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[Senate Hearing 112-461]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 112-461

 
               SAVING OUR NEIGHBORHOODS FROM FORECLOSURES

=======================================================================

                             FIELD HEARING

                               before the

                            SUBCOMMITTEE ON
           HOUSING, TRANSPORTATION, AND COMMUNITY DEVELOPMENT

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                                   ON

  EXAMINING THE EFFECTS OF FORECLOSURES AND SOLUTIONS TO THEM, THEIR 
 EFFECTS ON NEW JERSEY NEIGHBORHOODS, SUCH AS DECLINES IN HOME VALUES, 
 CRIME, AND DISPLACED FAMILIES; AND DISCUSSING STEPS TAKEN TO HELP END 
                         THE FORECLOSURE CRISIS

                               __________

                           FEBRUARY 10, 2012

                               __________

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

                 Available at: http: //www.fdsys.gov /

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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii              JIM DeMINT, South Carolina
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin                 PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia             MARK KIRK, Illinois
JEFF MERKLEY, Oregon                 JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado          ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina

                     Dwight Fettig, Staff Director

              William D. Duhnke, Republican Staff Director

                       Dawn Ratliff, Chief Clerk

                     Riker Vermilye, Hearing Clerk

                  William Field, Legislative Assistant

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                 ______

   Subcommittee on Housing, Transportation, and Community Development

                 ROBERT MENENDEZ, New Jersey, Chairman

         JIM DeMINT, South Carolina, Ranking Republican Member

JACK REED, Rhode Island              MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii              PATRICK J. TOOMEY, Pennsylvania
SHERROD BROWN, Ohio                  MARK KIRK, Illinois
JON TESTER, Montana                  JERRY MORAN, Kansas
HERB KOHL, Wisconsin                 ROGER F. WICKER, Mississippi
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado

             Michael Passante, Subcommittee Staff Director

       Jeffrey R. Murray, Republican Subcommittee Staff Director

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                       FRIDAY, FEBRUARY 10, 2012

                                                                   Page

Opening statement of Chairman Menendez...........................     1

                               WITNESSES

Jerry Green, Assemblyman and Speaker Pro Tempore, New Jersey 
  General Assembly...............................................     6
    Prepared statement...........................................    29
Sharon Robinson-Briggs, Mayor, Plainfield, New Jersey............     7
    Prepared statement...........................................    29
Krishna Garlic, Chief Executive Officer, Brand New Day...........     9
    Prepared statement...........................................    30
Wayne T. Meyer, President, New Jersey Community Capital..........    11
    Prepared statement...........................................    32
Phyllis Salowe-Kaye, Executive Director, New Jersey Citizen 
  Action, and Former member, Consumer Advisory Council, Federal 
  Reserve Board of Governors.....................................    13
    Prepared statement...........................................    35
Alan Mallach, Non-Resident Senior Fellow, Brookings Institution..    14
    Prepared statement...........................................    37

                                 (iii)

               SAVING OUR NEIGHBORHOODS FROM FORECLOSURES

                              ----------                              

                       FRIDAY, FEBRUARY 10, 2012

                                       U.S. Senate,
    Subcommittee on Housing, Transportation, and Community 
                                               Development,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Subcommittee met at 11:01 a.m. at Black United Fund 
Health and Human Services, 403 West Seventh Street, Plainfield, 
New Jersey, Hon. Robert Menendez, Chairman of the Subcommittee, 
presiding.

         OPENING STATEMENT OF CHAIRMAN ROBERT MENENDEZ

    Senator Menendez. Good morning. As Chairman of the Senate 
Banking Subcommittee on Housing, Transportation, and Community 
Development, let me call this Congressional field hearing to 
order.
    Let me first thank the Black United Fund for hosting this 
field hearing, an incredible organization that has assisted 
over 700 community-based organizations, and their mission 
touched upon 16 of the 21 county Health and Human Services 
agencies that have received their support and whose goal is to 
enable individuals to help themselves create a better sense of 
self-worth and a better self-identity and ultimately self-
sufficiency. We thank them for hosting us.
    I just had the privilege of meeting over 100 of the young 
students who are taught here every day in the preschool program 
and they had a lot to say. They were a happy group, so started 
my day exceptionally well.
    It is good to be home in New Jersey to welcome all of you 
to this discussion on how we save our neighborhoods from the 
problems of foreclosure, how we can help homeowners deal with 
foreclosure and communities deal with the blight of foreclosed 
properties.
    Let me begin by looking back to a time when I was growing 
up in New Jersey. It was and still is a place where people work 
hard to build a better life for themselves and their families. 
The economy was expanding. We enjoyed a vibrant, prosperous 
manufacturing base that provided jobs that turned into lifetime 
careers for millions of Americans. The middle class was 
thriving, and it was everyone's dream to own a home. And buying 
a home was a personal accomplishment, a family triumph. It was 
a time in America where Government and the economy supported a 
growing middle class, banks were more local, not global like 
they are today, a time when they had a stake in each mortgage 
in the community they served and they knew their customers 
personally.
    Times have changed, and some say the old American dream no 
longer exists. But I think they are wrong. I believe that 
America's middle class spirit, that hope for a better life, is 
still alive in the hearts of every family here in Plainfield 
and across the country.
    So today's hearing is about more than numbers and 
statistics, more than the fact that 1 of every 10 homes in 
Plainfield is in foreclosure. It is about values, about people 
and families and our communities and what we can do to help. It 
is about finding opportunities to mitigate the foreclosure 
crisis. But most of all, it is about hope, hope for Plainfield, 
for New Jersey, and for every American family and neighborhood 
that has been hit hard by the mortgage crisis and struggling to 
stay above water.
    Having said that, today, we will be hearing from six 
witnesses on how to best alleviate the burden of foreclosures 
and how we can mitigate the impact of foreclosures on our 
neighborhoods. Today, I hope to hear not only how we can 
streamline the process and make it as fair and as painless as 
possible for homeowners, but how we can help communities like 
Plainfield deal with the vacant houses that exist, whether that 
be incentives for conversion to rental or, in some cases, where 
there are other resources for the community that would make 
sense.
    Today, I would like to hear outside-the-box ideas on what 
creative solutions our witnesses may have and what the 
possibilities are. We have already made some inroads, but there 
is much more we can do.
    As Chairman of the Subcommittee, I have held multiple 
hearings to find ways to get the housing market back on track 
and create jobs. We have investigated bank practices to hold 
them accountable, sought ways to expand programs to help 
struggling homeowners deal with an overly cumbersome and 
complicated process. I have worked to bring home millions of 
dollars to the Garden State for the construction of affordable 
housing units throughout the State and supported legislation to 
create a Homeowner Advocate to be a one-stop-shop for 
homeowners looking for help.
    Most importantly, I have supported efforts to hold banks 
and the Government more accountable for their actions and to 
protect homeowners from predatory practices, lender 
indifference, and untimely and unreasonable demands that make a 
bad situation worse for families already struggling.
    And looking forward, I have proposed my own comprehensive 
action plan that will address all aspects of the housing 
market, and I will also be working with President Obama to put 
his housing plan into action, both of which will help New 
Jersey families stay in their homes, and I hope our witnesses 
will touch on aspects of this plan in the course of their 
testimony today.
    I also wanted to mention that the settlement between the 
State Attorney Generals and big banks came out yesterday, so 
this hearing is very timely. While the $26 billion settlement 
helps homeowners, it is a long way from healing the grievous 
wounds left by the crisis and deceptive mortgage practices. 
When I think about $700 billion nationwide underwater, $26 
billion may be welcome, but it is not even 10 percent of that 
challenge at the end of the day. There is still more that can 
be done to help homeowners who were wronged by the foreclosure 
crisis and will also provide, I hope, greater stability to the 
housing market and improve the overall economy.
    Specifically, we cannot address the basic foreclosure 
issues for families if we do not first eliminate arbitrary 
barriers imposed by lenders that prevent homeowners who are 
underwater from refinancing at a fair interest rate. That is 
one of the first things we need to do. And while we have 
eliminated many of the barriers already, more needs to be done 
and we look forward to working with the Administration to do 
just that, to make sure that all responsible homeowners who 
should be able to take advantage of our historically low 
interest rates but unfortunately are not allowed in many cases 
to do that. This was the subject of a hearing yesterday in 
Washington of the full Banking Committee and it is something I 
look forward to continuing to pursue.
    I look forward to working with the President to help 
families here in Plainfield and across the Garden State by 
establishing a set of fair national foreclosure standards to 
ensure that no bank--no lender is allowed to foreclose on a 
home without following proper procedures and producing proper 
documentation. Nor should they be able to foreclose on a 
property without making every effort to modify mortgages so a 
family has a reasonable expectation of having the chance of 
staying in their home.
    Homeowners should have the benefit of a single point of 
contact for loan modifications to ensure continuity and 
certainty in finding their way through what is inevitably, no 
matter how many safeguards we implement, an emotionally 
difficult process, and my office has dealt with this many times 
in our assistance to homeowners working with lenders on loan 
modifications, and very often that process moves from one 
person to another to another and creates an incredible 
challenge to that family trying to modify their loan.
    I also believe there should be limits, reasonable limits on 
foreclosure fees and that there should be a fair appeals 
process for those denied loan modifications to ensure that 
families get a fair shake, not just a quick rejection.
    Fraud and homeowner abuse through service errors is also a 
problem we must address. Miscommunications, illegal robo-
signings, which have sometimes resulted in wrongful property 
loss, are simply unacceptable.
    Because the process has proven to be so cumbersome, and 
many times so callous, I strongly support foreclosure 
counseling to help guide homeowners to their options to keep 
their homes or make a smooth transition to the next option. In 
fact, that is why I joined with others to send a request to 
Senate appropriators requesting a restoration of funding for 
HUD's Housing Counseling Program that was eliminated in the 
fiscal year 2011 budget to avert a Government shutdown, and 
while we did not get all of it back, we got most of it, and 
that is certainly an important outcome, because in my view, 
cutting housing counseling funding is a huge mistake when we 
have record numbers of foreclosures and we know that homeowners 
who get housing counseling advice are much more likely to get a 
modification and stay in their homes.
    We also need to help neighborhoods recover from foreclosed 
properties, because the consequences are not just to the 
families, of course, in the first instance, who face this 
incredible challenge. But when you have a foreclosed property 
and that property remains vacant, mayors face the challenges of 
that reality, the attraction very often for it to become a 
challenge, a nuisance in the community. And when multiple 
properties are foreclosed, it devalues the values of other 
properties in the neighborhood and sends a spiral downwards in 
terms of property ratable basis. That is a challenge. So we 
have requested $215 million for the Neighborhood Reinvestment 
Corporation to rehabilitate and preserve existing buildings, 
and why I support that Neighborhood Stabilization Program to 
rehabilitate foreclosed homes.
    Clearly, here in Plainfield and in every community, 
foreclosed properties are having challenging effects, not only 
for the families who have to move but for their neighbors. 
Sales of these properties at bargain basement prices depress 
the value of neighborhood homes, are often vandalized, become 
eyesores, and attract crime. This begs the question of how we 
can quickly and easily turn foreclosed homes into one option, 
being rental properties. I believe we also need to have a 
discussion about what other opportunities there exist.
    Last, I am introducing today legislation that seeks to 
create another opportunity for families under shared 
appreciation mortgage modifications. We need to help homeowners 
who are underwater through no fault of their own but can be 
responsible borrowers. Because they owe more than the house may 
be worth, they are more likely to allow the property to go into 
foreclosure or walk away completely. They need help and hope 
for a solution that allows them to remain in their home.
    That is why I have introduced the American Homeownership 
Preservation Act of 2012. Most banks still will not reduce the 
amount that homeowners owe on their loans, so I believe we need 
to use shared appreciation mortgages, which is a creative way 
to reduce mortgage debt that is both fair to the homeowner and 
the lender. Under the proposal, for homeowners who have lost 
their jobs or experienced a hardship, banks would be required 
to reduce homeowner mortgages to 95 percent of loan-to-value 
ratio over 3 years and immediately lower the homeowner's 
payments, provided the homeowner continues to make reduced 
payments. In exchange, investors or lenders would get a share 
of any appreciation in the home's value when the home is later 
sold or refinanced, equal in percentage to the amount of 
principal they reduced the home by in the first place. This 
approach provides hope for families who have seen the value of 
their home plummet, through no fault of their own, so that they 
can remain in their homes if they can still responsibly make 
payments.
    And this is not some academic idea hatched in a laboratory. 
This modification has already been tested by private companies 
and it works. In fact, there is a homeowner here today who 
received this mortgage modification and is still in their home 
because of it. Mr. Igor Etienne would be more than happy to 
speak with any members of the press or anyone who wants to 
understand how it works in real practice. He is in the audience 
and we appreciate his willingness to speak to anyone at the 
conclusion of this hearing.
    The Shared Appreciation Mortgage Modification Act of 2012 
is only one tool needed among tools that I have been 
encouraging. All options should be on the table. I hope we will 
hear many more today, because doing nothing about foreclosed 
properties, doing nothing to help communities like Plainfield 
through this crisis is simply not an option. It is unacceptable 
for me for homeowners to wait for years for the market to hit 
bottom. Some suggest that it has. But it seems to me that we 
just cannot wait for the market forces to take place. We need 
and can do much more.
    So let me introduce our witnesses for today. Let me welcome 
Assemblyman Jerry Green, who is currently serving his 11th term 
in the New Jersey Assembly. As Speaker Pro Tempore, Assemblyman 
Green serves the 22nd Legislative District, which includes this 
great community. He is also Chairman of the Assembly Housing 
and Local Government Committee and we look forward to his 
testimony and his initiatives.
    Let me welcome our host Mayor, Sharon Robinson-Briggs, the 
Mayor of Plainfield, who has represented the city in so many 
capacities and is the past President of the Board of Education 
here in Plainfield and the past President of the Plainfield 
Branch of the NAACP. Thank you, Mayor, for hosting us here.
    Krishna Garlic is the Chief Executive Officer of Brand New 
Day, a nonprofit Community Development Corporation which 
provides programs and services for individuals, families, 
renters, homeowners, micro-businesses, and supporters of low-
to-moderate income population in New Jersey. We look forward to 
her insights.
    Phyllis Salowe-Kaye is the Executive Director of New Jersey 
Citizen Action. She leads the largest HUD-certified counseling 
agency in New Jersey that is helping thousands of borrowers to 
navigate the complexities of saving their homes, and we 
appreciate Phyllis's testimony at my last field hearing in 
Hackensack last year.
    And Mr. Wayne Meyer, who is the President of New Jersey 
Community Capital, a nonprofit community development 
institution that provides innovative loans, grants, and equity 
to organizations that support housing and sustainable community 
development ventures that increase jobs, improve education, and 
strengthen neighborhoods.
    And finally, let me welcome Professor Alan Mallach, who is 
a Senior Fellow at the Brookings Institution and Board Member 
Emeritus of Housing and Community Development Network of New 
Jersey. He is a widely known and respected advocate, speaker, 
and writer on housing and urban policy issues.
    So my thanks on behalf of the Committee to all of you. We 
are--as you may see, we have a Senate recording of the 
testimony that is taking place. There are Senate Banking 
Committee staff here. So your testimonies will be fully 
included in the record. We ask you to summarize them in about 5 
minutes so we can have some conversation and the testimony will 
get wide dissemination among Members of the full Banking 
Committee, as well.
    So with that, Assemblyman Green, I know you have a schedule 
that may bring you to Trenton, so we are going to ask you to 
start off.

STATEMENT OF JERRY GREEN, ASSEMBLYMAN AND SPEAKER PRO TEMPORE, 
                  NEW JERSEY GENERAL ASSEMBLY

    Mr. Green. Well, first of all, Senator, I want to----
    Senator Menendez. If you would use the microphone for the 
Senate stenographer.
    Mr. Green. First of all, I want to congratulate you for 
bringing this meeting together. It is long overdue. Some of the 
topics that you have touched on here in the State of New 
Jersey, as Chairman of Housing and Local Government, we have 
begun to move in that direction. Currently, we have some 
proposals together with the Senate, working with Senator 
Lesniak that deal with foreclosure and we are hoping and 
confident that the Governor and his office will work with us. 
So today's meeting and your approach is something that publicly 
I want to acknowledge is well overdue and is needed.
    What I have found last year when I dealt with some of these 
housing issues was a lack of communication with Washington, 
Trenton, and even local, and we have tightened that up. I had 
the ability as chairman when we were talking about affordable 
housing to go around the whole State and hold such meetings, 
and we realize that there is a shortage of housing, but also 
there is a shortage of dollars. And there are municipalities in 
the State that have money already set aside for some of the 
things that you and I are talking about.
    So what we plan on accomplishing with this new bill is that 
we would like to work with the Governor to tie in foreclosure. 
We feel it is important that we keep a family in a home, 
because once they lose their home, they become not only a 
problem to the community, but the home itself becomes a 
problem, and this is workable.
    Our policies in the past dealing with housing are not 
working. For the last 25 years, we have not seen anything 
accomplished. We are not talking about a lot of new homes. We 
are talking about affordable housing. Because here in my 
district, even in the city of Plainfield, we have enough 
housing. It is the question, how do we keep people in the 
housing?
    So it is important as I listen to your remarks that we 
include the banking industry, we include Government, and we 
include the community, because at the end of the day, the 
bottom line is that these people have to have someplace to 
live.
    So I do not want to get too far into what I consider 
negotiation that is going on with the front office with 
foreclosure, but I am confident within the next couple of weeks 
the Senator and I will make an announcement, and I am so happy 
to be able to go back and report to the Committee that you are 
a step ahead of us, and we are just so happy that we have a 
Senator that really understands these issues, because these are 
human issues. We are not talking any longer about poor people. 
We are talking about middle-income people who have lost their 
jobs and cannot afford the mortgage that basically they were 
put into.
    So we are not looking to hurt the bank. We are not looking 
for Government to bail out. But I am hoping that this year, 
with the budget, we do not have to have that as a line item. 
What we need to do is make sure that dollars that are set aside 
for housing go toward the project that you are talking about 
this afternoon.
    So I am looking forward to questions from the community and 
I look forward to this dialogue with you because it is obvious 
that you are going to be a very important part of how New 
Jersey moves their housing industry.
    You can look at some of our urban communities, like Camden 
and others, and it is obvious their problems are a lot more 
serious. But as I had staff give me the numbers here in 
Plainfield, it is workable. It is doable. What I see was 5, 6 
years ago, people put in positions that even the realtors and 
the bank realized these people could not survive. We cannot 
allow that to happen in the future. So we have to have policies 
set in place that banks cannot take advantage of a community, 
because at the end of the day, what happens is what has 
happened in Plainfield. Right now, the bank owns about 125 
homes. Right now, we have over 500 homes on the books that 
could go either way. Again, this cuts across the whole 
particular city. It is not just one part of the city anymore.
    But also, I would like for you to make sure in your 
approach to this whole issue that we do not have people take 
advantage of the system. Whatever dollars come in, we want to 
make sure those dollars go directly to the families to help 
them bring down their mortgages, give them another life, not 
have loose policies like it has been in the past where gimmicks 
are put together and at the end of the day the public gets hurt 
and we are right back where we started from.
    So again, I am happy to be here with you today and I am 
confident over the years you and I will work closely together. 
And I am confident before Ray and I roll out our foreclosure 
bill, that we would love to sit down with you to make sure we 
are on the same page. Thank you.
    Senator Menendez. Thank you.
    Mayor Briggs.

  STATEMENT OF SHARON ROBINSON-BRIGGS, MAYOR, PLAINFIELD, NEW 
                             JERSEY

    Ms. Robinson-Briggs. Good morning to everyone and welcome 
to the city of Plainfield. I am Sharon Robinson-Briggs. To 
Senator Menendez and Assemblyman Green as well as all of the 
dignitaries here on the panel, as well as to Ms. Sondra Clark 
who welcomed us here to this facility and to--I see members of 
the Plainfield Housing Authority, HUD, Faith, Bricks and 
Mortar, and the school district and One Stop and many of our 
partners, Union County, representatives here--I want to put on 
the record very briefly, Senator Menendez, that, first of all, 
Senator Menendez is not a stranger here to the city of 
Plainfield. He has come here often to discuss many pertinent 
issues and ideas affecting not just the people in Plainfield, 
but throughout the entire State of New Jersey, the 566 
municipalities. He even came to my church with my pastor who is 
here today, Reverend Tracy Hill Brown from the Fellowship 
Ministries. You may remember her, as well, Senator Menendez.
    Senator Menendez. I cannot forget her, Mayor.
    Ms. Robinson-Briggs. I know. Me, either.
    Senator Menendez. She gave me a blessing from the pulpit, 
so----
    Ms. Robinson-Briggs. Oh, excellent. She does that.
    Senator Menendez.----and we wish her well.
    Ms. Robinson-Briggs. Thank you so very much.
    And I will not forget, to all the elected and appointed 
officials who are here today.
    I am Sharon Robinson-Briggs. I am here representing and 
wearing different hats. I am Mayor of the city of Plainfield. I 
am also here as a member of the Plainfield Area NAACP, also, 
under the leadership of Peter Briggs, and also here as an 
Executive Member of the New Jersey State League of 
Municipalities. Mayor Ondish is the President and Bill Dresser 
was the Executive Director. Also, as a member of the New Jersey 
Urban Mayors Association under Mayor Wayne Smith, who is the 
President.
    But finally and maybe in this particular case maybe the 
most important reason why I am here today, I am sitting here as 
a homeowner in the city of Plainfield, County of Union, State 
of New Jersey, 216 Pemberton Avenue, for the record. As a 
homeowner, I have to say that it has been pretty tough, pretty, 
pretty tough to maintain a mortgage on property these days.
    Now, I think one of the biggest problems is that, or the 
tie-in to the foreclosure problem is that it is directly 
related to employment. You know, we have many people, not just 
in Plainfield but throughout the State, who have either been 
laid off, fired, and/or have been asked to take a reduced 
salary. Now, a reduced salary is one thing, but it does not 
equate to what is going on in the household. The expenses are 
not being reduced, as we all know. So, therefore, there is this 
unequal situation that is going on. I can tell you that even 
within my own household, my husband, who was making one salary 
which was wonderful, has been greatly decreased and I think 
that that is something that has happened across the board. And 
it is not due to anything that employees or residents have 
done. It is just the economy.
    For instance, in the city of Plainfield, we lost in the 
last few years, our biggest employer, Muhlenberg Hospital, that 
went down from a full-service facility to a satellite facility, 
and we had 1,100 employees at Muhlenberg and we do not have 
that kind of staff there. Many of those individuals resided 
here in the city of Plainfield or in Union County, and, of 
course, without a job, it is pretty tough to make the mortgage 
demands. So, again, I think that the foreclosure rate is 
really, really tied to employment and this economy.
    I would like to speak for a moment with regard to--and I 
thank banking officials for being here--because I think that we 
need to be able to work closely together, municipalities and 
banking officials, because there is the modification process, 
but it really takes too long for homeowners to go through that 
process. Oftentimes, I have been meeting with families who say 
that it has been 4, 5, 6, 7, 8 months to get a final decision 
as to whether or not they have qualified for the modification.
    I would like to throw out to the banking world, and I know 
that they are proactive and they want to help people stay in 
their homes and that is all of our option at this point. That 
is what we all would like to see happen. But I would like to 
ask if banking officials can please take this information, as 
well as our legislators, back to their bodies and discuss the 
possibility of forgiveness of monies, back monies that are owed 
on loans, maybe up to 3 months, or either put that on the tail 
end of a loan and allow people to be able to start over, 
because assessing extra fines and things of that nature is not 
helpful to homeowners and I am sure that banks do not really 
want to be landlords and/or property owners.
    We have several properties in the city of Plainfield that 
have been foreclosed upon. Unfortunately, we do not have any 
way to help the folks who have been displaced because there is 
not money available to them. People are kind of camping in with 
other family members and doing things of that nature.
    But in Plainfield, I am going to tell you briefly what we 
have done to try to assist homeowners is to work with 
organizations and facilities such as the Housing Authority, 
such as HUD, such as Faith, Bricks and Mortar and other 
certified counseling facilities so that they can educate our 
community, and we have been having housing seminars. So we are 
going to continue in that vein.
    But thank you again, Senator Menendez, for bringing this 
issue to the forefront because it is very vital to the 
community of Plainfield.
    Senator Menendez. Thank you, Mayor.
    Ms. Garlic.

STATEMENT OF KRISHNA GARLIC, CHIEF EXECUTIVE OFFICER, BRAND NEW 
                              DAY

    Ms. Garlic. Good afternoon. I am grateful that the Senator 
has made this venue available to call attention to the 
unfortunate situation that families are still losing their 
homes and many are sitting in limbo for years not knowing their 
fate.
    Take, for example, Regina, who came to Brand New Day for 
help with her mortgage. She had heard about the HAMP program 
and her mortgage was with one of the larger banking 
institutions. Her mortgage payment was $1,200 a month and she 
was current until she lost her job unexpectedly. She was 
unemployed for 3 months before finding employment significantly 
less than her previous job. Unemployment and under-employment 
are the number one factors facing customers who come into our 
office today. Brand New Day worked with Regina to submit her 
modification request.
    After 90 days, she was approved for a trial modification, 
and the next 120 days were spent resubmitting documents, 
numerous phone calls, and lots of tears as she waited for her 
permanent modification. Six months of waiting to find out the 
fate of her home ownership status and the memories of 
sacrifices she and her husband had made to purchase a home for 
their family were all flooding her with emotions. Thoughts of 
where she and her family would live if the loan was not 
approved, where she and her--where her children would go to 
school. Where would they play? Where would they raise their 
children? After all, she and her husband had children in this 
house, this neighborhood, these neighbors.
    Another 30 days went by before she was scheduled to meet 
with her counselor. It has now been over 8 months and still no 
resolution. She was saddened to hear during her appointment 
that the request had been denied. The counselor advised her not 
to give up, because in New Jersey, we have other programs. The 
State's mediation program would give her an opportunity to 
speak directly to the bank and make her case. Together with the 
counselor, the mediation application was prepared and 
submitted. More waiting. Regina's mediation date was scheduled 
for 2 months out, but at least she could sleep sound at night 
knowing that the sheriff would not show up at the door to 
remove her family while waiting for her mediation date.
    A week before the mediation date, Brand New Day worked with 
her to update all of her paperwork and send it in to the bank 
in preparation for the mediation process. So Regina found 
herself frustrated and confused when the lender's attorney 
reported to the mediation unprepared and requesting that the 
process be continued.
    On many occasions, cases at mediation are continued two and 
three times, leaving homeowners in their houses but uneasy, 
insecure, and full of anxiety. In addition, while decisions are 
prolonged, fees and interest continue to accrue, making 
negotiations with lenders even more difficult. It is our 
recommendation that fees and interest be suspended during the 
foreclosure modification process. In addition, the process 
would be simplified and more effective if counselors had direct 
access to the person who has the power to negotiate and make 
the decision regarding the modification.
    Regina finally, after an unsuccessful mediation process, 
said that she would pursue a short-sell and put her house on 
the market. At that point, she felt hopeless and believed that 
this was her only option. The home stayed on the market for 
many months with no offer. There were so many homes on the 
market that at that time and in her neighborhood, there was 
extremely low demand. She finally got an offer much less than 
what she owed to the bank, in fact, $70,000 less. The offer was 
submitted to the bank and Regina found herself yet again 
playing the waiting game. She waited for months with no 
response from the bank to approve the short sale.
    The housing counselor at Brand New Day told Regina not to 
get frustrated. There is a program called Cash For Keys that we 
can negotiate on your behalf if you decide that you want to 
move out. Regina was desperate. She and her housing counselor 
made arrangements for the exchange. Unfortunately, the cash 
arrived many months after she had moved and the funds could not 
be used to help with her relocation expenses. Banks should be 
required to give the cash within 30 days of the homeowner 
vacating the property.
    Regina and her family are now renting an apartment in 
another town and another community. The children are now 
attending school at a new school and have made new friends. 
There is a greater distance between where she lives and where 
she works. The family would have been better served if they 
could have remained in their house as tenants. Banks should be 
encouraged to allow homeowners to lease back the properties 
after foreclosure so they can maintain stability for their 
family and avoid vacancy in our neighborhoods.
    In closing, Regina's story can be multiplied by thousands 
across the State and millions across the country. Many of the 
current Federal and State programs could be more useful if 
guidelines were less restrictive. There are so many people that 
need help and their situations are so different that we spend 
numerous hours as counselors trying to determine who qualifies 
for what program and trying to qualify the unqualifiable.
    In addition, our counselors are an invaluable part of the 
process in aiding a family from the first late payment through 
resolution, which could mean a loan modification but also could 
be transitioning into a new living situation. Funding for 
housing counselors has been significantly cut in the State and 
Federal budgets, and as demand continues and in many cases 
increases, we need dollars to pay salaries and related costs. 
Banks should be responsible to assist with the cost of healing 
our communities.
    So I want to thank you for your attention to this important 
matter and ask the Senator that you continue to have 
conversations and dialogue with housing counseling agencies as 
we try to help families in New Jersey. Thank you.
    Senator Menendez. Thank you very much.
    Mr. Meyer.

 STATEMENT OF WAYNE T. MEYER, PRESIDENT, NEW JERSEY COMMUNITY 
                            CAPITAL

    Mr. Meyer. Senator Menendez, good morning, and thank you 
for the opportunity to speak with you today about New Jersey 
Community Capital and the role we play in saving New Jersey's 
neighborhoods from foreclosure. More importantly, thank you for 
your tireless efforts to advance a comprehensive housing plan 
designed to keep people in their homes, to fill vacant homes, 
and to save our neighborhoods.
    Senator, you mentioned at the beginning that the central 
part of New Jersey Community Capital's work is to try to create 
comprehensive sustainable neighborhoods through housing, 
education, early child care, business development, and the 
like. But what is clear to us in our work throughout the State 
is that without a healthy housing market, it is almost 
impossible to create those neighborhoods of choice. And the 
foreclosure crisis, as enormous as it is, places pressure on 
the abilities of neighborhoods to become good places to live, 
work, and raise a family.
    This crisis really requires interventions and strategies 
across the mega-community approach, within the Government, 
philanthropic, private, nonprofit sector. And I would like to 
talk today a little bit about some of the programs we are using 
at New Jersey Community Capital that are really designed to 
help, along with your housing work plan, Senator, keep people 
in their homes, prevent foreclosure, and save neighborhoods.
    The first is a financing program. As a Statewide CDFI, we 
have seen the lack of financing to groups around the State as a 
real barrier for them to acquire and redevelop properties, and 
to put them back into productive reuse. And so vacant homes, 
which drain the life out of neighborhoods at a time when there 
is a need for affordable housing, remain vacant.
    At New Jersey Community Capital we are implementing a new 
creative fund. We call it the Neighborhood Prosperity Fund, 
which is designed to lend to groups around the State who can 
meaningfully acquire properties, redevelop them, and put them 
back into productive reuse. And this is a problem that has been 
going on for years, because a lot of mainstream financial 
institutions have really stopped directly lending to groups 
that have real strategies to acquire and redevelop properties.
    Another area where it has been very difficult, because it 
is so difficult to qualify for mortgage financing and there is 
such a demand for housing, is to provide financing to groups to 
rent out these houses. In New Jersey Community Capital, we have 
been trying to provide what we call mini-permanent rental 
financing. Again, there is demand for affordable housing but a 
lack of capital to fill houses, and this financing is a really 
important component of the work. Financing is key, clearly. It 
continues to be an issue.
    The second program is around the acquisition of properties 
on a meaningful scale. It is clear to us that the one-off 
property acquisition is not enough to really save 
neighborhoods. Not only is it not enough, we cannot rely on 
Government subsidy as the sole source to rebuild neighborhoods. 
So one of the initiatives that we have developed in New Jersey 
Community Capital is to establish a subsidiary called Community 
Asset Preservation Corporation which is designed to purchase in 
bulk both nonperforming mortgages and REO properties and then 
work with various groups, both community development groups and 
mission-based for-profit groups, to try to keep people in their 
homes through modifications of mortgages, trying to stabilize 
tenant situations. We really feel that this is a promising 
aspect of the work.
    One of the difficulties and challenges that we have had, 
and we are starting to make more progress on it, is getting the 
financial institutions to deal with us on a meaningful basis to 
acquire properties and to establish rational values for these 
properties. We really believe that early intervention is so 
important, and if the financial institutions were more willing 
to work with us, we would be able to gain control and access to 
these properties more quickly.
    And finally, Senator, we are working on a program with our 
State housing mortgage finance agency to use some of the 
Hardest Hit Funds. We are using some Hardest Hit Funds that 
were provided by U.S. Treasury. And the idea behind this 
program is precisely part of your work plan about helping 
underwater home buyers and keeping people in the homes. Every 
week in this country, every single week, billions of dollars of 
mortgages are traded, including here in New Jersey. And so we 
want to create a fund that is designed to acquire owner-
occupied mortgages in targeted neighborhoods and then begin a 
process of working with the individual homeowners, like with 
our counselors like Krishna and Phyllis, to redevelop 
individual program plans so that we can meaningfully write down 
these mortgages to a point where they are consistent with the 
values of the house and with the borrower's income.
    We believe that with this program, we could probably save 
2,000 homeowners over the next 6 years. So we are looking 
forward to continuing to develop that program and implement it 
in 2012.
    Senator, again, thank you for this opportunity here today 
to speak with you. It is critical that we save our 
neighborhoods from the detrimental impact of foreclosures. I 
believe that we can make more of a difference, but it is going 
to require both a financial and real estate capacity at a 
greater scale than has ever existed, and it is also going to 
require a major shift in thinking and behavior by all of us to 
really implement these initiatives. So thank you again.
    Senator Menendez. Thank you for the insights.
    Ms. Salowe-Kaye.

   STATEMENT OF PHYLLIS SALOWE-KAYE, EXECUTIVE DIRECTOR, NEW 
  JERSEY CITIZEN ACTION, AND FORMER MEMBER, CONSUMER ADVISORY 
          COUNCIL, FEDERAL RESERVE BOARD OF GOVERNORS

    Ms. Salowe-Kaye. I would like to thank Senator Menendez for 
bringing Congress to Plainfield, New Jersey, today. I have been 
the Executive Director of New Jersey Citizen Action for the 
past 25 years and I served as a board member of the Federal 
Reserve's Community Advisory Council for 3 years.
    New Jersey Citizen Action is the State's largest HUD-
certified housing and foreclosure counseling agency and we are 
a leader in innovative projects and programs that benefit New 
Jersey's families, individuals, and seniors, and the kinds of 
things that Krishna talked about before, we see those cases in 
our seven offices throughout the State, including the one that 
is located right here in Plainfield, New Jersey.
    Keeping families in their homes when reasonable loan 
modifications are possible and the reform of the broken loan 
servicing industry should be the number one priority for 
Congress. Along with that, we need to be figuring out a way, 
and Wayne talked a little bit about it, to preserve already 
existing housing that has either become vacant or has the 
possibility of becoming vacant. We need to find ways to keep 
folks in those homes so that we can preserve our neighborhoods 
in New Jersey.
    Policy makers need to apply strong mandatory standards for 
loan modifications. It would go a long way for the uncertainty 
that counselors face when the result of a modification depends 
on the person that they are talking to on the phone and the 
mood they are in that day.
    There must also be an end to the loan servicing abuses and 
poor business practices that contribute to unnecessary 
foreclosures. Do not be fooled by the AG announcement that was 
announced yesterday, and announced as probably the best thing 
since sliced bread. The devil is in the details. The programs 
have not been set up from that. The implementation of those 
programs has not been determined. And finally, the enforcement 
is being left to the lenders, to the banks. It is like the fox 
is guarding the chicken coop. So we really need to examine that 
and not rest on our laurels that billions of dollars are 
targeted to help a very, very small percentage of families and 
no one is going to jail right now.
    Lowering and reducing principals is also an essential part 
of keeping folks in their homes, and there must be a way to 
mandate that these principals be written down so that homes can 
remain affordable and the mortgages can be sustainable. Senator 
Menendez's program, his Shared Mortgage Appreciation 
Modification Act, is an example of a program that would work, 
should be supported, and it should be passed quickly by 
Congress. Acume Bank is a national financial institution that 
has been doing this for many years. They have 8,000 foreclosed 
loans in New Jersey and they found out a way to be profitable 
and do mortgage reductions. So we need to make sure that that 
happens and we need to all get behind this bill and Congress 
needs to pass it very quickly.
    Treasury's Hardest Hit Fund has some excellent State and 
local programs. New Jersey's Homekeeper Program, which provides 
direct mortgage assistance to folks who are unemployed or 
under-employed, really needs to be expanded and marketed 
widely. Congress needs to support large-scale models like the 
Resolution Fund that Wayne discussed by allowing organizations 
themselves to apply for these Hardest Hit Funds or other TARP 
types of dollars instead of just permitting the housing and 
mortgage finance agencies to access these funds. And as long as 
the Hardest Hit Funds are being recycled, as in the Mortgage 
Resolution Fund, Congress should not have a sunset on these 
funds. Additionally, incentives need to be set for servicers 
and banks to ally themselves with these kinds of nonprofits and 
the same should be provided in bulk REO programs.
    Finally, HUD certified counseling agencies need to be 
funded to capacity. Every single program that has been 
discussed here today requires a counselor for a home buyer to 
navigate this process, and to have cut these funds is 
disgusting and we all have to get behind this and make sure 
that funds are available to properly counsel every single 
person who is facing foreclosure in New Jersey. Thank you.
    Senator Menendez. Thank you very much.
    Professor Mallach.

    STATEMENT OF ALAN MALLACH, NON-RESIDENT SENIOR FELLOW, 
                     BROOKINGS INSTITUTION

    Mr. Mallach. Thank you, Senator, and I am delighted to be 
here.
    I would like to start by just seconding what Phyllis said. 
The settlement may help, but again, the devil is in the 
details. But I think legislation such as the bill that you have 
introduced on shared equity mortgage modifications could make 
far more difference in the long run that the settlement that 
was announced yesterday, which could help but, again, is far 
from a solution.
    So I would like to talk very quickly about four things that 
I think are really critical. First, and I will just second what 
people have said, we need to reduce the number of homes that go 
into foreclosure. Until that happens, we are not going to be 
able to stabilize our neighborhoods. We are not going to be 
able to stabilize our housing market. And we are not going to 
be able to help the people who need that help. And I think the 
Federal Government has a critical role in this area. We need 
legislation to address the issue of principal reduction, to 
facilitate short-sales and deeds in lieu and provide 
alternatives to foreclosure.
    And in that light, I think one of the ironies of this huge 
situation is that Federal agencies control over half of the 
mortgages in this country and the mortgages that are in 
trouble, and yet consistently, FHA, Fannie, Freddie, the 
Federal Housing Finance Agency have been more a part of the 
problem than they have been a part of the solution, and I think 
this is something where if the Administration is unable to 
bring these agencies into the tent, as it were, I think 
Congress should look at what actions it can take to change the 
ground rules under which these agencies operate so that they 
can, indeed, be part of the solution. Notably, they are not 
part of the settlement that was approved yesterday.
    Second, people have to be able to stay in their homes. When 
homes become vacant, especially in inner-city areas, they 
quickly become uninhabitable. I think there is--Congress 
enacted the Protecting Tenants in Foreclosure Act a little more 
than 2 years ago. That was critically important, but it needs 
teeth.
    Along those lines, I would second, I think it was--I forget 
who among this group said it--a responsible homeowner who is in 
the foreclosure process but has maintained their home should 
have the right to stay in that house after foreclosure as a 
tenant unless there is a buyer who actually wants to move in 
and occupy that house. That is a win-win for the family, for 
the lender, even though they do not seem to appreciate it, and 
above all, for the neighborhood. There is a bill that has been 
in Congress, it was introduced by Senators Grijalva and 
Kaptur--Congress members Grijalva and Kaptur, I am sorry--and 
it has not gone anywhere, but I think it really should be 
addressed.
    Third, ensure that properties are properly maintained, both 
during the foreclosure and after. New Jersey is the only State 
in the country that has a State law that puts the clear 
obligation on the lender that has initiated foreclosure to 
maintain the property during the foreclosure process. There are 
a number of cities that have done it elsewhere under their home 
rule powers, but I think this is something, again, Congress 
could look at, making it very clear that lenders that initiate 
foreclosure have the legal obligation to maintain those 
properties if the owners are no longer available or accessible.
    And second, throughout this country, particularly in inner-
city areas, lenders initiate foreclosures and do not follow up 
or drag it out. In many States, in many cities, lenders, 
literally, they start the foreclosure, they hope to pick up 
some money from the borrower at the last minute, and then they 
walk away and never perfect the foreclosure. We need 
legislation that is essentially a ``use it or lose it'' bill. 
If a lender simply starts the foreclosure but does not pursue 
it responsibly in a timely fashion, the foreclosure should be 
voided and, in some fashion, either the owner should be allowed 
to stay as the owner or the responsibility for foreclosing 
should go to a nonprofit or a public agency that can do it 
responsibly and get that property out of the limbo that it is 
sitting.
    Then, finally, we need to put more properties back to 
productive use and make sure there are ways for families to buy 
houses, that there is access to mortgage funds. This, of 
course, goes to a huge issue that Congress is dealing with, is 
what is the future of the American mortgage industry going to 
look like. Are we going to have a situation in this country 
going forward where responsible home buyers of all income 
groups will be able to get mortgages, or are we going to have a 
situation where mortgages, unreasonable terms with unreasonable 
downpayments, are simply no longer going to be available to 
people of low, moderate, and middle income.
    And then finally, just above all, I think this is a crisis. 
I mean, I have spent a lot of time traveling around New Jersey 
and around the country, in cities, in urban areas. There are 
neighborhoods across this country that are falling apart, that 
are collapsing from foreclosures, market collapse, declining 
public services, the economy. If we do not do something and do 
something quickly to deal with these issues, one harvest of our 
inaction will be the collapse and abandonment and 
impoverishment of literally hundreds of inner-city 
neighborhoods and hundreds of thousands of lower-income 
families.
    Thank you.
    Senator Menendez. Thank you very much. Thank you all for 
your testimony. There were a lot of great insights here and I 
want to follow up on several of them.
    Assemblyman, you talked about--and I do not want to get 
into your negotiations--but what is the hope of your goal at 
the end of the day in terms of the legislation that you and 
Senator Lesniak are pursuing in broad terms? Do you think that 
the amount of monies that will be coming under the settlement 
to New Jersey can be a source for some of what you earlier said 
you wanted to accomplish?
    Mr. Green. Senator, I think that would go a long way toward 
strengthening the pot. As you know, over the last 25 years and 
basically this last 2 years under Christie's administration, we 
all have agreed that housing policy in the State of New Jersey 
needs to be changed. Currently, I have a bill that has the 
support of all the people in the building industry, the 
nonprofits, in terms of how we can answer that. Unfortunately, 
the Governor has another idea. So I am hoping that maybe we can 
meet each other halfway rather than have the court tell us what 
to do.
    Meanwhile, in this last 2 years, the crisis of foreclosure 
has come up, and what we are trying to put together, without 
getting too far into the negotiations that are going on, is 
that some of these dollars that are actually sitting in 
suburban communities that can be used, not for affordable 
housing now, for foreclosure, and some of the other dollars 
that are generated through the ability of builders and other 
entities bringing money to the State, we take that money and 
use that for foreclosure.
    Right now, Senator, foreclosure is at the front and the 
bottom line is that we cannot continuously go back to 
Washington because you are doing the best you can. We cannot go 
back to the taxpayers. So any dollars that we can generate that 
can go toward helping a family, helping a bank, we need to make 
that our top rod.
    There are going to be people in the building industry who 
we would like to put back to work. We are going to have people 
in the community that feel we need to be building more units. 
But you need to deal with your current crisis, and that is the 
crisis that you are talking about today.
    Senator Menendez. And in that respect, Ms. Salowe-Kaye 
mentioned the New Jersey Homekeeper Program, which is based on 
Federal dollars. Has the State committee had an opportunity to 
have any hearings on that yet?
    Mr. Green. No, we have not. The hearings that I held last 
year, Senator, were basically dealing with affordable housing.
    Senator Menendez. I see.
    Mr. Green. We are hoping that the different groups that we 
have met with without having hearings, including groups of her 
sort, you know, my House, the Senate, has reached out for them. 
So in the past, I was able to reach out for everyone when I was 
moving my bill, but unfortunately, it did not happen with the 
front office. But the question you are asking me is that we are 
reaching out now before we finalize this so everybody can be on 
the same page.
    Senator Menendez. Ms. Salowe-Kaye, I want to ask you about 
that program because I am a little disappointed that, so far, 
only 54 homeowners----
    Ms. Salowe-Kaye. A slow start. I think as a--well, it was 
even less last year, so we are better now than we were last 
year. As a result of Krishna's counselors, my counseling staff 
interacting with the Housing and Mortgage Finance Agency, they 
have actually changed some of the requirements of that program 
in order to be able to expand the number of people that qualify 
for it. Fifty-four is not a good number. There are many, many 
more applications that are in. Folks need--the way it works is 
homeowners have to apply directly online at HMFA's Web site 
into a portal and then they eventually get assigned to one of 
our agencies or another. There are other certified agencies 
here.
    There is a lot of time there, but a bigger problem is the 
actual marketing of the program. It was announced a couple of 
years ago as we have got $48,000 for 2 years if you lost your 
job. This was before the program was even set up. Now the 
program is set up. There are requirements. Everybody does not 
qualify. But there really needs to be aggressive marketing and 
outreach on that program.
    The counseling agencies are being inundated by people who 
have applied and then get sent to us. It is what happens after 
that when we submit it, which takes a long time, and how many 
counselors there are to put through all the people that should 
qualify. We do not market the program, because if we marketed--
I mean, we do not have to market the program because we do not 
have enough counselors to serve the people that are coming 
through now.
    So they need to market it, provide counselors----
    Senator Menendez. So if we marketed it and had a lot more 
influx, how would we meet the challenge of----
    Ms. Salowe-Kaye. At least people would get into the portal 
and they would get into the queue and they would eventually get 
seen by one of our agencies that are up here and out there 
today. But a lot of people do not even know that it exists, and 
some people come to us first or your agency first and they 
think we can get them in. So the State really needs to market 
it. They need to increase the number.
    I mean, we used to--in the old days--we now are all paid by 
a fee-for-service. For every one you put in, you get this, 
that, $100 here for an intake. We used to get capacity grants 
that actually paid us money for counselors. We have had to 
let--we do not get that anymore. All we get is a fee for 
everyone we put in at each part.
    So unless somebody is--this money, the hope would be that 
some of this white bread money, you know--sliced bread money, 
not white bread money--you know, we are going to get a bunch in 
the State. There are a lot of places that it should go to and a 
lot of programs. But some of it has to be put into actual 
capacity building of the already existing counseling agencies, 
not setting up new agencies. We do not need any more new 
agencies. We have tried and true agencies that work. We need to 
be able to maintain our staff and deal with what is going to 
come. We have not peaked yet.
    Senator Menendez. I agree with you on that, which is why we 
fought the House provisions that eliminated all the funding and 
got a fair amount restored----
    Ms. Salowe-Kaye. But the State used to fund this, too.
    Senator Menendez.----but we need to do more.
    I just want to make sure that, after having fought at a 
Federal level for the equivalent of what we call here the New 
Jersey Homekeeper Program----
    Ms. Salowe-Kaye. A great program.
    Senator Menendez.----that it is--I am glad to hear it 
works, if we can get it working----
    Ms. Salowe-Kaye. It works if we can move people through, 
and it works as a result of the counselors saying----
    Senator Menendez.----so something we need to pay attention 
on. Maybe the Assemblyman can help us with that, too.
    Mr. Green. With all due respect, Senator, this last 2 
years, as you well know, the Department of Community Affairs 
has changed hands. We now have a new Commissioner. 
Unfortunately, the other Commissioner was setting everything up 
and this is like starting all over again. I feel that you need 
to put some safeguards in when Federal dollars are sent to New 
Jersey that those dollars go directly to where they need to go, 
and number two, we have the staff to make sure the job is 
getting done because that is the problem we are running into, 
exactly what she is telling you today. It just seems like it is 
not on----
    Senator Menendez. Well, I know I wrote several letters to 
the New Jersey Housing and Mortgage Finance Agency saying you 
have the slowest start in the Nation, so we need to get it 
going, because we fight for Federal dollars and then we want to 
see it effectively used here on behalf of people. So I hear 
some of your suggestions and am going to follow up on it.
    Ms. Garlic, I heard your story, which is, of course, of one 
of your clients, which is pretty telling of the challenges. It 
is your experience--she did not end up with a successful 
modification, but is it your experience that when you have a 
mortgage counselor with a client, they are more likely to 
succeed than not? Would that be true?
    Ms. Garlic. No, that would definitely be true, and I think 
kind of the message in this story is that, emotionally, going 
through foreclosure is a very stressful time for a homeowner. 
And so when the banks are taking a very long time to make a 
decision regarding a modification, and if you go through the 
90-day trial and then the additional time to wait and then all 
of the programs that we have in place and the time it takes for 
people to be able to move through these programs, that there 
are a number of people who will end up with a successful 
modification, but then there are a number of people who have to 
look at alternatives. And the counseling agency does not walk 
away from a person if a loan modification is not what happens 
at the end of the day. We will stay with someone all the way 
through whatever their transition is.
    And so when we talk about being fairly compensated for the 
work we do, you know, that is a part of the work that we are 
not compensated for. It is something--when you talk about being 
able to really support us from an organizational perspective 
and be able to support the folks that we are paying, we are 
there with the person through the entire crisis, whatever that 
means, and we need to be able to be supportive for that work.
    Senator Menendez. One of the suggestions you have that is 
of interest to me, that the counselor have direct access to the 
lender. Can a borrower not give you some power of attorney----
    Ms. Garlic. Yes----
    Senator Menendez.----or some authorization to do that----
    Ms. Garlic. Absolutely.
    Senator Menendez.----or is it still an impediment?
    Ms. Garlic. So, really, what the problem is is that the 
person who the counselor may be speaking to on the phone is not 
the person who is going to make the decision about whether that 
loan modification is approved or not. And so you spend your 
time, or the counselor spends their time on the phone, and I 
think Phyllis said, what mood is the person in today? How are 
you going to apply the guidelines today? And so really wanting 
to be able to have access to someone who is going to make the 
final decision.
    Senator Menendez. Phyllis.
    Ms. Salowe-Kaye. The thing about that is the counselors, at 
a counseling HUD agency, we all have the secret super-duper 
numbers that the person in the street does not have.
    Ms. Garlic. Right.
    Ms. Salowe-Kaye. So we actually get to what they consider 
to be the best--that the lender considers the best person, and 
we even have people above that if it is really outrageous. If 
it gets to Krishna or I as a problem, you know, we have 
somebody we could pick up the phone and call.
    The problem is that on the final workout, it is the 
investors, because the loan has been sliced and diced so many 
ways that the secret super-duper person is not the person who 
signs off on the modification. They have to go back and talk to 
whoever loans the loan and we never see those people. The only 
time we have a connection is when we show up in a mediation in 
court and the lawyer is on the telephone. So we never even see 
their face.
    Ms. Garlic. Right.
    Ms. Salowe-Kaye. That is the process of the State mediation 
program. So it is not that the lender--I mean, we have got 
better numbers than somebody----
    Senator Menendez. Right.
    Ms. Salowe-Kaye.----who just calls those numbers that are 
in the newspaper today.
    Senator Menendez. So just for the record, when you are 
talking about mortgages that have been aggregated, then 
securitized, sold in the marketplace, and which then has all 
different investors in it, and hence the slice and dicing of 
that----
    Ms. Garlic. Right.
    Ms. Salowe-Kaye. Right, and that is the majority of the--I 
mean, those are the ones that are the hard ones.
    Senator Menendez. Is that, in part, why you talked about 
aligning servicer standards with--servicers' incentives with 
seeking remediation and----
    Ms. Salowe-Kaye. Yes, and actually, you know, the President 
has, just in his recent announcement, he talked about--and we 
have not seen the details of it yet--sort of mandating that 
those servicers, the Freddies and the Fannies and whoever else 
is owning these loans, that they comply and come to the table. 
But unless there are standards and that we all know it, we are 
spinning our wheels because, I mean, 8 months is a short amount 
of time for a client----
    Ms. Garlic. Mm-hmm.
    Ms. Salowe-Kaye.----and they all stay on our books----
    Ms. Garlic. Right.
    Ms. Salowe-Kaye.----and 936 days in New Jersey to go from 
filing of a foreclosure until the sheriff comes. That is about 
the average length. We are the longest in the country. And so 
we have to stay with that client----
    Ms. Garlic. That is right.
    Ms. Salowe-Kaye.----for 936 days, unless they leave and we 
cannot find them.
    Senator Menendez. Mayor, I know you want to say something. 
I also want you to, while you are making your comment, I want 
to ask you a question as a prelude to going on to Mr. Meyer, 
and that is give us a real life consequence of multiple 
foreclosures in a community. What are your challenges as Mayor?
    Ms. Robinson-Briggs. Thank you, and that is sort of where I 
was headed, Senator. First, thank you for your bill. I also 
wanted to acknowledge something that one of the panelists said 
in reference to money needing for counseling. That is an 
absolute true statement because people need to be apprised of 
their rights, they need to understand what the process is, if 
they are in foreclosure and going through foreclosure.
    To your question, Senator, I can tell you that foreclosures 
not only affect the household or the homeowners who are 
suffering through their foreclosure, it also affects their 
neighbors, because now once that property is foreclosed on, 
their property more than likely is boarded up and in a 
neighborhood next to houses that are not foreclosed upon. But 
if those families in that block that they have a foreclosed 
property there, if they want to sell their property, their 
value has been diminished and so, therefore, they are probably 
on the bad side of a loan. So they are trying to sell their 
property and the value has gone down and the amount of money 
that they would need to satisfy their loan is not going to be 
available to them because of this foreclosed property right in 
their block.
    And then, of course, on a municipality level, if you have 
foreclosures in any municipality, that brings down your tax 
rateables and it also brings down many of your property values 
in the city or any city throughout the State of New Jersey.
    So it has been a real downfall. Foreclosures not just 
affect, again, the family that is going through it, but it 
affects everybody, whether you know it or not.
    Senator Menendez. Has it been your experience that a 
finalized foreclosed home, now with no family inside, does it 
stay vacant a long time?
    Ms. Robinson-Briggs. Yes. We have many vacant properties in 
the community, the city of Plainfield, and that lends an 
opportunity for crime, for vagrancy. In fact, I think we did 
have a property in Plainfield that there was a fire for that 
very reason. And I did hear reference to the fact that when 
there is a foreclosure, that banks should maintain the 
properties, and I would hope that they, from this point 
forward, will be encouraged, please, Senator, to do so, because 
we have had properties that we basically have to put liens on 
and financial institutions are not upkeeping with now their 
properties. So we need them to do that so that our property 
values will be maintained at a certain level.
    Senator Menendez. Mr. Meyer, I wanted that as a prelude to 
some of your comments about acquisitions of property at scale. 
There have been some suggestions at some of our hearings that 
we look to create tranches of properties sold to potential 
investors with an understanding that they move into a rental 
prospect for a period of time. Is that something that, in your 
experience, you would find desirable? If so, how should that be 
structured? Do you have any ideas in that regard?
    Mr. Meyer. Yes, Senator. Before I answer, if I could just 
build on the Mayor's question----
    Senator Menendez. Sure.
    Mr. Meyer. Some of the neighborhoods where we have studied, 
once the property goes through full foreclosure, they normally 
sell at 60 percent of what an average median sales price would 
be in a lot of these areas, so the foreclosure has a really 
devastating effect in terms of pricing for a particular 
neighborhood.
    Senator Menendez. I guess anyone else in the neighborhood 
looking at that sales price could use it as comparables to file 
a tax appeal.
    Mr. Meyer. That is one way to look, but it is still----
    Senator Menendez. Not that I want to create that movement, 
but it is a reality of a possibility.
    Ms. Robinson-Briggs. Right.
    Mr. Meyer. That is right. But to answer your question, 
Senator, yes, we believe that a bulk acquisition of REO 
properties for a rental program is a strategy that we should be 
actively pursuing, because again, we see a demand for housing. 
We see a demand for affordable housing, rental housing. But the 
reality is that we need to get control of these properties.
    I will give you an example of one we are working on. We are 
in the process of acquiring roughly 40 mortgages from a major 
financial institution. They are all in targeted neighborhoods. 
They are nonperforming mortgages. Twenty of the people are 
still in their homes, owner occupied. The pricing on these 
mortgages are less than 20 cents on the dollar at this point in 
time. The banks will not write down the mortgages because of 
moral hazard issues, which does not make sense to me if they 
are willing to sell it to us for 20 cents on the dollar.
    But the reality is, if we get control of these properties, 
we can not only work with the homeowners who are in there and 
write down their mortgages, because we would not have to worry 
about investors since we would be the owner of the mortgages. 
But also, it gives us an opportunity for early intervention, to 
be able to get control of these properties when they become 
vacant, to be able to develop some other strategy to fill 
vacant houses. But when you wait, as in New Jersey, 800 days to 
go through a foreclosure crisis, nothing good happens and time 
is the enemy. So that is why it is so vital to get these 
properties----
    Senator Menendez. Your answer gives me rise to two 
questions. It seems to me that, first of all, the biggest 
holder is, I think you mentioned, is the Federal Government 
and, therefore, all of us as taxpayers through Fannie and 
Freddie, about 50 percent of all mortgages.
    Mr. Meyer. Right.
    Senator Menendez. And one of my challenges, and maybe, 
Professor, you want to talk about this or have a comment about 
it, is I have been pushing Freddie and Fannie to, in one case, 
allow refinancing to take place, because you are either going 
to preserve your corpus by foreclosure or refinancing. And it 
seems to me the point you just made, I do not quite understand 
if you are going to foreclose and then sell at 60 percent, why 
would you not readjust. Moral hazard is also for those who 
created the lending products and drove people to mortgages they 
should have never been. That is a moral hazard, too, in my 
view.
    So the question is, should we not be also having the major 
institutions that are the backers of over 50 percent of all the 
mortgages in the country allow refinancing to take place as one 
element at the end of the day, of permitting a responsible 
borrower at present rates to be able to stay in their home and 
create a good foundation of a marketplace. Is that something 
that is desirable?
    Mr. Mallach. Absolutely. I would just like to add to 
Wayne's point in terms of bulk sales, that I think I am very 
comfortable if New Jersey Community Capital buys a pool of 
mortgages and is responsible for those houses. I am scared as 
to what might happen if Fannie and Freddie start doing bulk 
sales to people who have not been thoroughly vetted as 
responsible landlords and owners and are not absolutely locked 
into maintaining all their properties.
    I mean, we have got a lot of history in this country 
already with bulk sales, of people buying distressed 
properties, triaging them, cherry picking them, walking away 
from thousands of properties, and ending up making 
neighborhoods worse. So I think the idea of bulk sales can 
work, but it can only work if it is done extraordinarily 
carefully to make sure that the properties get into the right 
hands on the right terms.
    And along those lines, I think, to my mind--and again, 
sometimes I just wonder who is doing the thinking for some of 
these organizations. From a standpoint of long-term financial 
stability and liquidity, for Fannie and Freddie to reduce 
principal and refinance at reasonable levels makes more sense 
for their long-term balance sheets than to foreclose. It may 
not make more sense for their balance sheet in this year's 
budget, which seems to be the only thing that is on the table, 
but it makes far more sense, and again, from the standpoint of 
stabilizing the housing market, keeping people in their homes, 
stabilizing neighborhood property values and so forth, and it 
will end up having far more positive impact.
    Senator Menendez. That is one of my challenges with Mr. 
DeMarco, because his idea of conservatorship is, I think, 
outside of where we need to be. I am wondering if any of the 
panelists who may have read this--but it is pretty remarkable 
to me. NPR and ProPublica had a story that I pursued yesterday. 
Maybe the reason that they are not allowing refinancing to take 
place is because they have actually taken positions in the 
marketplace where they, in fact, are betting that their owners, 
their homeowners and their borrowers, are going to be stuck in 
the higher interest rates.
    It boggles the imagination why you would make an investment 
decision that you can affect the outcome of and not want that 
decision to pay off. Why would you make a bet that you do not 
want to pay and, therefore, very well affect your policy 
decisions, which would, therefore, be to let us not allow them 
to refinance because I bet that they will be more likely to be 
in the higher interest rates than a refinance rate. Why would I 
not want my bet to pay off? Am I missing something there?
    Mr. Mallach. It is unbelievable. I would just add along 
similar lines that the lawsuit that DeMarco brought against the 
city of Chicago, which enacted an ordinance holding lenders 
liable to maintain properties during foreclosure, the lawsuit 
was brought saying that, in their judgment, Fannie and Freddie 
have no legal obligation to comply with local ordinances 
requiring them to take responsibilities for their properties.
    Now, it is conceivable that he may be right on the law, 
that it is preempted by Federal law. But it is appalling from a 
policy standpoint that the Federal Government would take the 
position that they have no obligation to maintain the 
properties which they are legally responsible for.
    Senator Menendez. I agree. Let me go back to Mr. Meyer a 
moment, then I see the Assemblyman wants to say something. 
Going back to Professor Mallach's question, which I have 
raised, as well, in terms of putting tranches of properties 
together to get the REO moved and get people for affordable 
housing rental and also remove that element of the housing 
market so you might get some upward mobility, it is important 
that the conditions of how that is done, because working with 
organizations like yours or Brand New Day or Citizen Action, 
that brings a certain reality of community-based understanding 
of the properties involved. But if it is just done strictly on 
an investor basis without those connections, is that not a 
challenge?
    Mr. Meyer. It very much is, Senator, and that is one of the 
things with the model that we have developed through the 
Community Asset Preservation Corporation, is to try to acquire 
these properties in bulk and then develop different exit 
strategies, as appropriate, and the primary one is to work with 
our community development partners and to work with 
municipalities, and in certain cases work with mission-based 
for-profits that we have vetted that we feel that they are 
aligned to the work that we have been able to do. And we have 
done that in some of the work that we have done before.
    And the other part, Senator, which I think is really 
important and I cannot stress it enough, is that with dwindling 
public resources available, with housing production subsidies 
going down, it is vitally important that we figure out ways 
that we can gain positions in these properties to still be able 
to achieve our goals of decent housing and neighborhood 
stability. And by being able to purchase properties, in bulk, 
on a meaningful scale, in which you achieve a certain amount of 
discount, a certain level of price adjustment, it serves almost 
as an acquisition subsidy that allows you to develop these 
different exit strategies without the heavy use of Government 
subsidy.
    So that is why we think it is an important opportunity, as 
this program is designed to do that, that it be taken into 
consideration and to work with organizations like New Jersey 
Community Capital, Brand New Day, New Jersey Citizen Action.
    Senator Menendez. Mm-hmm.
    Mr. Meyer. If I can just add one other point to your point 
about DeMarco, I had heard the same thing, and when I was 
talking to somebody about it, they said, well, the Federal 
Housing Finance Agency, as the conservator of Fannie and 
Freddie, has to maximize value to the Government. And I found 
that to be astonishing that they would, in essence, bet against 
their own portfolio. But I think it speaks to the challenge of 
being able to engage with them and meaningfully write down 
programs.
    The Homekeeper Program is a tremendous program for the 
unemployed and the under-employed, but the reality is that in a 
lot of these neighborhoods--a lot of them--50 or 60 percent of 
the houses are underwater, and the amount of their values are 
140 percent of the mortgages. I mean, that is not close. So you 
need to write down these mortgages if we are going to have any 
chance to be able to do that.
    So I think from a policy standpoint, I still believe that 
we have to come to that realization in a lot of these ways here 
if we are going to really start turning the corner on this 
problem.
    Senator Menendez. I agree that it is the role of the 
conservator to try to preserve as much of the Federal money 
that exists, but if you are going to, at the end of the day, by 
taking a view that refinancing is not an option, then you are 
going to end up with more foreclosures, and if they are going 
to sell it to you for 60 percent of original value, that is a 
dramatic drop in the conservator's portfolio, as well. Would it 
not be better to refinance, have a responsible borrower, keep, 
maybe even join, have the conservator join in shared 
appreciation mortgages maybe so that the Federal output is 
further preserved?
    It seems to me that taking the view--and this is where I do 
not know if I am missing something--but taking the view that 
only--that conservatorship and preserving the largest corpus of 
the Federal investment can only come by either payment or 
foreclosure misses a tremendous opportunity to preserve----
    Mr. Meyer. Senator, I totally agree with you.
    Senator Menendez. OK.
    Mr. Meyer. I think you are so right about that. And I will 
give you a real life example here in New Jersey. We were 
working with one of the GSEs. We put an offer in to purchase 29 
properties in a very specific neighborhood. We could not come 
to agreement with them on the final price and we ended up 
purchasing 10 of the 29. We said to them, listen, what is going 
to happen here is these properties are not going to move in any 
event. So a couple of months later, they dropped in price, back 
to the price where we had offered to them. As they start 
putting more houses on the inventory, they have to put them at 
a lower value because those houses dropped and the cycle 
continues.
    So to me, sometimes some rational pricing where they can 
move properties to an organization, a re-use strategy, benefits 
them in the long run, because when the next houses they have to 
put on that particular market come out to play, there is at 
least some momentum or at least some intervention going on that 
can help stabilize the neighborhoods.
    But it is crazy to me to hold property out and keep 
dropping prices when you could have sold them a couple of 
months earlier and still achieved the same price.
    Senator Menendez. You mentioned financing as a challenge. I 
know that one of the things that we did in the Small Business 
Act, although it is meant for different purposes, is I have a 
billion-dollar set-aside for full faith and credit of the 
United States for CDFIs. What would you envision the type of 
help necessary on the financing side, or what conditions would 
you need to see taking those tranches of property and having 
responsibly placed back in the marketplace----
    Mr. Meyer. Senator, your work on that has been nothing 
short of outstanding. I really mean that. It is a game changer 
for CDFIs, that particular bill, and I can give you a couple of 
very clear examples of what we think we would do with that type 
of money.
    The first is that it would give us an opportunity to 
develop some patient capital that we can use to acquire these 
properties in bulk and then put financing on them to rent them 
to people for a number of years, because there is a clear, 
clear gap in terms of our ability to do that. That is number 
one, and I think that that is a huge opportunity.
    I think, second, with regard to working with, for example, 
the Mortgage Resolution Fund, as we acquire properties and we 
reset the mortgage, we have to find a permanent financing 
vehicle for them. I could very easily imagine how the CDFI 
Fund, the bond program, could serve as that alternative 
financing where we would actually acquire some of those 
mortgages until they become stabilized and have gone through 
modification periods and then find an exit strategy for them.
    So those are just two examples, Senator, that I really 
believe would go a long way in terms of helping with this 
housing problem.
    Senator Menendez. Assemblyman, do you want to----
    Mr. Green. Yes. I just want to follow up on that issue 
pertaining to putting packages together and allowing the 
financial institutions to gain control. I know during the 
course of my career in the last 30 years, I have been able to 
see how this hurts the community rather than help the 
community. So I would be against any financial institution 
packaging and being able to give lump sums of property for them 
to control. As we all know--well, I cannot say all of us 
remember in the 1980s when you were paying almost 17 percent 
for money. Well, that was a reason why you were paying 17 
percent, because of the fact that the financial institutions 
were basically in control.
    And I do not want them, Senator, to get back into that kind 
of control because I was blessed enough to be advisor to one of 
the banks here in Central Jersey, and within 10 years, they 
have gone from, we are not going to invest in urban 
communities, we do not see a future. Now, all at once, they 
want to do more than finance refrigerated cars. They want to 
finance in the community because they see a future.
    And they used to use the word ``landbanking.'' Now, I use 
the word ``housebanking,'' because of the fact that with all of 
these different programs, with the ability for the Government 
to step in, it is going to come back. But I want it to come 
back in a way where organizations that are next to me are in 
control of it and not the banking institutions who basically 
control the market in terms of what the community basically can 
look like in terms of putting dollars in that community. Once 
you give that control to them, then it is like anything else. 
They make a fortune for 20 years, then we have a downsize like 
we had for the last 3 or 4 years.
    So when we start talking about packaging housing together, 
then I am confident that I would support any nonprofit 
organization being in control of that. But to give this back to 
the banking industry, who I consider the moneymakers, it would 
be devastating. Their record so far has proven to me this is 
all about making money, even what is going on right now. This 
is all about a handful of bankers getting together and poor 
people being able to be used to the point that at the end of 
the day, your salary goes toward meeting your needs and paying 
a mortgage, and you cannot even pay that today.
    So, to me, as far as I am concerned, I have no problem with 
nonprofits being in control over any type of packaging. But 
once we get to the financial institution, I am hoping that you 
will study that very hard to make sure that they do not control 
those dollars.
    Senator Menendez. Well, I appreciate your concern, and that 
is why I raised the question earlier when we were talking 
about, I think Professor Mallach raised the red flag and it is 
one that I have raised and I think Mr. Meyer has it on tack, 
that if we were to do tranches of properties with investors, it 
really has to have a connection at the end of the day with 
community-based entities who understand the community, know the 
nature of the market, know the nature of the demand for the 
housing, and can appropriately deal with it. So I think that 
will be a critical part of it.
    I would like to just maybe finalize, Professor, on 
something you said which I would like to get your ideas for the 
record. There are those who suggest that we should eliminate 
Fannie and Freddie, have them dissolve and no longer have a 
Federal role. If that were the case--I have my own views on 
this, but I do not want to prejudice the record. So if that was 
the case, what do you believe would happen?
    Mr. Mallach. Well, what I believe would happen is if you 
look from a straight business standpoint at the low 
downpayment, long-term, fixed-rate mortgage, it does not make 
sense. No bank--no banking system that I am aware of in the 
world provides low downpayment, fixed-rate, long-term mortgages 
unless there is some form of Government or quasi-Government or 
some backup behind those mortgages to create a secondary market 
and secure their value.
    I think if we do not have Fannie and Freddie or some kind 
of equivalent system, I think we will end up with a mortgage 
system that simply will not serve very large parts of our 
population because it will require much larger downpayments 
than many people, especially moderate-income home buyers, can 
afford. It will put a premium on interest rates if you want a 
term that is, say, longer than 10 or 15 years. And it will be 
almost entirely focused on adjustable interest rates because 
the idea of locking in a fixed interest rate for a long term, 
unless it is at an extremely high rate, will simply not be 
attractive to the lending industry.
    So I think the notion that has been raised by some people 
that we can privatize the mortgage industry and that, 
ultimately, the private sector will come back and offer the 
same product without any need for Government intervention. It 
is a pipe dream, Senator.
    Senator Menendez. Well, I appreciate that, because I think 
Fannie and Freddie have to be reformed, but they do not have to 
be abolished.
    Mr. Mallach. Reformed big time.
    Senator Menendez. Yes. They followed the market and that is 
not something we needed them to do. But I think that without a 
Fannie or Freddie, I would have never, at the end of the day, 
bought my first home, and a lot of responsible borrowers, who 
are still responsible borrowers today, would never have 
purchased their home.
    And so I look at that and I look at the present concern 
that we are having with Federal regulators considering setting 
a downpayment standard of 20 percent across the board, which 
the Center for Responsible Lending shows that such a role could 
push 60 percent of all creditworthy borrowers out of the market 
and disproportionately affect African American and Hispanic 
families who can be very responsible borrowers, but not if you 
insist on 20 percent down, especially in a housing market in 
Northern New Jersey, for example. It would just be, I think--a 
combination of eliminating Fannie and Freddie and having that 
would just make it an impossibility at the end of the day.
    Ms. Salowe-Kaye. Yes. I just--I want to make sure that we 
leave people with the knowledge that there are lenders in New 
Jersey who are making first-time mortgages to homeowners at 30-
year fixed rates with only 3 or 5 percent down with proper 
counseling, and they are actually holding those mortgages in 
portfolio in order to get home buyers to get those first 
houses. There are not a lot of banks, but they certainly--we 
have enough of that product for our clients, but that does not 
diminish the need for what Alan was saying. So I want folks to 
know that there are those mortgages that are long-term, 30-year 
fixed rates, no points, no private mortgage insurance, that 
somebody can come into a HUD counseling agency and get 
information about that are 3 percent.
    Senator Menendez. And I think the Professor's remarks are 
that without a Fannie or Freddie, you would not have that at 
scale, to the scale that exists----
    Ms. Salowe-Kaye. Right. That is a problem.
    Senator Menendez. Well, my thanks to all of you for some 
very, very worthwhile and helpful insights. We will share this 
with the rest of the Committee.
    Let me bring the hearing to a close. I want to thank all of 
the witnesses for their written and oral testimony, which will 
continue to be part of the Congressional record.
    I want to thank the Black United Fund Health and Human 
Services for so generously hosting this hearing, and 
particularly its President and CEO Sondra Clark for hosting us. 
We appreciate it.
    It seems to me that after hearing the testimony, it should 
be clear that there is a great deal the Government can do 
beyond what we are--where we are at to help foreclosures by 
keeping people in their homes with mortgage modifications, 
refinancing, by reducing the huge numbers of foreclosed 
property for sale that are reducing home values, and by dealing 
effectively with restoring vacant homes that are blighting 
neighborhoods. If we take those steps, which I look forward to 
pushing in the Senate, we can make for a much better day in 
America.
    Thank you all for your testimony. The record will remain 
open for 1 day so that any Members who read it may, in fact, 
have--or, actually, maybe until next week, until next 
Wednesday, so that any Member who reads the testimony may have 
any questions. If you do get a question from a colleague, 
please respond to it as quickly as possible.
    And with that, this hearing is adjourned.
    [Applause.]
    [Whereupon, at 12:31 p.m., the hearing was adjourned.]
    [Prepared statements supplied for the record follow:]

                   PREPARED STATEMENT OF JERRY GREEN
                  Assemblyman and Speaker Pro Tempore
                      New Jersey General Assembly
                           February 10, 2012

    Good Morning, my name is Assemblyman Jerry Green, Speaker Pro 
Tempore (22nd District). We are all too well aware of the impact that 
the mortgage foreclosure crisis had on families around the country and 
here at home. As Chairman of Housing and Local Government, I have been 
on the forefront of New Jersey's housing crisis looking for solutions 
that address the housing issues faced by the people of our State.
    While measures have been put in place over the last few years by 
the legislature to help families struggling to pay their mortgages keep 
their homes, the current economic climate is making it almost 
impossible and is forcing many families to default on their mortgages. 
We reportedly have more than 100,000 homeowners currently dealing with 
foreclosures in New Jersey. These families, despite their financial 
struggles, still need a place to live.
    The crisis not only affects families, but entire communities. As 
these homes are foreclosed, they become nuisances for residents, 
municipalities and law enforcement.
    Abandoned properties are a major problem, particularly in our urban 
communities. More than unsightly, they attract trespassers and 
squatters and serve as havens for drug use and sales, prostitution, and 
other criminal activity. Adding insult to injury, as they erode from 
neglect, they drag down the property values of other homes in the 
neighborhood.
    I am in the beginning stages of establishing open communication 
with the Administration via legislation that will establish the ``NJ 
Foreclosure Relief Corporation''. This bill provides a practical 
solution for residents who have limited financial means and are in need 
of affordable housing, and for communities that are dealing with the 
blight, reduced property values and illegal activity that is synonymous 
with vacant properties.
    Interestingly, the current economic climate, despite the hardships 
it has created, also presents our State with a unique opportunity to 
help. This bill will take advantage of the excess of vacant foreclosed 
residential properties and historically low interest rates in order to 
address one of the most pervasive problems New Jersey faces, the 
creation and preservation of housing for individuals and families of 
limited means.
                                 ______
                                 
              PREPARED STATEMENT OF SHARON ROBINSON-BRIGGS
                     Mayor, Plainfield, New Jersey
                           February 10, 2012

1. Housing Profile
    Plainfield is predominantly an owner occupied city with:

      43 percent of the owner occupied home values ranging from 
        $300K to $499,999.

      32 percent the owner occupied homes purchased or 
        refinanced between 2005 and later.

      26 percent of the owner occupied homes purchased or 
        refinanced between 2000 and 2004

      46 percent of the owner occupied homes paying at least 35 
        percent of their monthly income toward housing costs.

    Housing Market

      Number of foreclosures 125 (source is Trulia) 604 
        (RealtyTrac--includes notices of default, frclsr action and 
        bank repossessed)

      Median home value $305,700 (2010 U.S. Census).

      Recent (wow) sales price increased by 9 percent (Trulia)

    Demographics

      50 percent Black and 40 percent of Hispanic ethnicity 
        (includes black and white populations).

      Median income: $52,056

2. Foreclosure impacts (Center for Responsible Lending, 11.11 Report)
People:
  1.  African Americans and Latinos have a

      higher percentage of higher-rate loans

      likely to have `risky' loans

      almost twice as likely to lose home through foreclosure 
        than whites.

  2.  Studies indicate that the foreclosures affect:

      physical health of families

      creates insecurity in children, affecting

        behavior, cognitive development, academic performance 
        and more.

      Family's financial well-being

        Inability to `tap' equity for new business

        Pay for higher education

        Retirement

        Removes cushion for unexpected hardships, including

          Loss of job, divorce, medical expenses

        Removes family's main ability to transfer wealth to 
        next generation.
Community:
    When inadequately secured and maintained, foreclosed properties can 
lead to increased crime, pest infestations, disorder, and violence. 
Municipalities impacted by foreclosures face a troublesome combination 
of decreasing property tax revenues combined with increasing costs of 
responding to foreclosure-related problems.

  1.  Costs to neighborhood and taxpayers

      Abandoned properties impact home values and weaken future 
        home buyer sales.

      Abandoned properties create opportunities for crime.

  2.  Study indicates that an average of $5,400.00 is spent by a local 
        government to `maintain' an abandoned foreclosed property in 
        code compliance. (Chicago Foreclosures, Agar and Duda 2005)
The Remedy(ies)
    Housing Mortgage Data Act (HMDA) data indicates that more 
        than 20 percent of mortgage holders in the United States owe 
        more on their loan than their home is worth.

    Between predatory lending practices, the packaging and sale 
        of questionable mortgages by Wall Street and the loss of home 
        value, the most effective tool to relieve distressed mortgages 
        and prevent foreclosure is to forgive some mortgage debt owed 
        by struggling borrowers through ``principal reduction.''

    the recent foreclosure settlement between banks, States and 
        the Federal Government would require the banks to pay $25 
        billion to participating States as a result of their failure 
        and omissions to execute foreclosures properly.

    this agreement has far-reaching potential, because it 
        attacks the fundamental engine that defies an abatement to the 
        foreclosure crisis: exaggerated home values, beyond the amount 
        of the loan.

    A reduction in principle translates to a reduction in 
        monthly mortgage payments, making the mortgage affordable and 
        preventing a foreclosure. It also has the potential to

      Re-adjusts the housing market, potentially increasing the 
        volume of housing sales and their sales price.
                                 ______
                                 
                  PREPARED STATEMENT OF KRISHNA GARLIC
                 Chief Executive Officer, Brand New Day
                           February 10, 2012

    Good afternoon,

    It is with mixed emotions that I stand here to address you today to 
discuss the continued foreclosure crisis in our State. I am grateful 
that the Senator has made the venue available to call attention to the 
unfortunate situation that families are still losing their homes and 
many are sitting in limbo for years not knowing their fate.
    Take for example, Regina, who came to Brand New Day early 2010 for 
help with her mortgage. She had heard about the HAMP program and wanted 
to see if she qualified. Her mortgage was with one of the larger 
banking institutions. Her mortgage payment was $1,200 a month and she 
was current in her payment until she lost her job unexpectedly. She was 
unemployed for 3 months before finding employment at significantly less 
than her previous job. BND worked with her to submit her modification 
request. After 90 days she was approved for a trial modification and 
the next 120 days were spent resubmitting documents, numerous phone 
calls and lots of tears as she waited for a permanent modification. Six 
months of waiting to find out the fate of her home ownership status and 
the memories of sacrifices she and her husband had made to purchase a 
home for their family were all flooding her with emotions. Thoughts of 
where she and her family would live if her loan was not approved; where 
would her children go to school, who would they play with, what 
neighborhood would feel safe to raise her children. After all, she and 
her husband had chosen this house, this neighborhood, and these 
neighbors. Another 30 days went by before she was scheduled to meet 
with her counselor at BND; it has now been over 8 months and still no 
resolution. She was saddened to hear during her appointment that her 
request had been denied. The counselor advised her not to give up 
because there were other programs that existed in New Jersey. The 
State's mediation program would give her an opportunity to speak 
directly to the bank and make her case. Together with her counselor, 
the mediation application was prepared and submitted. More waiting. 
Regina's mediation date was scheduled for 2 months out but at least she 
could sleep sound that the Sheriff would not arrive at the door to 
remove her family while waiting for her day at mediation! A week before 
the mediation date BND worked with Regina to update all of her 
paperwork and send it to the bank in preparation for the mediation 
process. Regina found herself frustrated and confused when the lender's 
attorney reported to mediation unprepared and requesting that the 
process be continued. On many occasions cases at mediation are 
continued two and three times, leaving homeowners in their houses but 
uneasy, insecure and full of anxiety. In addition, while decisions are 
prolonged, fees and interests continue to accrue making negotiations 
with the lender even more difficult. It is our recommendation that fees 
and interest be suspended during the foreclosure modification process. 
In addition, the process would be simplified and more effective if 
counselors had direct access to the person who has the power to 
negotiate and make the decision regarding the modification.
    Regina finally decided after an unsuccessful mediation process that 
she would pursue a short sale and put her house on the market. At this 
point she felt hopeless and believed this was her only option. The home 
stayed on the market for over 8 months with no offer. There were so 
many homes on the market at that time and in her neighborhood that 
demand was extremely low. She finally got an offer at much less than 
what she had hoped. In fact the short sale offer was $70,000 less than 
what she owed to the bank. The offer was submitted to the bank and 
Regina found herself yet again playing the waiting game. She waited 3 
months for an answer on the short sale before deciding to simply give 
up and move on. The housing counselor at BND told Regina about ``cash 
for keys'' where the bank would offer Regina cash to move out. Regina 
was desperate and she and her counselor made arrangements for the 
exchange. Unfortunately, the cash arrived many months after she had 
moved to her new home and therefore wasn't able to use it to help with 
relocation expenses. Banks should be required to give the cash within 
30 days of the homeowner vacating the property.
    Regina and her family are now renting an apartment in another town 
and community. The children are now attending a new school and had to 
make new friends. There is a greater distance between where she lives 
and where she works. The family would have been better served if they 
could have remained in the home as tenants. Banks should be encouraged 
to allow homeowners to lease back the properties after foreclosure so 
they can maintain stability for their family and avoid vacancy in our 
neighborhoods.
    In closing, Regina's story can be multiplied by the thousands 
across the State and millions across the country. Many of the current 
Federal and State programs could be more useful if the guidelines were 
less restrictive. There are so many people that need help and their 
situations are each different and unique however numerous work hours 
are spent trying to determine what programs a person may qualify for 
and in many cases trying to qualify the unqualifiable. In addition, our 
counselors are an invaluable part of the process in aiding a family 
from their first late payment through resolution which could be a loan 
modification or transitioning into a new living situation. Funding for 
housing counseling has been significantly cut in State and Federal 
budgets and as demand continues and in many cases increases, we need 
dollars to pay salaries and related cost. Banks should be responsible 
to assist with the cost of healing our communities by paying fees for 
foreclosure counseling. There has been a lot of discussion across the 
State and country regarding a fee agreement however it has not 
manifested in large scale corporate accountability that reaches the 
local nonprofits.
    I want to thank you for your attention to this important matter and 
ask that you continue to have open dialogue with counseling agencies to 
strategize solutions that help families like Regina's maintain the 
American dream.
                                 ______
                                 
                  PREPARED STATEMENT OF WAYNE T. MEYER
                President, New Jersey Community Capital
                           February 10, 2012

    Senator Menendez and Members of the Subcommittee, thank you for 
this opportunity to speak with you today about New Jersey Community 
Capital (NJCC) and the role we play in saving New Jersey's 
neighborhoods from foreclosures.
    My name is Wayne Meyer. I am President of New Jersey Community 
Capital, a nonprofit Community Development Financial Institution or 
CDFI. New Jersey Community Capital is the only CDFI headquartered in 
New Jersey which serves the entire State. Being a State-wide 
organization, we gain valuable insights into the difficulties and 
challenges experienced by our borrowers, mostly nonprofit community 
development corporations (CDCs). Through our innovative lending 
strategies, we are able to bolster the important work of these 
organizations, which are trying to save and stabilize neighborhoods 
ravaged by the continuing foreclosure and credit crises. Low-income 
communities throughout the State are in great peril and other, 
seemingly stable, low-to-moderate income communities are also on the 
precipice of rapid decline. However, CDCs alone will not save our 
neighborhoods and communities. This can only be done through 
comprehensive, innovative and integrative initiatives which require 
collaboration from every sector--Government, private, philanthropic, 
nonprofit and civil.

The Problem
    The foreclosure crisis is changing the landscape of many New Jersey 
communities. Tens of thousands of foreclosed properties sit vacant, 
creating health and safety risks for these neighborhoods, of no use to 
the countless New Jerseyans seeking homes they can afford. Similarly, 
hundreds of thousands of homeowners are underwater and drowning fast 
with mortgages greater than the values of their homes. And with 
foreclosure filings continuing to increase, this crisis has yet to run 
its course.

Our Solutions
    We appreciate Senator Menendez' proposed Shared Appreciation 
Mortgage Modification Act and we support the Senator's advocacy for 
experimenting with different approaches to disposing of foreclosed 
properties.
    The scale of the foreclosure problem is so large, however, that we 
believe that additional strategies need to be part of the solution. In 
the interest of time, allow me to highlight some of the most promising 
and effective programs we have designed to date, which we feel are key 
to saving our neighborhoods from foreclosures.

The CAPC Model
    NJCC has a proven model that we believe can be used in regions 
throughout the country. This model does not require public subsidy. We 
have developed a bulk purchase strategy in which we purchase, 
rehabilitate, and return foreclosed homes to productive and equitable 
reuse while strengthening and revitalizing the surrounding communities.
    NJCC is employing this proven model through its subsidiary, the 
Community Asset Preservation Corporation (CAPC). CAPC is a statewide 
nonprofit real estate organization that acquires nonperforming 
residential mortgages and real-estate owned (REO) properties in 
targeted New Jersey communities through discounted bulk purchase 
arrangements. CAPC then returns these properties to productive use 
through a combination of strategies.
    CAPC first tested its model in 2008 with an innovative initiative 
called Operation Neighborhood Recovery (ONR). As part of ONR, CAPC 
worked with a partnering CDC to acquire a pool of 47 nonperforming 
mortgages, primarily located in distressed northern New Jersey 
neighborhoods, at a deep discount. The first transaction of this kind 
in the Nation, ONR has successfully maintained these properties while 
developing mixed-market disposition strategies that support community 
stabilization goals. Since acquisition, the partner organizations have 
cleared title to 44 of the properties and conveyed over 23 of the 
properties to community developers for return to productive use. While 
the financial success of this model was built on efficiencies of scale 
and internal cross-subsidization, the goal of neighborhood 
stabilization was achieved through strong partnerships with local CDCs 
who were willing to purchase and rehabilitate ONR properties located 
within the communities they serve.
    In 2010, CAPC merged with NJCC, which was the lead funder of ONR. 
As a wholly owned subsidiary of NJCC, CAPC benefits from NJCC's 
statewide reach, robust balance sheet, and existing relationships with 
many public, private, and nonprofit organizations. Now a statewide 
organization, CAPC continues to pursue a mixed-market approach to the 
acquisition and disposition of nonperforming mortgage and REO 
properties. This approach relies less on public subsidy and more on 
internal subsidies and efficiencies of scale to create affordable 
housing. Pivotal to this approach is NJCC/CAPC's ability to provide key 
real estate services that are crucial to this model. These services 
include realistic transaction pricing based on local market knowledge; 
experience structuring and completing bulk purchases; demonstrated 
property maintenance capacity; real estate brokerage capabilities; 
existing and varied partnerships that support and encourage joint 
ventures; and flexible financing through NJCC, for such crucial needs 
as predevelopment loans and lines of credit.
    Since inception, CAPC has acquired properties through four bulk 
transactions and other acquisition strategies. CAPC continues to work 
with local CDCs to convey these properties and has also begun to 
directly secure or rehabilitate homes.
    The goal of CAPC is to successfully intervene in the reclamation 
and recovery of 500-750 residential units over the next 5 years, 
leveraging over $40 million in total development costs by acquiring 
pools of nonperforming residential mortgage notes or foreclosed bank-
owned residential properties. The elements of CAPC's approach include 
bulk purchases; a value assessment model based on costs and likely 
sales of each property (exit strategy); proactive asset management; 
nontraditional financing strategies; and a mixed market disposition 
strategy built upon various exit options.
    The specific goals of the CAPC are to:

    Rapidly and at a meaningful scale acquire property that is 
        at some point along the foreclosure track

    Preserve the assets and financial integrity of at-risk 
        resident homeowners

    Maintain properties to preserve their value and minimize 
        neighborhood harm

    Re-convey property to appropriate agents to be put back 
        into productive use in an equitable manner

    Provide capacity building assistance to partner community 
        development organizations
    The elements of the CAPC model enable thoughtful and strategic 
intervention in ravaged neighborhoods. By critically analyzing the 
housing stock and foreclosure data for targeted communities, CAPC is 
able to identify properties which--once rehabilitated--will have an 
immediate impact on the local real estate market and a stabilizing 
effect for that particular block. CAPC is able to do this thanks to its 
ground-up valuation methods and its collaboration with local CDCs, 
which have an intimate knowledge of the area and its residents. By 
developing and furthering relationships with NJCC's clients, CAPC is 
able to help these clients conceptualize and actualize proficient 
redevelopment projects with lasting effects.
    The CAPC disposition model pools REO assets, allowing nonprofits 
like NJCC and CAPC to enter into joint ventures with institutions such 
as the FHFA and the Enterprises to decide how best to manage and sell 
these assets. This effort can be augmented by leveraging private sector 
capital, to allow for bulk acquisition of REO assets from banking 
institutions and other private sellers.
    It is important to note that this model does not rely on public 
subsidy. The model relies on discount prices for the bulk purchase of 
REO properties, due to economies of scale that result from 
partnerships. Prices would be set by the market with no further 
discount required. In this model, a portion of the properties would 
include properties unlikely to sell for a profit as well as other 
properties that may sell at a higher price, perhaps at market rate. The 
economies of scale, combined with the model's mixed-market disposition 
exit strategy, allow for cross-subsidization among properties in a bulk 
purchase portfolio, allowing some properties to be sold or rented as 
market-rate properties and others as discounted, affordable housing. 
This also provides cash to allow debt to be drawn down earlier, which 
helps ensure the model's financial sustainability.
    The demand-side valuation model is driven by the exit strategy, a 
deep understanding of local markets and a close working relationship 
with other mission-based organizations. Through this model, CAPC will 
group properties by key indicators such as unit type, lender, and 
location, among other characteristics, and work with its local partners 
to assist in determining the most viable disposition and exit strategy 
for each property. No less than two exit options will be selected for 
each property, including: rehabilitation and conversion to affordable 
rental; rehabilitation and sale or lease-to-sale; sale of property to 
nonprofit CDCs; sale of property to select for-profit, mission-based 
affordable housing developers; sale of property directly into the 
market (select private investors); demolition of property; and 
conveyance of property to land banking.

Expanding the Model Through the Neighborhood Prosperity Fund
    As an experienced CDFI and active lender for community development 
projects, NJCC has witnessed the increasing shortage of accessible, 
flexible capital to help meaningfully preserve and revitalize New 
Jersey's neighborhoods. Insufficient liquidity and capital are 
tremendous impediments to achieving neighborhood stability and change. 
The foreclosure and credit crises have placed even seemingly stable 
communities on the precipice of rapid decline. However, NJCC believes 
those impediments can be resolved through targeted and strategic 
investments in communities.
    The development of the Neighborhood Prosperity Fund (NPF) by NJCC 
allows us to expand the scale of our interventions by offering a 
dedicated, durable, and permanent source of lending capital for:

  1)  acquisition and rehabilitation of foreclosed/abandoned 
        properties, including the bulk purchase of REO properties at 
        discounted prices;

  2)  medium-term financing for the lease or lease-purchase of 
        completed units that currently cannot be sold to low/moderate 
        income households.

    The NPF provides financing for high-impact community developers to 
invest in at-risk neighborhoods. These funds are recycled to 
continually acquire, renovate, and place troubled properties back on 
the market. The NPF provides flexible forms of capital through lines of 
credit to community developers to acquire, renovate, and return to 
equitable reuse houses in at-risk low- and moderate-income 
neighborhoods. These dynamics are critical to the sustenance of 
communities, as they become less reliant on tenuous public subsidy, 
even as NPF investments generate both public and private funds that far 
exceed their initial value.
    Besides the severe shortage of mortgage and project financing for 
community housing developers, many families lack the credit or savings 
necessary to purchase a home in today's lending environment. This 
creates a large backlog of homes on the market and increases the 
likelihood that sponsors of Neighborhood Stabilization Program (NSP) 
projects will be holding for-sale properties in their inventory far 
longer than anticipated. This necessitates the provision of flexible, 
affordable mini-permanent financing options for developers, which are 
not readily available in the current environment. The NPF will enable 
these community builders to tackle this problem of market absorption 
through medium-term financing for the lease or lease-purchase of the 
vacant and foreclosed structures they have placed back into equitable 
reuse in neighborhoods where home ownership is not currently a viable 
disposition strategy.
    Even prior to the current financial crisis, mainstream financial 
institutions were limiting the financing they provided to CDCs and 
other nonprofit developers. Larger regional and national banks have not 
had an appetite for the smaller transactions undertaken by CDC real 
estate developers, while local financial institutions have often lacked 
an understanding of the community development finance market. The 
advent of the economic crisis further limited the number of mainstream 
lenders willing to tackle this work, leaving CDFIs as the primary 
source of capital for nonprofit and mission-driven developers working 
in New Jersey's at-risk communities. In fact, NJCC has often been the 
primary source of capital for community development projects, 
particularly those that are affordable housing and NSP-related.
    NJCC continues to innovate, adapting our neighborhood stabilization 
initiatives to meet the current needs of distressed neighborhoods. Our 
responses are designed to bring meaningful change to these localities 
on a scale large enough to restore normally functioning markets. We 
still believe that the strategic acquisition and redevelopment of 
pivotal properties is critical to preserving and revitalizing 
vulnerable urban neighborhoods. Accomplishing this, however, requires 
both financial and real estate capacity at a greater scale that what 
has existed to date. It also requires a major shift in thinking and 
behavior by stakeholders at all levels.
    The NPF funds provide financing to high-impact community developers 
that demonstrate the financial and real estate capacity to implement 
neighborhood planning and stabilization strategies. NJCC awards the 
funds to projects that are tied in with a comprehensive, strategic plan 
for long-term neighborhoods stability.
    It provides flexible forms of capital through lines of credit to 
these nonprofit and mission-driven developers to acquire and build/
renovate homes in low- and moderate-income neighborhoods. The fund 
leverages both current and future Federal neighborhood stabilization 
funding, providing financing that is flexible, cost effective and of 
the magnitude and scale necessary to assist in the transformation of 
neighborhoods. The NPF funds are recycled to maintain the continual 
acquisition, renovation, and disposition of troubled properties.
    The NPF is capable of bringing about transformative neighborhood 
change and is critical to reducing the complexity, delay, and cost 
associated with traditional acquisition, development and construction 
lending, and to leveraging public funds. The NPF serves as an important 
model for a scaled response to the foreclosure crisis and beyond and as 
an effective tool for the revitalization of distressed communities that 
are suffering from vacant and abandoned properties.

Helping Keep Families Out of Foreclosure-Creating a Mortgage Resolution 
        Fund
    NJCC is working to create a mortgage resolution fund as a powerful 
vehicle for foreclosure intervention and neighborhood stabilization. 
This mortgage resolution fund would use a bulk purchase strategy to 
acquire pools of delinquent mortgages on owner-occupied properties in 
high-impact areas, and will subsequently evaluate each mortgage and 
corresponding property to create an individualized action plan for each 
homeowner. These plans fall into three categories: 1) the affordable 
restructuring of the mortgages to preserve home ownership; 2) rent-to-
purchase options through a temporary third-party owner; or 3) 
transitional support to new housing for owners who cannot sustain their 
tenure in the foreseeable future.
    It is our strong belief that this mortgage resolution fund would be 
different from other public or private programs currently operating in 
the market. It would be geographically targeted areas for bulk mortgage 
note purchases to maximize its impact on neighborhood stabilization. 
The program would be consumer-centered and provide direct services to 
the homeowner in a holistic manner. It would offer a permanent solution 
for the homeowner and the neighborhoods by permanently modifying and 
reducing the loan principal upon successful completion of a trial 
modification period. Since it would not be a subsidy program, we 
believe it would play a critical role, given the shrinking public 
sector resources available for this work.
    We estimate that we would need a $100 million over 6 years in order 
to create a fund capable of acquiring 2,000 owner-occupied properties. 
While such a target would significantly reduce the number of families 
struggling with foreclosure, it also shows how difficult and time- and 
labor-intensive our combined efforts will need to be to help solve this 
crisis.

Conclusion
    Once again, I would like to thank the Chairman and the Members of 
the Subcommittee for their time and attention to this critical issue of 
saving our neighborhoods from the detrimental impact of foreclosures. I 
once again would like to acknowledge Senator Menendez' leadership in 
helping residents of our at-risk communities all across our State.
                                 ______
                                 
               PREPARED STATEMENT OF PHYLLIS SALOWE-KAYE
   Executive Director, New Jersey Citizen Action, and Former member, 
     Consumer Advisory Council, Federal Reserve Board of Governors
                           February 10, 2012

    Good Morning. I'd like to thank Senator Menendez and the Committee 
Members for holding these hearings today in Plainfield, New Jersey. My 
name is Phyllis Salowe-Kaye. I've been the Executive Director of New 
Jersey Citizen Action (NJCA) for the past twenty 5 years. I am also a 
former member of the Consumer Advisory Council, constituted by the 
Federal Reserve Board of Governors. As the State's largest independent 
citizen watchdog coalition, New Jersey Citizen Action works to protect 
and expand the rights of individuals and families and to ensure that 
the needs of people--rather than the interests of those with power and 
money--are served. Through education, research, organizing and outreach 
our campaigns promote economic, social, racial, and political justice.
    As the State's largest HUD-certified Housing and Foreclosure 
Counseling agency and a leader in innovative projects and programs, I 
appear before you to offer remarks about how we can save our 
neighborhoods from foreclosure.
    Keeping families in their homes when reasonable loan modifications 
are possible, and the reform of the broken loan servicing industry 
should be a priority for Congress. The Center for Responsible Lending's 
Lost Ground, 2011 Report finds that 2.7 million people who received 
mortgages between 2004 and 2008 have already lost their homes to 
foreclosure and an additional 3.6 million households are still at 
immediate, serious risk of doing so. According to Amherst Securities, 
we may have a stunning 10 million more foreclosures ahead of us.
    Many of these foreclosures can be prevented if policymakers stop 
relying on voluntary efforts and instead require servicers to make 
reasonable modifications on mortgages that have a good chance of 
success.
    Policymakers should apply strong, mandatory standards for loan 
modifications. While States can require loan servicers to take specific 
steps to avert foreclosures prior to foreclosure (``loss mitigation''), 
there is an urgent need to establish national loss mitigation 
standards. These standards should target appropriate levels of debt 
(i.e., the debt-to-income-ratio) for eligible homeowners and bar 
unreasonable fees. Some effective State-loss mitigation efforts and 
future settlements and consent orders between banks and regulators 
offer examples of standards that could apply to servicing nationally.
    Additionally, eliminating the barriers to homeowner refinancing and 
streamlining the refinancing process as outlined in S-170, the 
``Helping Responsible Homeowners Act of 2011'' (Boxer/Isakson), would 
allow homeowners to take advantage of our historically low interest 
rates and prevent banks from refusing to refinance underwater 
homeowners. This legislation must be supported and passed.
    There must also be an end to the loan servicing abuses and poor 
business practices that contribute to unnecessary foreclosures. Federal 
regulators should prohibit common servicer abuses, including misapplied 
payments, illegitimate fees, failure to pay escrowed taxes and 
insurance, force-placing overpriced insurance, obstructing refinances 
and modifications and improperly pursing foreclosures when at the same 
time working with borrowers on loan modifications. New York's recent 
laws and regulations provide a useful framework that should be 
examined.
    Lowering mortgage balances (principal reductions) is an essential 
tool for stopping the foreclosure epidemic. Housing experts are 
reaching a consensus that we need mandated principal reductions for 
many underwater borrowers at imminent risk of foreclosure to stabilize 
the housing market. Modifications that reduce principal and are Net 
Present Value (NPV) positive to investors would enhance income streams 
for investors and servicers, while keeping families in their homes and 
prevent further foreclosures from flooding an already saturated housing 
market. Given the high share of loans held by Fannie Mae and Freddie 
Mac, the Federal Housing Agency (FHA) must permit meaningful principal 
reductions on loans that are at imminent risk of foreclosure.
    Shared appreciation mortgages are an excellent tool to redirect 
principles that will allow mortgages to become affordable and 
sustainable. Ocwen Financial Corporation, one of the country's largest 
independent mortgage servicers, has adopted shared appreciation 
(equity) mortgages as a creative way to do principal reductions for 
homeowners for use in its Loan Modification Program. A shared 
appreciation mortgage is a mortgage in which the homeowner agrees to 
pay a stated percentage of the property appreciation to the lender at 
the time the house is sold. In return, the lender agrees to reduce the 
principal and change the interest rate of the loan to one that is below 
the prevailing market rate.
    Ocwen currently has about 16,000 loans in New Jersey. Eight 
thousand are currently in foreclosure and the bank is aggressively 
working with these homeowners to modify the loans and reduce the 
principals. Ocwen is a company that is doing principal reductions 
throughout the country and has found a way to make a profit. The other 
large banks and servicers paused to foreclose on millions of 
homeowners, should be required to modify loans and write down 
principals in a similar manner. No more than 5 percent of the security 
agreements (PSA's) have language that limits or prohibits principal 
reductions. The others are silent except to say that whatever solution 
is taken should benefit investors. This benefit to investors can be 
calculated by using the NPV (net present value), which is what Ocwen 
does. Ocwen has made use of principal reductions on a large scale. It 
is essential to require the U.S. Treasury, SEC, OCC or whichever the 
correct regulator is to issue guidance dispelling the notion that the 
PSA precludes principal reduction except where explicitly stated.
    It is also important to set a NPV calculation standard similar to 
Ocwen's (though that might be proprietary) so that everyone is 
``singing from the same score.'' If that seems to intrude on the 
``rights'' of lenders or be too hard to pass, establish the standard 
anyway and give borrowers the right to demand a re-evaluation using 
that NPV. Senator Menendez has proposed a bill that would establish a 
pilot program at Fannie Mae, Freddie Mac and FHA to offer shared 
appreciation mortgage modifications to underwater or delinquent 
homeowners. The ``Shared Mortgage Appreciation Modification Act of 
2012'' must be supported and passed quickly to help homeowners remain 
in their homes. It should be offered only in instances of foreclosure 
prevention because in other contexts it can become another exotic tool 
that can harm homeowners.
    To get banks to agree to reduce the principal they would be 
entitled to a fixed percentage of the value when prices finally 
increase and the home is sold. But a cap should be established so that 
the servicers can't recoup more than they write down plus some foregone 
interest.
    The Federal Government has established numerous programs to stop 
foreclosures and save our neighborhoods. Some work, others don't. Just 
last week, President Obama outlined a series of proposals to help 
homeowners, including a plan requiring Congressional support that would 
enable responsible homeowners who are current on their mortgages to 
refinance into lower rate loans, even though their homes are 
underwater. We strongly urge Congress to support this plan so that 
responsible homeowners can take advantage of currently low interest 
rates. This will enable them to put more money in their pockets and 
make their homes more affordable.
    The Treasury's Hardest Hit Fund has funded some excellent State and 
local programs. New Jersey's Homekeeper Program, which provides 2 years 
of funding for unemployed or underemployed homeowners, should be 
expanded and heavily marketed. Congress should support nascent large 
scale models like the Mortgage Resolution Fund (MRF), a public, 
private, nonprofit partnership, by allowing the organizations 
themselves to apply for Hardest Hit Funds or other TARP type dollars, 
instead of just permitting the HFA's to access these funds. Also, as 
long as the Hardest Hit Funds are being recycled as in the Mortgage 
Resolution Fund, Congress should not sunset their use. Additionally, 
incentives should be set for servicers and banks to ally themselves 
with MRF type nonprofits (e.g., MRF and NCLR) and the same should be 
provided in the bulk REO programs being initiated.
    Finally, Congress should fund more HUD-certified housing counseling 
and legal aid assistance for homeowners at risk of foreclosure. Studies 
have shown that homeowners who receive counseling are less likely to 
default on their loans. Every successful loan workout that prevents an 
unnecessary foreclosure helps homeowners, their communities and our 
economy as a whole.
                                 ______
                                 
                   PREPARED STATEMENT OF ALAN MALLACH
           Non-Resident Senior Fellow, Brookings Institution
                           February 10, 2012

    Chairman Menendez, honorable Members of the Subcommittee:
    I am pleased to have this opportunity to testify before you on the 
effects of foreclosures on neighborhoods in New Jersey and elsewhere in 
the United States, and to suggest Federal and State legislative efforts 
that should be pursued to help mitigate the foreclosure crisis and 
stabilize our neighborhoods. You are hearing today from a number of 
individuals who are pursuing important strategies to address this 
problem. I will try to add a broad perspective on this issue, based on 
my work as researcher and advocate in New Jersey and elsewhere over the 
past many years.
    Just as there is no one reason for the foreclosure crisis, there is 
no one way in which that crisis affects neighborhoods, and no one 
strategy that can be put in place to fix the problem. Furthermore, we 
should not think of mitigating the foreclosure crisis, which still 
rages, and stabilizing neighborhoods as separate matters: the two are 
totally interwoven with one another. This is particularly true in urban 
neighborhoods that are already hard-pressed by unemployment and other 
ills.
    As borrowers default, and foreclosure proceedings begin, 
maintenance declines. Many borrowers leave their homes, or walk away 
from investment properties. In New Jersey, where foreclosures can take 
3 years or more, houses and small apartment buildings can sit empty for 
years before title passes to the lender, deteriorating and blighting 
the neighborhood. As vacant and abandoned properties increase, the 
neighborhood's quality of life deteriorates, and its attractiveness to 
home buyers declines. Meanwhile, with more REO properties coming on the 
market, and fewer home buyers being able to qualify for mortgages, the 
market further deteriorates; abandonment grows, crime may increase, 
property values decline, and increasingly the only buyers are low-end 
and speculative investors. Breaking this vicious cycle demands action 
at all stages in the cycle.
    We should focus on four distinct areas--not as separate actions or 
strategies but in an integrated, comprehensive way. While many areas I 
will touch on are traditionally matters of State law, the need for 
consistent, overarching, national ground rules in this area is 
compelling and a matter of urgent public interest. As Congress showed 
when it enacted the Protecting Tenants at Foreclosure Act in 2009, it 
is capable of acting to fill the gap between inadequate State laws and 
what needs to be done.

    First, reduce the flow of homes into foreclosure.

    Until we significantly reduce the number of new foreclosures, and 
the number of REO properties, neighborhood stabilization will remain a 
moving target, constantly beyond our reach. For all of the many 
programs and initiatives of the past few years, that goal still appears 
far away. I believe the Federal Government needs to play a stronger, 
more constructive role than it has in the past. Convoluted programs 
that prolong the agony, short-term temporary assistance programs, and 
similar efforts may help some people, but too few, too slowly. A more 
aggressive, systematic approach is needed; the White Paper just issued 
by the Federal Reserve Board offers a number of useful suggestions that 
could be pursued in developing such an approach.
    This is both an administrative and a legislative responsibility. 
Federal regulators should use both carrots and sticks to encourage 
greater principal reduction in mortgage modifications, facilitate short 
sales and deeds in lieu, to maximize alternatives to foreclosure. The 
Federal Government should provide additional support for foreclosure 
counseling, and provide direction to the States to follow best 
practices in designing and conducting mediation and other foreclosure 
intervention programs. The Administration could lead the way through 
its control over the GSEs as well as FHA, something which has yet to 
happen. Congress can play a valuable role by putting constructive 
pressure on the Administration to treat the GSEs and FHA not as burdens 
or no more than bottom-line entities, but as powerful tools that can be 
deployed to tackle the mortgage crisis; if existing statutes are an 
impediment, Congress should change the ground rules the FHFA uses to 
regulate the GSEs.

    Second, keep people in their homes

    If the foreclosure process itself is the first step in neighborhood 
destabilization, the second is the extent to which it leads to houses 
becoming vacant, and particularly in urban neighborhoods, abandoned, a 
process that often results in houses being damaged beyond repair. 
Congress took an important step in this respect in 2009 when it enacted 
the Protecting Tenants at Foreclosure Act. That Act should be 
revisited, first, to expand tenant protection to reflect the 
protections afforded tenants under New Jersey law; and second, to find 
out whether it is indeed being followed, and if necessary--as I expect 
will turn out to be the case--put teeth in it to make sure. With 
respect to homeowners, the goal should be to make sure that a house 
that goes through foreclosure is empty for no longer than a house that 
is sold in the normal course of events. Fostering more short sales and 
deeds in lieu is an important step in that direction, but the next 
major step should be to protect homeowners in foreclosure by allowing 
responsible homeowners who have maintained their property in good 
condition during the foreclosure process to remain in their homes as 
tenants, paying a fair market rent, until or unless a new buyer wants 
to move into the house. This should be a no-brainer. It preserves 
families, helps stabilize neighborhoods, and preserves the value of the 
property better than if the property is vacated after the sheriff's 
sale. Representatives Grijalva and Kaptur introduced legislation that 
would achieve that goal, but it remains bottled up. It should be given 
a chance to work.

    Third, ensure that properties are properly maintained both 
        during and after foreclosure

    In New Jersey and many other States properties can sit vacant for 
years before lenders gain title through sheriff's sale. In 2010, the 
New Jersey Legislature passed a State law making lenders legally 
responsible for maintaining properties that become vacant after the 
initial foreclosure filing but before the sheriff's sale. I believe New 
Jersey is unique in terms of State law, although some cities, 
particularly in California, have passed local ordinances along similar 
lines. Congress should consider legislation that would establish such 
legal responsibility as a national mandate and strengthen the ability 
of local governments to enforce that responsibility.
    The extent to which lenders simply walk away from low-value 
properties, particularly in distressed areas like Cleveland and 
Detroit, has been widely recognized. In other areas, they may not walk 
away, but may slow down the process to ration the flow of properties 
into REO status. Both of these practices harm the families involved, 
the neighborhoods and the housing market generally. Simply stated, 
lenders should not be allowed to initiate foreclosures unless they are 
prepared to see the process through in a timely fashion and take full 
responsibility for the property. If they are unwilling to do so, they 
should release the mortgage, or convey it to an entity that has the 
borrower's interest at heart. While individual States could enact such 
legislation, the likelihood of all 50 doing so is remote; this is 
another area where Federal legislation would be valuable.

    Fourth, make sure that REO and other vacant properties are 
        quickly put back to productive use

    While high-value REO properties in strong housing markets usually 
sell quickly, many REO properties elsewhere languish, some to be bought 
by low-end speculators, and others to remain vacant. Meanwhile, other 
properties in the same hard-hit neighborhoods are falling vacant for 
many other reasons. Making sure REO properties are restored to 
productive use not only requires that the lenders who control these 
properties are motivated to do so, but needs a pool of responsible, 
capable people ready to buy them. In some cases they could be home 
buyers, in other cases responsible investors, or contractors willing to 
put them back into shape, and in still others, nonprofit corporations 
and CDCs.
    In addition, municipalities need stronger tools, such as the 
ability to create municipal land banks, to gain control of other vacant 
properties and put them back to use. Such legislation has been enacted 
in Michigan, Ohio and New York. In New Jersey, the Housing & Community 
Development Network has helped draft a bill that has just been 
introduced. The Federal Government should support such efforts, and 
ensure that Federal programs are designed to work in tandem with local 
land bank efforts.
    Coupled with legislation to motivate lenders to complete 
foreclosures and put REO properties on the market, we need programs to 
make it easier and more financially feasible for people to buy 
properties, either to occupy as homeowners, to rent out, or to fix up 
and put back on the market in move-in condition. This demands two 
things.
    First and foremost, we need a system that provides access to 
capital on reasonable terms for responsible individuals and businesses 
ready to acquire, occupy, rent out or fix up REO and other distressed 
property. In the short run, this should be clearly defined as part of 
the mission of the GSEs and FHA. In the long run, we need to get away 
from the rhetoric that has come to surround the question of the 
Nation's future mortgage finance system, and come up with a model for a 
mortgage system that appropriately balances risk management and public 
policy goals. If we are to continue to provide home ownership 
opportunities to hard-working Americans, Government will inevitably 
have to play an important and ongoing role.
    Second, in weak market areas, where the cost of fixing up houses 
exceeds their market value, we need to look at incentives such as tax 
credits to motivate responsible landlords, developers and contractors 
to invest in those areas, to help those areas get back on their feet.
    Finally, I'd like to come back to a point I made earlier. Yes, 
there are many dimensions to this problem which demand different 
strategies and programs, but they have to be connected, not handled--as 
is too often the case today--as separate, unrelated, activities. 
Moreover, many programs--housing programs as well as other public 
efforts--that we do not associate with foreclosure prevention or 
neighborhood stabilization affect the future of the same neighborhoods.
    The Administration and Congress should take a close look at current 
Federal programs--in housing and elsewhere--and asking whether the way 
they are designed and their funds allocated works to sustain 
neighborhoods, or whether some programs are indifferent to, or in some 
cases, even inimical to the future of urban neighborhoods.
    Communities need to be encouraged to develop comprehensive 
strategies, to get everyone involved around the table to work together, 
to make sure that foreclosure prevention, and keeping houses occupied 
and maintained, and restoring vacant houses to productive use are all 
part of a multifaceted effort to stabilize and reinvigorate our older 
neighborhoods, towns and cities. Both Federal and State governments 
should be their partners in that effort.
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