a massive retooling of the servicing organization to address the needs of distressed homeowners. We have

built a new default management capability, new processes, new

technology, and a 60 percent increase in staffing to more than

18,000.

Bank of America has participated in more than 360 community

outreach events, opened assistance centers for in-person counseling, and gone door-to-door to help customers understand their options. We are also participating in the HOPE NOW loan portal so

housing counselors can directly submit completed customer applications.

There have definitely been rough spots and customers have experienced service that is very inconsistent with our standards. We

continue to learn and improve as we work through these difficult

times, never losing sight of the impact that foreclosure has on the

individual or the community.

Since HAMP launched in March 2009, Bank of America has built

momentum in the program. For the past 3 months, we have led

servicers in the number of completed modifications. Bank of America also became the first major loan servicer to begin implementing

the Treasury’s second lien program on April 1st. We took this step

to provide customers a more affordable combined monthly mortgage payment.

This March, we announced an industry leading principal reduction program for qualifying customers who owe significantly more

than their homes are worth. We began mailing offers May 17th to

provide immediate relief to those in the most imminent danger of

foreclosure. Treasury also announced a similar principal reduction

program that will be effective later this year, and we are working

to align our own program with theirs.

As we execute and evaluate programs that can expand HAMP’s

reach, it is vital to understand the current eligibility of delinquent

customers. Many customers do not and will not qualify for HAMP.

Within Bank of America’s servicing portfolio, 1.4 million first mortgage customers are more than 60 days delinquent on their mortgage payment. Of those customers, Treasury estimates that about

478,000 are potentially eligible for a modification through HAMP.

As of the end of May, Bank of America has mailed more than 1

million solicitations, made trial offers to over 400,000 customers,

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started active trials with more than 300,000 customers, and we

have 70,000 permanent modifications under HAMP.

As our results demonstrate, HAMP has been largely successful in

making offers to customers. However, getting customers to accept

the offers and complete the requirements to obtain a permanent

modification has been a challenge.

In April, Bank of America began HAMP process changes that

will require income and other documentation up front before the

trial period is started, and we believe these changes will improve

the trial to permanent conversion rate.

Still, given the depth and length of the recession, a considerable

number of customers will not be able to afford to stay in their

home. In these cases, we invite customers to consider short sales

or deeds in lieu programs to support a dignified transition from

homeownership to alternative housing. We inform customers about

these options as part of the HAMP decline process. For customers

who have not met the requirements of the trial period, they receive

letters that clearly state the reason for ineligibility. More than 40

percent of the declines we have mailed are because of missed payments in the trial period.

Bank of America provides a dedicated toll-free number for customers to appeal the decision, provide updated financial information or discuss other options. We will not complete a foreclosure

sale until the appeal period has expired.

Innovative solutions have been created to help customers sustain

homeownership, and Bank of America is committed to executing

those programs well. All of us at Bank of America, including the

thousands of associates who work on these issues every day, take

seriously our role in helping customers through this difficult cycle.

Thank you, and I will be pleased to take questions.

[The prepared statement of Ms. Desoer follows:]

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Chairman TOWNS. Thank you very much.

Mr. Friedman.

STATEMENT OF DAVID FRIEDMAN

Mr. FRIEDMAN. Chairman Towns, Ranking Member Issa, and

members of the committee, we at American Home appreciate the

committee’s consideration of the complex issues surroundings the

efforts of servicers to implement HAMP.

American Home Mortgage Servicing is a non-prime residential

loan servicer that does not own, originate nor have any interest in

any of the loans that we service. Our focus is on keeping borrowers

in their homes while balancing our obligation to provide continued

cash-flows to investors.

Contrary to popular opinion, servicers do not make money on

foreclosures. They benefit no one and are undertaken only as a last

resort when other foreclosure solutions are not available.

We aggressively pursue any reasonable modification opportunity

in the best interest of the investor through early intervention. All

troubled loans are routinely reviewed for HAMP or other loss mitigation workout consideration. Although we already have made

thorough solicitation efforts of our portfolio, we are again in the

process of resoliciting every borrower that has potential for HAMP

eligibility.

To assist borrowers in avoiding foreclosure, we have, among

other things, established a dedicated team of housing counselors

and trained our call center associates as to loss mitigation opportunities. We have invested in the development of improved proprietary information systems, built relationships with housing agencies, counseling agencies and housing alliances, participated extensively in outreach events, considered borrowers for proprietary

modifications in situations where we are unable to offer a HAMP

modification, and we have offered other foreclosure alternative solutions whenever a modification is not appropriate.

Several barriers remain, despite significant progress by the industry in the implementation of HAMP. Even with relaxed standards, the required underwriting documents are too burdensome.

Many borrowers are unable to provide these documents or simply

choose not to do so.

Servicers such as AHMSI who experience redefault rates that are

significantly less than industry averages should be allowed to rely

upon a proven, less stringent underwriting requirement. Many borrowers delay in responding to standard HAMP solicitations and

others are confused by program enhancements that are prematurely announced.

Frequent program changes have overtaxed servicer systems and

processes, and the newly announced HAMP principal reduction

program has increased the number of so-called strategic defaulters,

otherwise able borrowers who purposely stop paying on their mortgages to seek HAMP assistance. By failing to emphasize the necessity of a valid hardship, HAMP has not discouraged this type of behavior.

The HAMP program has experienced significant issues in converting trial period plans to permanent modifications. Many borrowers fail to make the required trial payments and now are perVerDate 11-MAY-2000 12:01 Feb 15, 2011 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\63041.TXT KATIE PsN: KATIE
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manently ineligible for HAMP. Many others failed to timely return

executed modification agreements, despite our extensive efforts to

collect those documents. Deficiencies in and complexities of the

HAMP reporting system, IR2, have made it difficult to officially report many permanent modifications.

Not all borrowers qualify for HAMP modification. The top three

factors for denial are the property is not the borrower’s primary

residence, the applicable securitization servicing documents restrict

or prohibit modifications, and the borrower failed to provide a complete underwriting package.

AHMSI has established an appeal process for HAMP denials and

an independent team reviews and confirms denials. Borrowers that

do not qualify for HAMP mod are reviewed to determine if other

proprietary home retention options will prevent foreclosure.

We maintain a robust complaint tracking and resolution process

that is dedicated to handling all borrower complaints. We take our

responsibilities under the HAMP program seriously. We have been

audited by MHA compliance twice. Each time there were no major

findings or enforcement actions.

HAMP compliance often imposes unnecessarily complex burdens

on servicers that divert resources away from more productive customer facing activities. While performance is improving, challenges

persist even as the program matures.

In conclusion, AHMSI is firmly committed to HAMP and to its

goals and standards. We are anxious to see the program succeed

and look forward to working with the Treasury and Congress to implement any needed improvements.

Thank you for your time.

[The prepared statement of Mr. Friedman follows:]

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Chairman TOWNS. Thank you very much.

Mr. Heid.

STATEMENT OF MICHAEL J. HEID

Mr. HEID. Chairman Towns, Ranking Member Issa, and members of the committee, I am Mike Heid, co-president of Wells Fargo

Home Mortgage. Thank you for the opportunity to share the results

Wells Fargo has achieved in assisting homeowners across America.

Because of the product choices we have made, our disciplined underwriting and the manner in which we approach foreclosure prevention, our delinquency and foreclosure rates in the first quarter

of 2010 were three-fourths of the industry average, and on an annual basis, less than 2 percent of our owner occupied servicing

portfolio has gone to foreclosure sale.

To begin with, just a few examples of the actions we have undertaken to achieve these results. Since January 2009 through May

2010, we have helped more than 2.2 million homeowners with new

low rate loans either to purchase a home or refinance their existing

mortgage. We have assisted about half a million loan customers

with trial or completed modifications, about one-fifth of which are

through the HAMP program.

We have assisted more than 100,000 unemployed customers with

short-term modifications. Starting in January 2009, several months

before the creation of HAMP, we led the industry by permanently

forgiving more than $3 billion in principal for more than 55,000

customers, which amounts to more than $50,000 per loan. We have

begun offering home payment relief to customers affected by the oil

spill in the Gulf Coast.

With respect to our loan modification efforts, while very difficult

to achieve, we believe we must continue to balance the needs and

interests of homeowners in financial distress with those who have

remained diligent in making their mortgage payments. While much

focus deservedly is directed to those consumers behind on their

payments, we cannot lose sight of the fact that about 92 percent

of Wells Fargo’s mortgage customers are current in their home payments as of the first quarter of 2010.

HAMP is a good option for people who meet certain criteria, but

it is only parts of the home retention story. By the Treasury Department’s own April 2010 estimates for Wells Fargo, only 3 of

every 10 customers 60 or more days past due on their home payments are potential candidates for HAMP. As a result, servicers

and investors have additional programs for the vast number of customers who are not eligible or likely will not qualify for HAMP.

Taking all of these programs into account, about two-thirds of

Wells Fargo’s customers more than 60 days behind on their home

payments are provided an option to prevent foreclosure.

Finally, with the benefit of hindsight, it is clear the industry was

not prepared for the significant number of customers that would

face financial hardships as the economy continued to become more

challenging.

Wells Fargo is not always consistent in providing the level of

service we expect to deliver to our customers, but over the past

year we have committed tremendous resources and believe we have

come a long way in providing and improving our service. For examVerDate 11-MAY-2000 12:01 Feb 15, 2011 Jkt 000000 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\63041.TXT KATIE PsN: KATIE
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ple, we have hired more than 10,000 people, for a total of 17,800

U.S.-based home preservation jobs.

By the end of this month, we will complete the process of assigning one person to manage one loan modification from beginning to

end. In other words, our customers will know exactly who they are

working with from start to finish.

We continue our work with other industry participants to accelerate the credit decision process setting a 5-day decision target

once all documents are in hand as compared to the HAMP standard of 30 days. We have invested in improvements in workflow systems and document imaging. We have participated in more than

300 home preservation events, including 10 large scale events solely for our customers, and established 27 home preservation centers

in six States where we have concentrations of at-risk customers.

We now give Wells Fargo home mortgage loan customers a short

sale decision in 5 to 15 days and we continue to have a dedicated

phone line for your staff to use in the event one of your constituents, our customer, has an issue that needs resolution.

In conclusion, Wells Fargo will continue to lead the industry in

further improving methods and programs to assist homeowners.

We believe very strongly and feel very deeply about our responsibility to help homeowners in a balanced and fair way, and we believe

our actions demonstrate our commitment to achieving this goal.

Thank you for your time today.

[The prepared statement of Mr. Heid follows:]

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

Mr. Lowman.

STATEMENT OF DAVID LOWMAN

Mr. LOWMAN. Chairman Towns, Ranking Member Issa, and

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

before you today. My name is Dave Lowman, and I am the chief

executive officer of home lending at JPMorgan Chase.

JPMorgan Chase shares your commitment to helping home owners and stabilizing our Nation’s housing market. At Chase, we are

working hard to help families meet their mortgage obligations and

keep them in their homes by making their payments affordable.

To date, we have helped prevent hundreds of thousands of foreclosures through our own proprietary modification programs,

HAMP, and other agency programs. In addition, we have refinanced nearly $21 billion of loans under HARP.

HAMP modification performance has been strong. At Chase, we

are now completing more than 10,000 permanent modifications per

month. On average, homeowners are seeing their monthly payments reduced by more than $530, an average payment reduction

of 28 percent.

We are also adopting and implementing the Federal Government’s Foreclosure Alternative Program and Second Lien Modification Program to help more borrowers. We actively use temporary

forbearance agreements for unemployed borrowers, similar to the

program recently announced by the administration.

You have asked us to focus our testimony on how we can make

foreclosure prevention initiatives, including HAMP, more effective

for borrowers.

From the beginning of 2009 through the end of May 2010, Chase

offered almost 850,000 modifications to struggling homeowners and

made 172,000 of these modifications permanent under HAMP and

other programs. HAMP is one of the tools we use to help these borrowers. Chase has offered HAMP trials to nearly 260,000 borrowers. Of these, 88,000 are in active HAMP trials and 48,000 have

converted to permanent modifications.

Our experience has demonstrated that HAMP loans with a

meaningful reduction in monthly payment perform very well. In

particular, once borrowers have successfully completed the 3-month

trial period, the loans redefault less frequently than we or Treasury predicted, even where the loan was previously delinquent or

has a high loan-to-value ratio.

We conduct extensive outreach and have made significant investments in people, technology, and infrastructure. In response to our

customers’ needs, we have developed more creative approaches to

reach borrowers in ways that work for them. We have opened 51

Chase Homeownership Centers in 15 States and the District of Columbia where 88,000 borrowers have met face-to-face with our

trained counselors.

On top of these efforts, we have also launched a national outreach tour of the nine cities where our customers need the most

help. Events on the tour last 4 to 5 days and are staffed over the

weekend, 12 hours a day, where we can help borrowers find soluVerDate 11-MAY-2000 12:01 Feb 15, 2011 Jkt 000000 PO 00000 Frm 00071 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\63041.TXT KATIE PsN: KATIE
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tions to the full range of challenges they face with their mortgages.

The customer response to these events has been very positive.

In total, nearly half of our entire staff at Chase are dedicated to

helping homeowners. 7,600 of them are loan counselors who deal

only with loan modifications for borrowers in financial difficulty.

There are several challenges in implementing HAMP. The biggest challenge is that HAMP was designed to help a specific population of borrowers. As illustrated in the Department of Treasury’s

recent report, only one-third of borrowers who are 60 days or more

past due are expected to be eligible for HAMP.

Now that income and other documentation are required up front

and we are no longer relying on stated income, we expect the conversion rate from trial to permanent mod to increase substantially.

Going forward, failure to make its required payment should be the

primary reason that someone does not convert from a trial plan to

a permanent modification.

Another challenge has been HAMP’s continuing evolution. There

are good reasons for the number of changes, but nonetheless, we

have had to adjust our systems and retrain our people as the program evolves. The evolution of the program has expanded the opportunities to keep people in their homes. We do not want to miss

an opportunity to help a borrower stay in their home, so we individually review each case and will extend the trial period in cases

where we think the borrower is likely to qualify for a permanent

modification.

It is also important to note that where borrowers are making

their payments in HAMP trial modifications, but may not ultimately qualify for a permanent HAMP modification, we believe we

are able to qualify those borrowers for other modification programs.

Let me touch on fair lending. Similar to our loan origination

business, Chase is committed to full compliance with the letter and

spirit of all fair lending laws and seeks to make available foreclosure prevention solutions to all borrowers, regardless of race, national origin, religion, age, gender, or any other prohibitive bias.

We are pleased to have this opportunity to share our progress

with you. We look forward to continuing to work with Members of

Congress, the administration, our banking regulators, and our community leaders in implementing these initiatives to help families

and to stabilize neighborhoods and the U.S. economy.

Thank you.

[The prepared statement of Mr. Lowman follows:]

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

Mr. Pinto.

STATEMENT OF EDWARD J. PINTO

Mr. PINTO. Chairman Towns and Ranking Member Issa, thank

you for the opportunity to testify today.

In discussing HAMP, it is useful to recall its original goals.

Those were to help as many as 3 to 4 million financially struggling

homeowners avoid foreclosure by modifying loans to a level that is

affordable for borrowers now and sustainable over the long term.

Second, to provide clear, consistent loan modification guidelines.

Third, to determine a borrower’s eligibility up front.

Last February, I testified before the Domestic Policy Subcommittee of this committee and advised that rather than avoiding 3 to

4 million foreclosures, HAMP at that juncture would likely help

just 250,000 homeowners stay in their homes without default. As

I will explain, it appears that my estimate from February was pretty close to the mark.

The success rate is so low due to government initiatives mandating looser underwriting standards dating back to the early 1990’s.

It is this legacy of government mandates for weak loans that

makes it so difficult to achieve successful modifications. A high default rate also works to keep HAMP’s total successful modifications

low. I expect that 40 percent of permanent modifications will redefault.

Treasury promised clear and consistent loan modification guidelines. There are only two words to describe HAMP’s guidelines,

‘‘numbing complexity.’’ At last count, HAMP had 800 requirements,

and servicers are expected to certify compliance.

Treasury also promised that a borrower’s eligibility would be determined up front. As was recently observed in the Wall Street

Journal, ‘‘Eager for results, the Obama administration last year

prodded banks to start people on trials without first obtaining documents proving they were eligible. That has led to many crushed

hopes.’’ Instead of a quick yes or no, homeowners were placed in

trial modification limbo.

Back in February, I indicated that HAMP’s January pipeline

would likely yield only 250,000 homeowners who would ultimately

avoid foreclosure under HAMP, only about 6 to 8 percent of the announced goal. HAMP activity has slowed markedly in the last few

months, with the number of new trial modifications declining by

two-thirds between December 2009 and May 2010. The number of

new permanent modifications last months was 30 percent below

April’s.

As of May 31, 2010, there were 340,000 active permanent modifications. Assuming a 40 percent default rate, only 200,000 of these

permanent modifications will likely be successful over the long

term.

There are another 468,000 active trial modifications. Of these,

perhaps only 75,000 will become successful long-term permanent

modifications. Discounting all the spin, the current HAMP pipeline

will yield about 275,000 successful long-term permanent modifications, with perhaps another 100,000 successes resulting from future trial modifications.

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Treasury’s many missteps with HAMP has had other repercussions. It encouraged strategic defaults, homeowners who are willing

to default when the value of their mortgage exceeds the value of

their home, even if they can afford to pay off their mortgage.

Researchers at the University of Chicago and Northwestern University found that the percentage of foreclosures that were perceived to be strategic was 31 percent in March 2010, and that is

up dramatically from the 22 percent in March 2009 when HAMP

started. With more and more borrowers believing that lenders are

failing to pursue those who default on their mortgages, there is a

risk that a growing number of borrowers will walk away from their

homes, even if they can afford the monthly payment.

HAMP has slowed down the foreclosure process, pushing the period of heightened foreclosure activity out to 2013 or 2014 and likely extending the time until the market corrects. But perhaps

HAMP’s greatest shortcoming is that it derailed burgeoning efforts

of the private sector to effectively modify loans.

The facts are in the Office of Comptroller of the Currency Mortgage Metrics Report that is produced quarterly. There are three

charts.

Chart one demonstrates that the private sector had been rapidly

ramping up its modification efforts in 2008 and 2009, and it was

when HAMP started that those efforts were derailed.

Chart two indicates that the private sector was having greater

and greater success in reducing the redefault rate on loans that

were being done outside the HAMP program.

Chart three demonstrates the slowdown and effective wind-down

of the HAMP program as new trial modifications have fallen off

precipitously, and now the number of permanent mods has also

started dropping.

The committee should ask the Treasury Department, where are

the modifications that, but for HAMP, the private sector was on

track to produce? This committee and the American people deserve

an honest assessment as to HAMP’s future.

Thank you, and I would be happy to answer questions at the appropriate time.

[The prepared statement of Mr. Pinto follows:]

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Chairman TOWNS. Thank you very much. Let me begin by thanking all of you for your testimony.

I guess the question is, why haven’t there been more permanent

mortgage modifications? What is the problem? Just quickly right

down the line, start with you, Mr. Das. Why do you think there

hasn’t been more? Is it a lack of money? What is the problem?

Mr. DAS. Chairman Towns, as we all collectively mentioned, we

have put an enormous amount of resources to make sure that we

opened this up to as many trial modifications as possible based on

stated income, as opposed to verified income. So we really opened

the door to as many people as we could. We——

Chairman TOWNS. How long should it take for the trial modification?

Mr. DAS. I’m sorry?

Chairman TOWNS. How long should that take? Trial modification,

how long should it take?

Mr. DAS. It takes Citi about 4 months, which happens to be

amongst the fastest in the industry. But I don’t believe—we have

three trial payments, and then that converts to a modification, a

permanent modification, after that.

But to answer your question, Chairman, I believe that the reason

the permanent mods are not as high as we would expect them to

be is because, in many cases, the documents that actually come in

don’t match with what was stated at the time of the trial modification, and many borrowers were not able to make the trial payments. Those have been, I would say, the two principal reasons for

the fallout.

Chairman TOWNS. Ms. Desoer.

Ms. DESOER. Under the HAMP program, the primary reason is

40 percent of the borrowers who have been in a trial modification

have failed to make a payment. And I think that is reflective of the

ongoing stress of the economy on those borrowers.

And I think it is important to look at the number of permanent

modifications holistically. And when you look at our number,

HAMP is a small number of a much larger total of the 630,000

modifications, to understand that it’s one of many tools that we use

for borrowers.

Chairman TOWNS. Mr. Friedman, same question to you.

Mr. FRIEDMAN. In our particular situation, we service a lot of

loans that just don’t qualify under the HAMP guidelines, such as

a conforming loan or nonconforming loans. We may have certain restrictions under servicer guidelines.

But the vast majority of the real issue is really that we are still

limited under this 31 percent debt-to-income test and the fact that,

in our particular book of business, the borrower must occupy the

property as their principal place of residence.

And then, also, the documentation issue. Now, we initially up

front had done always verification and requested documents up

front. So once we’ve got a borrower into a plan, we have a very

high conversion rate. But, again, a lot of this is on the borrower

side, as well, or the complexities of the program itself.

Mr. HEID. What I would like to add is, I think context is important here. When you think about the half a million mods Wells

Fargo has done, about 80 percent of those are outside of the HAMP

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program, and the vast majority of those are permanent mods already or on their way to becoming permanent mods.

Inside the HAMP program, inside the 20 percent, the primary

factors in terms of converting from trial to permanent are the same

Treasury quoted in their report: lack of documentation because of

the stated income programs of last summer. That has since

changed. Once documents are received, customers are not eligible

for the program and, therefore, go through a cancellation phase,

and you typically get a modification outside of the HAMP program.

And then, finally, customers that just don’t make the three trial

payments within the HAMP program itself are the three primary

HAMP factors.

But I would encourage you to continue to keep focus on the fact

that the vast majority of mods getting done are happening outside

of the HAMP program itself.

Chairman TOWNS. Mr. Lowman, real quick.

Mr. LOWMAN. Just echoing the same thing that my compatriots

here have spoken about. Missed payments and no documents returned from borrowers are the major reasons why modifications

don’t get completed. About a third of those that do give us documents and do, in fact, make the payments, a third of the total population ultimately end up in a mod.

Chairman TOWNS. When you say you don’t get the documents, I

mean, is it a lack of communication? Because a person——

Mr. LOWMAN. We’ve made extensive refinements in our process,

including communicating with borrowers and, you know, writing

letters and knocking on doors and what have you. That process, obviously, has evolved over time. I would say at the beginning of the

program that may have been the case, but I would say now we are

equipped to adequately communicate with borrowers.

Chairman TOWNS. Is communication a problem here? Just very

quickly, yea, nay, could you sort of tell me?

Mr. DAS. Mr. Chairman, I believe that the issue is actually, as

you sort of analyzed the contact rates, it seems to us that at late

a stage of delinquency a lot of customers have a very low contact

rate, primarily because they may have checked out from the process. So this means early intervention is really critical.

Chairman TOWNS. Yeah. Is there anything that we need to do?

Because, you know, people are losing their homes, and I just can’t

see, if a person is losing his or her house, that they are not going

to cooperate in terms of documentation. Because, I mean, they are

asking for help. And that is the part I don’t quite understand.

Mr. HEID. Maybe a couple of examples might help.

I think there is a lot going on when a customer is in fear of losing their home. And we are doing everything we possibly can to

make sure that doesn’t happen. A couple of the documents that are

troublesome is that the HAMP program does require a tax return.

I think that conjures up fears, you know, will that trigger an IRS

audit? Those kinds of things are very real in people’s minds.

The HAMP modification agreement itself is a very intimidatinglooking piece of paper. It’s five pages, single-spaced, very intimidating, very scary kind of process, that I think people are reluctant

or fearful to—you know, what else might happen here?

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So I don’t think it’s the communication between servicer and

homeowner that is at issue here. I don’t think there are additional

things that you should and can do. I think this is really now a matter of working very diligently and very hard with every single customer to make sure that foreclosure does not happen.

Chairman TOWNS. I now yield 5 minutes to the gentleman from

Ohio, Mr. Jordan.

Mr. JORDAN. Thank you, Mr. Chairman.

HAMP, I think, has not only failed to help people, it has actually

harmed families, I think in two ways. One is the comments that

the Wall Street Journal had and I related to in my opening statement: the false hope it gave people who were in the temporary or

trial modification program, were never qualified, and the financial

implications of going through that process or part of that process.

I also think, second, the point Mr. Pinto raised; I think his quote

was, ‘‘It derailed private-sector efforts to help.’’

So I think in two ways it’s been, not just a failure to help, but

also potentially cause harm to the very families who were trying

to get the help and who we are trying to provide help to.

The numbers you all gave, I have 900,000 for Citi; 600,000 for

Bank of America; 135,000 for Home Mortgage Service, Inc.; 500,000

for Wells Fargo; and 846,000 for JPMorgan. Of those numbers, I’m

going to go down the list, 900,000 modifications you have made.

What number of those are HAMP modifications? I took that as

being all, the big number.

Mr. DAS. Yes. Since 2007, we have helped 900,000

homeowners——

Mr. JORDAN. Right. What percentage have been HAMP, or what’s

the number for HAMP?

Mr. DAS. Well, recently, we offered HAMP mods to 150,000 customers, and, out of that, about 30-odd-thousand have taken HAMP.

Mr. JORDAN. Thirty-eight?

Mr. DAS. 30,000, 35,000.

Mr. JORDAN. Small percentage.

Mr. DAS. Yes.

Mr. JORDAN. Go to Bank of America.

Ms. DESOER. 630,000 in permanent modifications since 2008;

70,000 of them are HAMP.

Mr. FRIEDMAN. We have reported out about 8,800, and we have

about 16,000 currently in trial periods.

Mr. JORDAN. And permanent?

Mr. FRIEDMAN. For permanent—the 88 is reported out as permanent, 8,800.

Mr. JORDAN. 8,000 out of 135,000 modifications.

Wells Fargo?

Mr. HEID. We’ve got 500,000 mods, trials and permanents. Twenty percent of them are inside of HAMP. And inside of HAMP, there

are probably 45,000 in trial yet, probably 40,000, 45,000 or so in

permanent, so a total of about——

Mr. JORDAN. Less than 10 percent; 10 percent has kind of been

the norm.

Go ahead.

Mr. LOWMAN. 257,000 in HAMP, of our 846,000.

Mr. JORDAN. How many are permanent?

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Mr. LOWMAN. Permanent, 47,000.

Mr. JORDAN. So, again, very small number. We’re talking less

than 10 percent.

Here is the question. I think we’ll just cut to the chase. The people who qualified for HAMP went through this cumbersome process, 800 different rules, 15 sets of guidelines, all this stuff they had

to go through. Mr. Heid just described the intimidating process

they had to go through.

Of the folks in the HAMP, the 47,000, the small number that

you—how many of those—or let’s ask it this way. The people who

qualified for HAMP, were any of those not qualified for your own

modification program?

Mr. DAS. Let’s put it this way. For the people that fell out of

HAMP, we were able to save about 15 percent more.

Mr. JORDAN. So the ones who wouldn’t qualify for HAMP you

were able to help?

Mr. DAS. Yes.

Mr. JORDAN. And it’s working.

Mr. DAS. And it’s working.

Mr. JORDAN. All right.

Ms. DESOER. I can’t tell an exact number, but the potential does

exist because of the Treasury incentives, that it enabled it to make

more sense for the investor to be a HAMP modification. But I think

many of them would have qualified.

Mr. JORDAN. Many?

Ms. DESOER. Many. But I don’t know the exact number.

Mr. JORDAN. Mr. Friedman.

Mr. FRIEDMAN. About two-thirds would qualify for proprietary

mod.

Mr. JORDAN. Two-thirds of the permanent—I mean, what’s the

number.

Mr. FRIEDMAN. The question, I believe, was, of the HAMP participants, how many would have qualified under a proprietary

modification program? And about two-thirds of those would have.

Mr. JORDAN. Let me ask it more specifically. Of those in HAMP

who got into permanent status in HAMP, would any of those not

have gotten into permanent status with one of your programs.

Mr. FRIEDMAN. Only those who would be limited by certain investor concerns under our pooling and servicing agreement. So it

would be a small amount.

Mr. HEID. I think a timestamp on this is important. If the issue

is right now, I think right now, with all the programs available, the

majority of customers that get a HAMP would probably get a nonHAMP. I don’t have an exact number.

To the other point about customers that are canceling out of

HAMP, Treasury provided some statistics on that earlier in the

week. In Wells Fargo’s case, somewhere between 70 and 80 percent

of the HAMP cancelations are resulting in some other form of saving the home or avoiding foreclosure.

Mr. JORDAN. Mr. Lowman.

Mr. LOWMAN. Most would qualify for the proprietary program.

Mr. JORDAN. So, I mean, here we are. We got a program that has promised $75 billion, 3 to 4 million folks it was going to help. It

has helped 346,000, to date, to get into permanent. And yet, the

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vast majority of those who made it into the permanent would have

made it in one of your own modification programs without putting

taxpayer money—without this big government hassle and mess.

And then those who got kicked out, we are also finding out the majority of them you could have helped.

Mr. Pinto, I know you want to weight in on this. We’ve got 30

seconds. Go ahead.

Mr. PINTO. I will just add one fact. About 60 percent of all HAMP

mods are Fannie/Freddie. So this issue of—yes, there are some investors outside of that, but Fannie and Freddie is the majority of

it. And, of course, they don’t need to be paid an incentive to do

what they need to do.

Mr. JORDAN. Great point.

Mr. Chairman, I think this points out—well, I think it is obvious

what it points out.

I yield back.

Mr. CUMMINGS [presiding]. The gentleman’s time has expired.

Let me just go to—Ms. Speier, when she was here, she said

something that I agree with. You know, HAMP is fine, but my constituents want to have some kind of relief. And so, whatever it

takes to accomplish that, that is what we are trying to do.

In my district, we hold what we call foreclosure prevention conferences. We have done 15 of them—four of them so far. We just

did one about a week ago. And as I listened to your testimony, I

understand better now why we are able to save at least two-thirds

of people’s houses.

And a lot of it goes to, when you talk about documents, what we

found in our office is that, a lot of times, it is an intimidating process with regard to these applications. And we have two people on

our staff and basically what they do almost full-time is help people

with foreclosure because it is a difficult—it is not the easiest of

processes.

So I want to go to you all and just ask the question—you say

that one of the reasons why it’s so difficult and people stay in the

temporary phase is because they are not getting the proper documents in and they are not turning in the way they are supposed

to. Well, what we have found is that, be it HAMP or anything else,

that a lot of times the mortgage companies are understaffed. I

mean, and I can tell you that for a fact. Now, it has gotten better.

And so, when people would call in, first of all, they couldn’t get

anybody on the phone. Then, if they got somebody on the phone,

they got the runaround. And then, if they got somebody and was

able to avoid the runaround, then the paperwork got all mixed up.

And I have seen instances where paperwork has been sent to the

mortgage company four or five times, and then the mortgage companies, some of the same companies sitting here now, have said to

my people—and I know this for a fact—that they never got it. And

we have actually sent paperwork from our office.

So I want to know what you all have done with regard to staffing—that is, training staff. It’s one thing to have staff; it’s another

thing to have staff that is properly trained. And what have you

done with regard—it seems like you’re saying that, in order for

people to move from a temporary to a permanent, it seems like paperwork is one of the main things that is holding them up.

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And I heard, I think you, Ms. Desoer, say that some of these people are not making payments during the temporary stage. I think

was it you who said 40 percent? See, we don’t find that to be the

case. We find people that want to make the payments. And we

have actually found a lot of people who have made payments and

then the mortgage company told them they didn’t make payments.

And, literally, my staff would have the copy of the check or the

money order in their hand. So, you know, there is a disconnect

here.

So the question is—I’ll start with you, Mr. Heid, since I’m kind

of familiar with Wells Fargo. Why don’t you tell us what you all

are doing with regard to that staffing? And have you found that to

be something of significance? And if you did staff up, how did it affect the operation and your results?

Mr. HEID. Sure. I think your criticism is very fair a year ago. We

were not where we should have been a year ago. We have made

a lot of progress in the course of the last year. We have attended

your events, we have created our own events as ways to gather the

documents.

And I think, most importantly, what we have implemented—and

by the end of the month, we will be done—is our one-to-one approach, where every single customer will know exactly who they

are working with and everybody on our side knows exactly which

customers they are accountable for in a one-to-one way. In order

to get there, we have added more than 10,000 people over the

course of the last year.

Mr. CUMMINGS. It’s kind of expensive, huh?

Mr. HEID. I’m sorry?

Mr. CUMMINGS. Kind of expensive.

Mr. HEID. Yes, it is.

Mr. CUMMINGS. Would you all rather see somebody stay in a

house than be foreclosed upon?

Mr. HEID. Absolutely.

Mr. CUMMINGS. And why is that?

Mr. HEID. I mean, foreclosure is the absolute last resort. I mean,

a lot of reasons. I mean, one, it’s the right thing to do. Beyond the

right thing to do, economically, it is always in the investors’ interest, our shareholders’ interest, the community interest, customer

interest, to do everything you possibly can to keep the customer in

the home or find an alternative to foreclosure.

I think every one of us sitting at the table would completely say

to you, foreclosure is absolutely the last resort.

Mr. CUMMINGS. Chairman Towns and I sit on the conference

committee for Wall Street reform, and there was an amendment

yesterday to make sure that there was a revolving loan fund for

$3 billion to help people who may have lost their jobs.

Every single Republican voted against it—every single one of

them. And I heard some of them say a little bit earlier that they

were concerned that not enough was being done by Congress. Fortunately, it passed on the House side in the conference.

But I see my time is up, and perhaps I can get some answers

to whether you all believe such a thing is very important later.

Mr. Turner.

Mr. TURNER. Thank you, Mr. Chairman.

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Thank you for all being here, and thank you for being so helpful

in your answers. Because, as you know, we are all struggling and

trying to figure this out. And, as we are trying to figure it out, you

have specific expertise, not just in your view of the government

program, but in the issue of what is happening in the market, what

is happening with homeowners, and what needs to be done. So I

appreciate that you have been so forthcoming.

As I said in my opening, you know, Treasury Secretary Geithner

yesterday, when appearing before the congressional oversight

panel, said about HAMP, ‘‘This program was not designed to prevent foreclosures. It was not designed to sustain homeownership at

a level that would be unacceptable, imprudent to try and do.’’

He was then asked about the homeownership rate level, what

would it be, what would be a market-efficient number. Someone offered 65 percent, and he tended to agree that was an objective.

Reuters relates his statement as, ‘‘Geithner said he agreed with

the assessment that housing will only stabilize as more homeowners become renters again.’’

Do you guys agree with that? Do you agree with our Treasury

Secretary that our market will only stabilize as more homeowners

become renters? Because that seems contrary to what our whole

goal was here, in trying to stabilize homeowners in their home.

Mr. Das, I will start with you.

Mr. DAS. Congressman, I’m not qualified to answer the Treasury

Secretary’s response.

But I will say that, when we focused on HAMP as an industry,

we wanted to create a great uniform baseline across the country.

There was no baseline modification. There were all kinds of proprietary programs. So, in the last year, HAMP has done—we have

done a great deal with respect to HAMP to get to a uniform baseline.

However, there will be fallouts and there will be re-defaults. And

I believe that the issue needs to move—the focus needs to move beyond modifications to foreclosure prevention. And I believe that

short sales and deeds in lieus are the programs that we should

really focus on. And I believe that is where——

Mr. TURNER. Ms. Desoer, do you believe more people need to be

renters?

Ms. DESOER. The HAMP program and other modification programs are primarily built to ensure that the payment is affordable.

And what HAMP has done is set a new standard for the industry

at that 31 percent debt-to-income ratio of the mortgage, taxes, insurance, homeowners association, to income. And in that spirit,

there are a large number of people who would not qualify.

And I agree that, at some point, if they can’t afford to sustain

a mortgage payment at a level commensurate with their income,

then they do need to move on to alternative kinds of housing. And

that is what short sales and deed in lieu and other programs are

attempting. And we are working hard to ensure that there is a dignified transition as an alternative to——

Mr. TURNER. The comment the Treasury Secretary made, which

is why I’m asking the question—and I disagree with the Treasury

Secretary—is that, it is not that he is talking about the individual

decision of a homeowner as a borrower who finds himself in an unVerDate 11-MAY-2000 12:01 Feb 15, 2011 Jkt 000000 PO 00000 Frm 00099 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\63041.TXT KATIE PsN: KATIE
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tenable debt position and then must make the choice of leaving the

home, surrendering it, going through, then, the process of becoming

a renter. He is actually saying that, for housing prices to stabilize,

that he personally believes that more homeowners should become

renters, according to Reuters. And that seems contrary to this program.

And, of course, he characterizes it here as, ‘‘This program was

not designed to prevent foreclosures,’’ which I could have sworn

that’s what President Obama said it was supposed to do.

Mr. Friedman, what do you think about more people becoming

renters?

Mr. FRIEDMAN. Well, again, you know, I wasn’t around the Secretary when he made the comment, but, I mean, I do believe it is

a fact that not all homeowners can afford their mortgage payment.

And, as a result, like many of us, if you spend too much money on

something, you have to cut something else out. And I think, you

know, that could very well be what he meant.

I think, as a general policy, I think homeownership is a great

thing if people don’t get greedy and they can then pay their mortgage and can afford all those things that go along with homeownership.

Mr. TURNER. Well, one other thing I want to add, because my

time is expiring, is that, in listening to all of your testimonies

about how you have been approaching homeowners, I can tell you

that the anecdotal stories that we hear from realtors, from nonprofits that are trying to assist homeowners, is that the loan

servicers are not responsive; that, in fact, it is an incredibly difficult process even when you have a social worker that is sitting,

guiding someone through the process; that, in fact, you are making

decisions that don’t follow the market; that, when there are short

sales that are offered, that, in fact, you allow the loans to go to

foreclosure.

And I wanted to say, Mr. Chairman, I think one thing that would

be really helpful is to have, not a panel of loan servicers, but have

loan servicers on one side of the room and have realtors and nonprofits that are helping people on one side of the room, and let

these two people go at it. Because we are hearing a different story

than you’re telling us today.

Mr. CUMMINGS. The gentleman’s time has expired.

Mr. Kucinich.

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

To the gentlemen and gentlelady at the table, each of you represents lenders or agents of lenders who would not exist in their

current form but for the beneficence of the U.S. taxpayer. And I remind each of you that, without the continued support of the American taxpayer, there would be virtually zero residential housing

market activity.

The issue before us today is, why in the world aren’t you giving

loan modifications to more eligible borrowers? Why are you denying

loan modifications to my constituents, in spite of the fact that we

have a Federal program which pays you, the mortgage holders, an

incentive to modify the terms of the mortgages and compensates

you for many of your costs? I would like to hear some justification.

Mr. Lowman, do you want to respond?

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Mr. LOWMAN. Yeah. We are helping all the people that come to

us and that we contact. We have made extensive investments in

people, systems, infrastructure.

The folks that don’t get a modification, it’s generally for two reasons: Either they failed to pay us during the trial period or they

don’t qualify for the programs. Maybe their income isn’t enough to

afford a home, or they don’t provide the required documents.

Mr. KUCINICH. OK. Well, let me just share this with you. At the

end of May, my State of Ohio had 136,910 seriously delinquent

loans, and only 12.95 percent of those loans have been modified. So

here is Ohio, it is 42nd out of 51, including the District of Columbia, in the ratio of HAMP modifications to seriously delinquent

loans.

Now, in early May, I held an open meeting in my district with

Treasury Assistant Secretary Allison. And in that meeting, I want

you to know, Mr. Lowman, that in Cleveland, OH, I heard from numerous advocates and homeowners that your bank is the most difficult one to deal with, when it comes to loan modification. Over

and over, I have heard that Chase has been especially slow to process paperwork. I have heard that Chase denies borrowers modifications without supplying a reason. I have heard that Chase leaves

borrowers facing foreclosure in limbo.

Now, of the four largest mortgage servicers, all of which are represented here today, why is the average length of trial modification

for Chase mortgagers nearly 71⁄2 months, Mr. Lowman?

Mr. LOWMAN. As we have mentioned, all of us have mentioned,

the resource needs for this program have outstripped our ability to

have the right number of people in seats performing the functions.

We have——

Mr. KUCINICH. So you’re saying you don’t have enough people to

handle the program?

Mr. LOWMAN. We have historically not had enough people to handle the demand for the program. We were one of the first out of

the box when the HAMP program was announced, and we started

accepting applications——

Mr. KUCINICH. Here’s what I don’t—excuse me, because I have

limited time here. I’m sorry to interrupt you.

The program has been going on for 19 months.

Mr. LOWMAN. That’s correct. And we——

Mr. KUCINICH. Now, it seems to me——

Mr. LOWMAN [continuing]. Have hired thousands of people in

those periods.

Mr. KUCINICH. I understand. It seems to me, you know the demand. Your performance is very weak. If you know there is a demand and you’re getting incentivized anyhow from the taxpayers,

see, I just wonder how hard you’re really trying. That is the concern that I have.

And when I get reports from my own constituents that you’re denying modifications without supplying a reason and you’re leaving

borrowers facing foreclosure in limbo, your explanation doesn’t cut

it.

Mr. LOWMAN. We have increased our staff. We have invested in

our systems. We have, historically, had a backlog of loans that are

in trial, and now we are literally looking at every loan that is in

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a trial, beyond its original trial period, looking at it loan by loan,

making sure that we don’t leave any stones unturned to give folks

a modification. And——

Mr. KUCINICH. What do I tell my constituents when they tell me

Chase won’t work with them?

Mr. LOWMAN. They should call the 1–800 number.

Mr. KUCINICH. Should I call the 1–800 number? Is there a number I can call you, Mr. Lowman?

Mr. LOWMAN. Absolutely, there is.

Mr. KUCINICH. On behalf of my constituents?

Mr. LOWMAN. Yes.

Mr. KUCINICH. OK. We will chat afterwards.

Mr. LOWMAN. Yeah, absolutely. I’d be happy to do it.

Mr. KUCINICH. I want to help you do more and do better.

Mr. LOWMAN. We have a number that I can put on the record,

1–800–335–0123, for anybody who has constituent complaints. I’d

be happy to personally deal with them.

Mr. KUCINICH. I just want to make sure, Mr. Chairman, it’s not

like those bumper stickers that say, ‘‘You like my driving? Call 1–

800—‘‘

Mr. CUMMINGS. The gentleman’s time has expired.

Mr. Duncan.

Mr. DUNCAN. Well, thank you, Mr. Chairman.

We have a memo that says more borrowers have been kicked out

of HAMP than have received permanent modifications. Cumulatively, HAMP has now placed 346,000 borrowers in permanent

mortgage modifications, but this is overshadowed by the fact that

429,000 temporary modifications and 6,300 permanent modifications have been canceled.

But I’m now told also that the Fitch ratings service recently

came out and said that they estimated that 75 percent of those permanent modifications will ultimately default. And then I’m also

told that TARP set aside $75 billion for this program but only $30

million to $40 million has been paid out in the first year and a

half.

At that rate, it would take 200 years, roughly, I guess, to get all

this money out, which it seems to me ridiculous that they have set

aside that much money for what it now appears to be a failed or

failing program. Because I just heard, in response to questions

from Chairman Jordan, that only about 10 to 20 percent of your

loan modifications are under HAMP in the first place.

And we were told before the hearing, and my understanding is

now that has been confirmed here by most of you, that almost all

of these modifications under HAMP you would have tried to work

out through your own private modification programs.

So I don’t believe I have ever heard of a program that is doing

less or working in a worse way, just about.

And I’m wondering if any of you would dispute what Mr. Pinto

said when he estimated that HAMP will ultimately need only 6 to

8 percent of its original goal. And he used the words ‘‘numbing

complexity.’’ Do any of you dispute that estimate, that very pessimistic estimate that he has presented here today? Or would any of

you dispute his description of the requirements as being ‘‘numbing

complexity?’’

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Mr. DAS. Congressman, I’m not sure that I would use that

phrase to describe HAMP. I believe that we all stood behind HAMP

and created it together, along with the Treasury Department. We

wanted to make sure that we had one uniform program, and we

really focused on scale on that program. And I think it’s important

for us to understand that we all collectively got behind this problem and focused on scale. Last year, it wasn’t the case.

More importantly, we got the GSEs to come behind the program.

And all our loss mitigators now had one program that they had to

deal with, as opposed to nuanced proprietary programs. So I believe that HAMP worked and worked in scale when it needed to.

However, I believe there is a part B to that, which is that this

problem is moving. It’s moving forward. And I believe that we now

need to focus on the fallout from HAMP, we need to focus on redefaults, and we really need to focus on a targeted foreclosure-prevention program.

So HAMP needs to evolve, no question, but I think that it served

its purpose when it did. And I want to applaud my colleagues for

having tried as hard as they did, along with ourselves, in scaling

what was an important response to homeowners at the time.

Mr. DUNCAN. Any other comments?

Ms. DESOER. If I may, I’d just add one other thing. That is, before HAMP, there was—I think one of the significant advantages

of HAMP has been the establishment of standards. And, in particular, the debt-to-income ratio that was used even on our proprietary

programs prior to HAMP was higher than the 31 percent.

And to establish that as a standard that is usual and customary,

so that where we have the ability to work on behalf of investors

we can do so, has enabled the results we do have with HAMP, but,

equally importantly, the results that we do have in our proprietary

programs, as well. So that is a significant advantage.

Mr. DUNCAN. Of course, if it was working the way it should, your

companies would stand to make a lot of money out of it and become

government contractors, at least to the extent for this program.

Thanks very much.

Mr. ISSA. Would the gentleman yield?

Mr. DUNCAN. Yes, yes, I’d yield.

Mr. ISSA. Following up on that, ma’am, if you, in fact, had the

higher debt-to-income ratio, in other words, if Treasury had effectively set it at 45, 55, wouldn’t you have more loans going out

today?

I will ask on my own time. I’m sorry. Go ahead.

Mr. CUMMINGS. The gentleman’s time has expired.

Mr. Lynch.

Mr. LYNCH. Thank you, Mr. Chairman.

I want to thank the witnesses for their willingness to come and

help us.

I have to ask, in my State we have seen the number of foreclosures double this past month, month of May 2010, compared to

the month of May 2009. It has actually gone up 120 percent.

And, unlike when this housing crisis first struck and we saw a

lot of subprime mortgages out there and poor product and maybe

people who were in homes that they couldn’t afford, now we see the

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greatest correlation is unemployment with people not being able to

stay in their homes.

And I’m wondering if this tool that we initially came up with, the

HAMP program, is the right tool to deal with that type of problem.

Because if someone is out of work and there is not the stream of

income to support a mortgage, it doesn’t matter how you design it

or how you modify it, if there is no income to support that mortgage, it’s going to end up in foreclosure.

And so, I’m fearful—I see how this is all working out. I see all

the attempts you’re making. I also see about 440,000 people who

were kicked out of the HAMP program, the trial program, because

you could not verify income. So what I’m afraid of was happening

here, under TARP, which created the HAMP program, which I

voted against because I did not approve of the bailout for the Wall

Street banks, under this program, you’re being paid an awful lot

of money to process these attempted modifications, these trials.

But after you do all this work, which you’re being paid for by taxpayer money, I see 434,000 people kicked out of the program. So

their foreclosures were delayed for a little bit. And it allowed you

to be paid for that attempt. But, at the end of the day, the taxpayer

money is spent by your firms because 50 percent of the secondmortgage market is sitting at that table right there, 50 percent of

the national second liens.

So I just think this is, sort of, insult to injury. We are spending

all this money on the program. It is accruing to your benefit in a

significant way. The taxpayer is being hurt, and the homeowners

are not being helped in a significant way. And I understand the dynamic that is out there now, it is just different, because we have

all these people who are unemployed. And, in some cases, you can’t

modify that because there is nothing to support it, no income

stream.

But let me ask you straight up, do you think this program should

be continued beyond October? We only have a few months left here.

There have been very few people helped by this program. But, as

the folks that are administering this and seeing how many people

are being helped and how much money is being spent here, do you

think this program should be extended come October, given the fact

that we still have streams and streams of foreclosures coming down

the pike?

Mr. Das.

Mr. DAS. Yes, sir, I believe that the short answer is that I believe

that this program should be continued. As I have said before, this

program provided a great baseline and a uniform baseline. If we

didn’t have all of the GSEs and all of the banks participating in

this program in a uniform way, there could be a lot of consumer

confusion, as we saw in the beginning of last year.

I would, however, submit that this program needs to be enhanced. As you rightly pointed out, Congressman, unemployment is

a big issue. And not being able to have a sustainable income

stream to make the payment will cost——

Mr. LYNCH. Mr. Das, I only have a little bit of time, and I just

wanted to find out if you wanted the program to be continued.

Mr. DAS. Yes, sir.

Mr. LYNCH. Ms. Desoer.

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Ms. DESOER. If I could, just one clarification: We are only paid

as a servicer at the time of the permanent modification, not during

the trial period.

And I do believe the program should be extended to allow the

new components of the program, the second lien program, the

Home Affordable Foreclosure Alternative short sale program, as

well as the unemployment and principal forgiveness components of

it, should be allowed to play out to determine if that can help more

borrowers stay in their homes.

Mr. LYNCH. Thank you.

Mr. Friedman.

Mr. FRIEDMAN. Yeah, I think it should be continued now, especially in light that the program—now you’re verifying items up

front. So I think that will actually help see much more positive results out of the program.

Mr. LYNCH. Mr. Heid.

Mr. HEID. And I would add, for the 80 percent of the mods that

are happening outside the program, there is no government payment of any kind.

As far as your question on the program itself, I would continue

it. I would finish the enhancements already made. I would not expand it.

Mr. LYNCH. OK.

Mr. Lowman.

Mr. LOWMAN. Yes, it should continue.

Mr. LYNCH. Mr. Pinto.

Mr. PINTO. I would not. And if you do continue it, I would ask

Treasury to provide very clear information, which they promised

many, many months ago, about re-default rates. They have published virtually no information about re-defaults.

There is a benchmark for that, and I mentioned it in my testimony, the Mortgage Metrics Report. You need to know how this

program is doing compared to the way OCC has been tracking, for

18 months, modifications.

Mr. LYNCH. Thank you, sir.

Mr. Chairman, I yield back. Thank you.

Chairman TOWNS [presiding]. I thank the gentleman.

I now yield 5 minutes to the gentleman from California, the

ranking member, Congressman Issa.

Mr. ISSA. Thank you, Mr. Chairman.

And before I begin, I think we have both heard enough to know

that we need to have Treasury back here well before the October

end, to talk about lessons learned and, if there is to be any modification extension, to get to us sooner rather than later. Wouldn’t

you agree?

Chairman TOWNS. Well, you know, we have had Treasury in

here. I mean, so it’s not something that we have not done. You

know, I think there are a lot of questions that should be raised

even with people that are involved in terms of with the servicers.

Because, you know, let’s give you the classic example, and then I

am going to let you regain your time. I will take this off of my time

in some kind of way.

You have people that were put into mortgages, I mean, by folks

that are no longer, probably, working for the bank now. They are

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gone somewhere else. And then now they are coming in. You know,

what happens to them?

There are a lot of things that, you know—I think we need to

spend time now talking with the servicers and people who have experienced these things. People probably got fired because they put

people into mortgages that they knew that they shouldn’t have

gone into. I think these are some of the questions that we need to

get answered before we even deal with anybody else.

On that note, I want you to know I did not take it off of your

time.

Mr. ISSA. I thank the gentleman. Thank you, Mr. Chairman.

Thank you for giving us this opportunity today.

Ms. Desoer, I had previously asked you about the fact that a new

level of income to debt had been established. Prior to that time,

well, certainly with stated income, often called ‘‘liar loans’’ and so

on, somebody could have 100 percent actual income to debt, but

certainly many people, in your experience, had much higher ratios,

45, 50 percent, relying on two incomes at their highest level. Isn’t

that true?

Ms. DESOER. That’s correct. There were higher incomes in the

origination side of the——

Mr. ISSA. So when we look at failures, and backward-looking, an

artificially high ability to make a loan, often to flip it to government programs, Freddie and Fannie and so on, but allowing a

much higher ratio was part of the situation. Because if there was

any hiccup in the income or if it didn’t appreciate and they weren’t

able to pull money out, ultimately there was a problem we were

heading toward, now that you have the opportunity to look back at

what happened starting in, in the case of Mr. Kucinich’s district,

in 2006, but in the case of other districts, a little later.

Isn’t that right?

Ms. DESOER. Yes. The programs are intended when there is a

hardship, which means that income has been disrupted, to then revamp the mortgage payments to be more affordable tied to that income.

Mr. ISSA. Right. So at 31 percent, is this the right number, going

forward? When I was a kid, it was lower. Twenty-five percent

would have been a stretch, in many cases.

What would you say the right number is in order to have enough

cushion for normal ups and downs of income and so on and still

be able to stay in your home and meet your mortgage?

Ms. DESOER. I believe the 31 percent ratio is appropriate but not

for everyone. And, in particular, when you look at a low-income

household, 31 percent probably is still high. So we have been recommending to Treasury that they consider lowering that for certain categories of borrowers. And, on a proprietary basis, we are

looking at the same thing.

Mr. ISSA. OK. Well, I think that’s certainly good judgment and

something that I don’t think is partisan here.

Let me ask one question to all of you. If we had known 10 years

ago what we know now and if the borrowers had known 10 years

ago what they know now, wouldn’t you assume that many of them

would have bought less house than they are currently in, that

you’re trying to keep them in?

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What I’m really saying is, you’re trying to keep people in homes

that are right on the edge of their affording, even after you do

modifications.

Wouldn’t it be true that, if they had chosen or were able to think

again 10 years back and buy a home in a different price range, that

they might be very good homeowners, while in many cases you

have a hard time keeping them in the home they have?

I will just go down the line, and as close to a ‘‘yes’’ or ‘‘no’’ as

you can.

Mr. Das.

Mr. DAS. Based on what we know now, absolutely, Congressman.

And it’s one of the reasons why we stayed away from option ARMs

to start with.

Mr. ISSA. Yes, ma’am?

Ms. DESOER. Yes. It’s the reason Bank of America exited the

subprime business in the year 2000.

Mr. ISSA. Mr. Friedman.

Mr. FRIEDMAN. I would like to comment. One other thing is I

think, back to the debt-to-income ratio, it’s our strong opinion that

you really need to look at the whole totality of the borrower’s situation. The debt-to-income ratio under HAMP only deals with the

housing piece; it doesn’t deal with the debtor’s overall situation.

Other than that, I would say also yes.

Mr. ISSA. Mr. Heid.

Mr. HEID. You know, I think hindsight is a wonderful thing. I

think the key is, we are here now. And the key right now is achieving affordability for homeowners that want to and have the willingness to stay in their home.

Mr. LOWMAN. Yes.

Mr. ISSA. Mr. Pinto, I know you would say that we suckered people into too expensive a home.

Mr. PINTO. Yes. And I would also add that the back ratio that

was just referred to, the total debt ratio, is running 64 percent.

And it has actually been going up. And that means that’s before

food, clothing, anything.

Mr. ISSA. Right. So, my followup on this is, knowing what we

know now from 10 years ago, whether it’s HAMP or some of the

loan modifications, in many, many, many cases, isn’t our real goal

to keep people in a house often keeping them in a house that is

bigger and more expensive, even after reductions, than it would

have been right-sized for them to begin with?

And, as such, if the Federal Government is going to be trying to

find affordable housing for people on the edge income-wise, and if

we are lucky enough to have the Treasury back up here, and if

they are looking at extending this program, isn’t there a component

missing from HAMP, and that is that it keeps people in the house

they’re in, rather than evaluating whether, in fact, there is a completely affordable non-renter situation that is eclipsed by the fact

that they are in this house right now?

And, you know, I know that is beyond your purview. You’re not

realtors, and you’re not able to say, ‘‘Look, get out of this house and

get in this house,’’ in most cases. But isn’t that something that, as

we are bringing Treasury up, if there is going to be an extension—

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tween October—isn’t that a component that is fundamentally missing, which is affordable housing starts not with the house you

picked but with the house that was affordable?

Mr. Das.

Mr. DAS. Congressman, I believe that you raise a very, very important and a very interesting point, and I would concur with you.

Mr. ISSA. Ms. Desoer.

Ms. DESOER. Yes.

Mr. FRIEDMAN. Yes.

Mr. HEID. You know, I think the key to HAMP and the key to

any mod program is to make sure it’s affordable now, that the consumer can afford the home they are in with the payment they have

right now.

Mr. ISSA. Mr. Lowman.

Mr. LOWMAN. Yes.

Mr. PINTO. Yes.

Mr. ISSA. OK, I’ll settle for a yes. I can take it for an answer.

Thank you, Mr. Chairman. I yield back.

Chairman TOWNS. Thank you very much.

I now yield to Mr. Connolly of Virginia, 5 minutes.

Mr. CONNOLLY. Thank you, Mr. Chairman.

Mr. Lowman, you said that, despite some reports to the contrary,

HAMP modification performance has been strong, helping hundreds of thousands of homeowners.

Could you explain how HAMP augments your other mortgage

modification programs?

Mr. LOWMAN. Yeah, well, we offer—HAMP is top of the waterfall,

so that is the first program that we offer. And, you know, it is the

primary, you know, first point of defense in providing the modification.

If a person for whatever reason doesn’t qualify for HAMP, either

it’s a jumbo loan or it’s a loan that was done past the date of the

effective date of HAMP or for some reason it has fallen out of

HAMP, then we use our proprietary program.

Mr. CONNOLLY. So one augments the other or complements the

other?

Mr. LOWMAN. Yes.

Mr. CONNOLLY. Mr. Heid, you stated that HAMP has facilitated

the industry’s ability to deliver more streamlined solutions than

ever before.

Could you elaborate on how HAMP has strengthened mortgage

assistance beyond the programs offered by the private sector?

Mr. HEID. I think what I meant by that and what I think is important is a timestamp. When you think about how and when

HAMP was first created, it was the beginning of 2009. At that

time, most of the loan modification programs that existed required

an individual handling, an individual approval, from an investor.

With the creation of HAMP, a more systematic program was created.

I think HAMP did serve as a catalyst to get other programs

going. I think it did serve as a bit of a mobilizing event to push

servicers to take broader actions at a more rapid pace. I think it

pushed other investors, including Fannie and Freddie, to move in

a direction of programmatic home and loan modifications.

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That’s what I meant by the fact that there was a broader effect

from it.

Mr. CONNOLLY. So it actually leveraged other programs, privatesector programs. But for HAMP, maybe they wouldn’t have—they

would have been slower, smaller, maybe nonexistent?

Mr. HEID. At the time. I mean, again, this was 2009. I think it

certainly sped things along. We are at a different point in time

right now.

Mr. CONNOLLY. Any estimate of what the number might be, in

terms of what falls in the category of additional refinances or modifications that were leveraged because of HAMP?

Mr. HEID. You know, I don’t have a number for you. I think what

I would say is that there were definitely loan modifications attempts being made throughout. It is not as though customers

weren’t getting assistance.

Mr. CONNOLLY. Right.

Mr. HEID. I think what happened is, the idea of HAMP was a

national systematic program. And I think national standards, national programs are always useful.

Mr. CONNOLLY. Thank you.

Ms. Desoer, Mr. Pinto seemed to imply that HAMP is just displacing private-sector mortgage modification programs, which

seems to contradict your testimony and that of others on the panel

that said HAMP complements the proprietary loan modification

programs Bank of America and others have developed.

Could you elaborate?

Ms. DESOER. Yes. And it gets back to the point of which loans

and which customers are eligible for HAMP. And, again, as I said,

out of our 1.4 million customers who are delinquent 60 days or

more, there are about 478,000 that are eligible for HAMP. We lead

with HAMP in the waterfall for those of options. And if they fail

to meet the HAMP requirements, then we can offer other alternatives.

For the rest of the customers in the portfolio, we are doing modifications, but, again, the advantages that HAMP provided that

floor or that standard in terms of the debt-to-income ratio and capability that we can leverage in those programs for customers who

are not explicitly eligible for HAMP by its definition.

Mr. CONNOLLY. If I understand your testimony and that of Mr.

Heid and Mr. Lowman, far from displacing the private sector, it actually provides a certain framework for you to buildupon and expand.

Ms. DESOER. That’s correct.

Mr. CONNOLLY. Thank you.

Mr. Chairman, I yield back.

Chairman TOWNS. I thank the gentleman for yielding.

I now yield 5 minutes to the Congresswoman from California,

Ms. Speier.

Ms. SPEIER. Thank you, Mr. Chairman.

While I was not in the room, I was listening to the testimony.

And I’m somewhat struck by the questioning that was offered by

Mr. Lynch when he asked if you wanted to see the program continue and virtually every one of you said yes, although my colVerDate 11-MAY-2000 12:01 Feb 15, 2011 Jkt 000000 PO 00000 Frm 00109 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\63041.TXT KATIE PsN: KATIE
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leagues on the other side of the aisle very much want to see the

program disappear.

So it would be helpful to us if you can, in a narrative, provide

to the committee precisely why you think the program should continue.

Now, Mr. Lowman, I think Congressman Kucinich said that he

had great difficulties with your particular company. And I would

like to just echo those. I have a number of cases here that are truly

disturbing that are loans by Chase.

This couple, retired school teacher, retired husband, Chase has

lost four sets of applications. And this is a story we hear over and

over again, where documentation is sent, documentation is lost.

When a consumer sends it in four times, has documentation they

send in four times, and you can’t find it, that is your problem.

And it reminds me a little bit of the issue with the Minerals

Management Services, where, basically, if they didn’t permit the

Horizon Deepwater rig within 30 days, it was automatically considered approved. Now, in that particular situation, clearly, that

shouldn’t have been the case. But we might argue that, here, at

some point, the lender has to take responsibility for not having the

documentation, when it has been sent over and over again.

Now, I have two people dedicated to doing only foreclosures and

modifications in my office. That is a lot of staff. And I would bet

that every Member on this panel would say the same thing.

I would ask you to create a legislative liaison individual within

each of your companies that we can call. And I would like for you

to contemplate that. If you are going to do it, I would like for you

to identify who that is and present it to the committee. If you’re

not going to do it, I want you to explain to the committee why you

won’t do it.

If we are really going to get to the bottom of this and keep people

in their homes, we’ve got to have more accountability everywhere.

And I guess, Mr. Chairman, I really don’t have a question. I just

had a series of statements I wanted to make. Thank you.

Chairman TOWNS. And it should not be an 800 number, right?

Ms. SPEIER. No. No, it should not be an 800 number.

Chairman TOWNS. Thank you.

I now yield to the gentleman from Ohio—I’m sorry, just a moment. My staff is saying it’s Mr. Davis. I apologize.

Mr. DAVIS. Thank you very much, Mr. Chairman. And I will try

to be brief so my colleague gets a chance to get his question in.

Studies have demonstrated and suggested that minority communities, minority homeowners have been disproportionately affected

by the crisis. And I think many people agree with that. Second,

they suggest that some of the reasons have been targeting of

subprime loans in these communities and neighborhoods and, of

course, higher rates of unemployment.

Are your companies doing anything, as you try and do loan modifications, to take those factors into account so that these individuals can experience modifications?

Mr. DAS. Yes, sir. At Citi, we have a program and individuals

that are dedicated to working with communities on the ground.

And we have the Office of Homeowner Protection. We actually send

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people to the sites, to work with communities and help people with

the documentation process.

And, as I said in my testimony, we also work very closely with

HOPE NOW to make sure that we are on the ground working with

the community. We are very, very closely aligned with the communities. I personally go down and——

Mr. DAVIS. Anyone else?

Ms. DESOER. This is Barbara Desoer, Bank of America.

We take a similar approach, where we have dedicated teams. As

I mentioned in my testimony, we did 360 community events. Those

events tend to take the place in the communities where the need

is the greatest, highest disruptions to income and that sort of

thing.

So we intentionally supplement our outreach reach via letters,

via telephone calls, versus one on one, people we send out to homeowners, with community events that we participate in and nonprofits that we help fund to host those events.

Mr. DAVIS. Mr. Chairman, could I just ask that each one of the

witnesses would respond to that question in writing?

And I will yield back my time so that there might be enough

time for——

Chairman TOWNS. I thank the gentleman.

And, also, let me just add that, also, I would like for you to respond to Ms. Speier’s question, too, in writing. I would like you to

respond to both. And we will keep the record open, you know, for

an additional 7 days to be able to ascertain that information.

The gentleman from Ohio?

[The information referred to follows:]

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I’m sorry that my colleagues from the other side have left, because I wanted to refresh the memory especially of Mr. Jordan

from Ohio because we served in the State legislature in Ohio together, and we did know about the problems 8 years ago because

we did a very extensive study on subprime lending in the State of

Ohio. And the Democrats pushed hard for legislation that would

have cracked down on subprime lending. It was predatory lending

legislation. And it was my Republican colleagues that held that up.

And they held it up for years.

And the same thing was happening in this very Congress. Stephanie Tubbs Jones, who has since passed away, in 2001 introduced

predatory lending legislation. It was done year after year after year

after year.

And I think the voters have to understand that the reason we

are here today talking about loan modifications is because, not just

of the economy today and the foreclosures, as Mr. Lynch described,

due to unemployment, but because of all the poor underwriting and

the securitization of the loans in the subprime market that could

have been prevented had we addressed predatory lending legislation in this Congress, that could have been prevented had we

passed predatory lending legislation in the States. But the Republicans repeatedly stood in the way of that.

And now today, as the conference is meeting in Financial Services that might address the underlying problems of the lack of regulation in mortgage-backed securities and credit default swaps, my

Republican colleagues are again standing in the way and trying to

prevent any systemic changes to the system that got us here in the

first place.

So I think it’s sad that we are here today talking about all of

these loan modifications because I don’t think many of these loans

should have happened in the first place, because so many of them

were in the subprime market. And while I appreciate that some of

the financial institutions quit writing in the subprime market

years ago, Ms. Desoer, I will remind you that Countrywide was

very, very active in the subprime market and led to thousands of

foreclosures in the State of Ohio.

My question to you is this. I have gotten a lot of complaints back

home, as we look at people who are trying to seek modifications,

that the modifications, although the discussions have started—and

these haven’t been finalized, these modifications—the banks continue to proceed with foreclosure proceedings.

This is sending mixed messages. And while I realize Treasury

has sent out some directives on this recently, I’m very concerned

that we are sending mixed messages to homeowners who are trying

to seek modifications but, at the same time, hearing from the bank

that they are foreclosing on their property.

I would like to know what each of your financial institutions does

in that case and whether or not we should stop the practice of proceeding on foreclosures if we are in negotiations on loan modifications, so that it doesn’t lead to the homeowners backing out because they fear their house is going into foreclosure anyway.

Mr. Das, we’ll start with you.

Mr. DAS. Congressman, let me be very clear that foreclosure is

absolutely the last and least preferred alternative for Citi. When

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we offer somebody a HAMP modification, if they fall out of HAMP,

we immediately offer them a whole range of Citi supplemental

modifications. In fact, we were able to double the number of modifications we offer as a result of our proprietary programs. If they

fail that, we offer them short sales and deed in lieu programs aggressively so they can——

Mr. DRIEHAUS. If I can interrupt you, because we do have a vote,

what I am trying to find out is when you begin the discussion with

a homeowner on a loan modification, do you stop the foreclosure

process, or do you allow it to continue until that modification is finalized?

Mr. DAS. We stop the process. In fact, in our trial modification

process, we reached out to people who are in foreclosure and offered them trial modification.

Mr. DRIEHAUS. So as soon as trial modification is offered, you

stop the foreclosure process?

Mr. DAS. Yes.

Mr. DRIEHAUS. Ms. Desoer.

Ms. DESOER. We continue the process in parallel, but we are in

compliance with the Treasury directives about how that should be

handled, and we have significantly enhanced the communications

to try to mitigate the concern of the borrower with the promise that

we will not take that home to foreclosure sale while they are in the

process of being considered for a modification.

Mr. DRIEHAUS. And I have a concern, because it sounds as if you

are reaching out to the consumer, trying to work on a modification,

but at the same time that hand is reaching out, you are about to

slap it with a foreclosure, so mixed messages are, in fact, being

sent.

Wouldn’t it be better for us to back off on the foreclosure, since

we have all said that the foreclosure is the last thing in the world

that you want anyway, allow the modification time to work, and if

it doesn’t work, then go ahead and proceed with the foreclosure

process? But the fact we are on this dual track is very much sending mixed messages.

Ms. DESOER. Again, what we are trying to balance is the interests of all the constituents, including that of the investor in the

party, and if that does not go through, in some places to restart the

foreclosure process is a very lengthy period of time. So we are trying to preserve that timeline. But, again, we have significantly enhanced communication, and we are in compliance with the Treasury’s guidance.

Mr. DRIEHAUS. Mr. Friedman.

Mr. FRIEDMAN. Our process is much the same as Bank of America’s.

Mr. HEID. I believe for the customer working with us, I believe

we stop the foreclosure process. The other procedure we have in

place is before a customer’s loan goes to completion of foreclosure,

we make sure to take a second look to make sure every opportunity

has been exhausted.

Mr. LOWMAN. We have a similar process. We do two quality

checks, one before we commence the foreclosure, and then one right

before sale, to make sure that we don’t foreclose on someone that

is in the process.

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Mr. DRIEHAUS. Again, Madam Chair, I would remind the committee that there seems to be a broad differentiation between the

financial institutions and the servicers in this case, and it really is

a problem for borrowers who are getting mixed messages from the

services, who are genuinely working and trying to save their

homes, but fear that the bank is going to move forward anyway,

and because they are hell-bent on having a foreclosure.

So while we are all saying foreclosure is the last thing in the

world we want to do, I think we are sending a very mixed message

when we are proceeding with foreclosure actions while at the same

time attempting to work on a modification.

So I would leave it at that and yield back the balance of my time.

Ms. NORTON. The gentleman’s time has expired.

I am going to ask a question in the absence of the chairman. This

program, HAMP, has been such a disappointment. Perhaps we had

our hopes too high. But to the credit of the administration, it keeps

trying. And here is a question about what would perhaps be the

most difficult aspect of the program, where Treasury announced

the Home Affordable Unemployment Program that provides 3 to 6

months forbearance to unemployed homeowners while they seek

employment. We understand that some companies have provided

such forbearance to unemployed borrowers before. I am sure that

in the normal course of downturns, for example, that was not unusual.

Let me ask all of you, have any of you, and tell me the extent

to which any of you have participated in the forbearance program,

beginning with you, Mr. Das?

Mr. DAS. We launched the program—we launched an unemployment assist program in March 2009, when unemployment was rising and there wasn’t a denominator to calculate debt-to-income ratios. But we kept it very simple.

We support the Treasury’s program, but we believe that the paperwork may have been a little more nuanced than one would have

wanted. All we asked for in our program was an unemployment

document of proof of unemployment, and if it was an owner-occupier, we just made it a simple payment of $500 a month for 3

months. We would have liked to extend it to 6 months.

What it did was it paused the whole foreclosure process and the

whole people missing payments process, and it enabled people to

get into HAMP, which was a very, very powerful outcome for that

program.

Ms. NORTON. Was this on your own?

Mr. DAS. This was on our own.

Ms. NORTON. Are you continuing it with this 3- to 6-months forbearance?

Mr. DAS. Absolutely. We are extending it to the new Treasury

program. But we didn’t wait for that. We started it on our own. I

am delighted to see that the Treasury program is actually based

on some of the attributes of what we did.

Ms. NORTON. Ms. Desoer.

Ms. DESOER. Yes, we have been doing forbearances for unemployed, and we will actively participate in the government’s program, and we are looking at our own proprietary program that

could potentially extend beyond the 6 months under certain cirVerDate 11-MAY-2000 12:01 Feb 15, 2011 Jkt 000000 PO 00000 Frm 00121 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\63041.TXT KATIE PsN: KATIE
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cumstances, just because of the length of unemployment for some

of our customers.

Ms. NORTON. Mr. Friedman.

Mr. FRIEDMAN. We have always had a forbearance for that particular reason prior to HAMP and post-HAMP as well for 3 months.

I know that you are considering a longer situation. That becomes

very expensive for us as a servicer going forward, because whether

the borrower in our situation makes payments or not, we, the

servicer, have to make those payments on behalf of the borrower

to the investor. So anything longer than the 3-month period becomes very expensive for us.

Ms. NORTON. Mr. Heid.

Mr. HEID. We have done about 100,000 such customer cases before the HAMP modification was changed. The Treasury program

is very similar to the one we were offering before. So we are in the

process of converting over, and we will continue to help customers

that don’t qualify for HAMP as well.

Ms. NORTON. Mr. Lowman.

Mr. LOWMAN. We have always offered forbearance to unemployed

borrowers and will participate in the Treasury program.

Ms. NORTON. Mr. Pinto.

Mr. PINTO. I have nothing to add.

Ms. NORTON. Could I ask that all of you provide to the chairman

the number of homeowners starting with the beginning of this year

to whom you have given forbearance?

I understand that this, of course, is something that might have

been routinely done before; you had a customer, it was the appropriate thing to do under the circumstances. Of course, these circumstances are very different because there are high levels of unemployment. So I would be interested in your candid view of how

successful forbearance has been in avoiding foreclosure. Does it just

spread the time out, or what is your view based on your own experience of whether this delay in foreclosure for an unemployed

homeowner—what is your view of its success or its effect?

Mr. Das.

Mr. DAS. Madam Congressman, I believe that the idea of delay

is not as bad as it is made out to be. Sometimes, oftentimes, borrowers need a pause so that they can focus on getting the employment as opposed to also keeping their home at the same time. As

I said to you before, the fact that Unemployment Assist has allowed people to get into an alternative program like HAMP was a

very powerful outcome, and I believe that needs to be noted.

Ms. DESOER. I believe it is very dependent on the situation of the

customer and the length of unemployment.

Ms. NORTON. We recognize that. We recognize that there is a

vastly different universe out there. But I am asking you a general

question.

Ms. DESOER. Certainly I would believe that temporary relief from

the obligations that a customer has would enable them to more

successfully bridge the economic hardship that they are experiencing, yes.

Mr. FRIEDMAN. I would concur with her assessment as well.

Mr. HEID. I agree. I think the design of the program where there

is some amount of cash-flow every month is actually better for the

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customer so there is not such a great shock 3 or 4 or 5 months

down the line when income is restored.

Mr. LOWMAN. I concur also.

Mr. PINTO. If you are looking for quantitative information, you

may want to again go to the OCC/OTS Mortgage Metrics and see

if they have data that actually tracks the question you have asked.

I have not seen any. I don’t recall any.

Ms. NORTON. This is rather much of a perfect storm we have,

where unemployment meets mortgage crisis. Normally unemployment doesn’t meet that kind of crisis, exacerbating the situation of

people who have all along kept up their mortgage payments.

I recognize you all want to do the right thing, and to some extent

you have been doing it. Would you care to offer suggestions as to

this relatively new program, as to its structure and what might be

done?

For example, one of you, I am not sure if it was you, Mr. Friedman, indicated that—or maybe it was you, Mr. Heid—indicated beyond 3 months. I am not sure any of you do it beyond 3 months,

but it created issues beyond 3 months.

Mr. FRIEDMAN. It was I that said since we are not part of a bank

or have a deposit base, as the other folks around the table, other

than maybe Mr. Pinto, unless he is wealthier than we all think,

we—because we do a lot of securitizations, we don’t own the loan

outright. We have to make payments to the investors, month in,

month out, whether the borrower makes payments to us.

Ms. NORTON. That is not the case for anybody else sitting at the

table?

Mr. HEID. No. The same requirements apply to everybody. But

I think the idea of the 3 months allows multiple 3-month check-ins,

where the purpose for that is to make sure you can stay current

with what is going on with the customer’s life, what are the prospects for them to be able to get back to a level of employment

where the home is affordable. That is kind of where the extensions

of 3 months at a time comes into play.

Ms. NORTON. Ms. Desoer.

Ms. DESOER. I would concur with that.

Ms. NORTON. The chair has asked me to recess the hearing for

about a half-hour because there was at least one Member who did

not get an opportunity to ask questions. So don’t go anywhere. This

hearing is recessed.

[Recess.]

Mr. CLAY [presiding]. The committee will come to order. We will

resume the 5-minute questioning.

Let me begin with Mr. Heid.

Mr. Heid, according to the research done by the National Community Reinvestment Fund, minority borrowers are less likely than

other borrowers to receive trial and permanent modifications. Do

you believe that this is an accurate assessment?

Mr. HEID. It is hard to answer that question. On the surface, I

would say only if the home is not affordable would that be the case.

There is nothing in the modification process that would cause a difference between ethnic backgrounds or anything of the sort.

Mr. CLAY. Well, Mr. Heid, I asked the question because we know

that prior to the modification phase, that African American borrowVerDate 11-MAY-2000 12:01 Feb 15, 2011 Jkt 000000 PO 00000 Frm 00123 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\63041.TXT KATIE PsN: KATIE
116

ers with comparable income and other considerations were steered

into subprime and predatory loans. They were disproportionately

impacted by those policies. Instead of them getting a conventional

mortgage, they were steered, and there is plenty of data to show

that. So since they were disproportionately affected by being

steered into these high-cost loans, I am just curious as to what is

happening to these minority borrowers now who are in trouble,

who are trying to get their loans modified? Do you think maybe

they are disproportionately being affected still?

Mr. HEID. Well, Congressman, as far as the statement on steering, I disagree. As far as the loan modification process and how

that works——

Mr. CLAY. Oh, you disagree.

Mr. HEID. We have the same process——

Mr. CLAY. What do you disagree about as far as steering? What

do you find disagreeable about what I said?

Mr. HEID. You are quoting a particular study typically, and I believe that study in particular does a comparison with partial information on public data——

Mr. CLAY. But the numbers speak volumes. The numbers speak

volumes about how middle-income, upper-income African American

families were steered into subprime and predatory loans. Now, you

can sit here and deny that if you want, but it has happened.

Let me say something else about Wells Fargo. You know, quite

a few of my constituents have been impacted negatively by this

whole mortgage meltdown. We have gone to Wells Fargo, my staff

back in my district, asking for you to modify some of these loans,

and we have heard every excuse, like, oh, we have taken TARP

money, so it would be inappropriate to try to help these people.

Now, what do you have to say about that? Have you used that

excuse, that because you are a recipient of TARP, that you cannot

help these average Americans trying to stay in their homes?

Mr. HEID. No. Absolutely not. That is an absurd statement. Anyone in our shop that would have made a statement like that, that

is absurd. What we are doing is this. Our data kind of speaks for

the efforts we are putting forth.

When you look at every customer, irrespective of ethnic background, every customer that has missed two or more payments in

their mortgage status, two-thirds of the time we are finding a solution other than foreclosure.

The loan modification process we have put forth, the people that

are doing the work, most of them over the phone, have no ethnic

information on the screens they are looking at, with the one exception of the HAMP program requires volunteer submission of ethnic

information. But even in HAMP, every single customer going

through a modification process has a very prescribed series of steps

that one goes through to gather income information and get them

into a loan modification they are able to afford.

That is the way the HAMP program works. The non-HAMP programs are set up in a very similar way so that every customer goes

through a similar process for loan modifications.

Mr. CLAY. I really find it incredulous that you don’t think that

African American borrowers were steered into these high-price

loans. I mean, I find it incredible.

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Let me ask the rest of the panel, do they agree with Mr. Heid,

or do you think that these people are disproportionately impacted

by racist policies?

Let me start with you, Mr. Das. Have you seen any evidence that

the people are disproportionately impacted based on their race?

Mr. DAS. Congressman Clay, I believe that you raise a very important point, and I believe that in economic downturns, that the

hardship can be disproportionate in minority communities. And

here is what I would say. We don’t do anything actually that would

distinguish between race, origin, sex or any of those factors.

But here is what I would say: I think that HAMP needs to be

enhanced for low- to moderate-income communities in a very different way to the way it has been established today. I believe some

of my colleagues have taken a similar position.

Mr. CLAY. Thank you for that response.

Ms. Desoer.

Ms. DESOER. Thank you, Congressman Clay.

Bank of America did not—we exited the subprime business in the

year 2000. We acquired Countrywide in 2008. Shortly after the acquisition we entered into a settlement that we are executing with

44 States, which is our proprietary national home retention program, which was intentionally targeted at pay option ARMs,

subprime hybrid ARMS, products that might have created the most

stress in these economic times for borrowers. And we follow a very

deliberate process, much of which is automated, treating equally

the attempts to outreach to all of our customers as well as our response to customers who are calling us because they are under financial stress.

Then intentionally we participated in 360 community events last

year. Again, we have stepped up that number even more this year.

We have invested in the Alliance for Stabilizing Communities,

where disproportionately we go to and participate in events where

the communities are the hardest hit so we can provide face-to-face

counseling and acceptance of applications and modifications as

well.

Mr. CLAY. And so you do—Bank of America has admitted that

they are—that there has been steering, that you see disproportionate effects to that.

You know, I believe in the adage that figures don’t lie, but liars

sure can figure, and this is a good example of that; that this segment of the population was disproportionately impacted because of

the actions of the banking community, because you do have a

human factor involved here. You do have loan officers that look at

customers differently based on their skin color. That is all I am

saying.

But for people to come here and deny that I think is wrong, and

the American people can see through that.

Mr. Friedman.

Mr. FRIEDMAN. Fortunately, we didn’t originate any loans, so

personally I am a little out of touch on that particular subject. But

I do believe we, like Bank of America and others, do go to a lot of

outreach programs.

I think a good help for the community would possibly be to bring

down the debt-to-income test to even lower than 31 percent under

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HAMP, which maybe, you know, if there was some type of injustice

done, maybe it could help that many more people. That is just as

a suggestion.

Mr. CLAY. Have any of your institutions created programs that

target particularly at-risk groups like racial minorities and the unemployed, who have been adversely impacted?

Mr. FRIEDMAN. I don’t know why you couldn’t do such a program.

Mr. CLAY. Voluntarily.

Mr. FRIEDMAN. We don’t originate, so I can’t really comment on

that.

Mr. CLAY. Mr. Lowman, any comments?

Mr. LOWMAN. I would just add that at Chase we have a culture

of fair lending and have always had that culture of fair lending. We

have done our own analysis based on the report that you referred

to, the NCRC study, and our findings are not congruent with their

findings.

We have done over 700 outreach events throughout the country.

We have 51 homeownership centers throughout the country in the

most troubled of neighborhoods where we continue to do outreach

and I think really are able to serve the underserved.

Mr. CLAY. OK. So, look, the facts speak for themselves. You go

to a predominantly African American neighborhood where every

third house is foreclosed on, I mean, doesn’t that stand out and say

something to you, that perhaps those communities had been targeted?

Mr. LOWMAN. I can’t speak to the facts. I can’t speak to it.

Mr. CLAY. Mr. Pinto, anything to add?

Mr. PINTO. Not being a lender, I really have no information to

add.

Mr. CLAY. Just as an observer.

Mr. PINTO. As an observer, and I think this blame is placed on

both sides of the aisle here, so let me start with that.

Lenders and Fannie and Freddie back in 1991 had very sound

underwriting principles. Those underwriting principles were complained about by community groups. They went to Congress in

1991 and petitioned Congress to change that. What they asked—

what they said was that lenders respond to the most conservative

standards unless Fannie and Freddie become aggressive and convincing in their efforts to expand historically narrow underwriting,

change their underwriting. That was before the U.S. Senate Banking, Housing and Urban Affairs Committee in 1991.

In 1992, the Federal Housing Enterprises Safety and Soundness

Act made that request into the law of the land, and from that point

on, the underwriting standards of this country changed step by

step by step. Eventually we went from having down payments on

loans to having no down payments on loans. It was the result of

a policy that Congress put in place, bipartisan policy that Congress

put in place. That is where it started, and that is my view.

Mr. CLAY. But that wasn’t totally the reasoning for this housing

collapse. I mean, just Fannie and Freddie are to blame, not the

people at every step of the way that made money off of these loans

and these high-cost loans? We don’t just stop with Fannie and

Freddie, do we?

119

Mr. PINTO. Remember what they were asking for. We want to

break the lenders’ view of having conservative underwriting, and

the only way to do that was to get Fannie and Freddie to start having flexible underwriting, which they did starting in 1993. And it

just progressed, and it was a progression that occurred over 15

years.

Mr. CLAY. Like you say, there is enough blame to go around. I

guess we probably should look at what the appraisers did, too,

shouldn’t we?

Mr. PINTO. Don’t get me started on appraisers.

Mr. CLAY. I thank you all for your responses. At this point, that

concludes this hearing.

Without objection, the record shall be left open for 7 days so that

Members may submit information for the record.

Finally, without objection, I will enter this binder of hearing documents and statements submitted by interested parties for the

committee record.

The committee stands adjourned.

[Whereupon, at 12:58 p.m., the committee was adjourned.]

[The prepared statements of Hon. Darrell E. Issa and Hon. Gerald E. Connolly and additional information submitted for the hearing record follow:]

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