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THE FORECLOSURE CRISIS

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

MARCH 8, 2011

Serial No. 112–44

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

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

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C O N T E N T S

Page

Hearing held on March 8, 2011 .............................................................................. 1

Statement of:

Kaufman, Mark A., commissioner of financial regulation, Maryland Department of Labor, Licensing and Regulation; Kevin Jerron Matthews,

homeowner; and Jane Wilson, Chair of the Board, St. Ambrose Housing

Aid Center ..................................................................................................... 44

Kaufman, Mark A. .................................................................................... 44

Matthews, Kevin Jerron ........................................................................... 58

Wilson, Jane .............................................................................................. 67

O’Malley, Martin, Governor of Maryland; and Stephanie Rawlings–Blake,

mayor of Baltimore ....................................................................................... 17

O’Malley, Martin ....................................................................................... 17

Rawlings–Blake, Stephanie ...................................................................... 27

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

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland:

Article entitled, ‘‘The Impact of Foreclosure Waves on the City of

Baltimore’’ .............................................................................................. 3

Prepared statement of Mr. Bernard C. ‘‘Jack’’ Young, president, Baltimore City Council .................................................................................. 86

Prepared statement of the National Community Reinvestment Coalition .......................................................................................................... 91

Kaufman, Mark A., commissioner of financial regulation, Maryland Department of Labor, Licensing and Regulation, prepared statement of .... 47

Matthews, Kevin Jerron, homeowner, prepared statement of ...................... 61

O’Malley, Martin, Governor of Maryland, prepared statement of ................ 20

Rawlings–Blake, Stephanie, mayor of Baltimore, prepared statement of ... 29

Wilson, Jane, Chair of the Board, St. Ambrose Housing Aid Center,

prepared statement of ................................................................................... 69

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THE FORECLOSURE CRISIS

TUESDAY, MARCH 8, 2011

HOUSE OF REPRESENTATIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Baltimore, MD.

The committee met, pursuant to notice, at 9 a.m. at the Nathan

Patz Law Center at the University of Maryland, 500 West Baltimore Street, Baltimore, MD, Hon. Darrell E. Issa (chairman of the

committee) presiding.

Present: Representatives Issa, Walberg, Amash, Cummings,

Tierney and Welch.

Staff present: Ali Ahmad, deputy press secretary; Molly Boyl,

parliamentarian; Katelyn E. Christ, research analyst; John

Cuaderes, deputy staff director; Linda Good, chief clerk; Christopher Hixon, deputy chief counsel, oversight; Hudson T. Hollister,

counsel; Justin LoFranco, press assistant; Lisa Cody, minority investigator; Carla Hultberg, minority chief clerk; Lucinda Lessley,

minority policy director; and Davida Walsh, minority counsel.

Chairman ISSA. This hearing for the Committee on Oversight

and Government Reform will come to order.

Today’s hearing concerns the ongoing foreclosure crisis that has

left tens of millions of American homeowners without an important

piece of the American dream.

Today’s hearing is but another hearing in a continuation that

this committee has looked into since 2007. Long before the economic meltdown, Americans were finding the American dream escaping them. Back in 2007, this committee went to Cleveland, Ohio

where for a number of years home prices had stopped going up and

were beginning to go down at a frightening rate. As a result, homeowners who had purchases with little or no money down and/or

been laid off found themselves losing their home. As a result, communities were beginning to be boarded up. As communities were

boarded up, the cycle began to escalate with home values going

down.

All of this began without an economic world meltdown, but it

foretold many things that we now see here today. The fact is the

American home mortgage was designed based on an assumption

that homes would never go down in value. All of us know better

today that you can’t have a national deflation among homes that

ultimately if you lose your job, you will not be able to keep a home

that was highly leveraged.

So as we hear from witnesses, beginning with the State’s Governor, we want this committee to realize that the Government

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plays a part in it but there are other factors that always will supersede even Government’s best intentions.

This committee has begun and continues to look at HAMP’s success or failure and the various Government agencies, including

Freddie and Fannie, that failed to secure the dollars that they were

supposed to in order to be prepared for down times.

This committee came to Baltimore today at the request of the

ranking member. He has worked diligently on the issue of home

foreclosures and continues to be a voice on the committee for further investigation.

With that, I recognize the ranking member for his opening statement.

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

very much.

Chairman Issa, I want to thank you for convening today’s hearing, and I welcome you and the other members of the committee

to my hometown of Baltimore. And I want to welcome Governor

O’Malley and Mayor Rawlings-Blake when she arrives.

And I want to thank you, Mr. Governor, for your leadership and

you, Mr. Issa, for yours.

Thanks also to the University of Maryland School of Law, my

alma mater, for hosting us all here today and to Associate Dean

LaMaster and Ed Fischel and certainly to Dean Phoebe Haddon.

Mr. Chairman, we are in the grips of a nationwide foreclosure

crises. In 2009, there were about 2.8 million foreclosures across the

country. Last year there were 2.9 million. And this year there may

be more than 3 million.

This week researchers at Johns Hopkins University here in Baltimore prepared a report for the committee called ‘‘The Impact of

Foreclosure Waves On the city of Baltimore.’’ I ask that this report

be made a part of the official hearing report.

Chairman ISSA. Without objection, so ordered.

[The article entitled, ‘‘The Impact of Foreclosure Waves on the

City of Baltimore,’’ follows:]

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Mr. CUMMINGS. The report finds that between 2008 and 2010

there were more than 11,000 foreclosures in the city of Baltimore

alone, and cost families more than $1.5 billion.

The foreclosure crisis is a wrecking ball smashing through communities across the Nation, and Baltimore is one example of that

destruction.

This crisis not only threatens our Nation’s economic recovery,

making it harder to reduce unemployment and spur economic

growth, it also drains State and local budgets that rely on property

tax revenues for schools, police and emergency services. It destroys

neighborhoods and devastates families. And it harms individuals.

It is a national crisis with very local consequences.

What is so frustrating is that this crisis is being aggravated by

actions of the mortgage servicing companies that conduct foreclosures. There are no national standards for these companies and

they have engaged in systematic abuses across the country.

In our committee’s first hearing this year the Inspector General

for TARP testified that the performance of mortgage servicing companies has been, ‘‘abysmal.’’ He also said this, ‘‘From the repeated

loss of borrower paperwork, to blatant failure to follow program

standards, to unnecessary delays that severely harmed borrowers

while benefiting servers themselves, stories of servicer negligence

and misconduct are legend.’’

These companies have signed false affidavits by the tens of thousands, inflated fees, performed illegal actions against military service members and veterans and aggressively pursued foreclosures

when modifications made more sense and were already underway.

This system does not work for homeowners, and it does not work

for State and local governments. It does not even work for mortgage investors who want to salvage their investments through loan

modifications rather than foreclosures.

The Association of Mortgage Investors, which represents private

investors, pension funds, universities and endowments reports that

investors have suffered material losses as a result of faulty and inefficient and at times improper servicing of mortgage loans. It

seems that the only ones who support this flawed system are the

ones with their hands on the lever of the wrecking ball—the mortgage servicing companies. They are swinging it more recklessly

each year, and we cannot stem this damage unless we hold them

accountable.

Mr. Chairman, our committee is taking a great first step today

by hearing about the State and local impact of foreclosure crisis.

When we return to Washington, I hope we will be able to hear directly from the mortgage servicing companies themselves.

I want to thank you and, again, I want to welcome the mayor,

and it is good to have you here, Madam Mayor.

With that, I yield back.

Chairman ISSA. I thank the gentleman.

All members will have 5 legislative days in which to include

opening statements and any other remarks.

Do either of you want to make an abbreviated opening statement?

Mr. AMASH. No. Thank you.

Chairman ISSA. Okay. Thank you.

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With that, as is the policy of the committee, we will begin reading the mission statement. I know every city and State have their

mission statements, here’s ours:

‘‘The Oversight Committee, we exist to secure two fundamental

principles:

First, Americans have the right to know that the money Washington takes from them is well spent. And, second, Americans deserve an efficient, effective government that works for them. Our

duty on the Oversight And Government Reform Committee is to

protect these rights. Our solemn responsibility is to hold government accountable to taxpayers because taxpayers have a right to

know what they get from their government.

We will work tirelessly in partnership with citizen watchdogs to

deliver the facts to the American people and bring genuine reform

to the Federal bureaucracy.’’

This is the mission of the Oversight and Government Reform

Committee.

And with that, we go to our first two witnesses.

Governor O’Malley. I am sure that we could all do a lot of introductions, but quite frankly I think you are better known than we

are here.

And Mayor Rawlings-Blake.

It is the rule of the committee that all witness be sworn in.

Would you please rise to take the oath?

[Witnesses sworn.]

Chairman ISSA. Let the record reflect both answered in the affirmative.

It is also tradition on Capitol Hill that witnesses speak for 5

minutes and then be endlessly asked questions from the dais. We

will change that considering your input. We would ask you remember that your official opening statements are in the record, however, we recognize you for such time as you may consume, Governor.

STATEMENTS OF MARTIN O’MALLEY, GOVERNOR OF MARYLAND; AND STEPHANIE RAWLINGS–BLAKE, MAYOR OF BALTIMORE

STATEMENT OF MARTIN O’MALLEY

Governor O’MALLEY. Mr. Chairman, Chairman Issa, thank you

very, very much, and Ranking Member Cummings and all of the

members of the committee.

Well, I should leave that to the mayor, right, to say welcome to

Baltimore. I can say welcome to Maryland, the rich and the land

of the free, home of the brave.

It is a honor to be with you and to be able to address on this

important, important issue along with Mayor Stephanie RawlingsBlake.

As we make this turn out of the recession and into a new economy, I firmly believe, as you do, that the building block for our

stronger growing middle class is a family’s home. It is the building

block. And there is no more powerful place in our State than a family’s home. And the loss of even one home impacts not just entire

families, but entire neighborhoods, entire communities, entire citVerDate 17-JUN-2003 13:08 Oct 28, 2011 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\70519.TXT KATIE PsN: KATIE
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ies, entire counties. Home ownership is critically important to our

ability to make it in America.

And while we are by no means out of this crisis, we still have

a lot of people looking for jobs, we do believe that we have been

able to do some things that have helped to protect family homes,

protect home ownership and allow many of our moms and dads to

be able to get to the other side of this recession.

Our foreclosure rate is now significantly lower than the national

rate. Last month RealtyTrac reported that we have driven foreclosures down 70 percent compared to a year ago. It is the sharpest

decline that any State in the country has been able to achieve over

the course of this last year. And yet too many of our fellow citizens

continue to lose their homes. And as mortgage companies and the

post-robo signing moratoriums, we are very cognizant of the fact

that those foreclosures once again will start to go up.

With reforms we passed last year mortgage giants in America

are now required to meet with homeowners at the negotiating table

before they can throw them out on the street. They must prove that

they’ve made a full review of mitigation options. This was legislation that we enacted, as I say, just last year. Prior to that, when

this crisis hit, we enacted other legislation. In fact, at the time, the

Washington Post characterized it as one of the most sweeping legislative packages in America to slow down the fast track to foreclosure. It might have been sweeping, but it was not as effective

as we would have liked. So that is why we had to go back again

and give every homeowner the right to a mandatory mediation before they can be thrown out of their home.

We have now reached agreements with multiple mortgage services to create a streamlined and transparent loss mitigation process. We’ve assembled a pro bono network of a thousand attorneys

called forth by the Chief Judge of our Court of Appeals, Judge Robert Bell. And we’ve teamed with nonprofit housing counselors to assist more than 54,000 Marylanders.

When the robo-signing incident came to light, we partnered with

Congressman Cummings and our Attorney General for our State to

demand that servicers halt foreclosure proceedings until they reworked their practices. And we partnered with our court system

which adopted emergency rules to protect homeowners. We are

part of that multi-State effort that, I believe, was joined by all 50

Attorneys General. I hope I put the right plural in the right place

there.

Many servicers still do not have the basic systems in place to

keep track of paperwork to provide timely responses to loan modification applications. Maryland’s housing counselors tell us that obtaining even a trial loan modification typically takes 6 months.

We have taken action at the State level to protect homeowners

and hold the national mortgage giants accountable. But we cannot

go it alone and we need your help. And to that end I ask that you

number one, hold mortgage giants accountable. We favor the creation of clear and specific national servicing standards. Each one

of these modifications should not be some grand mystery started

from scratch every time a homeowner is looking for a little relief.

Number two, housing counseling empowers our most vulnerable

homeowners with the tools and the know-how to save their homes.

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I want to understand how critically important the dollars have

been from, I believe, the Federal Government and also our State

that we put into the nonprofit housing counselors. They have acted

as mitigation originators, if you will. And they are critically important. Now is not the time to slash those dollars.

Number three, rather than dismantling the imperfect and yet

critically important Home Affordable Modification Program, the

HAMP Program, we believe that it can and should be retooled for

greater efficiency, greater transparency and higher performance.

The simple truth is that without access to affordable and sustainable loan modifications, more Americans will lose their homes,

slowing our recovery.

Number four, HUD’s Emergency Homeowner Loan Program is

projected to help more than a 1,000 unemployed Marylanders who

are struggling to make mortgage payments while looking for work.

I believe that this is another tool that has to be preserved and has

to be employed.

Number five, community development block grants and the

Neighborhood Stabilization Program can be the difference between

saving or losing a neighborhood in the course of these difficult

times.

So, I urge you to continue your oversight, continue to drive performance. These are programs that should work more effectively

than they have worked. We do believe that we have found the right

alchemy of several steps, one of them being the mandatory right

to mediation, that has greatly reduced the number of homes we are

losing to foreclosure.

I thank you again for your attention to this important matter.

[The prepared statement of Governor O’Malley follows:]

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Chairman ISSA. Thank you, Governor.

Mayor.

STATEMENT OF STEPHANIE RAWLINGS–BLAKE

Mayor RAWLINGS-BLAKE. Thank you very much, and good morning.

I want to thank Chairman Issa and Ranking Member Cummings,

and the members of the committee for allowing me to speak to you

this morning. The matters being considered by your committee are

of vital importance in addressing the foreclosure crises facing Baltimore and our Nation.

I applaud Congressman Cummings and the committee members

on holding this hearing to gather testimony on the abuses in the

mortgage service industry that greatly compound this crisis.

Let me very briefly outline the scale of foreclosures in Baltimore.

Since 2007, some 18,000 properties in Baltimore City have had

foreclosures filed against them. All but a handful of neighborhoods

in the city have been impacted by foreclosures. Many of our neighborhoods have been impacted severely. Well over one-third of our

neighborhoods have had more than 5 percent of their properties

foreclosed against. Many of these neighborhoods that I’m talking

about are the bedrocks of our city.

Our community is comprised of both rowhomes and detached

structures with high occupancy rates and majority homeowners.

The foreclosure crisis has imperiled many of these areas.

It is not only Baltimore homeowners that have been impacted by

foreclosures. Over 40 percent of all properties that have been foreclosed against in the past 4 years are rentals. This had led to the

extremely unfortunate situation where residents who have paid

their rent are at risk of losing their housing.

The city’s foreclosure rate would undoubtedly be significantly

higher had Governor O’Malley’s administration not taken legislative action that slowed the foreclosure process and improved opportunities for mediation with mortgage holders. As foreclosures began

to dramatically increase in 2007, city government in concert with

State and Federal agencies and the foundation community began

to increase financial and organizational support to nonprofit entities providing foreclosure counseling. It was through the network

of counselors that we became increasingly aware of the abysmal

performance of the mortgage service industry in constructively addressing this crisis. Among the many troubling aspects of this performance is the almost systematic loss of supporting documentation

for loan modifications that particularly stands out as an error that

needs to be corrected.

The dedication and professionalism of so many of the housing

counselors in the city is to be commended. This is difficult, exhausting work carried out under daunting circumstances. Their

perseverance and their unwavering support of homeowners in crisis

have helped many Baltimore homeowners avoid foreclosure. Unfortunately, the insufficient efforts on the part of the mortgage service

industry has in many cases lessened the effectiveness of these

counselors.

As concerns the abuses being examined by this committee let me

note the following: Baltimore households have suffered from virVerDate 17-JUN-2003 13:08 Oct 28, 2011 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\70519.TXT KATIE PsN: KATIE
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tually all of the abuses; predatory loans, robo-signing, wrongful

foreclosure, failure to properly maintain and file mortgage documents and false affidavits, all being invested by this committee.

Often services have profited handsomely from these abuses. Despite this, they have not employed enough staff to locate and properly process the loan documentation but routinely file lost note affidavits. Some lenders have steered buyers into loans they could not

afford, and then profiting through initiating fees and points, bundling the loans into mortgage-backed securities and sold them off

to secondary markets, thus selling off their risk.

These predatory lending and services practices caused equity

stripping, home loss and blighting vacancies. These practices not

only devastate families, they cost the city millions of tax dollars

lost in property tax and transfer tax revenue.

As concerns regulatory solutions, the committee may examine,

and I hope consider the following:

The real party and interest should be the named plaintiff in any

foreclosure action. Currently only the trustee or substitute trustee

must be named, usually the attorney hired by the servicer.

The lack of transparency makes it difficult to understand and

document trends in lending and foreclosure practices in our city,

thus handicapping our ability to protect our residents.

The Home Mortgage Disclosure Act should be amended to require that borrowers’ credit scores be reported as publicly available

data in addition to the race and other data currently being reported. This will enable Federal, State and local law enforcement

agencies to discover and document predatory practices without the

burdensome need for instituting suit or obtaining discovery.

Every document that a foreclosure plaintiff files should be served

on the homeowner who is at risk. For example, the Report of Sale

is not served on the homeowner and is not uncommon for a homeowner to answer their door and just have a stranger tell them ‘‘I

just bought your house and you need to leave.’’

Increased transparency will enable distressed homeowners to

better defend their homes and better plan for their future.

Increased Federal oversight and enforcement is also needed.

Much of the subprime predatory lending that helped trigger this

crisis could have been avoided had there not been lax enforcement

of the Fair Housing Act and banking regulations.

Again, I want to thank you for being here in Baltimore, a city

that has been tremendously impacted by abuses in the mortgage

industry. I hope that this committee hearing serves to be fruitful

in your efforts to correct the wrongs.

[The prepared statement of Mayor Rawlings-Blake follows:]

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Chairman ISSA. Thank you, Mayor.

I want to particularly thank the city of Baltimore for having us

here.

And Governor, I’ll start with you. The committee has, and somewhat to the mayor’s statement, been working to try to create transparency in Government. On a bipartisan basis we tried to interject

open standards into the Dodd-Frank bill that passed last year, and

failed. Congressman Frank and others have offered to help us to

get it through this Congress, and we intend to get through data

standards that would allow for anyone who wants to give an access

either individually or for statistical purposes to be able to very

transparently get all of that information.

One of the things that our earlier hearings showed us was that

in fact there is no standard for submission so that you have to go

bank-by-bank. And unless somebody wants to pay the bill to consolidate all these divergent standards and get, if you will, the credit score lined up between different loan organizations, you’re not

going to get there.

But, Governor, you mentioned HAMP in your opening statement.

As you know, the HAMP program is highly flawed. By its own testimony it’s not getting to its goals and the servicers make it very

clear that the only people that are getting permanent loan modification are people that would get it without HAMP program, even

though it’s cost $30 billion. And, yes, we have that under oath.

So, my question to you is as Congress looks at how to spend the next $40 billion of a $70 billion program, shouldn’t we consider

making the HAMP the loan modification of last resort and not

first? Cause all people to go through and be refused loan modification and then only if they’re unable to get it through ordinary

means at the bank’s own expense, the bank’s servicers’ benefit,

should they be able to come to the Government? Have you considered that in order to try to narrow the basis down to those who

would not otherwise get a loan modification?

Governor O’MALLEY. I know there are probably other people on

the panel who can speak with greater situational awareness on the

ground. It’s my understanding that in the absence of any sort of

lender responsibilities or penalties for lender deviation from the

HAMP guidelines, that it’s not being maximized to its greatest degree.

I think one of the recommendations that our staff has is that

there be a one-step modification rather than a two-step modification. I take it the chairman’s talking about maybe a third step?

Chairman ISSA. No, Governor. Currently the servicer gets no

money for doing a trial loan modification. It’s all on their back. So

as they go through the process to decide whether or not somebody

could be eligible for loan modification, they get no funding, nothing

comes out of HAMP. Once they do a permanent loan modification,

then that $30 billion that we’ve obligated comes into play.

So, in our case what we’re finding is is that’s what most criticized is the portion that HAMP doesn’t pay for, which is the trial

modification. Initially the trial modifications modified everybody,

everybody got in. Later on they decided that a lighter loan, coming

back to be a lighter loan application wasn’t a good idea. Then you

should have to before you get into the first step, have some subVerDate 17-JUN-2003 13:08 Oct 28, 2011 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\70519.TXT KATIE PsN: KATIE
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stantiation that you have real tangible income on which you might

be able to have a loan modification. So they’ve made changes, but

it still comes down to HAMP as the first step; everybody goes and

says ‘‘Am I eligible for it?’’ and makes the application. And 6

months, as you said, or more goes by before they find out yes they

are or no they’re not. In the meantime, the system is essentially

stalled.

So, I won’t belabor the point, but for both of you as Congress considers changing or canceling HAMP, one of our questions is clearly

going to be: Should HAMP exist, and if so, should it only apply to

those who otherwise would not get a modification versus paying the

banks who shift through about a 3–to–1 ratio or so, about three

don’t get it for every one that does. And then we find that the ones

who get it are the ones who would have gotten it anyway. They

didn’t need a Government bailout to get it.

Mayor, you mentioned the 40 percent of homes which were basically income properties that have been put through foreclosure.

From your knowledge do you have a program or can the Government have a program that causes those renters’ money to go to the

actual mortgage company? Because I assume that the renters’

money is being diverted by the mortgage holder, or mortgagee.

Mayor RAWLINGS-BLAKE. Mr. Chairman, that is something that

we have been looking into. Prior to being mayor, I was the President of the City Council and this issue we’ve been working on since

that time. So over a year to try and protect the money that the

renters are paying with no protection.

As you can expect, we met significant opposition from the banking industry, you know who has control over that money.

Chairman ISSA. But I assume the banks would love nothing more

than for the renters’ money not to be diverted so they could at least

be getting something for the home, where in most cases the actual

borrower once they know they’re going into foreclosure, simply

keeps collecting the rent and not paying it. This is something we

ran into in our Cleveland investigation 4 years ago.

Mayor RAWLINGS-BLAKE. Yes. One of the problems that seemed

to come up was that the banks felt like then they were dealing

with two mortgage holders; one with no real responsibility to the

mortgage. That while they were dealing with one mortgage holder

that was in default, another one was attempting to pay and the efforts weren’t connected. That there was no way for the—you know

if there was money that originally the landlord didn’t submit, that

there could have been a gap and then the bank wouldn’t be able

to close that gap if there was some lapse. So I would love to hear

more about what happened in Cleveland to fix that problem because it is a significant issue in Baltimore City. So if there is a way

to make sure that the banks are on board, it would be helpful.

Chairman ISSA. I appreciate that.

And I don’t want to monopolize your knowledge, so with that I

recognize the ranking member for his questions.

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

I just want to go back to some of things that you talked about.

The chairman talked about the HAMP program. And one of the

things that we on the Democratic side are most concerned about in

Congress is that if that program is eliminated as opposed to, as you

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said, I guess to borrow an old expression ‘‘mending-and-not-ending,’’ what recourse do people have? That is our problem.

In other words, I think that all of us agree that, as you said, the

program needs be retooled. But you would not, I’m sure that you

are not an advocate for having nothing there?

Governor O’MALLEY. No, not at all. I mean, it would be a miraculously occurrence if a Government program were operating at 100

percent proficiency and performance less than a year or two after

its creation. I mean, there are some programs that have been

around for many, many decades and I think we can all agree that

they can be improved.

But there are approximately 22,000 modifications that have been

made, 4,500 I’m told are active trial modifications, 17,000 are permanent modifications. So that’s 22,000 households in our State

that have been helped by this in Maryland, and that’s for over the

course of this I think just this last year. I think we’re only now

starting to get on top of this wave that had the mortgage companies so utterly underwater themselves in terms of servicing this

problem that I think it would be a real mistake to back away right

now.

I think HAMP probably can be improved. I think monthly reporting and maybe some sort of standardization so that we know which

servicers are getting on top of this and which are not. And maybe

there’s a way that you can put some incentives in there for those

servicers that are actually doing the better job on their modifications.

Mr. CUMMINGS. You know this robo-signing issue, Mr. Governor,

I think here we are sitting in a law school I think that the mayor,

you and I graduated from this school.

Governor O’MALLEY. Me, too.

Mr. CUMMINGS. And the Governor.

Chairman ISSA. I’m the odd man out I’m afraid.

Mr. CUMMINGS. And the question is, you know last fall the Nation’s largest mortgage servicing companies admitted to robo-signing; tens of thousands of affidavits in foreclosure cases falsely

swearing to the accuracy of information that they never actually reviewed.

Governor, you and I took immediate action to protect Maryland

homeowners of this abuse. We wrote to these companies and asked

them to suspend foreclosures here in Maryland.

Even though they halted foreclosures in 23 other States they refused to stop faulting them in Maryland, is that right?

Governor O’MALLEY. Pardon. This Mark Kaufman, who is

our——

Mr. CUMMINGS. Yes, I know Mark Kaufman will be here in a

minute. But what impact do you think that had?

Governor O’MALLEY. I believe it’s had a tremendous impact. I

think the two things—and it’s hard to separate out which one was

most responsible, but roughly at the same time our mandatory mediation requirement kicked in and shortly thereafter the robo-signing problems arose and many of the large servicers halted their

foreclosure proceedings in Maryland.

34

It’s resulted in a 60 percent reduction since last year of foreclosure actions in our State. As I said, it’s hard to separate out the

two.

Mr. CUMMINGS. Yes.

Governor O’MALLEY. But I do think putting families on an equal

footing with the mortgage servicers and forcing them to come to the

table in front of the judge or judicial officer before they can go forward with the foreclosure is really, really important. How tragic

that this apparatus, this sort of meat grinder of home ownership

destruction continued to go unchecked and even accelerate in the

course of this recession. If anything, it should have been slowed

down, and I think we have found a way to do that now. But the

modifications are still very much a work in progress and we need

the Federal Government at the table in order to force the mortgage

servicers to stay at the table.

Mr. CUMMINGS. Madam Mayor, in Baltimore we have a fragile

situation where we’re trying to make sure that the city neighborhoods are strong. You talked about the number of foreclosures. A

lot of people don’t realize how much foreclosures bring down property values and affect a city’s ability to function. Can you just talk

about that for a moment?

Mayor RAWLINGS-BLAKE. It’s significant. I mean, there are things

that we can measure, like the amount of property tax loss in 2010.

We lost almost $14 million due to the foreclosure crisis in Baltimore City, and that’s what we can measure.

There’s also intangibles. You know, the impact, the continued impact of blight in the vacant properties when these homes go vacant,

what that means to a community, how that drags down property

values and creates unsafe neighborhoods.

We’re struggling in Baltimore with a significant amount of vacant properties, investors that come in, purchase properties and are

sitting on them. We’re tackling that, and added to that is the issue

of the foreclosure crisis and the vacancy that’s creating. So, you

know it’s layering on intractable problems.

Mr. CUMMINGS. I see my time expired. I yield back.

Chairman ISSA. I thank the gentleman.

We now recognize the gentleman from Michigan, Mr. Walberg for

5 minutes.

Mr. WALBERG. Thank you, Mr. Chairman.

And Mr. Governor and Madam Mayor, thank you so much for

your hospitality and having us here. I’ve always enjoyed my time

spent in Maryland or Baltimore, and it’s good to come back this

morning early enough to miss the traffic jams as well.

Coming from Michigan, we understand foreclosure well and economic hard times.

Mr. Governor, you mentioned in your statement several times

this morning your support for HAMP and realistically a Government program that isn’t perfect. But in looking at some of the figures that I’ve had in front of me, nationwide HAMP has resulted

in just over 539 permanent modifications as of January of this

year, but has also resulted in 8,800 cancellations. Homeowners

whose HAMP modifications, and I think this is a significant problem, are canceled often end up worse than if they had never been

part of the program in the first place.

35

In your testimony you mentioned the creation through HAMP of

22,000 permanent modifications in Maryland. How many temporary modifications have been canceled in Maryland and how

many permanent modifications, if you have those records, have

been canceled in Maryland?

Governor O’MALLEY. Congressman, the numbers I had in front of

me and as I look over my shoulder here at my able staff who are

looking over their shoulders——

Mr. WALBERG. I’m not looking over mine.

Governor O’MALLEY. The numbers I had in front of me was by

the end of January, I had 4,000—I don’t have the cancellations. I

have 4,545 active trial modifications and 17,483 permanent modifications for a total of 22,000. I do not have numbers in front of me

on cancellation.

Mr. WALBERG. It’s similar to the rest of the country, if those figures hold. But we do not know the cancellations.

Governor O’MALLEY. Well, we might be able to find that if someone would consult the State satellite.

Mr. WALBERG. Well, the concern is what happens to those people

whose temporary and permanent modifications are canceled. Because, indeed, if it’s like the rest of the Nation, it appears that as

a result of being given the hope and yet for one reason or another

not following through they end up in a worse situation than before

having spent money in the process, continued on mortgage payments as opposed to the foreclosure completing and go on with life.

So, it would be interesting to have those numbers, but if they’re not

available to you at this time, let me move on and turn to the

mayor. Again, appreciate you taking the time to be here.

It has been stated several times during the course of testimony

this morning that the recent robo-signing scandal is a symptom of

an industry crises. Simply put, the scandal illustrates another

symptom of an industry that needs accountability and transparency. The Governor stated that very clearly as well in his testimony.

Nevertheless, in looking at this situation Treasury’s own reviews

suggest that even if servicers’ performance was perfect, which it

won’t be, HAMP’s results would not improve significantly. Under

Treasury’s Second Look Program, Treasury’s compliance agent reviews a statistical sample of homeowner loan files that were not

chosen for HAMP modifications. For the second quarter of 2010,

the most recent period for which results are available, Treasury’s

agent only disagreed with servicer actions 2.4 percent of the time.

And so my question is do you believe that HAMP’s results would

improve significantly if servicers’ compliance was better, and how

so?

Mayor RAWLINGS-BLAKE. Yes. I am not an expert on the fix. I am

an expert in the impact of the problem.

I anecdotally have heard so many times in community meetings

that I go to all throughout the city where people feel that they have

been working on a modification, but in essence it is being dual

tracked. So they are thinking that they are working on a modification but at the same time aggressive foreclosure is being pursued

at the same time.

36

I mentioned about the lost documentation and people really

being strung along. These are the things that I know about.

As far as the regulatory fix, I am sure that they are coming to

testify much more seasoned people that give you recommendations

on the fix. I can speak about the problems I hear from my constituents.

And people are being lied to. They are being given false hope.

And they are depending on the word of these financial institutions

to the detriment of themselves and their families, and as a result

to our communities and our city. So that’s what I know the problem is. And my hope is we can get to a solution.

Mr. WALBERG. Thank you.

I yield back.

Chairman ISSA. I thank the gentleman.

We now recognize the gentleman from Massachusetts, Mr.

Tierney for 5 minutes.

Mr. TIERNEY. Thank you, Mr. Chairman. Thank you for having

these hearings.

And thanks to Mr. Cummings for having these hearings and

doing the work that he’s doing on this subject as well.

Governor and Mayor, thank you for the work that you all do. I

think Maryland and Baltimore has done quite well in comparison

to other parts of the country on this very perplexing issue.

This is an industry that didn’t cover itself in glory when it led

us into the financial crisis that we’re in today, and it is certainly

not covering itself with glory as we try to get out of it.

And I understand the HAMP program is not perfect. I am as

frustrated or more frustrated than anybody with its imperfections.

The question for us pretty soon, this week in fact, is going to be

whether we leave the banks on their own and we have pretty much

seen where that’s led to, or whether we try to get a system in there

that works to help the homeowners. Because, Mayor, like you Mr.

Cummings’ office staff and through all my colleagues’ staffs, my

staff are pulling their hair out trying to help people who come in

desperate. We have a holdover from a previous administration in

the head of the Office of Comptroller of the Currency that seems

to be more concerned with the banks then he is with homeowners.

We have the Federal Housing Finance Administration that I

think is not doing its job in terms of the conservatorship with

Fannie Mae, Freddie Mac. If they were, they would insist on some

of the principal on that basis that would better protect the taxpayer and investors than letting them go to foreclosure.

So there is a lot of work to be done in this area, and I thank you

for your efforts.

Governor, there are 50 States, and Maryland is one of them involved in court action. And there is talk in the newspapers of the

amount of money that banks, servicers may be forced to come to

the table with.

Elizabeth Warren, who is the Consumer Protection Advocate, obviously just recently appointed by the President, thinks that $20

billion is not enough. Do you have a position on what your State

will be arguing in those settlement proceedings as to what ought

to be an appropriate amount of money for the people to come to the

table on, or do you know?

37

Governor O’MALLEY. I do not, Congressman. I have left that to

the Attorney General.

Mr. TIERNEY. All right. Well, do you have a feeling of what

standards ought to be put in place? What ought to be placed into

that lawsuit that these services and banks have to comply with to

make this system work better?

Governor O’MALLEY. I think that there needs to be, and not only

the openness and transparency with regard to underwriting standards, standards for a modification, there needs to be some strike

zone, if you will, that is easily understood in terms of the ratios so

that we’re not recreating the wheel every time we get somebody to

answer the phone.

And second, I also believe that there needs to be some enforceable period of time, some timeframe within which a person should

expect their modification to be reviewed, approved or disapproved.

And I think those two things are the most important things that

we can achieve.

In the suit I suppose you can load up with the penalties and the

like, but at the end of the day I mean I think there really should

be some expectations and some enforceable way to make these

mortgage service companies protect consumers, respond to consumers, be able to make the modifications or not make the modifications. And that is what’s been lacking in all of this.

Mr. TIERNEY. Mayor, do you have an opinion as to how valuable

HUD’s program for unemployed homeowners would be, the opportunity for them as of the Dodd-Frank Act for them to receive some

stipend to carry them through at least 24 months if necessary until

they get reemployed and until they can handle their mortgage

again? Is that a factor here in Baltimore?

Mayor RAWLINGS-BLAKE. Any subsidy that we can get to help

bridge unemployed individuals to employment is helpful in Baltimore. Anything. So if it is the Act that you were talking about or

unemployment insurance, all of those things are significant factors

in helping people stay in their homes, helping people get to a point

where they can get reemployed. It takes time.

We have programs that work to retrain individuals. We are investing in workforce development, also in emerging technology. But

you can’t walk out of one job and go into another that requires specialized training. So these things are helpful.

Mr. TIERNEY. I should put you on alert. Thank you for your answer. Put you on alert that if the budget process that was a couple

of weeks ago put through, you will not have that work force training program to worry about because $3 billion sliced out of that is

going to shut them down. One stop shots on that. So, we have——

Mayor RAWLINGS-BLAKE. Our employment development——

Mr. TIERNEY [continuing]. Got some work to do on that part as

well to help out cities and towns on that.

Mayor RAWLINGS-BLAKE. Yes.

Mr. TIERNEY. Let me just say, I think I am still an advocate and

always have been of a clamp down process on this. Until the banks

have some incentive to write down some of the principal and treat

this thing honestly, we are all going to be in a lot of trouble on this

situation. My contention is that if a bankruptcy judge had the authority to do that, it would never get to that point. That these

38

banks would finally wake up and go to the table and negotiate with

these people. But they are not going to do anything voluntarily. I

think they have shown that quite clearly.

Thank you.

Chairman ISSA. Thank you. I thank the gentleman.

Recognize the gentleman from Vermont, Mr. Welch for 5 minutes.

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

thank you for having the hearing. Thank our witnesses.

Representative Cummings has been the leader in Congress in focusing attention on what the impacts are in neighborhoods when

we lose that base of homeowners. And both of you have spoken

quite eloquently about it.

But I also actually think, Mr. Issa, you have a point about the

HAMP program. If it is not working, the question is why.

And I was interested, Governor, when you testified that you have

had success in reducing the foreclosure rate by 70 percent. So you

seem to be doing something right that the HAMP program isn’t.

And when I think about how practically to deal with this, which

you all are on the front line of. The bottom line seems to be somehow, some way there has to be the mortgage servicer with authority to say yes or no. And this is where I think Congressman

Tierney has a point. One of the reasons I have supported the bankruptcy provision is that it is the only way to force a decision. And

it seems that one of the biggest problems in getting to a practical

resolution is that these mortgages have been issued, then they

have been bundled, then they have been sold to investors and they

have been sliced and diced. So some investors who are in the front

of the line before prepayment are going to do Okay, some at the

end of the line won’t. The servicer is caught between its obligation

to these various owners of the packages of securities that they are

mentioning. So they literally do not even have the ability to say yes

to a reasonable deal. And unless, in my view, we deal with that so

there is a party in the room who can say yes to a good deal, however much counseling we provide people it is not really going to

work. So the only way I know that would work is with bankruptcy,

and that is a contentious debate within Congress because it does

raise some policy questions. But I have always supported it because

it is the only practical way to get from here to there with an answer. And I just wanted to ask each of you whether that would

help you in your efforts to try to stabilize and revive these neighborhoods where you’ve got your citizens doing their best to hang

on.

Governor?

Governor O’MALLEY. That is on the bankruptcy, Congressman?

Mr. WELCH. That is right, just as a tool to help you?

Governor O’MALLEY. Well, I think it would be very helpful. In

fact, had that tool been in place we would not have had to put into

place a mandatory right for mediation with those who now handle

it at the Office of Administrative Hearings in our State, and the

same entity that provides administrative law judges that preside

over traffic matters and other sorts of regulatory things.

Mr. WELCH. Right.

39

Governor O’MALLEY. But I think I had been of the belief that because of the slicing and dicing it was nearly impossible to get people with authority in a huge percentage of these. And that has not

been our experience, and perhaps our banking commissioner or

other people that follow in the subsequent panels.

I think the bigger problem is not the lack of authority, it is the

lack of them being present. It is the efficiency with which the court

system kind of grinds through this foreclosure process versus the

thought and the staff work required to send someone to actually

make a decision. I think they actually had the authority, I think

they are choosing not to exercise the authority.

Mr. WELCH. Yes.

Governor O’MALLEY. And I think so long as they are able to

make money simply by churning and postponing any sort of reckoning, whether to write down in the principal or some other modification, I think they are going to do that.

Mr. WELCH. So do you have some suggestions of some steps we

could take at the Federal level to help that happen? Because,

again, I think there is some fair criticism of the HAMP program.

If you just can’t get to a resolution, then that is a fair criticism.

Because the goal here is not just to have another Government program. The goal is to help folks stay in their homes. So do you have

some concrete suggestions on what we could do that might help you

be successful?

Governor O’MALLEY. I think the bankruptcy suggestion that both

of you have talked about and giving the courts the authority to pull

them in, I think that would be a step in the right direction. I think

in the meantime, otherwise you are going to see a different circumstance in every State and they are just going to kick the ball

down the road hoping that it is better when they wake up another

year from now.

Mr. WELCH. Okay. Thank you.

Mayor?

Mayor RAWLINGS-BLAKE. I agree. I mean I think in your opening

you made it clear, I mean you made the point. There needs to be

someone in the room that has the authority to make the decision

and they are not doing it on their own. I think it would be helpful.

I agree with the Governor.

Mr. WELCH. Would we have to give some help to the mortgage

services if they are caught between competing interests of the various mortgage holders that if they make a prudent decision in the

interest of the overall resolution, that they would have some protection against liability by one tranche of the security? I don’t know

if they’ve been clear on that.

Governor O’MALLEY. No, I——

Mr. WELCH. You got a mortgage servicer and there might be six

of us up here who each own one tranche. And Congressman

Tierney’s tranche might be more jeopardized than Congressman’s

Cummings if the mortgage servicer settles. So the mortgage

servicer is not so much worried about the judge or anyone else, he’s

worried about getting sued by one of the security holders. And my

question is: Would it make sense to give some legal protection to

the mortgage servicer so that if they made a prudent financial deciVerDate 17-JUN-2003 13:08 Oct 28, 2011 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\70519.TXT KATIE PsN: KATIE
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sion in the overall interest of that security, they would not have to

fear retaliation or suit?

Mayor RAWLINGS-BLAKE. I think if you do not, you are not really

giving the authority.

Mr. WELCH. Yes.

Mayor RAWLINGS-BLAKE. If they are acting or not acting on a

fear that they are going to be sued, we are not really given the tool.

Mr. WELCH. Right. Okay. Thank you.

I yield back.

Chairman ISSA. Thank you.

Mayor, Governor, you have been very generous with your time.

Would you mind one or two follow-up questions.

Governor O’MALLEY. Sure.

Chairman ISSA. One of them is for the record. Our committee

cannot find one criminal prosecution that we can say this servicer,

this mortgage company as a result of this meltdown after the fact,

if you will, has been prosecuted.

You know, in the savings and loan we had bank presidents, all

kinds of people, who went to jail.

If you don’t mind, particularly Governor, if you can enlighten us

for the record on any prosecutions for the misconduct leading to

these loans. Because we are not finding them and it is one of the

questions for the committee is: If so many bad things happened on

the way and if so many people were misled and so on leading to

them having a mortgage that now is ruining their lives, we would

like to know about any of those prosecutions. We figured if there

are going to be prosecutions, it probably would have happened by

now.

The second one, Governor, since you are a graduate of this law

school——

Governor O’MALLEY. Ah-oh.

Chairman ISSA [continuing]. Mortgage law is completely State,

right?

Governor O’MALLEY. Mortgage law is completely State.

Chairman ISSA. In other words, bankruptcy law is completely

Federal. We reserve that in the Constitution. But cramdowns within mortgage law, recourse, nonrecourse; those parts of contractual

law are within the purview of your State. And the reason I ask

that is you would have the ability to effectively create, for example,

a right of a homeowner to match the lowest price at the time of

the sale. You would have that right within the State.

So we often—inaction is one of the things we do well in Congress.

The other is overreact. So, assuming we are going to do the former,

inaction in on bankruptcy reform, do you not have the right to create a mortgage law that would allow the homeowner to effectively

get the equivalent of cramdown, meaning getting the actual value

of the property at the time that it is going to be liquidated, put

them first in line so that they, as long as they can go find a new

lender, a new source they would have that ability. Because the theory of joint venture that used to be in cramdown was eliminated,

and it is not likely to come back. Meaning that when I was in private life we often had contractors, people building massive real estate structures, they had the theory that if it won they got the profVerDate 17-JUN-2003 13:08 Oct 28, 2011 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\70519.TXT KATIE PsN: KATIE
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it and if it lost, the bank shared in the loss. And that was what

bankruptcy reform fixed in the early 2000’s.

Getting back the idea that you are in a joint venture; that heads

you get the appreciation in your house and tails you lose is unlikely, even if we did bankruptcy reform. So my real question, and

it is kind of an open-ended question, is don’t you have the authority

to do more at the State level someplace in which you have shown

a willingness to do it quicker than the Congress?

Governor O’MALLEY. Well, we are certainly open to doing everything at the State level. I mean if we see these start ticking up,

we will be back to the drawing board right away.

And I believe that in a crisis like this unprecedented maybe only

one other time in our country’s history, that if our Government

cannot get off its haunches and put on the gloves and get into the

ring to protect home ownership when it is under threat like this,

then I mean none of us really have any business being in public

service if we cannot get into the ring to fight for homeowners in

this crisis.

Chairman ISSA. I agree with you, Governor.

Anyone else have a followup question?

Mr. CUMMINGS. I want to just go back to my colleagues, Mr.

Tierney and Mr. Welch. You know, it is interesting, Mr. Welch

talked about in questioning you, Governor, with regard to getting

people together, in other words getting the banks together with the

borrowers, the servicers together with the borrowers.

And for the record what we do in our office, we have a person

who spends her entire day 5 days a week, sometimes 6, just bringing together—I think we all do—bringing together the servicer together with the borrower. And a lot of the problems you have already stated, and I know Mr. Kaufman in his excellent testimony

that I have read will talk about it even more. But we have a situation where people are being, as you said, Madam Mayor. I know

you hear about it. We experience it in our office. We see it everyday. People being lied to. Borrowers are placed in a situation where

they call the mortgage company and they get one person one day—

well, first of all, they get nobody. And then eventually finally get

somebody on the phone and they’re transferred to somebody else,

somebody else, their paperwork is lost. We have even had instances, Mr. Chairman, and Debbie Perry who is sitting over here

in my office deals with this everyday.

We have had situations where paperwork has been sent to

servicers four and five times and they claim they never got it. And

then they turn around, Mr. Governor, and we send them from our

office and they claim they never got it.

So, you know there is a phenomenal abuse. And you are right,

Mr. Governor, I thank you for saying what you said. We can do better. We can do better as a Nation. We have to protect home buyers.

And this is the greatest transfer of wealth that I have ever seen

in my life. And the middle class, we claim we are fighting for the

middle class. If the middle class loses their homes, which is their

number one investment, then we are in great trouble in this country if we plan to have a middle class.

And so, I just wanted to add on that to what the Chairman said.

Thank you, Mr. Chairman.

42

Chairman ISSA. Thank you.

Mr. Tierney.

Mr. TIERNEY. Well, I am going to ask all the witnesses here to

contact the White House, contact Secretary Geithner, Secretary

Donovan on that and talk to them a little bit about the situation.

The Federal Housing Finance Agency now has oversight authority over Fannie Mae and Freddie Mac. Fannie Mae and Freddie

Mac hold a very high percent of all the paper of loans that are resold in this country. As oversight authority, the Federal Housing

Finance Agency is charged with taking actions necessary to put the

regulated entity, that would be Fannie Mae and Freddie Mac, in

a sound and solvent condition and to preserve and conserve the assets and property of the regulated entity. They have refused, FHFA

has refused to allow Fannie Mae and Freddie Mac to engage in

principal reduction. All they basically have to do is turn around to

these recalcitrant banks and servicers and say ‘‘We are not going

to buy your paper until you take care of those homeowners that are

in trouble.’’ And they would in fact then be better servicing Fannie

Mae and Freddie Mac who represent the investor in this case, the

taxpayers, because you would get more out of a modified loan in

most cases than you would on a foreclosure.

So, I invite you to add your voice to the White House and to the

administration, particularly to the individual that is heading up

FHFA right now, who I thought the President probably ought to

show the exit to and find somebody to replace them until they start

getting aggressive and start dealing with it.

I just add that to the record. Thank you, Mr. Chairman.

Chairman ISSA. Thank you.

The gentleman from Michigan, Mr. Amash.

Mr. AMASH. No. Thank you.

Chairman ISSA. Okay. Thank you.

Mr. AMASH. Thank you, Mr. Chair.

And thank you for your testimony today.

Mr. Governor, the question I have is HAMP was designed to assist homeowners whose payments are increased but who still have

an income and are able to make payments. You testified today that

the face of foreclosures has changed due to joblessness. What solutions to the foreclosure crises, if any, are possible without a broadbased economic recovery?

Governor O’MALLEY. None. Everything we hope to do as a Nation

depends on our recovery.

Mr. AMASH. And what solutions are you suggesting for a broadbased recovery?

Governor O’MALLEY. Broad-based recovery? I believe that we

need to balance and move forward at the same time. We cannot be

the first generation of Americans that responsibly refuses to invest

in our own time in our infrastructure, not only our highway, our

transportation infrastructure including high speed rail, but also

cyber infrastructure and broadband to connect all of our smaller

communities and our small business with this new economy.

I believe we need to invest in the education of our children.

And I believe that rather than slashing and cutting research and

development at places like NIH, which truly makes us a moral

leader of this world, we should be increasing those investments beVerDate 17-JUN-2003 13:08 Oct 28, 2011 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\70519.TXT KATIE PsN: KATIE
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cause in a knowledge-based economy those are the things that education, the innovation, the rebuilding of our infrastructure which

creates a strong and great economy.

How sad, how very, very sad that China invests a larger percentage of its GDP in its infrastructure than we are able to in the

United States of America. What a national shame that as fewer of

our people are receiving a college education that we would be

slashing Pell grants and putting college further out of the reach of

hardworking middle class families. I think we are better than this.

I think we have better days in front of us, but not if we continue

to try to hack and cut and slash our way to a better future. It does

not work like that.

If you have ever tried to stay up on a bicycle very long simply

by balancing, you are going to fall over. You have to pedal forward.

And that is what we need to as a country. We need to balance but

we also need to pedal forward.

Mr. AMASH. And what would you suggest regarding our current

debt crises that we face in this country?

Governor O’MALLEY. Fifty-five percent of deficit by 2019 will

have been caused by Bush-era tax cuts that disproportionately benefited the wealthy 1 percent of Americans. That 1 percent now

claims a greater amount of our Nation’s wealth than it ever has

since, say, 1929, I do believe. So that is 55 percent of that deficit.

Another 13 percent of the driver is a series of desert wars which,

for whatever reasons, we have chosen to finance on debt rather

than paying as we go.

So an economy that comes back is an important part of attacking

that deficit. The other important part of attacking that deficit is to

bring into light the spending curves. Not slamming on the brakes

of the recovery and causing us to plunge back through another double dip, but bringing the cost curves into line.

It is amazing to me with all the debates that go on in Washington, we act like tax cuts for the wealthiest 1 percent do not cost

money. They do. Let’s get a handle on that, shall we?

Social Security is not out of whack. Everybody rattles their sword

about Social Security and if we all need to go back to the days of

Coolidge and Hoover, let’s go back to the days of rational fiscally

responsible budgeting where we do not act like tax cuts for the

wealthiest 1 percent do not cost all of our Nation a lot in terms of

our economic competitiveness, our infrastructure and our ability to

move forward as a people. I think we need to be a lot more forthright and honest about the costs of all of these things and wake

ourselves up out of this wonderland world where we pretend that

tax cuts for the wealthiest 1 percent of Americans do not cost the

Nation money.

Mr. AMASH. So to summarize, your solution would be to raise

taxes?

Governor O’MALLEY. No, that is not my solution. And that is not

what I said. Although sometimes it does require a combination of

those things.

I mean, in our State we are one of eight States that still has a

AAA bond rating. And you know what Congressman? We also have

the best schools in America 3 years in a row. Everyone in our State

was willing to pay another penny on their sales tax in order to be

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the only State over these last 4 years that went 4 years in a row

without a penny’s increase to college tuition for people.

You get what you pay for in this world. It is true in the America

of our grandparents, it is true in our America. And we owe to our

kids to not be the last great generation of Americans.

I think this country is not only worth fighting for, I think it is

worth investing in. And I think a majority of the people of this

country still believe that.

Chairman ISSA. Thank you very much.

You know, it is fitting that we should end on you get what you

pay for. Others paid for you to be here today. I want to thank both

the Governor and the mayor for kindly giving us far more time

than we originally scheduled.

And with that, we are going to take a 5-minute recess.

[Recess.]

Chairman ISSA. We’re joined now by three additional witnesses.

Mr. Mark Kaufman is Maryland’s commissioner of financial regulation. Mr. Kevin Jerron Matthews is an Air Force veteran and

Maryland homeowner who has experienced mortgage lender abuse.

And we’re being joined by Ms. Jane Wilson, she’s the Chair of the

Board of St. Ambrose Housing Aid Center here in Baltimore. St.

Ambrose is a housing counseling agency founded in 1968. And I

might note for the record that we have now received your opening

testimony, so that will complete the record. And I want to personally thank you, Ms. Wilson, for coming in. You were a last minute

inclusion, and I appreciate your coming here today.

Pursuant to the rules of the committee, if you could please rise

to take the oath?

[Witnesses sworn.]

Chairman ISSA. The record will reflect that all witnesses answered in the affirmative.

Now I am going to announce because you were all here patiently

on the previous two dignitaries, that the rules of the committee are

that opening statements will be for 5 minutes. Your entire written

statements will be placed in the record. And as my predecessor

Chair said, everywhere in America the green light means keep

talking and the yellow light means wrap up and the red light

means stop. So, if you could observe that, it would be very much

appreciated. I know there will be a lot of followup questions and,

again, your full statement will be placed in the record.

With that, we will first go to Mr. Kaufman.

STATEMENTS OF MARK A. KAUFMAN, COMMISSIONER OF FINANCIAL REGULATION, MARYLAND DEPARTMENT OF

LABOR, LICENSING AND REGULATION; KEVIN JERRON MATTHEWS, HOMEOWNER; AND JANE WILSON, CHAIR OF THE

BOARD, ST. AMBROSE HOUSING AID CENTER

STATEMENT OF MARK A. KAUFMAN

Mr. KAUFMAN. Thank you. Chairman Issa, Ranking Member

Cummings, members of the committee, thank you for the opportunity to testify today.

My name is Mark Kaufman and again, I’m the State’s commissioner of financial regulation.

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As the Governor has described, foreclosure issues have been a

focus for those of us at the State level for years. They are more

than numbers or percentages, they are phone calls, letters and

emails from constituents with desperation revolving around their

situation and scams that evolve within the crevices of the law.

With the Governor’s leadership the State has taken significant

steps to address the problem reforming the entire foreclosure process and more recently implementing a mediation program.

As commissioner my office has also played an active role.

We have used delinquency data that we received to send over a

quarter of a million outreach packages to severely delinquent borrowers.

We have launched an examination program that has resulted in

hundreds of thousands of dollars of refunds to consumers.

And we have also implemented a reporting requirement, at the

time the first of its kind at the State level, for licensed mortgager

servicers.

When we required servicers to report not only data, we required

them not only the number of modifications that they were achieving but the impacts of those modifications on the borrower’s monthly payment. Shockingly, the early results documented that for most

of the borrowers who successfully ran the gauntlet of modification

they wound up paying more when they were finished then when

they started. These modifications seemed doomed from the start.

When the Federal regulators began to collect data we urged them

to also collect data on the impact on payment. It took more than

8 months and several requests from our congressional delegation,

including from Congressman Cummings, before the OCC agreed to

collect data on payment terms.

Our office is also targeted with other States. Together with four

other banking commissioners we joined 12 State Attorneys General

in 2007 in the State Foreclosure Prevention Working Group led by

Iowa’s Attorney General Tom Miller. The group published five reports between 2008 and 2010 and forms the foundation for the

robo-signing investigation which I will describe in a moment.

Many of the problems that we face today are a function of

changes in the mortgage market. Today, as you know, most mortgages are originated, secure tied, sold and serviced by different parties. This unbundling process may reduce costs and increase efficiency, but it has also fragmented roles, distorted incentives and

severely complicated the effort to avoid preventable foreclosures.

In theory, servicing is a scale business. This is certainly true

when things are going well as automation created profits while

driving down costs. When the mortgages began to default, however,

the situation flipped leaving servicers without the expertise, the resources and the incentives to meet the new need.

To make matters worse, the same economies of scale drove consolidation. The percentage of the market in servicing handled by

the top five servicers in this country has doubled over the last 10

years to over 60 percent. Beyond the increased management challenge of operating these behemoths in a crises, they’re virtually all

owned by the major banks, the same banks which are too big to

fail. I believe this results in a market that is particularly ill suited

to reprice in order to meet elevated needs. After all, the current

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provider never goes bankrupt and the process of restoring reasonable returns for a well run and operated business is impaired, in

large part at the expense of the homeowner who has no choice in

who his servicer is. The invisible hand is essentially broken.

These issues were thrust into the public eye with the recent robosigning scandal. As the Governor’s described, the response in Maryland was swift. Our elected officials, including the Governor and

Congressman Cummings, called on the servicers to halt foreclosures until their processes cold be validated. Our courts implemented new rules on an emergency basis. My office, through the

working group that we were part of, joined the 50 State AG investigation along with 37 bank regulatory agencies. I am proud to

serve on the Executive Committee of that investigation.

Without going into the details, let me make the following observations:

First, this is not just a technical issue. As our courts have noted,

due process and the rule of law are not to be trivialized. More

broadly the problems are symptomatic of the broken process that

has been described today. We have seen incomplete files, shady

record keeping and in certain instances inaccurate loan data. Third

party oversight is weak, as evidence by the improper affidavits that

we’ve see here in Maryland. And we continue to see borrowers getting mixed signals believing they are on the road to a modification

only to find themselves deeply down the road to foreclosure.

And these are not only our findings, by the way. The FDIC, the

Fed, the OCC have also publicly acknowledged similar issues.

The public senses the same problem, that is why the term ‘‘robosigning’’ has caught fire. It embodies everyone’s sense that while

servicers and borrowers are struggling along, the foreclosure is operating in the next room unincumbered.

As we look to the future, let me quickly talk about the things we

see as necessary.

Ultimately we believe that borrowers need a single point of contact in order to move through this process. We also need to have

servicers, these single points of process, need to be backed by adequate staffing and training and support infrastructure.

As I’ve noted, I question the profitability of the entire model, so

I believe those issues will have to be addressed by demands rather

then by requests.

And I also believe we need to increase accountability from third

party oversight.

None of this will be easy and none of it will be free. But as I

have mentioned, I believe that the invisible hand of the market will

not fix it, at least not in any near term and not without a lot of

continued human cost and economic costs.

I thank you for the opportunity to testify. We will be pleased to

answer any questions.

[The prepared statement of Mr. Kaufman follows:]

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Chairman ISSA. Thank you.

Mr. Matthews? Could you pull the mic just a little closer?

STATEMENT OF KEVIN JERRON MATTHEWS

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

my name is Kevin Jerron Matthews. I am here to talk to you about

the mortgage foreclosure that happened to me.

By the way of brief background, I’m a former high school JROTC

cadet, member of the U.S. Air Force and Maryland Army National

Guard and served with the 243rd Engineering Co. in Iraq.

In 2008 with the help of the VA Guaranty Loan Program I purchased my home on 3216 East Northern Parkway. When I purchased my property I had a good income. I was a contractor at Fort

Meade in the field of wastewater. I also made all my mortgage payments on time and everything was going Okay. But in December

2008 I was in a horrific car accident that made my previous injuries worse than war.

In February 2009 as a result of my injuries and resulting in continued absences from work, I was laid off from my job while I was

in the hospital. Realizing the difficulty to my situation, in an effort

to be proactive I contacted by mortgage servicer, USAA, to inform

them of my hospitalization, disability and anticipated financial

hardship.

I continued to contact USAA after my release from the hospital

and during my rehabilitation, and I continually thereafter keep

them informed of my situation and to see if I could secure any help

from them while I had no income, including the possibility of a forbearance or modification.

I made every effort to keep up my mortgage payment including

draining all of my 401(k), using my tax returns and short-term disability benefits. I also did not pay any other bills in an effort to

keep my mortgage current and depleted all of my savings.

In July 2009, I ran out of money and in August I officially went

30 days late. I continued to contact USAA in an effort to find a resolution to the delinquent payments on my home. I wanted desperately to save my home or find any other alternative to foreclosure. After contacting USAA more than 50 times over the course

of 12 months or more and retaining one of the best housing counsels in the State, USAA proceeded to sale on May 21, 2010 with

USAA not even looking at the mitigation package. On the phone

I was told they did not care and it was not their problem.

After the sale I obtained legal counsel with Civil Justice, Inc. and

the University of Maryland Law School Consumer Protection Clinic

and my lawyers filed a formal exception to the foreclosure sale with

the court.

While the exceptions were pending consideration of the court and

before the lender had the legal right to acquire possession of the

property, I was required to go out of town for an internship related

to my studies. I returned home to learn that my house had been

taken over by the lender without permission of the court and that

a lockbox had been placed on my front door and that all my personal belongings as well as that of my son’s had been taken from

the house by the lender’s agents who secured the house. In addition, as a result of the illegal lockout, I had to go find an apartment

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and buy all new furniture and clothing for not only myself, but my

son. To this date I have never received my property back.

After I obtained legal counsel with Civil Justice and the University of Maryland Law School Consumer Protection I also learned

that GMAC and not USAA owned my mortgage. Apparently to

what USAA had told the media, it permits GMAC to use its name

for customers like me so we don’t know the loan has been transferred.

I have also learned since the foreclosure my loan was a VA guarantee loan. The VA requires my lender to undertake loss mitigation

efforts prior to foreclosing on the loan, including a face-to-face

meeting, review of my loan and circumstances for modification. The

possibility of temporarily modifying my loan to allow my conditions

to improve, the exploration of the possibility of a deed in lieu as

an alternative to foreclosure and as a last resort only. None of

these things were done.

In the fall of 2010 when the national and State robo-signing

scandals came to light we learned that an individual by the name

of Jeffry Stephan had admitted under oath in a deposition that he

had signed tons of thousands of bogus affidavits used to initiate

foreclosure proceedings on behalf of GMAC and other lenders including my own foreclosure. Apparently Mr. Stephen never reviewed the required documentation and affidavits were falsely notarized without Mr. Stephen being present as required by law.

After the hearing we had attempted to secure the key to the lock

GMAC had illegally placed on the door of my home. However, they

never gave my counsel the keys and as a result, I had to break into

my own house. Unfortunately, the neighbors who did not know me

called the police and I had to explain this entire situation to them.

Luckily, I was not arrested.

Upon entering the house I found that the house had not been

properly winterized by the company hired by GMAC to discontinue

with the utilities. As a result, my sewage pipe and hot water heater cracked from the water expansion in the cold weather requiring

me to fix both in order to move back into the house.

Mr. Chairman, and members of this honorable committee, as a

member of the Armed Service I took an oath where I rose my right

hand and stated that I solemnly swore to support and defend the

Constitution of the United States against all enemies, foreign and

domestic; that I will bear true faith and allegiance to the same, and

that I will obey the orders of the President of the United States

and orders of officers appointed over me according to regulation

and the Uniform Code of Military Justice, so help me God. I did

all that was asked of me proudly and unreservedly. Today I am

here not to tell you my story, but to ask each of you that you will

assist not only me, but the tens of thousands of homeowners

throughout this country to receive the equal protections of the laws

and rights to due process that are guaranteed to each of us by that

very same Constitution that I was asked to defend.

I am an example of everything that can go wrong when lenders

abuse the system and not held accountability. Hopefully through

your actions, other homeowners trying to be proactive and do the

right thing that they will not have to endure what I suffered and

continue to suffer through each day.

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Thank you for your time and efforts to work together to find a

common sense solution.

[The prepared statement of Mr. Matthews follows:]

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Chairman ISSA. Thank you, sir.

Ms. Wilson.

STATEMENT OF JANE A. WILSON

Ms. WILSON. Chairman Issa, Ranking Member Cummings and

members of the committee, thank you for allowing me to appear.

Chairman ISSA. You might want to pull the mic just a little closer.

Ms. WILSON. Thank you for the opportunity to allow me to be

here today to share with you the experiences of the Maryland

homeowners facing foreclosure.

Chairman ISSA. I guess a lot closer might be better.

Ms. WILSON. Okay.

Chairman ISSA. They try to compensate, but that’s what causes

the feedback.

Ms. WILSON. Okay.

And also the steps that St. Ambrose is taking to try to try to preserve sustainable home ownership and neighborhood stabilization.

By way of background, St. Ambrose Housing Aid Center is a nondenominational 501(c)(3) nonprofit located here in Baltimore. We

are a HUD certified counseling agency and a chartered member of

NeighborWorks America. Since our founding in 1968, we have provided direct housing services to over 100,000 low and moderate income families through our several interrelated housing programs.

In particular, our Foreclosure Prevention Division provides default counseling services and direct legal representation and legal

counsel to homeowners and nonprofit housing agencies across

Maryland.

St. Ambrose has been involved with foreclosure prevention for

over 30 years. During that span we have witnessed a dramatic

change in the face of foreclosure. In particular, over the last few

years our attorneys and housing counselors have found and continue to find that homeowners eligible for certain types of loss mitigation relief including relief available under HAMP, faced impending foreclosure sales of their homes despite having submitted applications for review under the applicable State, Federal and investor

specific loss mitigation guidelines.

We have never before witnessed such systemic and deliberate

dysfunction at the large mortgage loan services that has resulted

in the sizable loss of wealth to homeowners and communities

across Maryland. We recognize that not every home can be or must

be saved in the process. But the losses are not limited to the homeowners. We also see the sizable losses to investors, taxpayers and

the Government as a result of the systemic failings within the servicing industry.

Time does not permit me to recount each example of servicer

failings that I’ve provided in my prepared testimony, but I would

like to highlight one example. I wish I could say this one example

is an isolated case, it is not. I also wish I could say that the described events that occurred in 2008 or 2009 would not occur today,

but I cannot.

We had a client who came to us in late 2008 with her mortgage

payments 2 months in arrears. Between December 2008 and February 2010 our housing counselor helped her submit the necessary

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loss mitigation information to her servicer on 10 separate occasions, only to be told more than 30 days after each submission that

the modification package was incomplete. Our client finally received a HAMP trial period plan in February 2010 and made her

first payment. Only a few days later she was notified that the servicing rights had been transferred to another servicer who claimed

that they had no record of the HAMP trial plan and that if she

wanted assistance, she’d have to start over again.

Most recently, the current servicer offered our client an

unaffordable repayment plan, not a modification but a repayment

plan that required a payment of approximately $800 a month more

than her pre-hardship payment. As you might anticipate, this was

not a viable option for the client. One of our attorneys continues

to advocate for a modification for this client.

I might note that the servicer failures in this case are particularly frustrating because the loan is owned by Fannie Mae. Efforts

by St. Ambrose staff to discuss the case directly with Fannie Mae

have produced no results.

The servicing industry must be repaired. The problems within

the industry from our perspective are deeply rooted and systemic.

We at St. Ambrose are committed to doing our part to ensure that

every homeowner whom we can assist receives our assistance. But

our efforts are too often frustrated by the failure or inability of the

servicers to respond to legitimate requests from loss mitigation.

The Board and staff of St. Ambrose are grateful to Congressman

Cummings and to all of you for supporting this area and we thank

you for taking the time to come to Baltimore and to discuss this

critically important topic with us today.

[The prepared statement of Ms. Wilson follows:]

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Chairman ISSA. Thank you. And thank you for being exactly 5

minutes. Uncanny. I am glad we got you instead of the earlier proposed witness.

With that, I’ll recognize myself for 5 minutes.

Mr. Matthews, having had 35 years with USAA, I was relieved

when you got to the fact that GMAC was behind, if you will, the

servicing company and ultimately GMAC held it. But it still does

not excuse USAA for any portion of their involvement or any of the

other entities involved. And I sincerely feel for, I guess, what is

now a corrected loss but not fully correct and probably won’t be

fully corrected for a long time.

Ms. Wilson, I’d particularly note that when we look at Freddie

and Fannie, they do hold $7 trillion worth of these notes, the largest holders by far. So as we talk about servicers, obviously we’re

really talking about services on behalf of GMAC in some cases,

Freddie and Fannie, entities that were bailed out and continue to

be bailed out by the U.S. Government.

So, Mr. Kaufman, I’ll go to you. First of all, there was some talk

about modifying bankruptcy. From your past experience before you

came into your current job if we were to open up the door of

cramdown broadly, the way they were in the 1980s and 1990s,

what effect would that have on commercial construction and all the

other entities that used to avail themselves of cramdown briefly?

Mr. KAUFMAN. I am not sure I am exactly——

Chairman ISSA. Well, another way to put it is what would it cost

if bank consortiums that we are funding, shopping malls and large

home development plans, suddenly had to look and say ‘‘If anything goes wrong, we are not even going to have the right to take

back the property. We are going to be forced into a cramdown,’’

maybe as many as three cramdowns as we found under the old

bankruptcy law.

Mr. KAUFMAN. Well, I am not sure that it is sort of statistically

possible to make an estimate. I guess I would make two points, at

least one from previous experience working as an investment banker, which is the leverage to hand back the keys to that is how

workouts get done.

You know, we hear a lot about borrowers who are not holding up

their end of responsibilities, who are acting immorally, etc., who I

would observe act a lot like corporations or investors that I worked

with and nobody questioned their morals. That was really just how

business was done.

I also think it is difficult to estimate. I mean, at some levels costs

would go up, but I am still frankly looking for the study that even

shows you that the cost of an elongated timeline for foreclosure or

for some of the foreclosure reforms that we put in place raise the

cost of credit for consumers. So, for example, when we talked about

changing the foreclosure process one of the issues was if you do

this, this, or this everyone will pay for it. The person will get a

benefit but every borrower will pay for it in terms of increased

rates. We have a 50 petri dish of experimentation with different

foreclosure timelines, and I am not aware of massively different interest rates in States which have extremely rapid foreclosure

timelines versus States that don’t. It is a natural market and so

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if that was a huge impact, I would think we would see it. But at

this point we still do not.

Chairman ISSA. Okay. Following up on that, you know home

mortgages are almost non-recourse. So, basically the only asset you

have is the property itself. Maryland is no different. You are a nonrecourse State, is that correct?

Mr. KAUFMAN. I believe that’s correct.

Chairman ISSA. Okay. So knowing that you can’t go after other

assets, earlier testimony by the mayor of 40 percent of all the properties in foreclosures that she dealt with were rental properties.

Basically you had somebody who was collecting the rent, not paying the mortgage.

Mr. KAUFMAN. Right.

Chairman ISSA. And you could not go after their other homes or

property. Realistically the question about being able to go after

other property, recourse versus non-recourse and all the other

mortgage questions that I asked your Governor, aren’t these all

things which the petri dish, as you said it so well, could be dealing

with? In other words, before you come to the Federal Government

for bankruptcy change and others, are there not some others in

which States could and should begin making those changes so that

they protect constituents from an unreasonable foreclosure?

Mr. KAUFMAN. I guess yes in the general sense, and I think we

have been trying everything that we can throw at this problem. At

a high level, I think the Governor’s response was we are open to

any suggestions that people we have. We have elongated timelines,

we have gone after servicers, we have undertaken examinations;

we have tried everything we can.

Chairman ISSA. Mr. Matthews’ case, for example, he was not

given a mandatory mediation where he could have shown how absurd the foreclosure process had become and how there had been

no attempt to legitimately look at his willingness to pay, his willingness to liquidate his 401 and all the other things that they did.

In a sense, your State fix should have, if available for Mr. Matthews, would have helped him, is that correct?

Mr. KAUFMAN. Well, our State fix is an opt-in program so he

would have had to opt-in. My guess, and without getting into the

timing, is the program just went into effect in July, the law just

passed. I am not sure that there would——

Chairman ISSA. Well that is what I said, if it had been available.

Mr. KAUFMAN. The intent is to address that.

Chairman ISSA. Okay. So you have some fixes which in the future might protect Mr. Matthews and other are possible?

Mr. KAUFMAN. After a lot of damage is done.

Chairman ISSA. A lot.

Mr. KAUFMAN. But we are trying, yes.

Chairman ISSA. I thank you.

Recognize the ranking member for 5 minutes.

Mr. CUMMINGS. Yes. Just following up on Jim’s question, in reading your testimony which is excellent, by the way, throughout that

testimony you seem to express some frustration with regard to the

limitations of the State. In other words, you only can go but so far.

Can you comment on that and why it is so important that we act

on the Federal level?

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Mr. KAUFMAN. Well I mean on a couple of levels. In very real

terms, you know the vast preponderance of mortgages in our State

and every other State are serviced by institutions which are primarily federally supervised. And I supervise 50 community banks

on the bank side as banking commissioner. We get virtually no

complaints relative to their mortgage practices of any scope. A vast

preponderance are coming from institutions that I have no jurisdiction over from a supervisory standpoint.

Mr. CUMMINGS. Because they service their loans, is that right,

basically?

Mr. KAUFMAN. Because if it is a national bank I do not have any

jurisdiction.

Mr. CUMMINGS. I am talking about the community banks.

Mr. KAUFMAN. The community banks, right, own and service

their own loans.

Mr. CUMMINGS. Okay.

Mr. KAUFMAN. So that’s a piece of it.

You know, the other piece is even where we have jurisdiction,

quite candidly, these are national operators operating out of State

where we’re trying to run an examination program, trying to oversee institutions which are largely beyond the physical reach of our

employees with very limited resources. Where you are able to identify clear violations that you can go after, that is one thing. But

when you start trying to address sort of system-wide practices of

an institution, there is a limit in the sense that ultimately it gets

down to are you willing to pull the license? Are you willing to go

in and tell XYZ servicer they simply cannot operate in your State,

which is going to impact the vast preponderance of their customers

who are actually paying? So there is a limit to what can be addressed even where you have regulatory authority.

Mr. CUMMINGS. Now with regards to the robo-signing situation,

you commented on that. How many people did that affect in Maryland, if you know?

Mr. KAUFMAN. I do not think we know at this point.

Mr. CUMMINGS. Okay.

Mr. KAUFMAN. And I would point out again, and this is why

again I think that the term has caught such fire. It is less sort of

a technical, and there’s a lot of oh, this is a technical issue, it is

a touch valve. It has more, I think, just sort of captured

everybody’s sense of exactly the sort of impersonal and methodical

nature of what is going on.

Mr. CUMMINGS. One of your recommendations was that the

servicers staff up, that they have more staff. And I just want you

to comment on that. Because I used to wonder whether or not they

had any staff. I mean, seriously. I mean, it just seems like these

papers were going in, I mean they were being faxed right into a

trash can. So I was just wondering. I mean is that——

Mr. KAUFMAN. I think resources have been an issue from the

word ‘‘go.’’ I mean I think at the end of the day, you know they

have staffed up, they have added resources, they haven’t added fast

enough.

And I go back to, you know I know that there’s a lot of sort of

this consistent hand-wringing from regulators and constant sort of

political pressure, etc., and public pressure from Governors and

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mayors and so forth. But, you know I believe at the bottom line is

these guys are not profitable. So it is very difficult to ask a money

losing enterprise to expect that they will sort of on their own continue to invest in issues that they need. I mean, it is going to have

demanded, not requested. And I think that is why it has been slow

to come.

Mr. CUMMINGS. So which entities do you say are not profitable?

Mr. KAUFMAN. My point is the whole business model, my sense

from the first time I started talking to servicers 3 years ago, is that

they signed up thinking they were going to take payments, you

know receive payments and mail statements. Not run call centers.

Not do massive mediation. Not run their business the way a collection agency runs. I used to go see collection agencies as an investment banker. And the first question you’d ask is: ‘‘What is your

turnover in your call center?’’ It is a 100 percent. If it is under a

100 percent, it is a well running collections agency.

So these are very difficult businesses to operate. And I do not

think they had any—I mean I know they didn’t have any plan to

get into that business.

Mr. CUMMINGS. So they never were equipped to even do this? So

that means that is——

Mr. KAUFMAN. I think we, they, everyone has been chasing this

problem the whole way.

Mr. CUMMINGS. Now you heard the testimony of Mr. Matthews.

Could he have been helped through this mitigation process do you

think?

Mr. KAUFMAN. Well, I mean ultimately if we had gotten to mediation, we would at least be able to get the right people in the right

room. I mean, there is sort of a sense of how do you know there’s

a problem that can be fixed. I think all of us that have escalation

contacts, we have them, I know your office has them, when you escalate they get fixed. And, sure, maybe some number that get fixed

because of the ranking member or the chairman would not have

gotten fixed solely on their economics. I am not that high up the

chain.

When they are getting fixed because of our escalation contacts,

I believe they are economic and they still get fixed when we escalate them.

Mr. CUMMINGS. Thank you.

Chairman ISSA. Mr. Walberg.

Mr. WALBERG. Thank you, Mr. Chairman.

And appreciation of each of you as witnesses today and what you

bring to the table.

Ms. Wilson, thank you for the work you do.

Mr. Matthews, thank you for your service to the country. Hearing your testimony and on face value of what you’ve said here, you

were submitted to the unjustified perfect storm of a breakdown

that went there. And I just wish the best as it moves forward here.

And I think these hearings and as we consider further, hopefully,

we will come to some conclusions that will benefit others as a result of what you have gone through.

Mr. Kaufman, in listening to your testimony you mentioned very

clearly that mortgage servicers did not have the expertise, the financial incentives or resources to engage in large scale mortgage

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modifications when foreclosures began to mount. The question I

would ask in context of HAMP then if the servicers did not have

these incentives, resources or expertise, did HAMP provide them

with expertise that they needed?

Mr. KAUFMAN. No. I think the intention was to try to provide

this through an incentive, at least solve the incentive part.

Mr. WALBERG. Did HAMP provide the incentives necessary?

Mr. KAUFMAN. Necessary I don’t know, and it certainly tried to

provide additional incentives by definition.

Mr. WALBERG. For large scale modifications?

Mr. KAUFMAN. For modifications that were done, correct.

Mr. WALBERG. What about the resources, did HAMP provide the

resources necessary?

Mr. KAUFMAN. No, I think—I mean I know there is a lot of concern about HAMP. There is a lot of disappointment HAMP, I share

that disappointment with all of you. It is no secret that the program has not lived up to anyone’s expectations.

You know, the program did not provide expertise.

I will say one of the things it did do was begin to standardize

a completely unstandardized modification process. That, I think

you sort of have to grant. It was the wild west of modifications.

When we started gathering modification data pre-HAMP, it was all

over the board and again, it was shocking to me as a former business person that most people who got a modification wound up paying after then before. You know, we did not put it in our initial

data requests——

Mr. WALBERG. So in some ways it escalated the problem?

Mr. KAUFMAN. Yes. You could look at these at scratch your head

and say ‘‘Well, how is this every going to—how does this work?’’ I

mean, I couldn’t see the underlying case, but the numbers were big

enough that the rational conclusion that if he is here looking for

a modification, what is the likelihood he is going to be able pay

more next month than he could pay last month was a head scratcher.

Mr. WALBERG. Yes. To say the least.

Ms. Wilson, thinking of Mr. Matthews’ experience here and from

your experience in working with cases like this, what was the first

step that was missed and what you have had you worked with Mr.

Matthews—I assume you didn’t work with Mr. Matthews?

Ms. WILSON. No, our organization did not work with Mr. Matthews.

Mr. WALBERG. What would have been the first step that was

missed and what would you have taken action on immediately to

deal with that, to give us instruction and how we can move from

here?

Ms. WILSON. Well, I believe Mr. Matthews did have and went to

one of the local counseling agencies and did have counseling. I cannot say for sure that things would have been any different had he

come to us. There are several very good peers of ours in terms of

counseling. And——

Mr. WALBERG. Yes, I do not want you to dump on any of your

peers. I am not asking that. But I am just hearing a complete

breakdown. In this case we are not talking about the stereotypical

underwater mortgage from the very get-go. We are talking about

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a military service personnel who had set up plans, had the finances

in place, had a job that stable but for the fact of an accident, as

I hear the description here. And all of a sudden it just escalates.

And how would we stop that?

Ms. WILSON. I think the way we stop it is to get the servicers

to do what they are supposed to do. Exactly what method we have

left to use, I do not know the right answer of how we get there.

But this is yet another situation where we have a breakdown with

the servicers not matter what kind of assistance the homeowner

has on his side.

Mr. WALBERG. Yes. I appreciate that. Thank you.

I would yield back.

Chairman ISSA. Thank the gentleman.

Mr. Tierney.

Mr. TIERNEY. Thank you.

I think, Ms. Wilson, you are right and what we have here is insufficient regulatory work resulting in a mess for a lot of people on

it. So how do we work ourselves out of that?

Mr. Kaufman talked about possible incentives. I tell you as a taxpayer it is a little offensive to think that this free market enterprise that was not regulated properly has caused a huge mess and

now in order to get them to straighten out we are going to pay

them, or give them some incentive on that? I think I like the demand side a little bit more; we just make them step it up and do

it right and that is why we talk about cramdown, which incidentally was not a broad-based cramdown effect every single mortgage

in the world going forward and backward and all people. And that

was very narrowly targeted the cramdown authority that we had

talked about and put forward on that. But, you know, and I think

it is going to take that. It is going to take somebody demanding or

forcing these banks to step up and do what they should do. After

having put this country in the condition that it is in, I should think

they would find a way to do that. And I mentioned in some of earlier comments made to the other panel, and I think we will let that

stand on the record.

Let me ask you, Mr. Kaufman, if we were to eliminate HAMP,

what do you envision the situation to become?

Mr. KAUFMAN. It is not going to help, let me put it that way. I

mean that is my concern at the end of the day. Look, the program

is not perfect, but I think it is somewhat where you first have to

put it in context of where it came from.

You know, when we started at this and prior to HAMP when we

started gathering data, there was hope now which I think essentially an 800 number and some counseling. And we were not doing

very well, to say the least. So, I think trying to refine this program

and trying to push it forward and continue to push the process forward is important.

The other thing I would observe based on what we are seeing

from the robo-signing effort is if we are going to declare ultimately

just throw out the program or throw out the baby with the bath

water, we are doing it in the context of very poor execution on the

part of the primary party in execution, which is the servicer. So we

are working to try to remedy that.

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Certainly the State AGs contend, we intend through this settlement to the extent we can do to try to reform practices.

Mr. TIERNEY. Well, you are doing great work, and I thank you

for it. You are doing essentially the work that our constituent representatives are doing in our office, and they are pulling their hair

out. So I can only imagine what your organization is going through

on that.

But you indicated that you are at sort of a loss as to how we resolve this problem. So it is not that I won’t ask you, it is I think

you have answered that.

But, Mr. Kaufman, if you are going to keep HAMP, what do you

do to make it work in a way that does not get you so angry you

want to throw it away?

Mr. KAUFMAN. Well, I mean, I think we have talked about some

of the things that we would intend, we think need to be fixed more

generally and they apply.

We would like to see better third party and third party review

and some sort of ombudsman or something within the program for

appeal.

I think that the lack of technology for input into this process is

pretty poor. The fact that there is not sort of a single portal which

is being talked about on the State AG side for people to be able to

get data and information into this, better visibility for a consumer.

I mean, I have the sense throughout this that as a current borrower that you have relatively good visibility into your mortgage as

you pay. And as soon as you stop paying, it is a completely opaque

process that you cannot really exercise on behalf of yourself. So we

would like to see that.

We would like to see the timelines upheld, and that applies to

HAMP and otherwise. I mean, I think a lot of this applies to everything and not just HAMP.

Mr. TIERNEY. So the question is now who is going to pay for this?

Who is going to pay for the personnel and who is going to pay for

the technology? What is your recommendation there?

Mr. KAUFMAN. Well the servicing industry is going to—I come

back to, I sort had this sense, I don’t have a scientific study, if

these were freestanding small businesses, they would go under and

the next guy that got hired to do it would say ‘‘I am not doing that

for a dollar. It costs $5.’’ And that would be painful, but we would

have a process where the market would provide $5 of service, I

would think. We are not getting there. We are not going to get

there naturally, at least not in the short run. I mean, the long run

this industry will reprice. There may very well be special servicers,

for example, who do only delinquent loans, which is what happens

in commercial loans. And that may happen. And that may work

fabulously well in 2015. But for the people that are in the process

now, that is not going to get them there.

Mr. TIERNEY. I guess I am still at a loss. How are you going to

force those services that you are telling us are tapped right now,

don’t have the resources, how are you going to force them to hire

on extra people and get technology?

Mr. KAUFMAN. In most cases the institution——

Mr. TIERNEY. The people—that started at the bank.

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Mr. KAUFMAN. In most cases the institutions that they sit within

are not, by any means, tapped out. I think there is someone in

many instances go to a quarterly board meeting and announces

how much money his division just lost and says that he needs to

lose even more in the next quarter. And my guess is that your corporate advancement is not solid if that’s your—it is not a winning

strategy.

Mr. TIERNEY. I want to get that a little clearer on the record. We

are talking about the people with the deep pockets——

Mr. KAUFMAN. Yes.

Mr. TIERNEY [continuing]. Are the ones that got us into this mess

in the long-term, are the ones that are going to have to pay to get

us out?

Mr. KAUFMAN. Yes.

Mr. TIERNEY. Thank you.

I yield back.

Chairman ISSA. Does the gentleman yield?

Mr. TIERNEY. Sure.

Chairman ISSA. Just to put it, and his testimony is very clear,

what you are talking about is deep pockets at major banks are not

in fact hurting, but the servicers which are either different divisions or different companies are in fact uncapitalized to do this and

that is part of the reason that Mr. Matthews and all these others

have run into robo-signing and so on is that the compartmenting,

we see the large profits of B of A, we do not see the servicing entity

separately? Is that correct?

Mr. KAUFMAN. That is my sense. I mean, I do not have somebody’s balance sheet. It strikes me that it is very unlikely that a

transaction processing business model that has suddenly become a

call center, which is what has happened, can operate on economics

that looked anything like what they were designed to.

Chairman ISSA. Thank you. That is one thing that our committee

can find out for the record from others that we work with.

Mr. KAUFMAN. I mean, and it was why I tried to look—the GSEs

are trying to look at incentive, the compensation models for that

very reason.

Chairman ISSA. Thank you.

Mr. Welch.

Mr. WELCH. This is helpful. I mean, the servicers will never be

able to staff up to do the job if the more they staff up, the more

they lose. It just will not happen. That’s more or less what you are

saying.

Mr. KAUFMAN. It will not happen quickly. It will not happen

without a lot of duress. And I think that is why it has taken public

pressure, events that have happened in districts, the

Governors——

Mr. WELCH. But just explain this to me. The big banks, I mean

most of these loans have been sold, right?

Mr. KAUFMAN. Correct.

Mr. WELCH. So——

Mr. KAUFMAN. Some of them are sold and serviced by the same

institutions.

Mr. WELCH. Right. But many of them are owned by like pension

funds. They are owned by, well pension fund investors who had no

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clue as to what the future would be anymore than the servicers

did. So it is not just all owned by the big banks, am I right?

Mr. KAUFMAN. Correct.

Mr. WELCH. So on a practical level it is the owners of the loans

that ultimately have to be brought to the table to make a

decision——

Mr. KAUFMAN. Correct.

Mr. WELCH [continuing]. About whether that asset which has depreciated by 40 percent, there should be a mark down, right?

Mr. KAUFMAN. Correct. But it falls to the service provider to provide the level of service to even get to the decisionmaking process.

And that servicer has to provide the service.

Mr. WELCH. Right. But if you have this loan, you know is it my

mortgage or Mr. Matthews’ mortgage, let’s say, is divided into 20

different tranches, so literally there is 20 different owners out

there somewhere that are making a claim on Mr. Matthews and

you have a servicer trying to balance the competing interest of

those 20 different owners, how does that possibly get done?

Mr. KAUFMAN. The conundrum of the fragmentation of the underlying security is sort of a separate issue from the problem that

I am even getting to.

Mr. WELCH. So that——

Mr. KAUFMAN. But that is another layer of questions.

Mr. WELCH. See, two things seem to get in our way. I mean, one,

often times we get into the argument about who is responsible; the

big banks, the mortgage originators, the individual homeowners

who brought the MacMansion when they could have for a house.

Mr. KAUFMAN. Yes.

Mr. WELCH. And there is plenty of Fannie Mae, Freddie Mac, a

lot of focus there. And there is plenty of blame to go around.

Mr. KAUFMAN. Yes.

Mr. WELCH. I think what we’re hoping on this committee, it is,

look—we’ve got a practical problem. We had the Governor in here,

we had the mayor in here, and they are dealing with the devastating consequences of people getting foreclosed on, neighborhoods starting to fall apart. It is really bad. So, I see this as a practical problem that is very difficult to resolve because there is such

fragmentation. So if you had a suggestion on something concrete

where we just sort of put our rhetorical guns back in our holsters

for a while and stop having the debate about who is at fault because there is plenty of fault to go around, what would be a practical way where basically you would be able to sooner rather than

later make a decision on: All right, this loan is hopeless and it will

be foreclosed; this loan could be saved if we made some modification? I mean, what would be the legislative or legal things we

would have to do in order to allow that to happen?

Mr. KAUFMAN. You know, that is what the program has tried to

do with the NPV calculation, which is a little opaque for those of

us on the outside. And that is essentially the calculation that is

trying to be run and then get some better clarity as to what’s in

it and harmonization in that calculation.

Mr. WELCH. But at the end of the day nobody has authority. You

have a servicer who has a bad business model——

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Mr. KAUFMAN. The servicers, I mean we have talked to—it has

been a little while, but when we did our initial round at the behest

of the Governor, I met with servicers. And we said ‘‘Do you have

the authority to do what you need to do?’’ They generally said yes.

I mean, it was not a legal question, although we did have, and I

would again give HAMP some credit for this, we did have people

say that we have to defend what we do as prudent and ordinary

course of business practice. And in that regard, I would note that

the modification program has at least provided some notion of what

is routine and ordinary course, which presumably gives them better

defense. But they did not come in, frankly, as aggressively as we

expected at all with ‘‘Hey, our hands are tied.’’

Mr. WELCH. Yes.

Mr. KAUFMAN. That is not it.

Mr. WELCH. Well, thank you very much.

Mr. CUMMINGS. Will the gentleman yield?

Mr. WELCH. Yes, I yield.

Mr. CUMMINGS. Just one clarification going back to something

that the chairman said.

Mr. Kaufman, when we have a situation where—I mean a lot of

these servicers are owned by the banks, right? I believe it was asking about deep pockets, is that right?

Mr. KAUFMAN. Yes. Yes.

Mr. CUMMINGS. Well, do you have a percentage or would you

guess?

Mr. KAUFMAN. Of the top five, all but one is State licensed but

is a subsidiary. But they virtually all are. I mean, our jurisdiction

as a license server, because we do not do much of that reporting

anymore because the number of people who have to report to us is

below 15 percent of the market. So that gives you some approximate for it.

Mr. CUMMINGS. Thank you.

Chairman ISSA. Could you stay for a few more follow-up questions?

Mr. KAUFMAN. Sure.

Chairman ISSA. Mr. Kaufman, you actually scared me a little bit

when you said basically like commercial, we should work to workout units. You know, there are all kinds of workout units in the

commercial market.

Mr. KAUFMAN. Right.

Chairman ISSA. And I remember from my own days in business

that, you know, you would do anything to modify not to go to that

workout unit. But your point, and I think the ranking member hit

it very well, there is basically an artificial wall between the servicing division and the banks if the bank is holding the mortgage.

If the bank is not holding the mortgage, if Freddie and Fannie

were some other entity, some pension plan or whatever is holding

it, then it really is not artificial because that entity’s line does not

go back to the bank’s capital base, it goes back to the Federal Government, is that correct?

Mr. KAUFMAN. If I am following you correctly, yes.

Chairman ISSA. Yes. So as this committee goes through its due

diligence to try to get through, and the gentleman said, you know

our guns in the blame game. And he is right, that often is part of

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what the committee does. But also figuring out how do we get a

reform and where do we get the money for a reform from?

Currently Freddie and Fannie have received over $150 billion,

HAMP has obligated over $30 billion. So it appears as though

Freddie and Fannie are still losing money and their $7 trillion

portfolio would be well served if this system worked better. Would

you agree?

Mr. KAUFMAN. Sure.

Chairman ISSA. So in your background how often do you see any

difference in the actions of the servicer based on whether the GSEs

hold the loans or some other entity? Do you see any discernable difference in how the servicers do their job?

Mr. KAUFMAN. When the cases come to us, that is not really an

issue that seems to come up, frankly.

Chairman ISSA. And this is my real question here that I sagaciously got to: If we bring Freddie and Fannie in, and perhaps the

third largest holder of this debt, and we asked them what they are

going to do to do a better job of interfacing with the servicers to

get the right outcome to minimize foreclosure, to maximize benefit

for these values, do you believe we would be well served in pushing

that end of it? Because you mentioned that the servicers only have

so much money, but the real loss is at the GSEs.

Mr. KAUFMAN. I think the GSEs are, I mean my understanding

and you all are closer to this than I, is that the FHFA and GSEs

are already looking at compensation practices and trying to see

what they can do to reform service for compensation in order to

better align the incentives. So, yes.

Chairman ISSA. Although it has been several years since this

problem began.

Mr. KAUFMAN. I am not here to defend the—but I think they do

recognize the issue. I mean, that the system needs to be addressed.

Chairman ISSA. This is one of the problems we find in Government, is everybody’s about to reorganize about the time we are

willing to close down something. And it seems to be miraculous

how that works.

Anyone else need to followup?

Mr. CUMMINGS. Just real quick.

Chairman ISSA. Mr. Cummings.

Mr. CUMMINGS. Just going back, you know we have a situation

where Mr. Matthews, I am just curious. Did you ever—you said

there was quite a bit of damage done to your place. What kind of

money did you have to spend for that?

Mr. MATTHEWS. Basically when you start, they call it winterizing

the house——

Mr. CUMMINGS. Yes.

Mr. MATTHEWS. I know specifically now when you put things

through your pipes, you basically had to winterize the place, draining pipes to make sure everything is so when it gets cold, basically

the pipes do not freeze.

Mr. CUMMINGS. So what did it cost you to get it?

Mr. MATTHEWS. It cost me approximately $1,500 to replace the

hot water heater and any standing pipes in my house.

Mr. CUMMINGS. And you have not been reimbursed for that?

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Mr. MATTHEWS. No, sir. I have not been reimbursed for that either.

Mr. CUMMINGS. I am sorry you went through all of that. So you

are still in the process, and you are still in the process of going

through this?

Mr. MATTHEWS. Yes, sir. There has been a lot more process, basically we are still going through the process as we speak.

Mr. CUMMINGS. There is just two documents I want to get into

the record, Mr. Chairman.

Aforementioned Counselor Bernard Jack Young has submitted a

statement for the record, and I ask unanimous consent that it be

included in the record.

Chairman ISSA. Without objection, so ordered.

[The prepared statement of Mr. Young follows:]

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Mr. CUMMINGS. Additionally I ask that a statement from the National Community Reinvestment Coalition be also included in the

record.

Chairman ISSA. Without objection.

Mr. CUMMINGS. Thank you, sir.

[The prepared statement of the National Community Reinvestment Coalition follows:]

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Chairman ISSA. Mr. Tierney.

Mr. TIERNEY. Thank you, Mr. Chairman.

Mr. Kaufman, I agree with you that Fannie Mae and Freddie

Mac could get into it. What we really need is the Federal Housing

Finance Agency who is now their overseer to come in.

Mr. KAUFMAN. Yes.

Mr. TIERNEY. And I would like very much to have them come in

front of this committee so he could answer of why he is not acting

aggressively enough to have these other, the big banks and the

other people who will make the ultimate decision on writing down

principal, why he is not insisting that they do that, particularly

where it would save the taxpayer investor in this case and Freddie

Mac and Fannie Mae money, where actually getting a modification

would save you more than going through the foreclosure procedure,

he should come in and he should answer that or he should pack

up and leave on this basis, and the administration get going.

The head of the OCC, same thing. Why are they not using their

regulatory authority to get this thing resolved? He is making statements on records of different hearings about worried about the conditions of the banks. The banks have made more money in this

past year then they were making before the recession. So I am not

sure if we should be as worried about their financial health right

now as we should about these homeowners like Mr. Matthews and

the people that Ms. Wilson is dealing with and get them going. And

maybe he should pack his bags and leave town if he cannot see a

way to do the job on that.

But I hope the chairman has a hearing and brings in the head

of the Federal Housing Financial Agency, the OCC, the large banks

and maybe start with the top five or whatever and let them tell us

why they cannot recognize reality that someday they are going to

have to acknowledge the point to all of those mortgage loans that

those properties aren’t worth what they were. And that in some instances they should and could write down the principal, but they

all refuse to recognize that and take that step because they think

somehow mystically it is going to come around and their books are

going to balance out in the future.

So, Mr. Kaufman, you have been helpful to us and we thank you

for that.

Mr. Matthews and Ms. Wilson, thank you for your personal stories and the work that you are doing.

And again, Mr. Matthews, to you I hope that things resolve

quickly and favorably for you and that you are so emblematic of so

many people that call my office, and the story that Ms. Wilson told

us the same. So we need to do something, and we will. Thank you

all.

Mr. MATTHEWS. Thank you.

Chairman ISSA. Mr. Walberg.

Mr. WALBERG. Thank you, Mr. Chairman. And thank you for

holding this field hearing.

And I thank each of you for sharing your testimony with us, your

thoughts and ideas.

And I would agree with my good colleague from Vermont that we

have a problem here now, and it is not so much the blame game,

it is how do we deal with it. How we complete the process and get

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ourselves back on track. And I think, Mr. Matthews, you illustrate

something that puts a pace in front of the problem, the key problem.

But I think we would be remiss, too, on this committee and in

Congress if we do not look back even further to 2006 or so when

indicators were very clear that we are going to have a meltdown

and Congress refused to act at that point. The leadership refused

to take the necessary steps to say ‘‘Yes, we have a problem and it

is going to result in human suffering that we could deal with right

now if we would do it.’’ That did not take place and now we have

the results.

We can talk about cramdown, we can talk about Government getting involved, we can talk about whacking different entities in the

process, but let us not forget that when the time was there, indicators were there that there was a financial crises looming that was

going to take this country to its knees, to a great extent, it was not

dealt with. And we would do well to remember that for the future.

Thank you.

Chairman ISSA. The ranking member.

Mr. CUMMINGS. Thank you very much.

Just to you, Mr. Kaufman, I know that negotiations are going on

with regard to this settlement. I mean, when we read the newspaper articles about it and whatever, it sounds like it is going to

be a robust settlement that is going to, hopefully, and I know a lot

is in dispute and you are trying to figure it out. Without disclosing

anything you should not be, I am just wondering are you hopefully

that settlement because it is going to resolve a number of these

issues? Because just the other day some of us met with Secretary

Donovan and Secretary Geithner and they seemed to have some

confidence. I was just wondering, do you?

Mr. KAUFMAN. Yes, I mean we are hopeful. It is a robust group.

The States have a lot of expertise in this area from the regulatory

standpoint and from having managed, tried to deal with the fallout

of what you have seem by banning together we have an opportunity to have a voice that individually we have not had. For those

of us that have been in the group for going on 4 years, this is finally an opportunity to really have a more meaningful discussion

with teeth then anyone of us can have on their own. At the end

of the day anyone of us as we talk about it falls back ‘‘Am I going

to put this guy out of business?’’ And that is a tough threat in a

State where most people are still paying and need the services that

this servicer provides on an ongoing basis.

So, you know, we are very hopeful.

Mr. CUMMINGS. And again, I just want to thank all of our witnesses and everybody here at the University of Maryland for all

that you have done to make this happen.

Mr. Chairman, I do appreciate you coming to Baltimore. As a

matter of fact, within 2 minutes of my house. Cannot do much better than that. Thank you very much.

And to my colleagues, I thank you all for being here, too.

Chairman ISSA. You know, next time though we’ve got to figure

out how to carpool.

And with that, I too would like to thank all the witnesses and

all those who attended the entire hearing.

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And with that, the committee stands adjourned.

[Whereupon, at 11:34 a.m., the committee was adjourned.]

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