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GROWING MORTGAGE FORECLOSURE CRISIS: 

IDENTIFYING SOLUTIONS AND DISPELLING MYTHS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

JANUARY 29, 2008 

Serial No. 110–169 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

BETTY SUTTON, Ohio 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

PERRY APELBAUM, Staff Director and Chief Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

LINDA T. SA ́ NCHEZ, California, Chairwoman 

JOHN CONYERS, JR., Michigan 

HANK JOHNSON, Georgia 

ZOE LOFGREN, California 

WILLIAM D. DELAHUNT, Massachusetts 

MELVIN L. WATT, North Carolina 

STEVE COHEN, Tennessee 

CHRIS CANNON, Utah 

JIM JORDAN, Ohio 

RIC KELLER, Florida 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

MICHONE JOHNSON, Chief Counsel 

DANIEL FLORES, Minority Counsel 

(III) 

C O N T E N T S 

JANUARY 29, 2008 

Page 

OPENING STATEMENT 

The Honorable Linda T. Sa ́nchez, a Representative in Congress from the 

State of California, and Chairwoman, Subcommittee on Commercial and 

Administrative Law ............................................................................................. 1 

The Honorable Chris Cannon, a Representative in Congress from the State 

of Utah, and Ranking Member, Subcommittee on Commercial and Administrative Law ........................................................................................................... 2 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, Chairman, Committee on the Judiciary, and Member, 

Subcommittee on Commercial and Administrative Law .................................. 45 

The Honorable Lamar Smith, a Representative in Congress from the State 

of Texas, and Ranking Member, Committee on the Judiciary ......................... 46 

WITNESSES 

The Honorable Jack Kemp, former Secretary, United States Department of 

Housing and Urban Development, Washington, DC 

Oral Testimony ..................................................................................................... 50 

Prepared Statement ............................................................................................. 52 

Wade Henderson, Esq., President and CEO, Leadership Conference on Civil 

Rights, Washington, DC 

Oral Testimony ..................................................................................................... 56 

Prepared Statement ............................................................................................. 58 

Mr. David G. Kittle, CMB, Chairman-Elect, Mortgage Bankers Association, 

Washington, DC 

Oral Testimony ..................................................................................................... 64 

Prepared Statement ............................................................................................. 66 

Dr. Mark M. Zandi, Ph.D., Chief Economist and Cofounder, Moody’s Economy.Com, West Chester, PA 

Oral Testimony ..................................................................................................... 109 

Prepared Statement ............................................................................................. 111 

Ms. Faith Schwartz, Executive Director, HOPE NOW Alliance, Washington, 

DC 

Oral Testimony ..................................................................................................... 119 

Prepared Statement ............................................................................................. 121 

Mr. John Dodds, Director, Philadelphia Unemployment Project, Philadelphia, 

PA 

Oral Testimony ..................................................................................................... 136 

Prepared Statement ............................................................................................. 139 

Mr. James H. Carr, Chief Operating Officer, National Community Reinvestment Corporation, Washington, DC 

Oral Testimony ..................................................................................................... 143 

Prepared Statement ............................................................................................. 145 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Chris Cannon, a Representative in 

Congress from the State of Utah, and Ranking Member, Subcommittee 

on Commercial and Administrative Law ........................................................... 3 

Page

IV 

Material submitted by the Honorable Chris Cannon, a Representative in 

Congress from the State of Utah, and Ranking Member, Subcommittee 

on Commercial and Administrative Law: 

Article from The Wall Street Journal, titled ‘‘A Mortgage ‘Tweak’ We 

Don’t Need,’’ dated January, 9, 2008 ........................................................... 11 

Prepared Statement of the Honorable Richard K. Armey, Chairman, 

FreedomWorks .............................................................................................. 13 

Prepared Statement of the American Bankers Association .......................... 17 

Letter in opposition of H.R. 3609, the ‘‘Emergency Home Ownership 

and Mortgage Equity Protection Act’’ ......................................................... 32 

Dear Colleague Letter from the Chairman and Ranking Member of the 

Committee on Financial Services ................................................................ 34 

Testimony of Frank Keating before the Senate Committee on the Judiciary .................................................................................................................. 35 

Prepared Statement of the Honorable Steve Chabot, a Representative in 

Congress from the State of Ohio, and Member, Committee on the Judiciary 164 

(1) 

GROWING MORTGAGE FORECLOSURE CRISIS: 

IDENTIFYING SOLUTIONS AND DISPELLING 

MYTHS 

TUESDAY, JANUARY 29, 2008 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:04 p.m., in room 

2141, Rayburn House Office Building, the Honorable Linda T. 

Sa ́nchez (Chairwoman of the Subcommittee) presiding. 

Present: Representatives Conyers, Sa ́nchez, Johnson, Lofgren, 

Watt, Smith, Chabot, Cannon, Keller, Franks, and Jordan. 

Staff present: Susan Jensen, Majority Counsel; Zachary Somers, 

Minority Counsel; and Adam Russell, Majority Professional Staff 

Member. 

Ms. SA ́ NCHEZ. This hearing of the Committee of the Judiciary, 

Subcommittee on Commercial and Administrative Law will now 

come to order. 

I will recognize myself for a short statement. 

We are undoubtedly in the midst of an economic crisis fueled by 

the subprime mortgage meltdown and falling home prices. Both the 

Administration and Congress are seeking solutions to stem this crisis. 

Last year the House passed comprehensive reforms that would 

prospectively set higher standards for the mortgage lending industry. We have already provided relief for homeowners with respect 

to the tax consequences of cancellation of indebtedness through a 

bill signed into law last December. And both the House and Senate 

are currently considering economic stimulus packages. 

Additionally, last month the Judiciary Committee reported H.R. 

3609, the ‘‘Emergency Home Ownership and Mortgage Equity Protection Act of 2007,’’ legislation that I introduced with Congressman Brad Miller. We worked with Chairman Conyers and our colleague on the other side of the aisle, Steve Chabot, to amend the 

bill in a bipartisan fashion. 

About the same time, Treasury Secretary Paulson announced a 

voluntary plan by which servicers and others in the mortgage industry could temporarily freeze the interest rates for certain homeowners who are current on certain mortgages and who have specified FICO scores. 

2 

And the financial services industry is promoting a program that 

is intended to proactively reach out to homeowners in financial distress. 

What is clear is that the complexity of the mortgage crisis requires all of these responses, and perhaps even more aggressive solutions. Today’s hearing will provide an opportunity for us to consider how some of these responses will address the crisis and to 

dispel the untruths about the Miller legislation with this ConyersChabot compromise. 

Experts predict that the worst is still ahead, as a large majority 

of subprime borrowers will face a 40 percent or greater increase in 

their monthly mortgage payments, once their initial teaser rates 

expire and their fixed interest rates reset into higher variable rates 

early this year. 

People are losing their homes, and neighborhoods have gone from 

vibrant to desolate. It is my hope that today’s hearing on the 

subprime issue will aid us in our examination of the possible solutions to this mortgage mess and demonstrate the need to act quickly to resolve this issue. 

Accordingly, I very much look forward to hearing from our witnesses today and appreciate their efforts in helping us respond to 

this crisis. 

At this time I will now recognize my colleague, Mr. Cannon, the 

distinguished Ranking Member of the Subcommittee, for his opening remarks. 

Mr. CANNON. Thank you, Madam Chair. This is in fact the third 

hearing that I think we have had on this issue, and so I would ask 

unanimous consent to make my statement available for the record. 

And in addition to that, I have a series of items for the record. 

One is a Wall Street Journal article today called ‘‘A Mortgage 

‘Tweak’ We Don’t Need.’’ The second is the testimony that would 

have been given by Mr. Dick Armey, if he had been here today. The 

third is a statement on behalf of the American Bankers Association 

dated today. 

In addition to that, we have a letter that is from a series of associations, beginning with the American Bankers Association, the 

American Financial Services Association and several others. We 

have a letter on the HOPE NOW Alliance from Congressman 

Frank and Congressman Bachus. And then this is testimony from 

Frank Keating in 1991 in the Senate Judiciary hearing on 

cramdowns of home—— 

If we could have those admitted to the record, I would appreciate 

that. 

Ms. SA ́ NCHEZ. Without objection, so ordered. 

[The prepared statement of Mr. Cannon and the information follows:] 

3 

PREPARED STATEMENT OF THE HONORABLE CHRIS CANNON, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF UTAH, AND RANKING MEMBER, SUBCOMMITTEE ON

COMMERCIAL AND ADMINISTRATIVE LAW


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ARTICLE FROM THE WALL STREET JOURNAL, TITLED ‘‘A MORTGAGE ‘TWEAK’ 

WE DON’T NEED,’’ DATED JANUARY, 9, 2008 


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PREPARED STATEMENT OF THE HONORABLE RICHARD K. ARMEY, CHAIRMAN, 

FREEDOMWORKS


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PREPARED STATEMENT OF THE AMERICAN BANKERS ASSOCIATION


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LETTER IN OPPOSITION OF H.R. 3609, THE ‘‘EMERGENCY HOME OWNERSHIP AND

MORTGAGE EQUITY PROTECTION ACT’’ 


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DEAR COLLEAGUE LETTER FROM THE CHAIRMAN AND RANKING MEMBER OF THE

COMMITTEE ON FINANCIAL SERVICES


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TESTIMONY OF FRANK KEATING BEFORE THE SENATE COMMITTEE ON THE JUDICIARY


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Mr. CANNON. And with that, I would yield back in the hopes that 

we have a hearing that moves very quickly. This is the biggest 

panel, I think, we have ever had, or had in the last 12 years. And 

hopefully, we can move through it quickly. 

Thank you, Madam Chair. I yield back. 

Ms. SA ́ NCHEZ. I thank you, Mr. Chairman. 

And at this time I would now like to recognize the distinguished 

Chairman of the full Committee, Mr. Conyers, for an opening statement. 

Chairman CONYERS. Thank you very much. 

The reason the panel is so large, Mr. Cannon, is that the subject 

matter is so complex and requires at least this many people, and 

maybe more. And I want to thank you very much for having been 

with us on all of this. 

And I want to thank the Ranking Member as well, Lamar Smith, 

for allowing us at the last moment to join Subcommiee Chair 

Sa ́nchez and I in inviting James Carr to be added to the already 

lengthy panel. 

I am always happy to see all my friends here, starting with the 

person who probably doesn’t need universal health care, although 

he has a bad cold, Jack Kemp. Our days go back to the Martin Luther King era and the struggles that we had congressionally, which 

I will never forget. Wade Henderson, leading the Leadership Conference on Civil Rights, and all of the rest of you. 

I was just in Detroit over the last weekend, at Wayne State University, where we had this same kind of hearing, and because of 

James Carr’s presentation, I was so pleased that the minority 

would join the Chair and I to invite him to this hearing. And he 

was able to make it, after changing his schedule. 

Now, we are working on a stimulus package. A stimulus package 

is like taking a garden hose to a 10-alarm fire and wondering why 

we aren’t winning the battle. And there are lots of good things in 

it and it is well intended—maybe it will send a signal and all that. 

But what this is—the problem, as I see it—is that we are dealing 

with a subject matter that has more potential cumulative financial 

damage than all the problems of the Great Depression in 1929, 

plus all of the financial dislocations that we have seen in the ‘‘dot 

com’’ bubble, and the scandals of Enron, Adelphia, WorldCom and 

others. 

Here this little adjustable mortgage rate problem is now shaking 

world markets globally, not just on Wall Street. This thing is moving with far deeper implications than any of us could imagine. 

Now, as usual we congratulate people who are putting on bandaids and have been trying to do the best they can. And it is not 

the job or the jurisdiction of this Committee to go into the entire 

depth of the financial dislocation that is going on, but the biggest 

problem is not to recognize that it is there. 

And so it is in that spirit that I am so proud that this little old 

Subcommittee number five in Judiciary, which gets all the heavy 

lifting of the whole Judiciary Committee, is once again saddled 

with this huge responsibility. And I am very proud that all of you 

could come and lend your talent and that all of our Committee— 

Cannon has never seen so many witnesses; I have never seen so 

many Members at a Subcommittee hearing before. 

46 

Thank you very much. 

Mr. CANNON. So much for the hope, Mr. Chairman, of a quick 

hearing. [Laughter.] 

Ms. SA ́ NCHEZ. I thank the distinguished Chair of the full Committee for his opening statement. 

And I would now at this time like to recognize Mr. Smith, the 

distinguished Ranking Member of the full Committee, for his statement. 

Mr. SMITH. Thank you, Madam Chair. 

Before I make my statement, I, too, would like to recognize our 

former colleague and a former vice presidential candidate, Jack 

Kemp, who is here today. I regret that on this particular issue we 

are not on the same side, which also reminds me that I might have 

missed an opportunity yesterday when our Chairman called and 

wanted to add a friend as a new witness today, Mr. James Carr. 

I should have asked that we dropped a witness at the same time, 

but I missed my chance. But nevertheless, I appreciate someone 

with his credibility and stature testifying today, Jack Kemp. 

Madam Chair, when the Committee last looked at subprime 

mortgages, the Administration and Congress had recently undertaken several initiatives to address the growing concern surrounding this issue. 

The secretary of treasury’s plan, or HOPE NOW, had just been 

announced. The House had passed bipartisan tax relief to help 

homeowners benefit fully from debt forgiveness. The Federal Housing Administration’s Secure program was taking hold, increasing 

FHA’s flexibility to offer refinancing. And we had passed legislation 

to modernize the FHA, Fannie Mae and Freddie Mac. 

Against that backdrop it was clear that we needed to allow time 

for these measures to work before considering the dramatic step of 

rewriting key longstanding terms of the bankruptcy code. There 

continue to be developments we should monitor. 

The HOPE NOW program appears to be gathering a considerable 

head of steam. It is already making good on its promise to help 

troubled homeowners. The subprime mortgage crisis, meanwhile, 

has touched off instability, not only in our markets, but around the 

globe. Fears of recession in our economy have heightened. 

Key policymakers are responding to these broader economic developments. The message from Fed Chairman Ben Bernanke has 

been that what the economy needs to do to hold off a further downturn is liquidity, liquidity, liquidity. 

A group of bipartisan leaders in the House of Representatives 

and the Administration have negotiated an economic stimulus 

package based on similar principles. The stimulus is designed to inject liquidity into the market immediately. This directly responds 

to the housing crisis by increasing the lending flexibility of the 

FHA, Fannie Mae and Freddie Mac. 

One thing, though, hasn’t changed since we last met. That is the 

law of economics. What they told us then, they tell us now. Turning 

existing primary residence mortgage contracts into bankruptcy will 

inevitably contract liquidity. Mortgage interest rates will rise. 

Other lending terms will become more restrictive. Lending will decrease. New homeowners and those who can still refinance will be 

47 

hesitant to do so, although it is their home related spending that 

we desperately need to fuel our economy. 

It is precisely the opposite of what the market needs. It is the 

economic equivalent of throwing cold water on a freezing man. It 

will undercut the Paulson plan. It will undercut the stimulus package. It will undercut FHA reform. It will undercut our economy. 

So again, we should refrain from making changes to the bankruptcy laws. Other better measures are taking hold. The stimulus 

package will soon add to that hold. Our legislative efforts must 

strengthen the housing market, not weaken it. 

I look forward to hearing from all of today’s witnesses. 

And, Madam Chair, before I yield back the rest of my time, I do 

want to say to the Chair that several Members may be leaving almost immediately to go to the House floor for consideration of the 

FISA bill that we are considering there as well. And I yield back. 

Thank you. 

Ms. SA ́ NCHEZ. I thank the gentleman. 

Without objection, other Members’ opening statements will be included in the record. And without objection, the Chair will be authorized to declare a recess at any point in the hearing. 

I am now pleased to introduce our distinguished witnesses for today’s panel. 

Our first witness is Jack Kemp. Mr. Kemp is the founder and 

chairman of Kemp Partners, a strategic consulting firm helping clients achieve both business and public policy goals. 

Mr. Kemp was the Republican Party’s vice presidential candidate 

for the 1996 campaign. From 1989 to 1993, Mr. Kemp served as 

Secretary of Housing and Urban Development, and before his appointment to the cabinet, he represented the Buffalo area and 

western New York in the United States House of Representatives 

from 1971 to 1989. 

Mr. Kemp spent 13 years in professional football, playing quarterback for the San Diego Chargers and the Buffalo Bills. He cofounded the AFL Players Association and was elected president for 

five terms. Mr. Kemp served on the board of Habitat for Humanity 

and is chairman of Habitat’s National Campaign for Rebuilding our 

Communities. 

We want to welcome you here, Mr. Kemp, especially in light of 

the fact that you are not feeling well. 

Our second witness is Wade Henderson. Mr. Henderson is the 

President and CEO of the Leadership Conference on Civil Rights, 

LCCR, and counsel to the Leadership Conference on Civil Rights 

Education Fund. The LCCR is the Nation’s premier civil and 

human rights coalition. 

Mr. Henderson is well known for his expertise on a wide range 

of civil rights, civil liberties and human rights issues. Since taking 

the helm of the LCCR in June 1996, Mr. Henderson has worked 

diligently to address emerging policy issues of concern to the civil 

rights community and to strengthen the effectiveness of the coalition. 

Prior to his role with the Leadership Conference, Mr. Henderson 

was the Washington Bureau Director of the National Association 

for the Advancement of Colored People, the NAACP. In that capacVerDate Aug 31 2005 09:49 May 12, 2009 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6601 H:\WORK\COMM\012908\40455.000 HJUD1 PsN: 40455
48 

ity he directed the governmental affairs and national legislative 

program of the NAACP. 

Mr. Henderson was previously the Associate Director of the 

Washington national office of the American Civil Liberties Union, 

the ACLU, where he began his career as a legislative counsel and 

advocate on a wide range of civil rights and liberties issues. 

Mr. Henderson also served as executive director of the Counsel 

on Legal Education Opportunities, CLEO. Mr. Henderson is the Joseph L. Rauh, Jr., Professor of Public Interest Law at the David 

Clarke School of Law of the University of the District of Columbia 

and the author of numerous articles on civil rights and public policy issues. 

Welcome, Mr. Henderson. 

Our third witness is David Kittle. Mr. Kittle is chairman elect 

of the Mortgage Bankers Association and president and chief executive officer of Principle Wholesale Lending, Incorporated, in Louisville, Kentucky. 

He started with the American Fletcher Mortgage Company and 

became the top loan originator before moving to management in 

1986. In 1984, Mr. Kittle opened his own company, Associates 

Mortgage Group, Incorporated, and sold it in January of 2006. 

He is a former chairman of MORPAC, MBA’s political action 

committee, a former vice chairman of the MBA residential board of 

governors, and is a member of MBA’s advisory committee. Mr. 

Kittle is also a member of the Fannie Mae advisory council. 

Welcome, Mr. Kittle. 

Our fourth witness is Faith Schwartz. Ms. Schwartz is the executive director of HOPE NOW Alliance, a coalition of nationwide 

servicers, lenders, investors, counselors and other mortgage market 

participants working together to help owners in distress. Ms. 

Schwartz previously served as HOPE NOW’s project manager. 

Prior to joining HOPE NOW, she was senior vice president of enterprise risk and public affairs at Option One Mortgage Corporation, a subsidiary of H&R Block, Incorporated. Ms. Schwartz has 

also served as the chair of the Mortgage Banking Association’s nonconforming credit committee in both 2005 and 1996. 

Prior to joining Option One Mortgage Corporation, Ms. Schwartz 

was director of sales national lending for Freddie Mac. From 1995 

to 1997, Ms. Schwartz was chief operating officer for Fieldstone 

Mortgage Company. She was also executive vice president at TMC 

Mortgage Corporation from 1991 to 1995. 

Ms. Schwartz began her mortgage banking career at Dominion 

Bankshares Mortgage Corporation in 1983, where she served as 

vice president of secondary marketing for wholesale purchase programs. 

We want to welcome you, Ms. Schwartz. 

And you guys are a little bit out of order, but I would like to introduce our fifth witness, Mr. Mark Zandi. 

Dr. Zandi is the chief economist and co-founder of economy.com, 

which provides economic research and consulting services to corporations, governments and institutions, maintaining one of the 

largest online databases of economic and financial time series. 

Dr. Zandi’s recent work includes the study of the outlook for national and regional housing market conditions, the determinants of 

49 

personal bankruptcy, the location of high technology centers, and 

the impact of globalization and technological change on real estate 

markets. 

In addition to being regularly cited in The Wall Street Journal, 

The New York Times, Business Week, Fortune and other leading 

publications, Dr. Zandi also appears on ABC News, Wall Street 

Week, CNN and CNBC. 

Welcome, Dr. Zandi. Nice to have you here in person. 

Our sixth witness is John Dodds. Mr. Dodds has been the director of the Philadelphia Unemployment Project since its founding in 

1975. The Philadelphia Unemployment Project, PUP for short, is 

both a membership organization and an advocacy organization for 

the unemployed and low wage workers. 

PUP has focused on preventing mortgage foreclosures since the 

recession of 1981-82 and has been a leading advocate for programs 

and policies to help preserve homeownership. Its sister organization, the Unemployment Information Center, is a HUD approved 

housing counseling agency that handles hundreds of delinquency 

and default cases each year. 

Under Mr. Dodds’ leadership, PUP counts among its achievements campaigns that have led to, among other things, the Nation’s first state foreclosure prevention program in Pennsylvania, 

the expansion of health care for the uninsured in the Commonwealth of Pennsylvania and city of Philadelphia, an innovative reverse commute project for inner city workers, increases in the state 

minimum wage, programs to protect income homeowners from real 

estate tax foreclosures and reductions in legal fees to families facing foreclosures. 

Welcome to our panel, Mr. Dodds. 

Our final witness is James Carr. Mr. Carr is the chief operating 

officer for the National Community Reinvestment Coalition, an association of 600 local development organizations across the Nation 

dedicated to improving the flow of capital to communities and promoting economic mobility. 

Mr. Carr is a visiting professor at Columbia University in New 

York and George Washington University in Washington, D.C. Prior 

to his appointment at NCRC, Mr. Carr was senior vice president 

for financial innovation, planning and research for Fannie Mae 

Foundation and vice president for research at Fannie Mae. 

He has also held posts as assistant director for tax policy with 

the U.S. Senate Budget Committee and as a research associate at 

the Center for Urban Policy Research at Rutgers University. Mr. 

Carr has appeared on numerous television stations, as a frequent 

radio talk show guest, and was a recipient of the 2003 Community 

Impact Award from the National Organization of Black County Officials. 

Again, I want to thank you all for your willingness to participate 

in today’s hearing. Without objection, your written statements will 

be placed into the record, and we would ask that you limit your 

oral testimony to 5 minutes. 

You will note that we have a lighting system in front of you. 

When your time to speak begins, you will see the green light. Four 

minutes into your testimony, you will receive a yellow warning 

light that you have about a minute to summarize your testimony. 

50 

And alas, when the light turns red, your time has expired. If you 

are mid-thought when the red light comes on, we will allow you to 

finish your final thought before moving on to our next witness. 

After each witness has presented his or her testimony, Subcommittee Members will be permitted to ask questions, subject to 

the 5-minute limit. 

With all the ground rules now established, I will invite Mr. 

Kemp to please proceed with his testimony. 

TESTIMONY OF THE HONORABLE JACK KEMP, FORMER SECRETARY, UNITED STATES DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT, WASHINGTON, DC 

Mr. KEMP. Thank you, Madam Chair. I am going to stay within 

5 minutes of getting through my testimony. 

Thank you for so kind an introduction. Congressman Conyers, 

thank you for your long-time friendship. 

Oh, no wonder I couldn’t hear myself. 

Thank you, again, John, for your kind words. It has always been 

an honor to work with you. 

And to my friend, Chris Cannon, good to see you. 

And it is a particular pleasure to be next to a very dear friend, 

a great patriot, and a wonderful devotee of and advocate for civil 

rights and social justice in our country. Wade Henderson and I 

worked together arm in arm for the D.C. voting rights bill, and I 

want to tell him personally and publicly how much I appreciate his 

courage and tenacity on behalf of people who sometimes don’t have 

a voice. 

I think that is who I am speaking for today—people who don’t 

have a voice in this great issue over stimulus. I really appreciate 

the Conyers-Chabot Emergency Home Ownership and Mortgage 

Equity Protection Act. I know it has been called the most dangerous thing that we could be doing right now. And I would find 

it dangerous if we don’t do something like this. 

I am not here as an expert on bankruptcy jurisprudence, but as 

a former Member of the House, HUD secretary, a long-time advocate for homeownership for all Americans as a real tool to strengthen our communities, our economy, while building wealth and assets 

for low and working families. 

Madam Chair, I don’t need to tell you about the role homeownership plays in our society. It embodies the American dream. It represents an invaluable economic asset for millions of families. 

A strong housing market has been a principal engine for our Nation’s economic growth, contributing the development of stable and 

thriving communities, broadening the tax base, and obviously allowing for rising employment opportunities. 

Today’s housing recession is, as you said and Chairman Conyers 

said, extremely serious. In perspective the overall economy is still 

growing, though slowing down. The subprime mortgage meltdown 

exists today because there was an abundance of liquidity and I believe fed by the Federal Reserve Board keeping interest rates too 

low for too long, and thus causing a housing bubble. 

When Ben Bernanke came in, he took a 1 percent overnight cost 

of money, the Federal funds rate, to 5.25 in 16 straight steps, and 

all of a sudden those adjustable rate mortgages in the prime and 

51 

subprime area were absolutely causing balloon payments that have 

wiped out the value of people’s homes. 

At the end of last year, I was approached by a coalition of consumer advocacy and homeownership advocates and organizations, 

who asked that I consider supporting this bipartisan legislation as 

it was amended right here in this Committee. 

As you know, having served as President Bush’s HUD secretary 

and serving in Congress, I believed that bipartisanship alone is not 

the singular ingredient for good policy. However, in this case I salute the Chairman and Congressman Chabot and all the Members 

of the Committee who support this legislation for striking what I 

think is a right balance. 

When I was the secretary of HUD, we fought against economic 

pessimism every day in an effort to spread the American dream of 

homeownership, particularly for moderate and low-income families. 

Homeownership, especially among people of color, has risen to historic levels, and they have got a long way to go. 

In just the last 5 years, 2.5 million to 2.8 million families bought 

their very first home. Now, the subprime mortgage crisis is threatening to roll back this progress, and I can tell you flat out, if we 

can possibly do it, I want to keep people in their homes. That is 

the purpose of my testimony, and, I believe, this bill. 

This bill will have more impact on these home owning families 

than any other option currently on the table, in my opinion. I see 

estimates that as many as 600,000 homeowners might be eligible, 

as well as preventing about $72 billion of wealth that would be lost 

to families who would be affected by virtue of their home being in 

a location near a foreclosed home. 

Given the severity of this national crisis, allowing a judge to 

modify in bankruptcy court, I believe, is the right thing to do. The 

bill is targeted at only subprime and non-traditional ARM mortgages and would be available for only 7 years after it is enacted 

in order to mitigate against the next waves of rising interest rate 

resets. 

I believe it is narrowly tailored and an appropriate remedy for 

homeowners and the right thing for the Congress to do. Now, some 

lenders’ representatives—and I have got great respect for them, 

some here and some around this country; I worked with them in 

all 4 years of HUD—have claimed that H.R. 3609 would drive up 

interest rates and harm the securities market. 

Now, there may be a legitimate reason why some of this country’s biggest and largest banking institutions would oppose this legislation. But those reasons are not it. There is no data that support 

the contention that bankruptcy changes being contemplated in 

Congress would do either. H.R. 3609, as you well know, applies to 

existing loans only. Therefore, by definition it could not affect future interest rates, because it would not apply to future loans. 

Now, there have been decades of experience in which bankruptcy 

courts have been modifying mortgage loans on family farms in 

Chapter 12, commercial real estate in Chapter 11, vacation homes, 

condo loans, investor properties in Chapter 13, with no ill effects— 

no ill effects on the credit in those submarkets. 

Ms. SA ́ NCHEZ. Mr. Kemp? 

Mr. KEMP. I am sorry. 

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Ms. SA ́ NCHEZ. Your time has expired. I will allow you to summarize your final thought. 

Mr. KEMP. Let me summarize. As I wrote in a recent Los Angeles 

Times op-ed, bankruptcy law is widely off kilter in how it treats 

homeowners and homeownership. And I believe, Madam Chair, this 

is a legitimate, logical way to provide health and help for more 

than 600,000 homeowners. 

Thank you very much for your hospitality. 

[The prepared statement of Mr. Kemp follows:] 

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Ms. SA ́ NCHEZ. Thank you, Mr. Kemp. I appreciate your summarizing as quickly as possible. I know that you are not feeling well, 

so if you would like to leave the panel, you have the indulgence of 

the Chair to do so at this time. 

TESTIMONY OF WADE HENDERSON, PRESIDENT AND CEO, 

LEADERSHIP CONFERENCE ON CIVIL RIGHTS, WASHINGTON, DC 

Mr. HENDERSON. Chairwoman Sa ́nchez, Ranking Member Cannon and Members of the Subcommittee, I am Wade Henderson, 

president of the Leadership Conference on Civil Rights. Thank you 

for inviting me to discuss solutions to the growing national epidemic of home foreclosures. 

Before I begin my formal remarks, Madam Chair, I want to digress for a moment to thank you and, most importantly, Mr. Conyers, Mr. Chabot, Mr. Watt and leaders like Secretary Kemp for 

your extraordinary effort in last year’s reauthorization of the Voting Rights Act. 

The Voting Rights Act is one of the most important civil rights 

bills of our time, and the overwhelming support for its reauthorization is proof positive that the protection of civil rights is not a partisan issue. It is a national issue. And it is in that spirit that I 

come before you today. 

Now, there is a great deal that can be said about what led to the 

Nation’s foreclosure crisis, what impact it will have, and what 

could have been done to prevent it, and what our best options are 

now for moving forward. I am pleased to focus today on one of the 

best of those options. 

At the outset I want to say that the Leadership Conference fully 

supports the version of H.R. 3609 that was approved by the full 

Committee, and I want to thank the sponsors for your leadership. 

H.R. 3609 offers a strong, yet pragmatic step that will save hundreds of thousands of families from losing their homes. 

For the past several years, when I have testified or otherwise 

talked about the need for changes to our Nation’s mortgage finance 

system, I have usually spent much of my time explaining what was 

going wrong and what the likely consequence would be for individual homeowners, the communities in which they live, and the 

economy at large. I obviously don’t need to spend much time on 

that anymore. I think most Americans get it now. 

Subprime lending, which can and should be used in a responsible 

way to create new homeownership opportunities for persons with 

impaired credit, was instead shamelessly perverted through recklessness, greed and unrealistic expectations. Dealing with it and 

with the havoc sweeping through the entire housing sector requires 

swift, multi-faceted and compassionate action. 

We certainly want the industry, with the Administration’s support, to do its share. But at the same time, individual homeowners 

and our economy as a whole cannot afford to wait for an industry 

that collectively created the mess, and is now being devoured by it, 

to take the lead in cleaning it up. 

For several reasons we believe that using bankruptcy proceedings to avert foreclosures is one of the most important and 

timely steps Congress can take to deal with the foreclosure crisis. 

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One key advantage, especially as we face growing questions 

about the economy, is its cost. Because bankruptcy modifications do 

not involve public funds, H.R. 3609 will not give the appearance of 

a bailout or create moral hazard. And because bankruptcy comes 

at a heavy cost, monetary and otherwise, it does not let borrowers 

off the hook. 

I should note parenthetically that many lenders have recently 

come to recognize the value of obtaining bankruptcy protection, 

which makes it ironic that borrowers cannot do the same. 

At the same time, H.R. 3609 will benefit other homeowners and 

our economy. Every home that gets saved from foreclosure or from 

abandonment by borrowers expecting foreclosure, which is another 

growing problem, helps protect the value of neighboring homes, 

slowing a vicious cycle that leads to even more damage to affected 

communities. 

Needless to say, empty houses are more than just eyesores. They 

also drain local government resources and undermine public safety. 

Now, while the bill will not save every home, it will greatly help 

control the bleeding, protecting communities from even more harm. 

I would hope that every Member of Congress would recognize the 

value of that result, but I can’t help but notice that it is now the 

Subcommittee’s third hearing on this bill and that you have taken 

the unusual step of holding this one after the Committee’s markup, 

which can only mean that there are still some very serious misunderstandings about H.R. 3609 that must be addressed. 

The opposition to the bill is especially frustrating, because it generally comes from industry representatives, who, despite best efforts of civil rights and consumer groups, have long been reluctant 

to acknowledge the full extent of the problem we are facing. 

As late as October, the industry told the Subcommittee, even 

after the problems with unsustainable loans had become painfully 

obvious to the public, that foreclosures are mostly the result of ‘‘unemployment, divorce or illness, and not the loans themselves.’’ 

Last year’s rapid growth in foreclosure rates speaks for itself, 

and it is unsettling to wonder if the industry posturing might have 

delayed efforts to mitigate that growth. 

Opponents of the bill also argue that the industry is working to 

reduce foreclosures through the use of loan modifications and repayment plans. But without a doubt, I am glad that many lenders 

and servicers recognize that there are serious problems and are 

taking steps to save homeowners from their mortgages. 

I see the light has come on, so I will summarize. 

Ms. SA ́ NCHEZ. I will allow you to finish your final thought. 

Mr. HENDERSON. Thank you. 

Let me say that this bill is such an important step, such a modest step, and such a fundamental protection for the rights of homeowners and the communities in which they live. We are happy to 

provide our full support for the enactment of this legislation. 

Thank you, Madam Chair. 

[The prepared statement of Mr. Henderson follows:] 

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PREPARED STATEMENT OF WADE HENDERSON


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Ms. SA ́ NCHEZ. Thank you, Mr. Henderson, for your testimony. 

And I note that we have been joined by Mr. Chabot from Ohio, 

not a Member of the Subcommittee, but interested enough to come 

and sit in on today’s proceeding. 

So thank you for your attendance. 

With that, I will invite Mr. Kittle to provide us with his testimony. 

TESTIMONY OF DAVID G. KITTLE, CMB, CHAIRMAN-ELECT, 

MORTGAGE BANKERS ASSOCIATION, WASHINGTON, DC 

Mr. KITTLE. Madam Chair, Ranking Member Cannon, thank you 

for the opportunity to appear before you again. 

I am pleased to discuss the solutions to the situation in the mortgage market and to help dispel some myths relating to the Emergency Home Ownership and Mortgage Equity Protection Act. 

It is a myth that allowing cramdowns of mortgages will be a costfree and easy way to help homeowners. We expect that H.R. 3609 

will cost your constituents hundreds of dollars a month and thousands of dollars a year. Passage of this bill will encourage homeowners to file for bankruptcy, an expensive and invasive process. 

Instead of encouraging homeowners to seek bankruptcy, Congress 

should focus on ways to keep people out of bankruptcy and in their 

homes. 

There are very real and severe consequences for consumers who 

declare bankruptcy. Bankruptcy is a long, arduous and very public 

and expensive process, costing thousands of dollars in legal costs. 

Even when people file for bankruptcy, almost two-thirds of them 

are unable to fulfill the terms of their repayment plan. 

Filing bankruptcy will allow a federally appointed trustee to 

scrutinize the consumer’s every expenditure. Additionally, bankruptcy stays on a consumer’s credit report for 10 years, making it 

difficult to acquire future credit, buy a home, car or insurance, and 

in some cases, even obtain employment. 

If bankruptcy judges are allowed to independently change the 

terms of a signed mortgage contract, lenders will face new uncertainty as to the value of the collateral, the home. To account for 

the new risk, lenders will be forced to require higher down payments, higher cost at closing, and higher interest rates, pushing 

the dream of homeownership beyond the reach of millions of families. 

As you know from my previous testimony, we estimate that a 

change in the bankruptcy law, allowing cramdowns in the future, 

may increase interest rates across the board by at least 1.5 percentage points for those seeking to buy a home or refinance their 

existing mortgage. 

In Los Angeles County, California, for example, where the average home price is about $360,000, a homeowner’s monthly payment 

at 6 percent for a 30-year fixed rate mortgage is roughly $2,100 per 

month. However, if H.R. 3609 were enacted, holding everything 

else constant, the homeowner could pay an additional $358 every 

month, an annual increase of over $4,200. 

It is a myth that this legislation will actually be positive for the 

mortgage industry. Despite the changes made in the bill by Congressman Chabot, the legislation continues to be retroactive. The 

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result of a retroactive bill will be a devaluation of the current loan 

and mortgage servicing portfolio. This will have an immediate and 

severe impact on the mortgage market, as companies book the diminished value of their loans and servicing rights. 

Rates will certainly have to rise to offset the anticipated losses. 

Some companies will not survive. The writedowns and the markets 

will go through another period of severe instability. 

It is a myth that the total cost of foreclosure is greater than that 

of the risk of bankruptcy. Lenders often have mortgage insurance 

to protect themselves against losses. The FHA program is one kind 

of credit enhancement. Bankruptcy voids these credit enhancements in the amount of the cramdown. The lender will have to absorb the increased risk, which will ultimately pass on to the consumer in the form of higher prices or more restrictive lending 

terms. 

It is a myth that the preference given to primary residences is 

simply a loophole. Congress acted deliberately to increase the flow 

of capital to homebuyers. The House acted with broad support 

when it passed the final version of the bankruptcy code in 1978. 

The Supreme Court supported this provision with a specific defense 

from Justice Stevens in 1993. 

Finally, Congress should not encourage Americans to walk away 

from their debts. Bankruptcy is a final resort and should be sought 

only by the most extreme circumstances. At a time when the mortgage market is already experiencing a serious credit crunch, this 

bill threatens to increase costs to consumers, destabilize the mortgage market and result in injury to the overall economy. 

We urge Congress to finish work on the stimulus bill, modernize 

the FHA and pass a predatory lending bill that provides uniform 

protection for all consumers. Congress should not change the bankruptcy laws and increase costs on every borrower seeking a new 

mortgage. 

Thank you for the opportunity to appear before you again, and 

I look forward to answering your questions. 

[The prepared statement of Mr. Kittle follows:] 

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Ms. SA ́ NCHEZ. Thank you for your testimony, Mr. Kittle. 

At this time I would invite Dr. Zandi to present his oral testimony. 

TESTIMONY OF MARK M. ZANDI, Ph.D., CHIEF ECONOMIST AND 

COFOUNDER, MOODY’S ECONOMY.COM, WEST CHESTER, PA 

Mr. ZANDI. Thank you, Mr. Chairwoman. Thank you for the opportunity today. 

I just want to say that my views are my own. They are not those 

of the Moody’s Corporation. I will make a half dozen points in my 

remarks. 

First, the Nation’s housing mortgage markets are suffering an 

unprecedented downturn. The last time I spoke before this Subcommittee, the market was bad. It has gotten measurably worse. 

Activity peaked 2.5 years ago, and since then home sales have fallen approximately 35 percent. Starts are down nearly 50 percent 

and house prices by 8 percent. 

Two-thirds of the Nation’s housing markets are experiencing substantial price declines, with double digit declines throughout Arizona, California, Florida, Nevada, the Northeast corridor and the 

industrial Midwest. 

Second, residential mortgage loan defaults and foreclosures are 

surging, and without further significant policy changes, will continue to do so through the remainder of the decade. Falling housing 

values, resetting adjustable rate mortgages, tighter underwriting 

standards and weakening job markets are conspiring to create an 

unprecedented mortgage credit problem. 

According to very accurate data based on consumer credit files, 

there were 450,000 first mortgage loans in default to the first step 

in the foreclosure process as of year-end 2007. This equates to some 

1.8 million defaults at an annualized pace. Even mortgage loan 

modification efforts increase measurably in coming months, I expect almost three million defaults this year and next. At least two 

million homeowners will likely lose their homes. 

Third, the severe housing downturn and surging foreclosures are 

weighing very heavily on the border economy, which may very well 

experience a recession this year. Regional economies, such as California, Florida, Nevada, much of the Midwest, parts of the Northeast, which together account for one-half of the Nation’s GDP, are 

in my judgment already in or very near recession. 

The unraveling of the housing mortgage markets continues to 

undermine the fragile global financial system, as Congressman 

Conyers points out. Estimates of the mortgage losses global investors will bear range as high as $500 billion. These losses that have 

been publicly recognized now total about $150 billion. 

Losses on construction and land development loans made by the 

banking system to homebuilders are sure to increase measurably, 

and the credit problems in other consumer loans are rising rapidly, 

particularly in those parts of the country in recession due to the 

housing recession. 

Fourth, while policymakers’ efforts to date in responding to the 

mounting problems in the housing and mortgage markets and 

broader economy are helpful, they may very well prove inadequate. 

Since this past summer, the Federal Reserve has aggressively lowVerDate Aug 31 2005 09:49 May 12, 2009 Jkt 000000 PO 00000 Frm 00113 Fmt 6633 Sfmt 6601 H:\WORK\COMM\012908\40455.000 HJUD1 PsN: 40455
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ered rates. The Administration and Congress are quickly working 

toward a substantive fiscal stimulus package. 

Policymakers are also working to shore up the housing and mortgage markets in several ways, the most notable including increasing the GSE’s mortgage loan caps and the Treasury Department’s 

effort through HOPE NOW to facilitate mortgage loan modifications and establishment of mortgage repayment plans for struggling homeowners. 

Recent studies conducted by the MBA and Moody’s Investors 

Service based on information provided by mortgage loan servicers 

through last fall indicate that hard-pressed homeowners are indeed 

receiving some increased relief. The Moody’s study found that 3.5 

percent of subprime ARM loans that reset in the first 8 months of 

this year had been modified. This is up from only 1 percent in an 

earlier survey conducted by Moody’s. 

Despite these improvements, given the still substantial impediments to loan modification efforts, they are unlikely to increase sufficiently to forestall an unprecedented number of foreclosures 

through the remainder of this decade with the consequent negative 

repercussions for the broader economy. 

Tax, accounting and legal hurdles have been overcome, but large 

differences in the incentives of first and second mortgage lien holders and various investors in mortgage securities are proving to be 

very difficult. 

While the total economic benefit of forestalling foreclosure is significant, these benefits do not accrue to all of the parties involved 

in determining whether to proceed with a loan modification. Moreover, given the overwhelming number of foreclosures, servicers are 

also having difficulty appropriately staffing the modification efforts. 

It is also important to consider that for loan modifications to 

occur under the Treasury plan, many borrowers will have to 

produce more financial information than they did when they obtained the original loan. More than half of the subprime loans in 

2006, for example, were stated income loans, for which borrowers 

were not required to produce a W-2 or tax return, and they will be 

reluctant to do so now. 

There are thus a number of significant impediments to the effective implementation of the Treasury plan via HOPE NOW, suggesting that at best an estimated quarter million borrowers will actually benefit from loan modifications. 

Thus, while HOPE NOW is a laudable effort, it should not forestall passage of legislation, H.R. 3609, to provide hard-pressed 

homeowners facing foreclosure more protection in a Chapter 13 

bankruptcy. If HOPE NOW is successful in helping many borrowers, then these borrowers would not avail themselves of the opportunity to avoid foreclosure in Chapter 13 provided by this legislation. However, if HOPE NOW is not sufficiently successful, which 

may very well be the case, then this legislation will prove invaluable. 

Thank you. 

[The prepared statement of Mr. Zandi follows:] 

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PREPARED STATEMENT OF MARK M. ZANDI


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Ms. SA ́ NCHEZ. Thank you, Dr. Zandi. 

At this time I would invite Ms. Schwartz to give her testimony. 

TESTIMONY OF FAITH SCHWARTZ, EXECUTIVE DIRECTOR, 

HOPE NOW ALLIANCE, WASHINGTON, DC 

Ms. SCHWARTZ. Thank you, Chairman Sa ́nchez and Ranking 

Member Cannon. I appreciate having the opportunity to testify 

today. 

As you know, my name is Faith Schwartz. I am the executive director of the HOPE NOW Alliance. I want to tell you how the 

HOPE NOW Alliance is making real progress in an unprecedented 

joint industry and nonprofit national initiative to reach out to atrisk borrowers and find solutions to prevent foreclosures. 

The HOPE NOW Alliance is a broad-based collaboration between 

credit and homeownership counselors, lenders, servicers, investors 

and housing trade organizations, where we have gotten together to 

achieve the real results and reaching more at-risk borrowers and 

providing positive solutions to avoid foreclosure. 

HOPE NOW now includes 25 national loan servicers that comprise over 90 percent of the subprime market and a vast majority 

of the prime market. We have strong participation from respected 

nonprofits like NeighborWorks America and the Homeownership 

Preservation Foundation with its network of trained counselors, 

and we are adding and expanding that network of nonprofits. 

While this is a voluntary effort, and it has certainly been created 

at the urging of the secretary of the treasury and Alphonso Jackson 

of HUD, I must say that once you are a member of HOPE NOW, 

you need to adhere to principles that are adopted by HOPE NOW. 

I will just mention a few of those in light of our time. 

One of the early principles adopted was that everyone has to 

reach borrowers at risk in adjustable rate loans before the loans 

adjust at a minimum of 120 days prior to that adjustment. In addition to that, they must define the terms of the mortgage and all 

the options they would have if they cannot afford the adjustment. 

Maybe the most notable principle that I think will have a dramatic effect on how loan servicers and consumer credit counselors 

and housing counselors communicate is every lender has agreed to 

create a 1-800 number, a fax and email that is assigned to just 

third-party housing counselors. This is a big step forward so that 

there is better communication and efficiency of how third parties 

can help borrowers at risk get right into the servicing shops. 

Additionally, today we are releasing a set of numbers for all 

servicers direct for the consumers to have—all 800 numbers for all 

25 servicers—and that is attached to our testimony, so that in all 

of your offices, you will have a way to reach all these loan 

servicers, if your constituents call. 

A major challenge is that the borrowers who are in trouble are 

reluctant to call their servicers, and historically, one out of two 

loans that went to foreclosure were never in contact with their 

loans servicers. That statistic is changing. HOPE NOW is part of 

that, as are many of the other efforts that have been going on for 

some time to risk borrowers at risk. 

HOPE NOW has an aggressive monthly direct mail outreach 

campaign to at-risk borrowers. It is a very targeted campaign for 

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those servicers who had had no contact with borrowers, despite numerous attempts to reach them. In November, HOPE NOW sent 

about 220,000 letters out to borrowers, and early response shows 

16 percent of those borrowers responded. 

Through January, we will see close to 700,000 letters sent to 

these most at-risk borrowers who otherwise would go to foreclosure, and we are encouraged by the early results of the most atrisk population. 

For the November result, 21 percent of those who received a letter in November improved or maintained their delinquency status 

by making at least a payment. Forty-three percent of those who responded are in some sort of active loan mitigation or modification 

efforts. None of these borrowers had been in contact with their 

servicers prior to the outreach. 

We are also actively providing nonprofit counseling to homeowners through our 888-995-HOPENOW hotline that is run by the 

Homeownership Preservation Foundation. This hotline has been in 

existence since 2003, and it has ramped up significantly this year, 

and you will hear some statistics of how they are manning the hotline and getting borrowers back into the servicing shops. 

It is having a dramatic impact. Since the hotline’s inception in 

2003, 373,000 borrowers have called this hotline. In 2007 alone 

245,000 calls have been made into the hotline, and those calls resulted in more than 83,000 homeowners being counseled in 2007. 

Call volume in 2007 alone has increased tenfold in December 

from the beginning of 2007. By February 1st, we will have 400 

housing counselors assigned to this hotline to help man the line 

and keep capacity and all of the activity in line to accommodate all 

the calls. 

Last night President Bush cited HOPE NOW in the State of the 

Union address, and Secretary Paulson and HUD Secretary Jackson 

have urged homeowners in trouble to call the hotline. All of this 

attention does give more opportunity for borrowers to reach the 

servicers. 

Ms. SA ́ NCHEZ. Ms. Schwartz, your time has expired. 

Ms. SCHWARTZ. Oh, no. Okay. 

Ms. SA ́ NCHEZ. Final thought, or—— 

Ms. SCHWARTZ. Well, I would like to speak to some of the 

metrics, and you will see on the board to my left we are going to 

measure all the metrics going forward. We now comprise the majority of the subprime market and the prime market at that point, 

so I think we are going to have some very good statistics to share 

with you and be transparent about all our results. We look forward 

to it. 

[The prepared statement of Ms. Schwartz follows:] 

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Ms. SA ́ NCHEZ. Thank you. 

As you will notice, we have had a series of buzzers go off that 

has signaled to us we have votes pending across the street. Since 

we have about 6 minutes to get across the street to vote, we are 

going to stand in recess. When we return from votes, we will hear 

the testimony of Mr. Dodds and Mr. Carr. So we are in recess. 

Thank you. 

[Recess.] 

Mr. JOHNSON. [Presiding.] Okay. This hearing is now called back 

into order. 

And before we get started, I would like to, by way of unanimous 

consent, include the following documents into the record. Number 

one, a statement by the Honorable John Conyers, the Chair of the 

full Committee. It is dated January 29th. Also I want to include 

an article out of the Detroit Free Press dated January 29, 2008, entitled, ‘‘Will the State Stay Third in Foreclosure Rate?’’ referring to 

the State of Michigan. 

Also, a statement of the National Association of Consumer Bankruptcy attorneys dated January 29, 2008, entitled, ‘‘Hearing the 

Growing Mortgage Foreclosure Crisis: Identifying Solutions and 

Dispelling Myths.’’ Also a study by Professors Adam J. Leviten and 

Joshua Goodman from Georgetown University Law Center dated 

January 28, 2008, entitled, ‘‘The Effect of Bankruptcy Stripdown on 

Mortgage Interest Rates.’’ 

Also to be included in the record would be a chart that is from 

AlixPartners, page 13, that depicts an overview of the subprime 

lending industry. And last, but not least, a statement from the 

Center for Responsible Lending, a rebuttal to the ABA bipartisan 

House Resolution 3609. It is dated January 28, 2008. 

And that having been accomplished, we will now resume our testimony. Now, we will go Mr. John Dodds. 

Mr. Dodds? 

TESTIMONY OF JOHN DODDS, DIRECTOR, PHILADELPHIA 

UNEMPLOYMENT PROJECT, PHILADELPHIA, PA 

Mr. DODDS. Thank you for having me today. I am John Dodds 

from the Philadelphia Unemployment Project. Our organization 

has spent many, many years working on protect homes of homeowners. We work directly with people facing foreclosure. We have 

worked in Pennsylvania. We have the only state foreclosure prevention program in the country, which has helped over 40,000 families save their homes. 

Recently, I was in Cleveland, Ohio, looking at doing a tour there. 

I can tell you it was a very appalling situation, the number of 

abandoned properties everywhere we looked, properties being 

stripped of aluminum siding off the walls sold for scrap—very, very 

depressing. 

And there we have in front on the subprime problem. Their foreclosures have already started. Properties are going for $14,000 a 

year, if people will buy them in those neighborhoods. And people 

can’t even sell a house for that amount. 

We are trying to stay out ahead of that in Philadelphia. We are 

doing a little better there. I am thinking the whole country would 

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want to stay ahead of that. We don’t want to see these subprime 

loans turn into foreclosures and abandoned property. 

We have two million subprime loans that are going to reset in 

the next 18 months, and the question is how do we keep these 

loans performing? I think that is what everybody wants—to see 

these loans perform—and we think that they ought to be modified, 

that the terms are not affordable for people. Very often people were 

sold a bill of goods, or maybe they over promised or whatever, but 

it is bad for the entire economy for these loans to go bad and to 

foreclose with the kind of numbers we could see. 

So also, in Philadelphia we have many, many neighborhoods 

were over half of the loans are subprime. Now, we right now do not 

have too much abandonment. If these loans go through in the next 

18 months, we could see many, many abandoned properties, which 

will deteriorate the property values of the homeowners that haven’t 

lost their homes, too. Abandoned properties obviously bring down 

values quickly. 

So affordable loan modifications is what we think needs to happen, but it is not going to happen to scale, and I want to tell you 

why. We work with homeowners every day. One thing is that mortgage companies have had a long history of basically being collectors. They collect bills. If you don’t pay, somebody calls you and 

says, ‘‘Pay, or else.’’ 

Now, we are trying to switch to a different mentality. We are 

going to do loss mitigation. We are going to work this out. We have 

found that this is very difficult. We have homeowners that are not 

being offered affordable deals at all. In fact, they are being offered 

deals—double payments, things like that, when people can’t afford. 

I have with me today Janice Freeman, who was with Wells 

Fargo. She got behind in her mortgage. No deal was offered. She 

ended up in a bankruptcy. 

Ms. Freeman, do you want to stand up? 

She ended up in a Chapter 13 bankruptcy, because she didn’t 

know what else to do. She was told, ‘‘Forget it. You have got to pay 

everything, or else.’’ She got into bankruptcy. 

Bankruptcy doesn’t work right now. This is why this legislation 

is important. She paid her lawyer over $2,400 over a period of time 

to get into bankruptcy. Her payment was raised from $1,147. She 

had to pay another $400 a month, because she couldn’t pay her 

mortgage, so they put her in a plan in which she would pay the 

mortgage plus $400 plus the lawyer. 

She ended up three different times she got behind. The lawyer 

had her file again, $350 each time. Now, she only owed $3,500 

when she got into this situation. Now her bankruptcy is dismissed. 

We are working with her right now to get a loan modification. 

That is what she should have had—terms that she can afford. This 

is what this legislation would do, which would put people in a situation where bankruptcy would actually change the terms so they 

can afford it. Bankruptcy right now just makes you pay your current mortgage plus, which people can’t do. 

The other thing is people get put into payment plans, payment 

plans that they can’t afford at all. They should be getting—once 

again, I think what HOPE NOW is hoping for, and many of us are 

hoping for is—loan modifications that make sense. 

138 

But Janice Lee, who is also here, was offered double payments. 

She finally got herself into—after a very aggressive young 

woman—she finally got a decent payment plan. It is good for 6 

months. At the end of 6 months, she has got a $10,000 balloon payment. There is no way she can make that payment. 

So what we think has to happen is loan modifications have to 

happen in large scale. We just don’t think it is possible in the 

terms that we have. In the next 18 months, the lending companies 

are not going to be in a position to do these. These are time consuming. They have to collect all kinds of data—pay stubs, bills, and 

so forth. 

We had a nice time with Countrywide, where we are working 

with the top executives. They offered us a pipeline to get our things 

done quickly. We sent down about a dozen loans—Countrywide 

Mortgage delinquent mortgages—and a month letter people are 

starting to get sheriff sale notices. They are starting to get foreclosure notices. 

We called Countrywide. We have a special hotline for advocates. 

We are advocates. We called, and they said, ‘‘You know what? None 

of your papers have gotten through imaging yet.’’ They are all in 

imaging, meaning they hadn’t been copied, so nobody had even 

looked at one of the documents a month later. 

I think that that is what is going to happen all over this country, 

as this tidal wave of foreclosures comes through. And even to the 

good-hearted lenders that are trying to work this out, there is 

going to be a volume problem, and I think we are going to see that. 

And we are seeing that, and that is what we are seeing, that the 

people aren’t getting these done. 

Then where are they going to go? They are going to lose their 

homes. Or there will be a safety valve. We think that this legislation will be a safety valve. 3609 will be a safety valve, so at that 

point, when they are in foreclosure, that they can go file a bankruptcy, and then the judge will be able to modify the terms to make 

them affordable. 

One thing that—— 

Mr. JOHNSON. All right, Mr. Dodds, your time has expired. Very 

sorry. 

Mr. DODDS. Okay. Well, thank you. So we think it is a problem, 

and this is a solution, not the only solution, to a real world problem 

that is not going to get fixed by just talk. 

[The prepared statement of Mr. Dodds follows:] 

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PREPARED STATEMENT OF JOHN DODDS


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Mr. JOHNSON. Thank you. 

Mr. DODDS. Thank you. 

Mr. JOHNSON. All right. 

Mr. Carr? 

TESTIMONY OF JAMES H. CARR, CHIEF OPERATING OFFICER, 

NATIONAL COMMUNITY REINVESTMENT CORPORATION, 

WASHINGTON, DC 

Mr. CARR. Good afternoon. 

Mr. JOHNSON. Good afternoon. 

Mr. CARR. On behalf of the National Community Reinvestment 

Coalition, I am honored to participate in the hearing today. 

Regional economic downturns, speculation on skyrocketing home 

values, and widespread and unfair and deceptive mortgage lending 

practices have combined to create the perfect foreclosure storm in 

America. Common to all three of these contributing factors is the 

reality that effective regulation of the markets would have greatly 

limited the foreclosure damage we are currently experiencing. 

Moreover, unfair and deceptive practices contributed to the other 

foreclosure related stimuli. By offering products, for example, based 

on inadequate underwriting, and often combined with fraudulent or 

otherwise inappropriate appraisals, these loans gave the illusion of 

affordability to millions of families and also in the process helped 

to create the housing bubble. 

It would be difficult to overstate the significance of the collapse 

of the subprime market and its attendant foreclosure crisis. The 

damage goes far beyond its direct effect on the families who are 

losing their homes. The negative fallout is impacting heavily the 

communities in which those foreclosures are heavily concentrated, 

the national economy and international markets. 

As a result, homeowners across the country are now paying for 

the extraordinary failure of regulation of the subprime market, regardless of whether they had anything to do with a subprime loan. 

Both the Administration and the Federal Reserve Board have concluded that unfair and deceptive practices contributed to the collapse of the subprime market. 

The Federal Reserve has proposed rule changes pertaining to 

subprime mortgage lending that address almost every aspect of the 

lending process. It is a clear statement of the extent to which lending abuses had become prevalent. Those rules address issues ranging from the ability to repay loans, verification of income, marketing practices, prepayment penalties, servicing abuses, excessive 

broker fees and many other issues. 

Their proposed rules are a good start. More needs to be done to 

address this issue to purge it fully from the market. Moreover, legislation is needed to forcibly address the housing related institutions that are not covered by the Federal Reserve. 

The foreclosure crisis threatens the long-term stability of the 

housing markets and the U.S. economy. Failure to stabilize the 

housing markets would compound and make worse an economic 

downturn, and a severe economic downturn would presuppose more 

families to foreclosure. 

Further, the deterioration in home prices threatens the most significant asset held by the typical American household. As a result, 

144 

at a time when working families are worried about stagnant wages, 

loss of employment benefits, rising health care and energy costs, 

and ballooning consumer debt, failure to mitigate further the deterioration of home equity could create greater anxiety among the 

American public and a further loss of consumer confidence that of 

course would be very harmful for the economy. 

There are several initiatives that have been discussed already— 

FHA Secure and the HOPE NOW hotline. These initiatives are essential, critical to addressing this problem, but for reasons for 

which I would be pleased to discuss in Q&A, these initiatives by 

themselves are not substantial enough. Basically, it is the scale of 

the problem and the types of solutions that are being offered. 

As a result, the bankruptcy bill that is being discussed today, 

H.R. 3609, would be an important added feature to help homeowner who are immediately at risk of losing their homes. Importantly, how they got there helps to justify the change in legislation, 

and that is the reality that many of those loans are predicated on 

unfair and deceptive practices. So as a result, unwinding them is 

not unfair to the lending institutions that put those consumers at 

jeopardy in the first instance. 

In the interest of time, I will conclude by saying as Harvard University professor Elizabeth Warren pointed out, and she is the person who coined the term ‘‘exploding mortgages,’’ families have had 

better consumer protection buying a toaster or microwave oven 

than purchasing a home. 

The time has come to help consumers who have been financially 

damaged by failed regulatory policy in the mortgage arena. That 

fix will not be cost free. There will be pain, and it needs to be 

shared. 

Equally, the time has come to eliminate predatory lending practices from the housing markets once and for all. The American public deserves better. 

Thank you. 

[The prepared statement of Mr. Carr follows:] 

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PREPARED STATEMENT OF JAMES H. CARR


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Mr. JOHNSON. All right. Thank you, Mr. Carr. 

Now we will—— 

Mr. CANNON. Mr. Chairman, may I ask unanimous consent to include the statement of Mr. Chabot in the record? 

Mr. JOHNSON. Sure. 

Mr. CANNON. Thank you. 

Mr. JOHNSON. Without objection. 

[The prepared statement of Mr. Chabot follows:] 

PREPARED STATEMENT OF THE HONORABLE STEVE CHABOT, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF OHIO, AND MEMBER, COMMITTEE ON THE JUDICIARY


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Mr. JOHNSON. Now we will move to questions, and I will take the 

first few questions, and then I will turn it over to my friend, Mr. 

Cannon. 

Mr. Henderson, some have likened the predatory lending practices in the subprime mortgage industry as the 21st century’s 

version of redlining. What are thoughts about that assessment? 

Mr. HENDERSON. Mr. Chairman, there is some truth in that observation, although I think it is important, even in examining the 

subprime market, that not all subprime lenders should be criticized 

for the current state of affairs. 

Subprime lending played an important role in providing credit 

opportunities for individuals with impaired credit. The difficulty we 

are witnessing today, however, is not because of the existence of 

subprime lending. 

It is subprime lending run amok without adequate regulation 

and an abandonment of communities by conventional lenders, a 

failure of regulators like the Office of Thrift Supervision, the comptroller of the currency and the Federal Reserve to do what it needed to do to ensure that there was a balance of credit opportunity 

that included both conventional lenders and subprime lenders, 

where appropriate. 

So the combination of factors that we are witnessing today that 

led to this difficulty was the existence or creation of new products 

without appropriate supervision or regulation and extending credit 

to individuals who clearly did not have the ability to pay and averting the gaze of lenders from circumstances that should have been 

an adequate warning that the loans that they were advancing were 

problematic from the outset. And it is that combination of factors 

that has produced the results we are witnessing. 

And one last point. The bankruptcy bill that Mr. Conyers and 

Mr. Chabot have introduced is a modest step that is intended to 

inject a pragmatic reality in allowing hundreds of thousands of borrowers to adjust their circumstance without doing violence—without doing violence—to the entire mortgage lending industry. And 

that is an important part. 

Mr. JOHNSON. Thank you. I will note, and I would ask for a response from anyone on the panel, the notion that subprime mortgages have been marketed to persons with credit scores high 

enough to qualify for conventional loans with far better terms and 

that it appears that there is some evidence that minorities who 

could have qualified for the cheaper prime loans instead were 

steered into the subprime loans—if anyone would care to speak on 

that issue. 

Mr. Carr? 

Mr. CARR. The disproportionate reliance of subprime loans with 

minority communities has been known for years. The State of 

North Carolina, for example, instituted an anti-predatory lending 

bill as far back as 1999, and so there is a cacophony of research 

that tracks this. 

The Federal Reserve study showed—I believe it was 2006—that 

of all subprime mortgages outstanding, 55 percent of loans to African Americans were subprime and 45 percent to Latinos were 

subprime. A study last year—I believe it was in the third quarter— 

showed that a substantial share of borrowers in the subprime marVerDate Aug 31 2005 09:49 May 12, 2009 Jkt 000000 PO 00000 Frm 00172 Fmt 6633 Sfmt 6601 H:\WORK\COMM\012908\40455.000 HJUD1 PsN: 40455
169 

ket actually had credit scores—I think it was over 60 percent—that 

would qualify them for prime mortgages. 

And so this issue of steering is something that has been known 

for years within the housing industry. It has been documented extensively, and it is well known, and it is one of the major concerns 

with respect to unfair and deceptive practices within the industry. 

And I might add that we are already beginning to see the damage to African American households disproportionately as a result 

of the foreclosure crisis. Between the second quarter of 2004 and 

2007, the homeownership rate for African Americans fell by more 

than 2.5 percentage points, compared to just .06 for non-Hispanic 

white households. 

This is a very distressing circumstance, given the fact that African Americans already have a homeownership rate which is considerably below that of non-Hispanic white households. 

Mr. JOHNSON. All right. Thank you. 

And I would also point out for the record that a study by the 

Consumer Federation of America has found that nationwide, 

women are 32 percent more likely to receive subprime loans than 

men. 

My time just about being expired, I will not yield to my friend 

from what state? 

Mr. CANNON. From Utah. 

Mr. JOHNSON. Utah. 

Mr. CANNON. But would you mind yielding to the gentleman 

from Florida, since he doesn’t have to stay for this hearing, and I 

probably do. If we can let him take his 5 minutes, he can go do 

other things. Then I will take mine later on. 

Mr. JOHNSON. All right. Certainly. 

Mr. CANNON. Thank you. 

Mr. JOHNSON. Sir, you have 5 minutes. 

Mr. KELLER. I thank the gentleman for yielding. 

There is no question that people are hurting right now, and a 

time when families are paying higher costs for mortgages, health 

insurance and gasoline, I think it is morally wrong that we ask 

them to pay even more of their money in higher taxes and then 

turn around and use that on wasteful earmark projects. 

We have seen progress just today in passing an economic stimulus plan in the House of Representatives, and yesterday President 

Bush wisely called for a crackdown on wasteful earmark spending 

in his State of the Union address. 

This afternoon we are looking at the third prong, the home mortgage crisis. And the issue before us seems to be should we allow 

contracts to be modified by the bankruptcy courts? Those folks who 

are proposing this in their testimony say this is really the one solution these people have facing foreclosure, and they need relief. 

The other folks on our panel have testified that this will actually 

hurt first time homebuyers, because it will result in higher down 

payments and higher interest costs, and we should instead go with 

volunteer programs like HOPE NOW and FHA Modernization. 

They point out that there is a reason the current law for over 100 

years has not allowed judges to rewrite these home mortgages. 

So let me try to take a balanced approach and get to the bottom 

of this. 

170 

Let us start with you, Mr. Kittle. I have on my credit card a rate 

of about 9.5 percent, but my home mortgage is about 5.5 percent. 

There is a reason that we pay a higher cost in credit cards. Is that 

correct? 

Mr. KITTLE. It is. 

Mr. KELLER. And the main reason is the credit card is unsecured, 

whereas the home mortgage is secured. 

Mr. KITTLE. That is correct. 

Mr. KELLER. And if we allow these mortgages to be rewritten, I 

know that you have some concerns that this will result in higher 

down payment costs for first time homebuyers. Is that right? 

Mr. KITTLE. Yes, sir. It is. 

Mr. KELLER. Give us an idea. Are we looking at a 20 percent requirement for some down payments? Or what do you anticipate 

here? 

Mr. KITTLE. I can give you some precedent, some history. 

Mr. KELLER. Okay. 

Mr. KITTLE. In 1978, when the bankruptcy law was rewritten— 

actually the last time—it then included in that legislation investment loans. In 1978, you are the single-family residential owner occupied in an investment loan for the same price. After that legislation, you must have a 25 percent down payment, your interest is 

as much as three-eighths percent higher, and your fees and/or 

could be as much as a point and a half more in discount points. 

That is because cramdown is available on those types of loans. 

Mr. KELLER. So you are—and I got that number from the Wall 

Street Journal—are you concerned the home down payments could 

be as high as 20 percent requirement? 

Mr. KITTLE. We are concerned. Exactly. 

Mr. KELLER. And from your earlier testimony, you mentioned 

your concern that interests rates for these first time homebuyers 

may go up to a percent and a half. 

Mr. KITTLE. That is correct. A percent and a half higher. Yes, sir. 

Mr. KELLER. You also mentioned a concern about higher closing 

costs. I wasn’t sure what you were getting at there. Does that 

mean more in origination fees? 

Mr. KITTLE. Adding on additional fees because of the additional 

risk. 

Mr. KELLER. Do you have a percent or estimate of what you 

would see in terms of higher closing costs? 

Mr. KITTLE. If it neared the example that I just gave you could 

be as much as a point or a point and a half in discount. 

Mr. KELLER. Okay. 

Now, Ms. Schwartz, you have testified that historically about 

half of the people facing foreclosure didn’t even bother to call their 

lender to renegotiate. Is that correct? 

Ms. SCHWARTZ. That is a well-known historic number. 

Mr. KELLER. Now, are you seeing some changes to that pattern, 

now that we have the HOPE NOW program in effect? And what 

changes are you seeing? 

Ms. SCHWARTZ. Well, we are seeing a number of changes. We are 

introducing the third parties so that homeowners have someone to 

talk to, an advisor to go to, if they don’t care to go to the servicer 

for whatever reason that might be. And through the HOPE hotline, 

171 

an extensive outreach effort, both outbound and inbound, we are 

seeing a major shift in that number. And we will be reporting on 

that throughout the year. 

Mr. KELLER. It seemed like a very meritorious program. The criticism comes from the other side a little bit that it is purely voluntary. And so what do you say to the person who is facing foreclosure, and his particular lender doesn’t participate in HOPE 

NOW or have similar standards, and so he feels that the bankruptcy option is his only option? What do you say to that person 

as a remedy? 

Ms. SCHWARTZ. Well, I can only speak for the servicers that are 

part of HOPE NOW, which is a vast majority of lenders in the 

subprime market servicers. 

Mr. KELLER. Okay. 

Let me ask Mr. Kittle that same question. What about the person facing foreclosure, and his particular lender doesn’t participate 

in the HOPE NOW type of standards and practices? What do you 

say to that person as a remedy? 

Mr. KITTLE. Well, most all of the servicers that are members of 

the Mortgage Bankers Association—all of them, as a matter of 

fact—are linked on our home loan learning center. We give the borrower a direct link to that servicer. MBA will help contact the 

servicer for the borrower, but we will send them to HOPE NOW 

and encourage them. And you will contact that servicer, even 

though they are not a member. 

Ms. SCHWARTZ. Oh, absolutely. The HOPE NOW hotline is for everyone to call. And it is prime borrowers, subprime borrowers. That 

is out there. It is in the public domain. 

Mr. KELLER. Mr. Chairman, let me just say my time is expired. 

I will yield back, but if I had more time—and hopefully some other 

people do—I was going to ask Dr. Zandi to give the opposite on all 

those questions. So I was trying to be balanced about it, but my 

time has expired. 

Mr. JOHNSON. Thank you. 

I would now turn to Mr. Mel Watt from North Carolina. 

Mr. WATT. Thank you, Mr. Chairman. 

I actually will pick up in a similar vein, because, as many of you 

know, I have been talking for the last 3 or 4 years with the lender 

and borrower consumer community, trying to work out the appropriate balance on the new predatory lending bill that the House 

passed. And one of the things I have found is that quite often we 

talk past each other and don’t really listen to what people are saying. And we do it to our detriment. 

One of the issues that I raised in the very, very first hearing on 

the original bill that got amended through the compromise with 

Mr. Chabot that we reported out was that there is some possibility, 

as Mr. Kittle indicated, that we could be incentivizing people to 

take the easy route and go into bankruptcy. I think that personally 

would be a devastating blow to people, if they took that easy route. 

After that hearing, I invited the lender community to give me 

some ideas about how we might be able to remove that what might 

be a perverse incentive for people to go into bankruptcy. And the 

lending community decided that it could stop this bankruptcy bill 

as an alternative to trying to improve it to address the concerns. 

172 

So I am still trying to figure out how to remove the perverse incentive. I don’t condemn the HOPE NOW project. It is a wonderful 

project for the people who are able to take advantage of it. But 

there are some people who are not going to be able to take advantage of the HOPE NOW project, and there is a group of people at 

the end of the day who won’t have any alternative other than bankruptcy. 

And what I am trying to find is how we can limit the impact of 

the bankruptcy cramdown provision to just that group of people, 

because I have seen the adverse impact that going into easy bankruptcy, or being talked into easy bankruptcy, can have in the business community, in our community as minority individuals. And so 

I want to focus on that a little bit. 

One idea might be to create a gatekeeper, who would make a 

really serious determination about whether bankruptcy was in fact 

the only option available to save somebody’s home for him. One 

might be to create a series of findings that a bankruptcy judge 

might have to make regarding this being the only alternative available. 

Mr. Carr, you seem to be shaking your head. You probably have 

thought about this, because you know how terrible it is for people 

to end up in bankruptcy as a first resort, rather than as a last resort. Talk to me about how we can remove, possibly, that perverse 

incentive for people to end up in bankruptcy, because I heard what 

Mr. Kittle said. I have heard what the concerns are about the bill, 

and I am concerned about it, too. 

Mr. CARR. Absolutely. I think Mr. Kittle raises a very important 

point, and I think it is worth just going back to the previous question to say I don’t know that the objections—it certainly is not in 

the community in which I travel. 

I was just at a meeting with 14 of the largest lenders yesterday. 

The issue isn’t that the plans are voluntary. It is what is it that 

the private market can realistically offer as a loan modification 

that actually restructures the loan and makes it permanently affordable? And that is the challenge. And most of the modifications 

that are happening are not doing that. 

While it may be true that the private market led the way in getting us into the problem, the Federal Government has to lead the 

way in getting us out. And that would lead to give refinancing options that currently don’t exist to consumers so that they don’t do 

bankruptcy, which no family optimistically looks forward to claiming bankruptcy. But if that is the only choice that they have, relative to some type of loan modification or payment plan that simply tides them over for another 6 months or 12 months or 18 

months, it is not a permanent restructuring. 

And I just want to conclude by saying it is important in this environment that we figure out that housing problem, because the 

same estimates on interest rates one could generate if the housing 

market continues to deteriorate. And in that light, I think every 

one of us is on exactly the same page. The question is how do we 

get consumers into long-term affordable loan products that don’t 

come back to recreate this problem in another year, year and a 

half, or 2 years from now? 

Mr. JOHNSON. Thank you, Mr. Carr. 

173 

Mr. WATT. Mr. Chairman, let me just make one final comment 

on this point, because I think HOPE NOW is great. I think raising 

the FHA limit is great. All of these things really are tools that need 

to be in the toolbox, but at the end of the day, there is going to 

be a group of people who don’t have any alternative to bankruptcy. 

And they need to have a tool also. 

So if we could figure out a way to limit this bill and the impact 

of this bill only to those people as a last resort, I don’t know why 

the lender community would want to fight that, as opposed to going 

to foreclosure, selling it, selling the house at 50 percent or 20 percent of the value, as opposed to getting 80 percent or whatever the 

bankruptcy judge thought was a reasonable cramdown figure. 

And that nobody in the lender community has been able to explain to me. It is a no-brainer. I yield back. And having asked that 

question a number of times, I have yet to get an answer. 

Mr. JOHNSON. Thank you, Congressman Watt. 

We will now proceed with questions from Mr. Cannon. 

Mr. CANNON. Thank you, Mr. Chairman. 

And Mr. Watt is keenly aware of the fact that we agreed that 

this is the question. I think it is a hard question to answer, Mr. 

Watt. 

But what I am hearing you say, Mr. Carr, is essentially you don’t 

think that the private sector can do it or could respond quickly 

enough, and so you support this bill because it brings great pressure to bear on the private industry to act. Am I reading that 

right? 

Mr. CARR. Well, not really. I support the bill, because I think it 

is an important channel for consumers who, if they don’t have access to this bill, will simply lose their homes, because the modifications aren’t going to help them. 

But I am further saying that we need something that is larger 

than just this bankruptcy bill as well and the programs that are 

mostly focused on the voluntary reworking of the mortgages. What 

is not available is a source of refinancing that is large enough for 

this estimated two million or so homeowners who are heading into 

foreclosure. 

And I have some recommendations that I can put on the table, 

but a lot of think tanks, for example, have been talking about reinstituting a homeowners loan corporation, for example, that was 

established during the Great Depression for a foreclosure crisis 

that is analogous to now. There are ways we could do that without 

establishing a new institution. 

I am just simply saying I don’t think that the private sector can 

alone completely resolve this problem. 

Mr. CANNON. Ms. Schwartz? 

Ms. SCHWARTZ. Yes, I would just like to maybe make one slight 

clarification. It is daunting, but I think we are making real 

progress. 

One thing the American Securitization Forum did to help the 

process and get to more borrowers, more homeowners, swiftly, 

quickly and efficiently was to have one scalable solution for the 

current borrowers, who are currently paying, have the willingness 

and capacity to repay, before their reset. And that guidance that 

was issued. 

174 

And also a comfort letter offered by the SEC so that services 

could proceed on behalf of investors to modify loans scalably will 

start to make a big impact on the future foreclosures that are cited 

in the many studies. And that is one of the reasons that it was 

done. 

Secondarily, everyone can redeploy their resources to the loan-byloan delinquent borrowers who need it desperately to see what is 

the cause for the delinquency. Sometimes it is unemployment, or 

sometimes there has been a disruption, or perhaps it was the reset 

that caused it. But whatever those reasons, then they will redeploy 

all those resources. And yes, it is loan-by-loan, but they have to 

know what is going on, because that is the servicing agreement 

with the investor. 

Mr. CANNON. Ms. Schwartz, do you think that the private sector 

can respond in this program quickly enough to solve the problem 

generally? 

Ms. SCHWARTZ. I am not sure we are the only solution, but I can 

tell you the industry is going across the board with nonprofits and 

investors, and they are all at the table, and we are doing our best 

to do what we can to slow down and modify these loans and stop 

these foreclosures. So we think it is a huge effort, and it is going 

to show great impact. We already have seen them. 

Mr. CANNON. Let me direct a question to Mr. Henderson and Mr. 

Dodds, because they are sort of on the front lines here. 

There is unease about—even Ms. Schwartz acknowledged—that 

they would be hard to do. I would point out that I read someplace 

in the last couple of days that interest rates are now nudging down 

under 6 percent, which is a marvelous tonic for this whole thing. 

Ms. SCHWARTZ. Yes. 

Mr. CANNON. That is a really, really big deal. But you both represent or have dealt with people who have problems and are struggling with mortgages. You are also both advocates for people owning their own homes, and that means being able to buy in at a relatively cheap rate. I don’t think anybody has been critical of the 

numbers that Mr. Kittle has suggested. 

In the balancing that we need to do here, and given the cost, especially the much, much, much higher down payments that we are 

talking about, we know that people can somehow live with a larger 

payment, if they can budget it, so the extra point and a half or so 

in closing costs, people can maybe live with that. But a 20 percent 

down payment puts most houses beyond most people. 

Shouldn’t be wary of doing or creating a cramdown in this bankruptcy bill that will put a much higher threshold before people buying houses? 

Mr. HENDERSON. Certainly, Mr. Cannon, were that to be the result of the proposal before us today. It certainly would be a cautionary issue worthy of further examination. But having said that, 

I do not believe that the current bill will result in the loss of homeownership opportunities of the magnitude that you have described. 

We are back—— 

Mr. CANNON. Because of the shortness of my time, can I just ask 

do you disagree with the idea that Mr. Kittle has presented, which 

we have many times? I think Mr. Zandi also gave us statistics like 

this in an earlier hearing—— 

175 

Mr. HENDERSON. Yes. 

Mr. CANNON [continuing]. That the down payment is going to go 

up. 

Mr. HENDERSON. I don’t dispute the fact that the down payment 

will go up, but I also recognize that there is a need for a more comprehensive adjustment in the mortgage lending system to prevent 

that result from occurring. 

The question that Chairman Johnson asked earlier about whether there is steering that put a disproportionate number of African 

Americans, Latinos, women and older Americans in the subprime 

market is true and well documented. 

Having said that, we certainly encourage homeownership opportunity, but that involves a more comprehensive adjustment in the 

mortgage lending system with more regulation of banks and traditional lenders, fulfilling their fiduciary responsibility in the communities in which they function. 

Our particular concern about the notion that voluntary efforts 

will result in a positive outcome is belied by the fact that over almost a year our organizations have been meeting with groups like 

the Mortgage Bankers Association and others, trying to seek a 

more coordinated loan modification program. 

We talked about a 90-day moratorium on foreclosures to give 

both borrowers and lenders an opportunity to restructure these 

loans. Voluntary efforts have been woefully inadequate, and the 

evidence of that is borne out by the increasing numbers of foreclosures month after month. 

If there is not a modest intervention in the market by the Federal Government, it will be virtually too late to serve those who are 

actually legitimate borrowers who in fact are in need of support. 

And to suggest somehow that Chapter 13 is the easy way out ignores the fact that there has been a substantial adjustment in our 

bankruptcy laws over the past several years, making the consequence of filing bankruptcy more difficult than ever before. It is 

not an option of first resort for many people. It is an option of last 

resort. 

But as you saw from some of the people that Mr. Dodds brought 

with him, the consequences of a failure to address these issues is 

the loss of home, the loss of equity. And for many people, like African Americans and Latinos, this represents the greatest loss of 

wealth ever documented in modern times. That is something that 

we are deeply concerned about. 

Mr. CANNON. Mr. Chairman, I see my time has expired. Do we 

have the possibility of a second round here? 

Mr. JOHNSON. Yes, I think that would be appropriate. And if you 

want to continue with your 5 minutes in the second round, or 

would you want to wait? 

Mr. CANNON. I think I would actually like to continue—— 

Mr. JOHNSON. All right. 

Mr. CANNON [continuing]. Because we are getting to the gist of 

the argument here. There is a radical agreement on many, many 

issues here, and we divide on some basic ones. 

And so, Mr. Dodd, I would like to hear. Do you basically agree 

with what Mr. Henderson said? 

176 

Mr. DODDS. Yes, I think the voluntary efforts are going to be 

woefully short for people, though. We are talking about scaling. But 

in the next year and a half, two million loans are going to be 

going—— 

Mr. CANNON. Let me intervene, because you sort of said that earlier, and I really want to get to the deep issues here. People don’t 

voluntarily do things, especially people who are sitting out on the 

sidelines with investments—— 

Mr. DODDS. Right. 

Mr. CANNON [continuing]. Or with guarantees on investments. 

And, in fact, I believe Mr. Zandi, you would like to comment at 

this point about Moody’s role in the subprime problem with its over 

rating of the mortgage backed securities. 

Mr. ZANDI. No, I don’t want to talk about that at all. [Laughter.] 

Mr. CANNON. All right, but there is a problem. You acknowledge 

the problem. 

Mr. ZANDI. That is not my purview, and I am not part of the rating agency, and I am here as a—— 

Mr. CANNON. But the point is—— 

Mr. ZANDI [continuing]. We will go around, and all of us are in 

this together. 

Mr. CANNON. I don’t mean to beat the heck out of you right now. 

The fact is we have so many people, and we have such a complex 

process that has led to this very high level of homeownership with 

low down payments, and some abuses. 

Mr. Carr, you talked about the abuses. 

Mr. Dodds, you talked about the abuses. 

Mr. Henderson, you also talked about the abuses. 

But you can’t have a free marketplace without some rough elbows here and there, not that we should condone rough elbows, but 

now we are talking about having had a failure, it is one thing to 

say that it doesn’t work very well, but have people go voluntarily 

in a path. 

On the other hand, we are now looking at people who figured it 

out. They have looked in the gaping jaws of the beast, and they are 

saying, ‘‘We have a big problem.’’ We have got write-offs. Last 

week’s Business, we got a list of all the write-offs. It is a stunning—it is a stunning—number of write-offs. And people everywhere have been writing down these kinds of loans. 

And so now you have—I think, is it fair to say, Ms. Schwartz, 

that there is an incentive out there on the part of the private industry to come together and solve the problem? 

Ms. SCHWARTZ. Yes. All the incentives are aligned. There is no 

good outcome in these foreclosures, and we are working hard. 

Mr. CANNON. And as I understand—Mr. Dodds, I am going to 

give you a chance to talk here, but—you have every incentive to 

keep your people from going to bankruptcy and to working through 

a system, if you can get these guys in the private sector to work 

with you. Isn’t that the case? Mr. Dodds, yes. 

Mr. DODDS. Mr. Cannon, I think one of the big problems is that 

the lenders are not going to be able to communicate well with these 

homeowners, that people, when they are in problems, the real 

world is when people can’t pay their bills, they don’t open their 

bills. They put them in corners. 

177 

Mr. CANNON. Right. 

Mr. DODDS. And that may be—— 

Mr. CANNON. Look, I agree. I understand. That is a well-taken 

point. But advocacy groups like you guys can reach out to those 

people and help facilitate. 

Mr. DODDS. You know what happens? When we send letters out, 

they are getting letters from everybody under the sun. They are 

getting flooded with letters, and it is very difficult to reach these 

folks. And one of the groups that has done the best job of reaching 

them are Chapter 13 lawyers. 

Mr. CANNON. Yes. 

Mr. DODDS. And I would say not in a good way. 

Mr. CANNON. Right. 

Mr. DODDS. They put them in bankruptcies they can’t afford. 

They have taken their money, and they have basically done a disservice very often. But right now, if we change this law so that 

bankruptcy would work, these people will go out and find those 

homeowners. It will only be a safety valve. It won’t be the whole 

program. HOPE NOW continues. They would find these homeowners, and they would get them in bankruptcy. The judges 

would—— 

Mr. CANNON. Mr. Dodds, you are saying that you would trust 

bankruptcy lawyers to solve the problem, because their financial 

incentives are better than the guys—— 

Mr. DODDS. Yes, you are talking—— 

Mr. CANNON [continuing]. Who face a meltdown of the whole 

economy after all their investments? 

Mr. DODDS. You are talking free market, and part of free market 

is these—— 

Mr. CANNON. I grant you. That is part of free market. 

Mr. DODDS [continuing]. Finding homeowners and getting them 

in programs, which the lenders are going to have a hard time doing 

it. They are already having a hard time doing that. 

Mr. CANNON. Let me just take the one point, not to be argumentative, but I think we are getting here to sort of the center of the 

issue. You have got somebody who gets a whole bunch of bills. He 

can’t pay his bills, because his mortgage payment has gone way up, 

and he doesn’t know what to do. How dumb can a person be to not 

recognize that there is a big trend in America? 

Every single presidential candidate is talking about these issues, 

and we are argue that they are a small player in a large trend, and 

all we need to do is tell those people there are forces out there that 

exist to help them. If we get that message to people, then they 

come to people like you, and you help them to—— 

Mr. DODDS. Again, I don’t believe we can do the volume. I don’t 

believe that lenders are set up to do the volume. When we did 

Countrywide, I am telling you, they couldn’t even get the stuff 

through the imaging department in over a month. 

Mr. CANNON. That was a great story, Mr. Dodds. 

Mr. DODDS. Even if they try, even if they try very well. 

Mr. CANNON. What happens in our bankruptcy courts? We hang 

up the bankruptcy courts in this dramatic fashion with all these 

guys who got out and hustled business. And now everybody has got 

a stay on their payments, and now the market is really fouled up. 

178 

And I think, Mr. Kittle, you would like to speak. And I think you 

have been very clear, and I am going to end by giving you the floor. 

Mr. KITTLE. Thank you. I feel neglected just a little bit. [Laughter.] 

I will just give you one number. In the third quarter of 2007, our 

servicing members of MBA helped modify, worked out over 236,000 

loans in the third quarter. It is on a trend like this. We need the 

opportunity, along with our members, the market to correct itself, 

and HOPE NOW to take advantage of lenders who want to help. 

We are making a difference. We think we can handle the volume. 

Mr. ZANDI. I would like to make a point. 

Mr. JOHNSON. The time has expired for Mr. Kittle. 

I will now move to Mr. Watt. 

Mr. WATT. I will let Mr. Zandi respond, because I still think we 

are really talking past each other here. 

I don’t think the issue is the numbers at all—236,000. You have 

got three million people who are in default or are likely to be in 

default. So at the end of the day, there is always going to be somebody that you are not going to be able to work out. That is the person that we are trying to protect, ultimately, and the person that 

lenders are so intent on not having some external party make a determination about. 

Lenders are not going to be able to do it, so why wouldn’t the 

solution to this require exhausting every other option before you 

get to bankruptcy? And if your only option is bankruptcy, why is 

the lender community so resistant to allowing—I mean, bankruptcy 

was always intended as the last resort. 

Mr. Kittle, go ahead and tell me that. I have been waiting on 

people to tell me. 

You tell me, Mr. Zandi, and some on the other side. 

Mr. KITTLE. You give Mr. Zandi an opportunity, and I will take 

it back, if you have time. 

Mr. WATT. All right. 

Mr. ZANDI. Yes. At the end of last year of 2007, there were 

450,000 loans in default, first mortgage loan default. That is the 

first step in a foreclosure process. Then let us turn to the board 

and look at the data. In the second half of last year, we saw 

250,000 repayment plans and 120,000 loan modifications. When 

you do the math, they are not all covered. 

Second point. Repayment plans do not solve anybody’s problem. 

They make the problem worse for the borrower. They are going to 

end up in default. All they are doing is taking the interest not paid, 

rolling it back into principal, and the amount owed monthly going 

forward is going to rise. So you are delaying the day of reckoning 

for these people, not by years, but by months. So repayment 

plans—that means nothing. 

Mr. CANNON. Would the gentleman yield for a clarification here? 

Mr. WATT. Yes. Sure. 

Mr. CANNON. In those repayment plans, don’t interest rates get 

adjusted? So you have got a subprime mortgage that is going to 

bounce? Are we not adjusting those interest rates? 

Mr. ZANDI. Those are modifications. Those aren’t repayment 

plans. No. And in fact in modifications, we don’t know what those 

modifications are. If you listen to the lenders—take Countrywide, 

179 

for example, to bring up a case in point—what they are saying a 

modification is is that we are going to take the interest rate and 

give these people—it is almost like a repayment plan—give them 

some chance to repay what they owe over some period of time. 

Mr. WATT. And if I can just intone here, part of the problem is 

the housing prices got bid up so high that the houses aren’t even 

worth trying to keep—a lot of them—anymore, so if you don’t 

cramdown to a manageable value for the house, this is not going 

to work anyway. 

Mr. ZANDI. Mr. Cannon, this is a good idea. It is a laudable plan. 

It is worth going down this path. But the numbers don’t suggest 

that it is going to solve the problem. It may make a big dent. 

And the other point is in terms of the cost, the cost will not rise. 

I mean, if you look at the Federal Reserve, and they said, ‘‘Give 

your opinion, Freddie Mac, tomorrow. What would be the impact on 

mortgage rates?’’ well established research that has been well refereed, gone through the Federal Reserve system, discussed in many 

times, the number is 25 basis points. 

I could go to Fannie Mae and Freddie Mac tomorrow with 25 

basis points on a mortgage loan, so how in the world could we possibly get to a point and a half on the mortgage rate, when we are 

talking about this cramdown bill? 

Mr. CANNON. Mr. Watt, would you yield? 

Mr. ZANDI. If we get rid of Fannie Mae and Freddie Mac—— 

Mr. WATT. I have been yielding for the last 5 minutes. Yes. 

Mr. ZANDI. Mr. Cannon, if we get rid of Fannie Mae and Freddie 

Mac, there is no market. 

Ms. SCHWARTZ. There is no market. 

Mr. ZANDI. It doesn’t matter what the percentage is at. 

Mr. CANNON. Let me just ask Mr. Watt a question. 

Doesn’t it seem in this whole scheme, when people have bid up 

and made improvident decisions on buying houses that are overpriced, that the market ought to be allowed to correct itself, and 

that we actually really can’t affect the whole from—— 

Mr. WATT. I am a firm believer in the market correcting itself for 

the people who it can be corrected for. This bill talks about people 

who—I mean, you know, even the minority issue that Representative Johnson raised, the 60 percent that Mr. Carr talked about that 

should have been in a prime loan in the first place, they can get 

their loan refinanced as soon as we raise the cap on FHA. They can 

go and get a good loan, if the market quits steering and making 

discriminatory loans. 

Those are not the people that I am worried about in this bill. 

These are the people who have no other resort and end up in bankruptcy as the only resort. Ms. Schwartz is not going to be able to 

solve their problems. She is not going to sit here and tell us, with 

a straight face or not with a straight face, that she can solve every 

one of these problems in HOPE NOW. 

HOPE NOW is a wonderful program for people who can afford 

to refinance, reorganize, but some time at the end of the day, there 

are going to be some people who can’t afford to do that. And what 

are we going to do about those? 

180 

Mr. CANNON. I ask unanimous consent that the gentleman be 

granted an additional minute, because I want to ask a question, 

Congressman. [Laughter.] 

Mr. JOHNSON. Let Ms. Schwartz answer that question first, and 

then you ask permission granted without consent. 

Ms. SCHWARTZ. For the record, HOPE NOW has been around for 

3 months, and in the last 30 days, we brought on almost 10 more 

servicers. 

Mr. WATT. That is fine, but you know, you can bring on 500 

servicers, but there are still at the end of the day, some people who 

you are not going to be able to help. Isn’t that right? 

Ms. SCHWARTZ. Absolutely. 

Mr. WATT. Okay. That is the only point I am trying to make. 

Ms. SCHWARTZ. But we can help hundreds of thousands of borrowers—— 

Mr. WATT. And we want you to do that. 

Ms. SCHWARTZ [continuing]. A quarter, and that is what we are 

talking about—— 

Mr. WATT. Which is why I am saying one of the solutions might 

be to say, if somebody comes to bankruptcy, ‘‘Okay, have you gone 

to HOPE NOW and exhausted every remedy you can? Is this your 

only resort?’’—because I don’t people to declare bankruptcy, unless 

they have exhausted every other option that they have. 

Ms. SCHWARTZ. And HOPE NOW is—— 

Mr. WATT. And I have invited the industry to tell me how we can 

structure this so that only the people who are using it as a last resort are the beneficiaries of it. And there has been deafening silence—— 

Mr. CANNON. Would the gentleman—— 

Mr. WATT [continuing]. And there continues to be deafening silence from everybody except Mr. Cannon. 

Mr. JOHNSON. The time has expired. 

Mr. CANNON. I ask unanimous consent that the gentleman be 

granted one additional minute, because I just want to—— 

Mr. WATT. I yield that minute to you. 

Mr. CANNON. I actually am trying to figure out who it is you 

want to help, because those people who have been steered to 

subprime loans who can now get prime loans are not people that 

you are concerned about. They can do it. 

Mr. WATT. They will go into Ms. Schwartz’s program. 

Mr. CANNON. Are you concerned about the people who paid too 

much for their home? They have overpaid. The market is not going 

to sustain that price, and so they need to be able to go to bankruptcy to lower that price, to lower that mortgage amount? 

Mr. WATT. That is part of the group. 

Mr. CANNON. Okay. 

Mr. WATT. And maybe they will solve some of those problems in 

Ms. Schwartz’s deal. But somebody at the end of the day Ms. 

Schwartz is not going to be able to help. 

Mr. CANNON. I am not sure how big that group is, but if you 

focus on that relatively small group, you will have this broad market effect, which means 20 percent down, and I think there is some 

agreement. Maybe it is only—— 

Mr. WATT. No, you don’t believe that, Chris. 

181 

Mr. CANNON. I believe that if you get—— 

Mr. WATT. If you all believe that—— 

Mr. CANNON. If you—— 

Mr. WATT. You are not going to have that broad market effect. 

If you get that little group of people who have no other resort other 

than to go and appear in bankruptcy—— 

Mr. JOHNSON. Okay. I am losing control of this hearing—— 

Mr. WATT [continuing]. It is going to have a point and a half 

worth of impact on the whole market? That is ridiculous. 

Mr. JOHNSON. Okay, we have had good discussion here. 

Mr. CANNON. One more comment. 

Mr. JOHNSON. Mr. Cannon, go ahead and make your comment. 

Mr. CANNON. Mr. Watt, if you can come up with an identification 

of the group, I would be happy to work with you on that. Then you 

won’t have the broad market effect, if it is a very, very narrow 

group. And I think that is what you have been saying you have 

tried to work on. 

Mr. WATT. That is what I have been saying. 

Mr. CANNON. We will talk about that and see if we can’t come 

up with it. 

Mr. WATT. That is what I have been saying. 

Mr. CANNON. I don’t think we can do it. 

Mr. WATT. I will limit the number to just the people who really 

need it. 

Mr. DODDS. The other issue is that you have already compromised this, so this only affects current loans. None of this 

cramdown will affect anyone in the future, so I think—— 

Mr. CANNON. You have 7 years in the current bill. That is the 

problem with that. 

Mr. DODDS. Exactly. But it is going to end, if it passes. So you 

are not going to talk about the future market. I think that is the 

compromise that has already been put together to prevent from occurring that you are talking about. I am not sure where this giant 

increase in down payments is going to come from in a bill that is 

only for retroactive subprime mortgages, which I think the market 

itself is taking us out of the subprime fiasco. Nobody is doing 

subprimes today, so that to me seems to be an answer to the problem also. 

Mr. JOHNSON. Okay. We will now go to Mr. Keller from Florida. 

Mr. KELLER. Thank you, Mr. Chairman. Those who are deafeningly silent wish to speak. And I have tried to get at one side of 

the case through Mr. Kittle, and I am going to go to the other side. 

And the gist that I got from you, Mr. Kittle, before I move on, 

is you believe that HOPE NOW, FHA Secure and FHA Modernization are the best way to help this troubled subprime crisis, because 

if we allow the courts to rewrite these home mortgages, then it 

would result in future first time homeowners having to pay higher 

down payments, higher interest rates and higher closing costs. Is 

that a correct summary? 

Mr. KITTLE. That is correct. Along with higher loan limits for the 

GSEs. 

Mr. KELLER. Okay. Thank you. 

182 

I am going to turn to the other side, and I am going to tell you 

whom I am going to talk to—Mr. Carr and Dr. Zandi. So you all 

listen to this, if you would. 

So, Dr. Zandi, let me start with you. What do you think of the 

concerns raised by Mr. Kittle that this could possibly lead to higher 

down payments of as much as 20 percent, higher interest rates 

going up as much as 1.5 percent and higher closing costs as much 

as one or two points? Is that a concern of yours? Or do you think 

those figures aren’t going to happen? 

Mr. ZANDI. I don’t think they are going to happen, no. 

Mr. KELLER. And why is that? 

Mr. ZANDI. Well, for a few reasons. First, I believe the cost of 

foreclosure is measurably greater than the cost of bankruptcy. 

Those economic benefits will accrue to somebody, borrowers and 

lenders. 

Mr. KELLER. If you don’t believe that those figures will happen, 

do you believe there is a concern, albeit now 20 percent of some 

risk of higher down payment? 

Mr. ZANDI. No, I don’t think there will be—not under the current 

legislation. 

Mr. KELLER. And are you concerned that there might not be an 

interest rate increase of 1.5 percent, but some interest rate increase? 

Mr. ZANDI. No, I don’t think there will be a measurable increase. 

I don’t think there will be a measurable increase. 

Mr. KELLER. Are you concerned, maybe not an increase of two 

points for closing costs, but some increase in closing costs? 

Mr. ZANDI. No, I don’t think the costs will rise. I do not. 

Mr. KELLER. Mr. Carr, the same questions to you. Do you have 

concerns about the possibility of higher down payments, interests 

rates or closing costs, if this bill were to pass? 

Mr. CARR. Not at all. I don’t believe that they would be significant. I think they would be modest. But I would point out, and ask 

Mr. Kittle to excuse me if I am attributing the wrong organization, 

but I thought it was a remarkable statistic I read recently that 

showed 40 percent of the foreclosures in the third quarter were actually loan mods, which means those mods are not sustainable. 

Mr. KELLER. Okay. And we will let you all deal with that later. 

I just have a limited amount of time. The gist of what I got from 

you, Mr. Carr, earlier is the challenge is not that this is a purely 

voluntary program with all these entities participating in HOPE 

NOW. The challenge is even when they do participate, the relief is 

inadequate, that further relief is needed through this bankruptcy 

cramdown provision. Is that correct? 

Mr. CARR. That is correct, for the voluntary programs—not FHA 

Secure, because that is a refinance. 

Mr. KELLER. Okay. 

Now, Dr. Zandi, reading your testimony, you estimate that about 

two million people could lose their homes and that this legislation 

will benefit about a quarter of those, 570,000 people. What about 

the remaining three-quarters? How will they seek to remedy their 

troubling situation of facing foreclosure, if this bankruptcy 

cramdown legislation is not going to be their result? 

183 

Mr. ZANDI. I think no matter what we do, there will be many, 

many foreclosures. I think, given the stunning decline in housing 

values, which are only accelerating, given the weakening job market, given the ARM resetting, given the deep recessions in places 

where people are losing homes—— 

Mr. KELLER. Don’t you think many of those would in fact benefit 

from things like HOPE NOW and FHA Secure and FHA Modernization? 

Mr. ZANDI. Absolutely. Absolutely. I am very supportive of those 

ideas. I think they are all very good ideas. I think they are too 

small, and they are not going to be effective enough. And I think 

that the proof is in your data right in front of you. You can see it. 

It is not going to work sufficiently. 

Mr. KELLER. Okay. 

Mr. Kittle, you have heard from two well-respected people. They 

are not concerned about the down payments going up or the interest rates going up or the closing costs going up. Do you have a rebuttal as to why you think they should be concerned, but aren’t? 

Mr. KITTLE. Well, the precedent has been set in 1978 with investment properties. I mean, that is something that is there. It has 

been there. Those costs on those loans have gone up. 

If you talk about one of the comments that were made that this 

is retroactive, fear is what is driving the stock market right now. 

Fear is what is driving our economy. It is fear with our servicers 

and lenders and our members that Congress will come back the 

next time and when it won’t. So fear is driving—— 

Mr. KELLER. Even if it is 100 percent concrete retroactive, the 

market may say, ‘‘Heck, Congress could come in and bail these 

folks out just like they did in the past. I am not going to make this 

loan at a competitive rate.’’ Is that what you are saying? 

Mr. KITTLE. Generally, with all due respect, once Congress 

starts, they don’t stop. 

Mr. KELLER. Dr. Zandi, your response. 

Mr. ZANDI. Two responses. First, with regard to the investor 

property, the difference in interest rates is a point and a half between investor property and single family occupied homes. That 

point and a half is due to the much higher credit risk involved. If 

you give money to an investor, there is a much higher probability 

of default. You need to be compensated for it. 

It has nothing to do with cramdowns. It has to do with the higher probability of default. So I don’t think that point and a half has 

anything to do with these differences in cramdown legislation. 

Mr. KELLER. Okay. I would love to keep going. I have got more 

questions, but my time has expired, so I will yield back. 

Mr. JOHNSON. Thank you, Mr. Keller. 

Mr. Kittle, what is most expensive to the lender? Would it be a 

foreclosure, or would it be a bankruptcy under the Conyers-Chabot 

compromise bill? 

Mr. KITTLE. Well, we haven’t seen anything go through under 

the compromise, and I know that the average cost of a foreclosure 

is around $30,00 to $40,000 to the lender. We are talking about 

long-term damage to the lender, something that is not even there 

yet. 

184 

Mr. JOHNSON. And in addition to those expenses to the lender, 

you would have the loss of the property to the borrower, the effect 

on the surrounding community of vacant homes, which then contribute to a loss of property tax revenue—— 

Mr. KITTLE. That all depends on when a customer and a letter 

get together—— 

Mr. JOHNSON. We have crime. 

Mr. KITTLE. It depends upon at which point the customer, the 

borrower, and the lender start to communicate. There are many 

things that happen where the property—they get it done before the 

property is vacant. 

Mr. JOHNSON. Well, given the fact that you have got so many 

other costs associated with a foreclosure—cost to society—but just 

looking at it from the lender’s standpoint, $30,000 to $40,000 it 

costs to foreclose, doesn’t it seem that it would be cheaper to allow 

a bankruptcy court to adjust the interest rate and the payoff on a 

loan down to reflect market value, and then the borrower is able, 

since he or she is in Chapter 13, to repay the mortgage and at 

some point come out of bankruptcy? 

Doesn’t it make sense that you would have that option on the 

table as one of the tools in the toolbox, as Congressman Watt suggested? 

Mr. KITTLE. No, sir, it doesn’t. It may be easier and quicker, but 

the cost long term is much greater for future home borrowers to 

the lenders. They will lose their loss of credit enhancements. FHA 

by itself—right now there is a statute in place that doesn’t even 

allow cramdowns, so if cramdowns go through forward, that portion’s cramdown goes directly back to the servicer on every FHA 

loan. My members, should this happen, will no longer want to participate in the purchase and origination of the FHA loans, which 

are for first time homebuyers—— 

Mr. WATT. Will the gentleman yield? 

Mr. KITTLE [continuing]. Honest people out of this type of situation. 

Mr. JOHNSON. Mr. Zandi, how would you respond to that? 

Mr. ZANDI. I just want to respond to the point about FHA and 

the enhancement. If you look at the 2006 HOMDET data and look 

at those loans, those FHA loans, that would be classified as 

subprime under this legislation, 300 basis points over prevailing 

market rates, that would encompass less than 2 percent of all the 

FHA first purchase loans and just about a little over 3 percent— 

3.1 percent—of refinancings. 

So the universe we are talking about here is very, very small. 

Mr. KITTLE. May I respond to that, please? 

Mr. JOHNSON. I will yield to Mr. Watt. 

Mr. KITTLE. I would like to respond just to what he just said, because the data that he just said is inaccurate, if I may. 

Mr. WATT. You all are arguing about data. We are trying to find 

the solution. 

Mr. KITTLE. Well, this is the solution. FHA—— 

Mr. WATT. I don’t think this the solution at all on this issue. This 

is about whether this is a more viable solution than foreclosure for 

somebody as a last resort. Now, the question that—— 

Mr. KITTLE. Part of your stimulus package is FHA reform. 

185 

Mr. WATT. No, I am not talking about stimulus package. I am 

talking about somebody who is having their house foreclosed. They 

aren’t going to get $300 in the stimulus package. They aren’t going 

to get any of that. I mean, this isn’t about a stimulus package to 

me. This is about saving somebody’s house. 

Mr. JOHNSON. Reclaiming my time. [Laughter.] 

Mr. WATT. Can I just make the point that I wanted him to address that was related to this? In most states—North Carolina is 

one of them—there is no such thing as a deficiency, so you foreclose 

and you sell. You can’t get anymore than the cramdown value of 

the house. Usually, it is going to be a lot less than the cramdown 

value of the house, because some opportunist is out there, the only 

person that is going to buy, and the point I am making is that the 

cramdown figure is going to be higher than your foreclosure sale 

figure. 

Mr. JOHNSON. And the time having expired—— 

Mr. WATT. I ask unanimous consent the gentleman be given two 

additional minutes—— 

Mr. JOHNSON. Thank you for—— 

Mr. WATT [continuing]. At least one of them—— 

Mr. JOHNSON. Without objection. 

Mr. WATT [continuing]. Let Mr. Kittle respond, because I don’t 

see how you think this is going to be more advantageous. Foreclosure is going to be more advantageous—work out far more advantageous. If you can work it out, it is great. But foreclosure is 

not a better alternative than this bill will provide to you in bankruptcy in most cases. Do you think so? 

Mr. KITTLE. My time? To answer your question, I am not only 

concerned, but I am concerned, about the people whom you are 

talking about. And if you could identify that small number, like 

Mr. Cannon asked, that would be great. We would try to address 

it, both HOPE NOW and as an industry in MBA. 

But I am concerned about the long-term effect of a short-term solution for your constituents being able to purchase homes down the 

road. It is a postponed. 

Mr. WATT. Mr. Kittle, I think you are being disingenuous—— 

Mr. KITTLE. Not at all. 

Mr. WATT [continuing]. Because the truth of the matter is the 

long-term implication of your selling in foreclosure at a figure that 

you can’t even begin to approach as the cramdown figure is a lot 

more devastating to the industry and a lender than the cramdown 

figure is going to be. 

Mr. KITTLE. Well, I—— 

Mr. WATT. And you can’t convince me otherwise. I think you are 

being disingenuous with us now. 

Mr. KITTLE. Well, I am not being disingenuous, Mr. Watt. I gave 

you figures in my testimony earlier, both written and stated, of 

what we thought the cost of the cramdown would be. We stand by 

those figures. We have precedence for those figures. 

Mr. JOHNSON. Reclaiming my time. 

Mr. Henderson, did you have something you wanted to add? 

Mr. HENDERSON. Yes, sir. I think, Mr. Chair, both you and Congressman Watt have framed the issue appropriately, which is to 

say whether foreclosure is a more costly result than the result that 

186 

would be accomplished by this modest interjection in the market 

that this bill represents. 

And again, when you total, as you suggested, not just the cost 

to the individual borrower, who loses his or her home, but the surrounding neighborhood, the impact on the community in which the 

foreclosure occurs, the potential for increase in crime, the other debilitating effects that this kind of widespread housing dislocation 

has on these neighborhoods, it is not incalculable, but it is obviously much more substantial than we have talked about here. 

And it does seem to me that the effort on the part of Congressman Watt to try to define the population of people who would most 

be affected by this bill and who would benefit is the way to go. 

I can’t explain to you why you have had difficulty in getting cooperation from the industry to identify that population, but I can 

say that the effort to drive the industry to coordinate a more effective response in loan modification, as we have seen through the 

Hope Six program—we certainly support these things. 

These are all necessary elements to have on the table, but they 

are necessary, but insufficient, to meet the magnitude of the problem. And that is why this adjustment, which is only for a period 

of 7 years and only applies to existing loans, is a modest intervention that we think is timely and suited to the magnitude of the 

problem. 

Mr. JOHNSON. All right. Thank you, Mr. Henderson. 

My time has expired, and I would like to thank all of the witnesses for their testimony today. 

Without objection, Members will have 5 legislative days to submit any additional written questions, which we will forward to the 

witnesses and ask that you answer as promptly as you can, to be 

made a part of the record. Without objection, the record will remain open for 5 legislative days for the submission of other additional information and materials. 

Again, I thank everyone for their time and patience. This hearing 

of the Subcommittee of the Commercial and Administrative Law is 

adjourned. 

[Whereupon, at 4:36 p.m., the Subcommittee was adjourned.] 

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