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HELPING FAMILIES SAVE THEIR HOMES IN BANKRUPTCY ACT OF 2009, AND THE EMERGENCY 

HOMEOWNERSHIP AND EQUITY PROTECTION 

ACT 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

ON

H.R. 200 and H.R. 225 

JANUARY 22, 2009 

Serial No. 111–10 

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 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

[Vacant] 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

(III) 

C O N T E N T S 

JANUARY 22, 2009 

Page 

THE BILLS 

H.R. 200, the ‘‘Helping Families Save Their Homes in Bankruptcy Act of 

2009’’ ..................................................................................................................... 3 

H.R. 225, the ‘‘Emergency Homeownership and Equity Protection Act’’ ............ 11 

OPENING STATEMENTS 

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

State of Michigan, and Chairman, Committee on the Judiciary ..................... 1 

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

of Texas, and Ranking Member, Committee on the Judiciary ......................... 19 

The Honorable Zoe Lofgren, a Representative in Congress from the State 

of California .......................................................................................................... 20 

The Honorable Maxine Waters, a Representative in Congress from the State 

of California .......................................................................................................... 21 

The Honorable Melvin L. Watt, a Representative in Congress from the State 

of North Carolina ................................................................................................. 23 

The Honorable William D. Delahunt, a Representative in Congress from 

the State of Massachusetts ................................................................................. 24 

The Honorable Steve Cohen, a Representative in Congress from the State 

of Tennessee ......................................................................................................... 25 

The Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress 

from the State of Georgia .................................................................................... 26 

WITNESSES 

The Honorable Brad Miller, A Representative in Congress from the State 

of North Carolina 

Oral Testimony ..................................................................................................... 27 

Prepared Statement ............................................................................................. 29 

The Honorable Jim Marshall, a Representative in Congress from the State 

of Georgia 

Oral Testimony ..................................................................................................... 30 

Mr. Adam J. Levitin, Associate Professor of Law, Georgetown University 

Law Center, Washington, DC 

Oral Testimony ..................................................................................................... 35 

Prepared Statement ............................................................................................. 38 

Mr. David M. Certner, Legal Counsel and Legislative Policy Director, AARP, 

Washington, DC 

Oral Testimony ..................................................................................................... 65 

Prepared Statement ............................................................................................. 74 

Mr. Matthew J. Mason, Assistant Director, UAW-GM Legal Services Plan, 

Detroit, MI 

Oral Testimony ..................................................................................................... 81 

Prepared Statement ............................................................................................. 82 

Mr. Christopher J. Mayer, Paul Milstein Professor of Real Estate and Senior 

Vice Dean, Columbia Business School, New York, NY 

Oral Testimony ..................................................................................................... 87 

Prepared Statement ............................................................................................. 89 

Page

IV 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, and Chairman, Committee on 

the Judiciary ......................................................................................................... 168 

(1) 

HELPING FAMILIES SAVE THEIR HOMES IN 

BANKRUPTCY ACT OF 2009, AND THE EMERGENCY HOMEOWNERSHIP AND EQUITY 

PROTECTION ACT 

THURSDAY, JANUARY 22, 2009 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Committee met, pursuant to notice, at 2:23 p.m., in room 

2141, Rayburn House Office Building, the Honorable John Conyers, 

Jr. (Chairman of the Committee) presiding. 

Present: Representatives Conyers, Scott, Watt, Lofgren, Jackson 

Lee, Waters, Delahunt, Cohen, Johnson, Pierluisi, Sherman, 

Wasserman Schultz, Maffei, Smith, Goodlatte, Sensenbrenner, 

Coble, Lungren, Issa, King, Franks, Gohmert, Jordan, Poe, 

Chaffetz, Rooney, and Harper. 

Staff present: Perry Apelbaum, Staff Director and Chief Counsel; 

Susan Jensen-Lachmann, Majority Counsel; George Slover, Majority Counsel; Daniel Flores, Minority Counsel; and Zachary Somers, 

Minority Counsel. 

Mr. CONYERS. The hearing will come to order. Thank you, ladies 

and gentlemen. We are delighted to have our colleagues in front of 

us again who work so diligently on the subject matter. 

At 1 o’clock this afternoon, we had a vote after extensive debate 

on House Joint Resolution 3, a bill entitled, ‘‘Relating on the Disapproval of Obligations Under the Emergency Economic Stabilization Act of 2008.’’ 

The vote was 270 in support of the resolution of disapproval and 

155 against the resolution of disapproval. And I think that reflects 

accurately the mood of the American people. It so happens that we 

are in the process of catching up with them. 

Now, the genesis of this hearing goes back to the evening that 

the then secretary of the treasury, Henry Paulson, met with the 

leaders of the first branch of Government, the legislature, and he 

had three sheets of paper. And here is what were on them. 

The first thing was the fact that he needed new and extensive 

authority never before granted a treasury secretary in the history 

of this country. 

The second thing that was on the second sheet of paper was that 

he needed $700 billion. 

And on the third sheet of paper were two other provisos, one 

which said we need this money right away and the other proviso 

2 

on the third sheet of paper said, and we want this authority that 

we are asking you to legislate not to be reviewable by any court 

nor even the legislative process itself. 

And this was the beginning of some of the, to me, foreseeable 

problems that bring us here today. 

Now, we inquire under the jurisdiction of the Judiciary Committee on a very limited set of circumstances. What we are here 

this afternoon to determine are some very simple questions. They 

have been outlined by my staff and actually they have been recaptured by one of our witnesses on the second panel, Professor 

Levitin. 

And they boil down to these questions with regard to what we 

do about the basic problem that caused the subprime mortgage 

meltdown and, further, what can we do to assist the victims of this 

meltdown who happen to be homeowners? 

And so I offer you these suggestions: that, first, the voluntary efforts to relieve the foreclosure crisis have been unsuccessful. And, 

second, the bankruptcy provisions in our bills are the modification 

of them to allow cram-down reopening, examination, can only be 

accomplished through revising the bankruptcy law; longer terms, 

less interest, making sure that the mortgage itself does not exceed 

the value of the property. 

And then a couple of other considerations that nothing harmful 

will come through this bankruptcy modification because there will 

be no further interest rates that will go higher, nor will these modifications create any unjust benefits or somehow make this some 

kind of an easy-escape method for undeserving mortgagors. 

And so I am happy to begin this discussion with two of the leaders in the Congress about how we came to this point. I am so glad 

that you are with us, Congressman Miller and Congressman Marshall. 

I turn now to the Ranking Member from Texas, Mr. Lamar 

Smith. 

[The bills, H.R. 200 and H.R. 225, follow:] 

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HR200-1.eps
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HR200-2.eps
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HR200-3.eps
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HR200-4.eps
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HR200-6.eps
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HR200-7.eps
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HR200-8.eps
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HR225-1.eps
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HR225-2.eps
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HR225-3.eps
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HR225-4.eps
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HR225-5.eps
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HR225-6.eps
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HR225-7.eps
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HR225-8.eps
19 

Mr. SMITH. Thank you, Mr. Chairman. 

Mr. Chairman, this country is faced with a foreclosure crisis of 

historic proportions. Many were complicit in the creation of this crisis. It was brought on largely by irresponsible mortgage policies. 

These policies were implemented by lenders and encouraged by 

Government entities like Fannie Mae, who were all too willing to 

put profits ahead of prudence. 

Their irresponsible behavior was encouraged by Congress, and 

too often borrowers, spurred on by cheap credit and little or nothing as a down payment, borrowed more than they could afford. 

We in Congress are now considering solutions to the foreclosure 

crisis. The legislation before us today represents the so-called bankruptcy solution. 

It is tempting to some because allowing bankruptcy courts to rewrite home mortgages does not require up-front taxpayer dollars. 

In that sense, it may appear costless. 

But despite their superficial attractions, the bankruptcy proposals create real problems and will cost future homeowners. 

My overriding concern with the bankruptcy proposals is that 

they undermine personal accountability. Although an unusual 

number of people took on mortgages they could not afford, the vast 

majority of Americans simply did not. They took on loans for which 

they assumed responsibility and continued to pay their mortgages 

on time. 

Americans undoubtedly want solution to the foreclosure crisis, 

but I do not believe that they want proposals that amount to absolving borrowers of their personal responsibility. I fear that the 

broad terms of the two bills we are considering today do just that. 

Both of these bills are open-ended and place no limits on who is 

eligible for relief. They also give little, if any, guidance to debtors 

and bankruptcy judges as to how mortgages may be modified in 

bankruptcy. 

Because this bankruptcy legislation is overly broad, it will send 

shock waves through the mortgage lending, credit and housing 

markets. This legislation will increase the risks associated with 

mortgage lending and discourage investment in the mortgagebacked securities market. 

In turn, this will lead to fewer mortgages being written, and 

those that are written will come with higher interest rates and 

higher up-front costs. Future homeowners will pay a steep price. 

Further, because many borrowers will be eligible for relief, these 

bills may open the flood gates to an unprecedented wave of bankruptcy filings. Current estimates are that 5 million homeowners 

are delinquent and another 12 to 15 million owe more than their 

houses are worth. 

If a significant number of these homeowners choose bankruptcy, 

then bankruptcy filings could double or triple as a result. And this 

legislation will unnecessarily tempt them by promising the ability 

to reduce principal and interest rates. 

Finally, this legislation will not supplement but compete with the 

targeted loan modification programs lenders and the Government 

are now using to help struggling homeowners. As a result, this legislation will undermine many of those prograMs. 

20 

Any relief should be targeted at the mortgages that are at the 

heart of the current crisis. Relief must be short-lived so that we 

can return quickly to the normal operation of the bankruptcy code. 

Debtors and bankruptcy courts must be given concrete guidance 

as to how loans are to be modified to reduce monthly payments to 

affordable levels. 

Finally, if bankruptcy relief is to be considered, it must be done 

in a manner that does not undermine personal accountability. It 

must not unfairly reward those who acted irresponsibly. 

And it must not be an affront to those who did act responsibly, 

borrowed only what they could afford, and have been working hard 

to make their monthly payments. 

Unfortunately, the legislation we consider today, in my opinion, 

will create more problems than it will solve. 

Mr. Chairman, thank you, and I will yield back. 

Mr. CONYERS. Thank you so much. 

I do not see the gentleman from Arizona, Trent Franks, here. 

Mr. SMITH. He is not here. 

Mr. CONYERS. He is not here. 

We move, then, to the gentlelady from California, Chairwoman 

of a Financial Services Subcommittee, Maxine Waters of California. 

The gentlelady is recognized. 

Ms. LOFGREN. Ms. Waters has asked that I precede her. 

Mr. CONYERS. Oh, I didn’t have your name down. That is—— 

Ms. LOFGREN. I will be brief, both because I am eager to hear 

from our two witnesses, and also I am losing my voice. 

I would first like to thank Congressman Miller and Congressman 

Marshall for the tremendous leadership that they have exhibited 

on this issue. It has been important and very wise. And I think the 

country is really very much in their debt for that leadership. 

I would just like to note that I think this is a time when disagreements over this issue are starting to disappear, and people 

are coming together in conclusion that something should be done 

in this arena. 

We are mindful that the Constitution itself, in Article 1, Section 

8, provides for the bankruptcy laws of the United States, so we are 

doing nothing that was not in the thinking of the founders when 

we take a look at our bankruptcy laws. 

Let me just say that I was here and worked on the 1978 bankruptcy bill as a young staffer for Congressman Don Edwards, who 

was the Chairman of the Committee—Subcommittee of jurisdiction. 

And honestly, I could not recall that we had excluded principal 

mortgages from the bankruptcy revisions. 

And when that became apparent, I actually called Alan Parker— 

many of you remember him—who was the general counsel for the 

Subcommittee, and I said, ‘‘Why did we do that?’’ And he said, ‘‘Oh, 

no, we didn’t do that.’’ 

It turns out that was added in on the Senate side without a lot 

of discussion. There was no huge policy issue involved. It became 

part of the law, but it never really became a focus, a public policy 

focus, until we had this meltdown of the mortgage market. 

And that is because mortgages were a very different creature 

back in the late 1970’s. And now, of course, we have subprimes and 

Alternate-As and actually a collapse of the housing market. 

21 

We have been advised by Mark Zandi, who is a very noted economist and, I would note, the principal economic adviser to Senator 

John McCain during his presidential run, that this change in bankruptcy law is an important element of halting the collapse of the 

housing market. 

Why is that? Well, right now, we are engaged in watching not 

only the subprime market collapse but the prime market as well. 

And I will give you some examples from my own district, where people who bought a $700,000 home a year ago, not with a 

subprime instrument, with a—you know, equity down, 20 percent 

down or more, are now faced with a neighbor next door who has 

a house for sale in bankruptcy that—or a short sale at $250,000 

that won’t sell. 

The value of everybody’s property, including those who did nothing wrong, has been depressed. And until the lending institutions 

are able to put a floor under these losses, we are not going to pull 

out from this disaster. 

I would note that Citigroup has come out in favor of a bankruptcy provision as part of this, so I do know that we can come together if there are issues—you know, I would honestly prefer to 

simply repeal the provision that I think was misguided. 

But I think coming together, we can come up with a provision 

that perhaps limits it to existing mortgages, to work and reason together to really solve this problem for our country. 

So I honor you, Mr. Chairman, for holding this very important 

hearing and for all the Members who I know will work together in 

good faith on behalf of the American people. 

And I yield back and thank the gentlelady for yielding to me. 

Mr. CONYERS. I would like now to recognize the gentlelady from 

California, Maxine Waters, a longtime Member of the Judiciary 

Committee, and also a Subcommittee Chair of the Finance Committee as well. 

Ms. WATERS. Thank you very much, Mr. Chairman, and I do appreciate that you have made this literally the first order of business for this 111th Congress. 

It is so important, and I want to remind everyone that this Committee passed H.R. 3609, the Emergency Home Ownership and 

Mortgage Family—Mortgage Equity Protection Act, on December 

12, 2007, and that the House failed to pass the legislation in the 

110th Congress. We are way behind on this issue. 

And let me give you an example why what we are doing now will 

not solve the crisis that we are in. Last evening, ‘‘Nightline’’ 

showed what they had done in looking at the loan modifications, 

or lack of, by financial institutions. They stayed in my office literally for 2 days. 

I implement or help to facilitate loan modifications for my constituents, against the advice of the Ethics Committee. I am 

bombarded with people who are losing their homes, whose homes 

are about to be in foreclosure, who have tried everything that they 

possibly could try to get a loan modification. 

They can’t get through to the servicers. The servicers and the offices—many of them owned by some of our big banks, like Wells 

Fargo, Bank of America, Countrywide or the former Countrywide, 

what have you. 

22 

And so you are on the telephone waiting for hours. They play 

music for you. You get cut off. ‘‘Nightline’’ followed through with 

me on one that I was working on for a couple of hours. I sat on 

the telephone for an hour with the Wells Fargo servicing company, 

on and on and on. 

You cannot get these modifications done one by one. All of those 

counselors that are certified by HUD who work with the volunteer 

program, Hope Now, are not trained in loan modifications. These 

people are trained to do counseling for first-time home buyers. 

They can’t get through to the servicers. The servicers don’t pay any 

attention to them. 

The closest we have come to doing credible loan modifications 

has been with Sheila Bair of IndyMac, where she took the IndyMac 

portfolio and was able to do almost 6,000 because she developed a 

more systematic way of doing these modifications. 

Even now, for some of the servicers who do modifications—they 

don’t do what I would consider a real modification. They will sometimes extend the time of payment and load it up on the back end, 

but they are not marking down interest rates. 

They are not taking adjustable-rate mortgages and converting 

them to 30-and 40-year loans that would reduce the amount of the 

mortgage payment. And so you have this glut of foreclosed houses 

just building up throughout the United States of America, much of 

it now in disrepair. 

And even the money that I helped to orchestrate to stabilize communities is not enough. We put $4 billion out there for a stabilization program, but still, as Zoe Lofgren just said, these houses are 

in disrepair. The value is being lost. They are under water. 

And so you have whole communities that are devastated, and the 

homes are losing value. So we have got to do something real. We 

have got to modify or change the bankruptcy law. 

And I want to commend you for taking leadership, both of you— 

Mr. Marshall, Mr. Miller—because I think, despite the fact we 

are—because the banking industry is just so powerful. They are so 

powerful they have owned this Congress for far too long. And we 

have got to break this up. 

Judges must have the ability to put these into the bankruptcy 

proceeding and do the modifications themselves. And so I think we 

are on our way. And you know, when Citigroup—and they say that 

yes, it makes good sense, everybody ought to be on board to do it. 

So, I am hopeful, Mr. Chairman, that we can move forward with 

this. We would like to see it—Zoe and I would to see it in the stimulus package. That is where we want it. We want it done quickly, 

and we want it done now. So let us see how far we can get. 

I thank you for being here today, my colleagues. 

I thank you again, Mr. Chairman. I will continue to try and implement loan modifications, but it is like dropping a little rock into 

a huge ocean, and it won’t get the job done. But bankruptcy will 

get it done. Thank you very much. 

I yield back the balance of my time. 

Mr. CONYERS. Well, that is very informative, because the Speaker of the House has just come out in acceptance of the proposal 

that is being made here today. 

23 

I might put it in the record without objection. The question 

was—this is dated January 22, 2009—— 

[The information referred to follows:] 

Mr. CONYERS. And I now turn to a former Subcommittee Chairman of the Judiciary, Melvin Watt of North Carolina, who is now 

a Subcommittee Chairman on the Finance Committee. 

Mr. WATT. Thank you, Mr. Chairman. And I see both of the witnesses at the table looking at their watches and wondering when 

they are going to get to testify, so I am very much aware—— 

Mr. MILLER. I have no where to go that is more important than 

being here. 

Mr. WATT [continuing]. That you want to move this on. I do want 

to pick up where my colleague on financial services, Maxine Waters, left off because we do have the unique blessing or curse of 

serving on both the Judiciary Committee and the Financial Services Committee. And not only do I want to commend these two gentlemen, who have taken the lead on this bankruptcy bill, but I 

want to commend her for the tremendous amount of work that she 

has done on this whole foreclosure issue to try to effect some solutions short of bankruptcy, in addition to supporting the bankruptcy 

provision. 

She is absolutely right. We are regularly, because of our position, 

in either friendly or sometimes not so friendly conversation with financial institutions. And about a year and a half ago or more, I 

said to the folks in the financial services, the lenders, some of them 

that they needed to line up and support this for several reasons. 

First of all, when you have a foreclosure in a lot of states, and 

there is a public sale, that is all they—the lender can get. There 

is a provision under North Carolina law, for example, that you 

can’t go and get anything beyond that foreclosure amount. And it 

is not at all to be above 40 percent when you sold a foreclosure. 


XXX.eps
24 

Now it is down to about 20 percent or 10 percent, Mr. Marshall 

probably has more information on that. And they ain’t getting 

much in a foreclosure sale. They would actually get more, I think, 

if these loans were restructured and rewritten in the bankruptcy 

courts, and I just think they would—the lenders would be better 

off. So their position was short sighted. 

Second, it just seemed to me that their concern about this was 

overstated, and I did share one concern, which I have expressed 

publicly, and I think we need to address, and I am sure Mr. Marshall will address it, one of the concerns they have had is that it 

will encourage people to go into bankruptcy. 

And I have that concern because I don’t want to rush anybody 

into bankruptcy solely for the purpose of restructuring, but the 

threat of going to bankruptcy, I think, is important. Bankruptcy 

has some negative impacts that go well beyond—so we don’t want 

to be in a position of encouraging people into bankruptcy. But I 

think that can be dealt with in the legislation. 

And finally, over the last month or so, those same people that I 

talked to a year and a half or two, are coming back to me and saying, ‘‘Yes, you did suggest to us that this was a good idea and 

maybe it is not such a terrible idea.’’ So maybe we are coming full 

circle. I think we are going to get there pretty soon. We just need 

to keep pushing, and I applaud the Chair for having the hearing 

today and for that purpose. Because it is part of that push to keep 

the pressure on to do this. And with that, I yield back, Mr. Chairman. 

Mr. CONYERS. Thank you. Did Bill Delahunt have his hand up 

or not? 

Mr. DELAHUNT. I will be very brief, Mr. Chairman. 

Mr. CONYERS. All right. 

Mr. DELAHUNT. I would just echo the sentiments expressed by 

my colleagues. I think the speaker responded to those questions 

with a clear sense of urgency. And I would just say, if we don’t 

move quickly that we are going to be accused of fiddling while 

Rome is burning. 

This financial crisis that we are in at this point in time was precipitated by the mortgage crisis. I think what is clear is that no 

voluntary program has worked to date. And will not work because 

the order of magnitude is such that it is going to take time. We 

don’t have any time left. And if you don’t believe that, watch the 

Dow Jones today and yesterday and the day before. If we really 

want to precipitate a free fall in terms of a financial crisis, then 

let us just sit here and debate and not move expeditiously on the 

bills that are put forth by our two esteemed colleagues. 

And by the way, Mr. Chairman, their proposals will not cost the 

taxpayers a single dime. I think that is very important to discuss 

or to mention. And that the public should be aware of that. 

This is not authorizing the expenditure of $700 billion or $350 

billion. This is an effort to resolve the mortgage crisis, the housing 

crisis, if you will. And until that happens, because that crisis has 

infected all of our economy, we are not going to solve the problems 

of an economic meltdown that we are currently facing. 

And with that, I yield back. 

Mr. CONYERS. Okay. Thank you very much. 

25 

Steve Cohen, have you given up any opportunity to make a comment? 

Mr. COHEN. Many times in the past, but not today, Mr. Speaker. 

Mr. CONYERS. The gentleman is recognized. 

Mr. COHEN. Thank you, Mr. Chairman. And I apologize for being 

late. As I explained as I was coming in, I was speaking on the floor 

on H.R. 104, something dear to this Committee, the bill that the 

Chairman put in to study the possible abuses of the Bush-Cheney 

administration, a commission to look at that, which I think is important. 

I appreciate the gentleman who came forward with this bill and 

the others who have come forward with similar bills. And I was 

very proud to be a member of our democratic caucus when caucus 

members from throughout the range of the caucus spoke up in 

favor of this type of law and putting it in the stimulus package. 

Mr. Chairman, I most appreciate Speaker Pelosi and appreciate 

her response. But Speaker Pelosi always speaks of what Dr. Martin 

Luther King spoke about, and that is the fierce urgency of now. 

And I believe the fierce urgency of now not only requires us to 

pass these bills out, but to see to it that they are part of the stimulus package. Because that is the bill that we know is going to 

pass. That is going to pass. 

If we have this as a free standing bill, we don’t know when it 

will pass or if it will pass because senators will have more reason 

to vote simply against this bill. In the stimulus package, there will 

be things in there for their constituents and they know, as Mr. 

Delahunt well said, that we are in an economic crisis and we need 

to act. And there are enough republicans in that senate, in addition 

to the democrats, to pass this because they know the financial 

structure of our country is in the balance. They may not pass the 

bankruptcy bills as stand-alone measures. So I would urge us to do 

all we can, and I know the Chairman will, to include it. 

What we have seen so far in the TARP is helping out folks that 

are in essence the officers who sent people into battle. But the casualties, which are the homeowners, have not been treated. The casualties are still laying out there in the field of combat and not having any regard, any treatment whatsoever, or anybody apparently 

interested in their condition. And every day that we go, we miss 

people. 

Memphis, my home, has one of the highest levels of subprime 

mortgage lending in the country and Tennessee has the highest per 

capita bankruptcy filings in the country. There are 7.6 bankruptcies per 1,000 people in Tennessee, and that is the highest. I 

don’t know exactly the number of foreclosures, but each day we go 

by, there are people losing their homes. And how can you expect 

people to get jobs or to feel comfortable spending money if they and 

their families are put out of their homes? 

The Congressional budget office estimated a similar bill would be 

a net $17 million gain to our budget in savings and increased revenues if we pass such a bill. So I appreciate the Chairman giving 

me some time. I appreciate the sponsors. And I join with them in 

whatever efforts we can make to see to it that homes are put on 

the same level as yachts, as secondary vacation homes, as airplanes and commercial real estate and can be modified in bankVerDate Aug 31 2005 16:51 Jun 10, 2009 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6601 H:\WORK\FULL\012209\46615.000 HJUD1 PsN: DOUGA
26 

ruptcy. That is because they are even more important and should 

be put at least on that level where they can be saved for people 

and not lost. 

Thank you, Mr. Chairman. 

Mr. CONYERS. Hank Johnson is exercising his prerogatives as 

new Subcommittee Chairman from Georgia, and he will be the last 

Member to make a comment before our distinguished witnesses 

begin. 

Mr. JOHNSON. Thank you, Mr. Chairman. And I will say that my 

first term of Congress, I did a lot of listening and I plan on continuing to do that during this second term. But I would be remiss 

not to speak out in favor of both of these pieces of legislation, both 

of which I am a co-sponsor of. 

The need in my state and in my district for this kind of assistance is almost overwhelming. In the fourth district of Georgia, 

which is the second most affluent African-American majority district in the Nation, we have been targeted for many years by predatory lenders who, despite the fact that residents are eligible for 

prime loans, they have been targeted aggressively with these high 

cost predatory loans, with exorbitant interest rate swings and of 

course our real estate market has been good. We have put a lot of 

people into homes. In fact, the home building market has been a 

great economic stimulus for the economy of the State of Georgia. 

Now, with the foreclosures having ravaged our area and the 

home building market being decimated, the State of Georgia is now 

looking at a $2 billion deficit. And so things are quite tight. 

The genesis of the financial meltdown crisis that we are in now 

arose from the mortgage-backed securities that had been sold 

throughout the world to investors and that became worthless. 

And it became worthless due to the fact that so many properties 

had been foreclosed upon. And this trend of foreclosures, ladies and 

gentlemen, 2008, 2.3 million houses went into foreclosure. Eight 

hundred sixty thousand of those were actually repossessed, and 

those numbers are expected to climb this year. And so it continues, 

this problem of foreclosures contributing or being the cause of this 

economic meltdown. We must stop the meltdown, and we must do 

so quickly and effectively. And instead of—this is what we call instead of trickle-down economics, which has not worked, this is rebuilding the economy from the ground up. 

And so, you know, I believe that both pieces of legislation will 

deal with this fundamental issue that impacts the world economy. 

And I think that it is a shame that if you are a millionaire, and 

you had, say, seven properties, you may have more properties than 

you even know of, more homes. And you get into trouble and you 

file bankruptcy and you can modify the terms of the mortgages on 

all of your other properties. You can select that suppose where your 

principle residence would be. That might be the one that has the 

lowest balance on the principal owed. And then you can get adjustments on all of your other properties. 

Why is it that just a regular common man or woman is not able 

to have in bankruptcy their adjustment for their primary residence, 

their only home? Why is it that a millionaire, who made choices 

and should be personally responsible and accountable for overspending be able to get relief under the Bankruptcy Act when regVerDate Aug 31 2005 16:51 Jun 10, 2009 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6601 H:\WORK\FULL\012209\46615.000 HJUD1 PsN: DOUGA
27 

ular people who only own one residence are barred? It just doesn’t 

make sense, so the time is now for so many reasons for us to deal 

with both pieces of legislation. 

I was privileged to hear an eloquent and persuasive statement 

from my Georgia colleague Professor Marshall and Attorney Marshall, by the way, on this issue in a Democratic caucus meeting 

where he strongly advocated for inclusion of this legislation or idea, 

this legislative idea, in the economic stimulus package. And I support that also, but if we need to do in a stand-alone, let us go 

ahead and do it right away. 

I commend the speaker of this Committee for showing that this 

a priority, and I look forward to supporting this legislation. 

Mr. CONYERS. Brad Miller is the distinguished representative 

from North Carolina, who sponsored in the last Congress legislation to protect homeowners from predatory mortgage lending. He 

has earned a Master’s degree at the London School of Economics 

and a law degree from Columbia University, and we welcome him 

at this time. 

STATEMENT OF THE HONORABLE BRAD MILLER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH 

CAROLINA 

Mr. MILLER. Thank you, Chairman Conyers. 

Chairman Conyers, Ranking Member Smith, Members of the 

Committee, thank you for this opportunity to address pending legislation to empower bankruptcy courts to modify home mortgages 

just as bankruptcy courts already can modify every other kind of 

secured debt. 

The mortgage industry treats that peculiarity in the law as if it 

were brought down from Mount Sinai on stone tablets, but Ms. 

Lofgren remembers correctly. It was just a sloppy political compromise in the Senate in 1978, and that nonsensical quirk in the 

law is now responsible for much of the paralysis in our Nation’s response to the foreclosure crisis, and we are just beginning to see 

the effects of the foreclosure crisis. 

The Census Bureau estimated that 69.2 percent of American 

families owned their own homes in the second quarter of 2004, and 

67.9 percent owned their own homes in the third quarter of 2008. 

That is a fairly slight drop to this point, but the number will go 

much, much lower. 

Credit Suisse now estimates that 8.1 million families will lose 

their homes to foreclosure in the next 4 years, and the number will 

rise to 10.2 or as many as 10.2 million families if the recession becomes more severe, a frighteningly real possibility. 

In 2006, about 2.5 million families were under water or owed 

more on their mortgages than their homes were worth. Moody’s 

now estimates that 12 million homeowners are under water & and 

the number will rise to 14.6 million by the fall if the climb in home 

values reaches 10 percent, an additional 10 percent, as Moody’s expects. 

Homeowners who owe more on their homes than their home is 

worth are stuck. They can’t sell their house to pay off their mortgage. They can’t refinance, and they almost certainly can’t qualify 

for any other kind of credit. Even if homeowners can make their 

28 

current monthly payments, they have no wiggle room if anything 

goes wrong, if anyone in the family gets seriously ill, or if anyone 

loses their job, or if they go through a divorce. 

Foreclosures are contributing to the decline in home values. The 

decline in home values is contributing to the foreclosure crisis, and 

both are contributing to the decline in the economy. Vacant foreclosed homes are stigmatizing neighborhoods and pushing down 

homevalues, and priced-to-sell foreclosed homes are flooding real 

estate markets around the country. Half the homes on the market 

in the bay area of California are foreclosures. 

Families that lose their homes to foreclosure lose their membership in the middle class, probably forever, and almost all middle 

class homeowners are seeing their life savings evaporate with the 

collapse in their home’s value. 

A homeowner who has seen his home decline in value by 20 or 

30 percent is going to be in no hurry to buy a new car. If 10 million 

families lose their homes to foreclosure in the next 4 years, nothing 

else we do to revive the economy is going to work. 

Ms. Waters was correct. Voluntary modifications are not even 

touching the problem. Three quarters of the voluntary modifications that the industry claims are just payment schedules with no 

reduction in principal or interest. Half the modifications in November were forbearance agreements that allowed the homeowner to 

catch up back payments and actually resulted in a higher monthly 

payment than the original mortgage. 

If a homeowner defaulted on a lower monthly payment, what are 

the chances that homeowner can make a higher monthly payment? 

Industry has one explanation after another for why there are so 

few real voluntary modifications, but after a while it all just sounds 

like ‘‘the dog ate my homework.’’ 

One explanation that critics of the financial industry offer is that 

the industry is facing millions of mortgages in default, but they are 

paralyzed, consumed by the fear that they are not getting as much 

as possible out of each homeowner in default. One witness to that 

on the second panel criticizes the legislation, both Mr. Conyers’ bill 

and mine, as one-size-fits-all. 

Mr. Chairman, Members of the Committee, with 10 million families facing foreclosure, we can’t afford a lot of elaborate, individualized tailoring. We know exactly what will happen in foreclosure— 

in bankruptcy rather. It may not be in this bill, but there is a 

wealth of case law. We know exactly what the court will do. 

It will result in predictable, orderly, sensible modifications. The 

court will limit the amount of debt secured by the home to the 

value of the home. Any indebtedness that exceeds the value of the 

collateral is not really secured by the collateral anyway, and the 

court would treat that portion of the debt as unsecured, which it 

really is. 

Now, the court would then set a term for the mortgage and set 

an interest of prime plus maybe 1 percent. Those terms make perfect sense. It is what industry should be doing voluntarily already. 

The legislation does not help homeowner who bought too much 

house. It does not help homeowners who live beyond their means. 

It only helps homeowners who can afford their house but not their 

29 

mortgage. It does not help speculators. Mortgages on investment 

property can already be modified in bankruptcy. 

A year ago, I spent hours—I spent time and energy refuting each 

argument by the financial industry against this legislation. Many 

of you remember those arguments. They said that their lawyers 

told them the legislation was unconstitutional and would never 

survive a court challenge. If their lawyers told them that, they 

need to get some new lawyers. 

A year ago, union members were reluctant to question the financial services industry. They believed what the financial industry 

said. After all, the financial industry made 40 percent of all corporate profits in America in 2007, so those guys must be really 

smart. 

If you think that still, go home this weekend and ask the people 

you represent how much credibility they think the financial should 

still have with Congress. I think Mr. Conyers is right. The vote we 

had just a short while ago on TARP tells us a great deal, speaks 

volumes of what Americans now think about the financial industry 

and the conduct that got us in the mess we are in. 

We spent a year and a half, a precious year and a half, a year 

and a half we could not afford to waste, on failed efforts to encourage voluntary modifications. We have offered industry carrot after 

carrot. It is time for a stick. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Miller follows:] 

PREPARED STATEMENT OF THE HONORABLE BRAD MILLER, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF NORTH CAROLINA

Chairman Conyers, Ranking Member Smith, members of the Committee, thank 

you for this opportunity to address pending legislation to empower bankruptcy 

courts to modify home mortgages, just as bankruptcy courts already can modify 

every other kind of secured debt. The mortgage industry treats that peculiarity in 

the law as if it were brought down from Mount Sinai on stone tablets. In fact, it 

appears to have been just a sloppy compromise in the Senate in 1978, and that nonsensical quirk in the law is now responsible for much of the paralysis in our nation’s 

response to the foreclosure crisis. 

We are just beginning to see the effects of the foreclosure crisis. 

The Census Bureau estimates that 69.2 percent of American families owned their 

own homes in the second quarter of 2004, and 67.9 percent owned their own homes 

in the third quarter of 2008. The number will go much, much lower. 

Credit Suisse now estimates that 8.1 million families will lose their homes to foreclosure in the next four years, and the number will rise to 10.2 million families if 

the recession becomes more severe, a frighteningly real possibility. 

In 2006, about 2.5 million families were ‘‘underwater,’’ or owed more on their 

mortgages than their homes were worth. Moody’s now estimates that 12 million 

homeowners are underwater, and the number will rise to 14.6 million by the fall 

if home values decline another ten percent, as Moody’s expects. 

Homeowners who owe more on their home than their home is worth are stuck. 

They can’t sell their house and pay off their mortgage, they can’t refinance, and they 

almost certainly can’t qualify for any other kind of credit. Even homeowners who 

can make their current monthly payments have no wiggle room if anything goes 

wrong, if anyone in the family gets seriously ill, or if anyone loses their job, or if 

they go through a divorce. 

Foreclosures are contributing to the decline in home values, the decline in home 

values is contributing to the foreclosure crisis, and both are contributing to the decline in the economy. Vacant foreclosed homes are stigmatizing neighborhoods and 

pushing down home values, and priced-to-sell foreclosed homes are flooding real estate markets around the country. Half of the homes on the market in the Bay Area 

of California are foreclosures. 

Families that lose their homes to foreclosure lose their membership in the middle 

class, probably forever. Almost all middle-class homeowners are seeing their life’s 

30 

savings evaporate with the collapse in the value of their home. And a homeowner 

who has seen his home decline in value by 20 or 30 percent is in no hurry to buy 

a new car. 

If ten million families lose their homes to foreclosure in the next four years, nothing else we do to revive the economy is going to work. 

Voluntary modifications are not even touching the problem. Three quarters of the 

voluntary modifications that industry claims are just payment schedules with no reduction in the principal or interest. Half of the modifications in November were forbearance agreements that allowed the homeowner to catch up back payments, and 

actually resulted in a higher monthly payment than the original mortgage. If a 

homeowner defaulted on a lower monthly payment, what are the chances the homeowner can make a higher monthly payment? 

Industry has one explanation after another for why there are so few real voluntary modifications, but after a while it all just sounds like ‘‘the dog ate my homework.’’ 

One explanation that critics of the financial industry offer is that the industry is 

facing millions of mortgages in default, but they are paralyzed, consumed by the 

fear that they are not getting as much as possible out of each borrower in default. 

One witness today criticizes the legislation before this committee as ‘‘one size fits 

all.’’ Mr. Chairman, with ten million families facing foreclosure, we can’t afford a 

lot of elaborate, individualized tailoring. 

We know exactly what will happen in bankruptcy. It will result in predictable, 

orderly, sensible modifications. The court will limit the amount of debt secured by 

the home to the value of the home. Any indebtedness that exceeds the value of the 

collateral is not really secured anyway, and the court would treat that portion of 

the debt as unsecured. The court would then set a term and an interest rate of 

prime plus maybe one percent. 

Those terms make perfect sense. It is what industry should already be doing voluntarily. 

The legislation does not help homeowners who bought too much house. It only 

helps homeowners who can afford their house but not their mortgage. It does not 

help speculators. Mortgages on investment properties can already be modified in 

bankruptcy. 

I spent a lot of time and energy a year ago refuting each argument by the financial industry against this legislation. Many of you remember those arguments. They 

said their lawyers told them the legislation was unconstitutional and would never 

survive a court challenge. If their lawyers told them that, they need to get some 

new lawyers. 

But a year ago, many members were reluctant to question what the financial industry said. After all, the financial industry made 40 percent of all corporate profits 

in 2007, so those guys must be really smart. 

If you still think that, go home this weekend and ask the people you represent 

how much credibility they think the financial industry should have with Congress 

now. 

We’ve spent a year and a half on failed efforts to encourage voluntary modifications. We’ve offered industry carrot after carrot. It is time for a stick. This legislation is the stick. 

Mr. CONYERS. Thank you, Mr. Miller, for your excellent work. 

Now, Jim Marshall of Georgia is known as a military man. He 

interrupted his education at Princeton to join the infantry combat 

mission in Vietnam. He came back, thank goodness, and subsequently obtained his law degree from Boston University, and we 

welcome him here this afternoon. 

TESTIMONY OF THE HONORABLE JIM MARSHALL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA 

Mr. MARSHALL. Thank you, Mr. Chairman, Members of the Committee. 

I guess I ought to start by adding to what the Chairman described as my background, the fact that I have spent years as a 

bankruptcy lawyer, bankruptcy law professor, taught creditor’s 

rights courses, advised banks, had written extensively in this area 

31 

and have been married for many, many years to a Chapter 13 

trustee, who handles one of the largest volumes of Chapter 13 

cases in the country. So I am extremely—oh, and I have done a lot 

of Chapter 11s. My expertise is in business bankruptcy, typically 

representing lenders, sometimes representing debtors. 

When Dan Miller came to me as the subprime crisis was 

unwinding a couple of years ago and suggested that we permit 

modification of mortgages and Chapter 13, I said I wouldn’t support it. 

Largely, Mr. Smith, I wouldn’t support it for the reasons that you 

described, and I have got 30 years of background in this subject 

matter. It took me about 2 months of thinking about it before I realized that probably a modified version of what Mr. Miller is suggesting is absolutely necessary under our circumstances, national 

circumstances, and it can be enacted in a way that doesn’t hold out 

all the problems that you, I think, correctly have identified as the 

things to be worried about with regard to legislation like this. 

It should only apply to preexisting loans. It shouldn’t apply prospectively. 

That eliminates, probably altogether, but certainly diminishes 

substantially the worry that the consequence of this will be to increase costs for everybody who wants to get a mortgage in the future because it doesn’t really threaten future mortgages. 

When I made my proposal and not in the form of written legislation but sort of an outline to different folks a couple of years ago, 

I not only suggested retroactivity. I suggested that it be limited to 

certain types of loans, that they be subprime, Alt-A, maybe constrained to a certain period of time. 

The reason I was absolutely convinced that we need today move 

and move quickly is because there really is no other mechanism 

available to us to address this crisis. Whether you are interested 

in helping out the homeowners, or you are interested in helping out 

the rest of us, the folks who didn’t drag us into this mess, the people who were not irresponsible borrowers, the people who were not 

irresponsible lenders but who are caught up in all of this, seeing 

our home values plummet, jobs disappear, the economy in tatters, 

if you are interested in helping and you are interested in focusing 

on what dragged us into all of this mess, let us get the parties that 

dragged us into this to resolve their problem between themselves 

without having a whole bunch of houses on the market, foreclosed 

on, vacant, dragging down the portfolio of values for all of the lenders that I used to represent, causing them to have all kinds of problems meeting capital requirements, having FDIC come in and close 

banks. 

It is a tidal wave that is slowly sweeping the country causing 

misery and tragedy to a whole bunch of folks when it wasn’t necessary and, certainly, could have been slowed down if we had just 

been a little bit more open minded to the only mechanism that is 

really available to slow it down; and that is modification of these 

notes in a Chapter 13 setting. 

Now, why won’t it work out in Chapter 13? It is pretty simple. 

Most of these folks who get to the point where they have got to 

modify their mortgage, they have got credit card issues, alimony 

issues, child support issues, hospital bill issues. They have got 

32 

many, many other creditors. The amounts, relatively, are fairly 

small. There is effectively no such thing as custom modification 

and workouts in consumer cases because the amounts are too small 

to put the effort into it for the industry. 

So it is a—apparently, somebody is going to be dismissive of 

Brad’s proposal. I would modify Brad’s proposal. But it is the individual who is dismissive on the notion that this is a one-size-fitsall problem. Yes, it is a one-size-fits-all problem from the perspective of the industry because these are consumer cases. 

And so you cannot expect to take taxpayer dollars, put them into 

homeowner relief or mortgage relief or what have you and expect 

it is going to have much effect because these folks have other debt 

problems that aren’t going to get resolved even if their home mortgage debt problem does get resolved. A small percentage, yes. But 

the vast majority, no. 

The efforts that we have made so far to try and help folks whose 

properties are going to go into foreclosure, who are going wind up 

homeless, who are going to wind up out of the middle class and, 

perhaps, as Brad suggests, never to return to the middle class. The 

program we have come up with so far, they are just not going work 

for the reasons I just described. It is too big a problem. 

Now, Chapter 13 is a very fair process for all parties concerned. 

It is one that has safely and effectively modified loans in all kinds 

of other circumstances except primary residences. And the bankruptcy process generally deals with this modification problem time 

and time again. 

Mr. Smith, I found myself agreeing with the items that you listed 

as reasons to be concerned. And I would like to quickly just address 

those different items. 

First, you identified one reason to be fairly comforted by the 

prospect of making this change in our law. And that is, in effect, 

it says to the parties who are dragging us into this, the lenders, 

call it the debtors and the creditors, you deal with this among yourself. Don’t let it play out in our neighborhoods across the country. 

You are going to settle this thing, and we are going try and keep 

more people in—you are not going to drag down the portfolio values of all these banks that are innocent. You are not going drag 

down the value of my house. I am innocent. 

So it is attractive that no taxpayer dollars need to be used in 

order to accomplish that. And what taxpayer dollars are used can 

be blended into the realities that would then exist under the circumstances of modification. There is no reason to suggest that 

somehow a program permitting loan modification in Chapter 13 

would undermine our other efforts, just supplement them and actually diminish the necessity for them, which is very attractive to me. 

There should be no long-term increase in mortgage rates if it is 

only retroactive and, in fact, there is scholarship out there that 

suggests that there wouldn’t be an increase in mortgage rates anyway; that the impact is too small; that there are others that differ. 

Yes, there will be a lot of bankruptcy filings. I think there is a 

very legitimate concern. And it is a concern that the bankruptcy 

system could get overwhelmed. And that is something that this 

Committee needs to be thinking about. 

33 

How do you simplify the process? How do you make valuation 

easy and more reliable? Is this going to be full relief for appraisers, 

you know, many of whom are responsible for dragging us into this 

by giving high valuations to start out with? Because they will all 

be testifying in bankruptcy courts and running the clock at the 

time—full relief for lawyers, full relief for trustees. 

Some attention must be given to trustee fees here. If payments 

are made outside of the bankruptcy plans and there is a huge increase in volume, there may not be enough money in the system 

to handle that. So there are issues that need to be focused on in 

light of the fact that this would increase dramatically the amount 

of filing. There is no doubt about that. 

But this system is set up to handle exactly this problem. We 

don’t have any other system that is set up to handle it, and there 

is no other system that can handle it. You can’t do it voluntarily. 

And the industry itself is not going to be able to deal with this. 

And the final thing, I wholeheartedly agree on personal responsibility. There is all kinds of scholarship out there that clearly indicates that people don’t take out loans thinking, as a fallback, I am 

going file bankruptcy if I can’t pay this thing. There is lots of scholarship to that effect. 

But what worries me more than the concern about personal responsibility and somehow undermining personal responsibility is 

that bankruptcy judges are human. Humans err. They are not perfect. They are going to make mistakes where valuation is concerned. And I don’t think it is fair for a debtor to get a windfall 

just because a judge made a mistake on valuation or for unsecured 

creditors who then might get some payments that they wouldn’t 

otherwise have gotten to get a windfall. 

And so I have thought and I proposed a couple of years ago that 

inaddition to this being retroactive, that what we ought to have is 

what is referred to sometimes as a claw-back position. Basically, 

the idea is that, at least initially, when the judge makes a valuation determination, that is fine; it is final. We move on. There is 

an appeal right? But most creditors are not going to appeal. There 

is just not enough money in it. 

We move on. But the creditor, actually, for a certain period of 

time gets 100 percent of the upside if that property is sold. And 

gradually rights transfer, equity transfers to the debtor. It seems 

to me that that is one way to reduce the number of filings that are 

just sort of—well, I am going take a shot at maybe getting a reduced price on my house. And it is a way to reduce any likelihood 

at all that somehow personal responsibility is going to be undermined and people are going to be filing in order to take advantage 

of the bankruptcy process instead of just being up front and 

straight in their relationships with their creditors. 

There are a number of other issues here, Mr. Chairman. You are 

going to have to worry about eligibility for Chapter 13. Right now, 

as eligibility is currently defined, there are going to be some folks 

who are not eligible that you would probably want to be eligible if 

you are going to offer this areas a solution to our national problem 

or one of the—part of the solutions there. 

There ought to be restraints on the judge’s ability to modify 

loans. There should be a cap on the number of years. There should 

34 

be some limitation on what the judge can do as far as interest rate, 

et cetera, is concerned. Most judges aren’t going to get carried 

away, but it would be good if the legislation covered those things. 

Trustee compensation, I have already mentioned that. The valuation process somehow injecting speed, simplicity, and diminishing 

costs—those are important, also. And the final thing I would say 

is that I have never been one to appreciate the ways in which, in 

bankruptcy law, people like me can sort of get you. Find a technical 

problem and, as a result of having found that technical problem 

with your paperwork or your filing or you didn’t throw three rocks 

over your left shoulder at the right time in order to truly establish 

your rights, all of a sudden, you are not properly secured. 

And it seems to me we ought to ask the industry to identify ways 

in which the mortgage-backed security process and securitization of 

debt generally has caused problems with enforcement. And we 

ought to invite the industry to suggest language that could be included in this bill that would assist the creditor in getting to an 

equitable solution here so that both sides are fairly treated. 

Bankruptcy courts are courts of equity. We should long ago—a 

year and a half ago—have permitted bankruptcy courts to have the 

authority to modify, with certain limitations that take care of some 

of the problems that Mr. Smith has correctly identified. And we 

ought to do it as quickly as we can. 

Thank you, Mr. Chairman. 

Mr. CONYERS. Thank you very much, both of you. 

I successfully restrained the Members of the Committee who 

have dozens of questions that they would like to put to you now. 

But as you know, our custom is that we do not enter into the question process with our distinguished colleagues who come before us. 

Mr. MARSHALL. Mr. Chairman, if I could offer all Members who 

would like to at all further with me about this in an informal setting or in a formal setting—it doesn’t matter to me. I am happy 

to do it. As I said, I was originally a no. It took me a couple of 

months of thinking about our circumstances and how we could 

work this out to conclude that we really ought to do it. And I would 

be happy to share my—respond to questions in another setting at 

any time. 

Mr. MILLER. And, Mr. Chairman, I would, too. I have had many, 

many conversations. Ms. Lofgren has also played an important role 

in trying to work compromises on this. My caution is that that 

process not slow things down. We need to act quickly. 

Mr. Chairman, thank you. I think we would be both willing to 

take questions. Thank you for relieving us of that. 

Whatever else I may accomplish as a Member of Congress, I 

think I can now claim fairly to be the only Member of Congress 

who has succeeded in persuading Jim Marshal to change his mind 

about anything. 

Mr. CONYERS. Your message is very well received. Thank you, 

both. 

Ms. JACKSON LEE. Mr. Chairman? 

Mr. CONYERS. I am sorry. 

The next witness is Professor Adam Levitin from George Washington University, who will be followed by David Certner of the 

35 

AARP. And the final witness is Matt Mason, associate director of 

the United Automobile Workers GM Legal Services. 

Professor Levitin is really from Georgetown University Law 

School. My error. He has presented us with one of the longest 

statements for the record that I have encountered because it was 

in very small print and it still went to 27 pages, which will be duly 

entered into the record. 

He specializes in bankruptcy and commercial law. He has practiced business and finance and restructuring in the department of 

Weil, Gotshal, and Manges in New York, and is an adviser to the 

Congressional oversight panel supervising the Troubled Asset Relief Program. 

All of your statements will be entered into the record. And I 

want to invite you, Professor Levitin, to begin our discussion. 

TESTIMONY OF ADAM J. LEVITIN, ASSOCIATE PROFESSOR OF 

LAW, GEORGETOWN UNIVERSITY LAW CENTER, WASHINGTON, DC 

Mr. LEVITIN. Mr. Chairman Conyers, Ranking Member Smith, 

and Members of the Committee, good afternoon. My name is Adam 

Levitin, and I am an associate professor of law at Georgetown University Law Center. 

I am here this morning to testify in support of H.R. 200 and H.R. 

225. I think it is interesting to look back at where we were, where 

we were standing a year ago. A year ago, the idea of modifying 

mortgages in bankruptcy looked radical to many people. 

But then 6 months ago, who would have thought that this Congress would have approved the single largest expenditure in U.S. 

government history? The $700 billion Troubled Asset Relief Program, the TARP. 

Today, bankruptcy modification not only looks like the only free 

meal in town, but it is also, by far, the most moderate response 

that can possibly deal with the foreclosure crisis. And it is truly the 

only serious option on the table. 

Our choices today are bankruptcy modification or nothing. And 

it is important to realize doing nothing is a choice, and it is a very 

bad choice. 

I wish to make two points in my oral testimony. First, permitting 

bankruptcy modification of mortgage will have only a minimal impact on mortgage credit. And second, bankruptcy modification is 

the only guaranteed method for dealing with obstacles to loan 

modification created by securitization. 

Bankruptcy modification will only have a de minimus impact on 

mortgage credit. Mortgage costs will not go up for prospective borrowers, and mortgage credit availability will not be reduced except 

at the very margins. 

For the average borrower, there will likely be almost no impact. 

This is because lenders would typically lose less in bankruptcy 

modification than in foreclosure. 

Indeed, by definition, the bankruptcy code guarantees a secured 

creditor, like a mortgage creditor, at least as much of a recovery 

as in foreclosure—namely, the value of the property. 

36 

Now, basic economic theory posits that lenders will charge more 

when faced with larger potential losses. And I think you will hear 

more from Professor Mayer about this. 

Professor Mayer and I are on the same page about this, but Professor Mayer focuses on what I believe is the wrong question. The 

question is not the trade off between bankruptcy losses and no 

losses. 

Instead, the relevant question when trying to gauge the economic 

impact of bankruptcy modification on future mortgage credit is 

whether loan modification would result in larger losses for a lender 

than foreclosure. It won’t. 

There is no evidence that bankruptcy modification losses would 

be larger in foreclosure. I have conducted the only research to date 

that examines the foreclosure modification trade off. 

Currently, foreclosure losses for lenders are running at around 

55 percent of loan value. Bankruptcy modification, even in lenders’ 

worst-case scenarios, like Riverside and San Bernardino, California, would only result in an average 23 percent loss of loan 

value. 

As foreclosure losses are greater than bankruptcy modification 

losses would be, lenders will not price against bankruptcy modification. 

Unfortunately, parts of the lending industry, including the Mortgage Bankers Association, have been touting some bogus claims to 

Congress and to the public. They have been arguing that bankruptcy modification would result in a 150-point across-the-board increase in mortgage interest rates. 

Let me be very clear about this: The Mortgage Bankers Association’s 150-basis-point number is false. It is grossly irresponsible. 

And it is dis-provable. 

It is a number that they, the Mortgage Bankers Association, has 

continually changed its calculation of this number, so it is a bit of 

amoving target, and I am not quite sure which calculation I should 

be taking aim at today. 

And I see that my time is running down. I refer you to my written testimony for a detailed refutation of this number. 

So here is the key question. If modification is really a better outcome for foreclosure—than foreclosure for lenders, why aren’t we 

seeing lots of meaningful, voluntary loan modifications? 

The answer lies with securitization and the contractual and incentive problems it creates. Securitization separates beneficial ownership of mortgage loans from the servicing of the loans. This creates several problems for modifications. I will mention two of them 

briefly. 

First, mortgage servicers’ contracts frequently limit their ability 

to perform modifications. Servicers are often banned from writing 

down principal, reducing interest rates, so forth. This is true for 

Fannie Mae and Freddie Mac loans as well as for private 

securitizations. 

These contractual obstacles can only be reduced with the unanimous consent of the mortgage-backed security holders. That would 

be impossible to get in most cases. The only way to cut through 

these contracts is bankruptcy modification. 

37 

Likewise, securitization also creates economic incentives for foreclosure. If you want to understand why we are seeing such dismal 

voluntary efforts at loan modification in the private market, you 

need to follow the money, and that trail leads to mortgage 

servicers. 

Many mortgage servicers are able to make more money in foreclosure than they do with a loan modification, even if the modification is in the interest of the investors. 

I want to conclude by emphasizing that bankruptcy modification 

is the only guaranteed method for dealing with the contractual and 

incentive problems for loan modification created by securitization. 

It costs taxpayers nothing, and it will not create moral hazard. 

Unless the problems created by securitization are addressed, we 

will not be able to abate the flood of foreclosures, and we will not 

be able to stabilize financial markets. 

I strongly urge Congress to pass legislation permitting all mortgages to be modified in bankruptcy. Thank you, and I look forward 

to your questions. 

[The prepared statement of Mr. Levitin follows:] 

38 

PREPARED STATEMENT OF ADAM J. LEVITIN


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Mr. CONYERS. Thank you very much. 

Before I bring on Mr. Certner, I want to add that Professor 

Mayer, Christopher Mayer, who is the Paul Milstein professor of 

real estate and senior vice dean at Columbia Business School, has 

joined us, and I welcome him. 

He spent his last 16 years studying housing markets and credit 

while working at the Federal Reserve Bank of Boston and serving 

on the faculties of Columbia Business School, the University of 

Michigan Business School and the Wharton School of the University of Pennsylvania. He has received his degrees from University 

of Rochester and from MIT. 

I now turn to Mr. Certner to introduce him at this moment and 

note, of course, that he is the legal counsel and legislative policy 

director at AARP, a nonprofit, nonpartisan membership organization for people at the young age of 50 and over. 

With 40 million members, AARP is the Nation’s largest organization dedicated to enhancing quality of life for senior citizens by advocating for positive social change. Mr. Certner has been with 

AARP since 1982, serves as counsel for the association’s legislative, 

regulatory, and policy efforts at the Federal and state levels. 

His degrees come from the National Law Center at George Washington University, and I am delighted to invite him to give his testimony at this moment. 

TESTIMONY OF DAVID M. CERTNER, LEGAL COUNSEL AND 

LEGISLATIVE POLICY DIRECTOR, AARP, WASHINGTON, DC 

Mr. CERTNER. Thank you, Mr. Chairman. 

Chairman Conyers and Members of the Committee, thank you 

for the opportunity to appear before the Committee this afternoon 

on behalf of AARP. 

As Congress begins work this week on broad economic recovery 

legislation, it is critical to remember that the underlying cause of 

our Nation’s economic crisis is the huge number of mortgage loans 

currently delinquent or in foreclosure. 

Home foreclosures today are at an all-time high, and another 2 

million households with subprime mortgages are currently delinquent and in danger of losing their homes in the near future. 

The prospect of widespread foreclosures is particularly serious for 

older Americans, who depend on their homes not only for shelter 

but as their primary asset for retirement. 

For Americans age 50 and over, losing a house represents a significant financial loss in which there is limited time to recover. And 

for many, recovery may be impossible. 

AARP analyzed mortgage data covering a 6-month period ending 

in December of 2007. 

And, Mr. Chairman, I ask that a copy of our report be included 

in the record. 

Mr. CONYERS. Without objection, so ordered. 

[The information referred to follows:] 

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Mr. CERTNER. The report produced a number of important findings. Americans age 50 and over hold about 41 percent of all first 

mortgages, and nearly 700,000 homeowners age 50 and over were 

either delinquent or in foreclosure at the end of 2007, representing 

28 percent of delinquencies and foreclosures. 

African American and Hispanic homeowners over age 50 experienced even higher rates of foreclosure. Older African American 

homeowners held 6.8 percent of all first mortgages, but represented 

14.4 percent of all foreclosures, while Hispanic homeowners age 50 

and over held 7.5 percent of first mortgages but represented 15.9 

percent of all foreclosures. 

Also, having a subprime loan was found to be associated with 

higher foreclosure rates for all age groups, but the impact was 

greatest for older homeowners. Homeowners age 50 and over with 

subprime mortgages were nearly 17 times more likely to be in foreclosure than those with prime loans. 

And homeowners age 50 and over with loan-to-value ratios of 100 

percent or greater experienced foreclosure rates nearly double the 

national foreclosure rates for all older homeowners. 

This last finding is significant when you consider that some additional 2.3 million households age 50 and older have less than 20 

percent equity in their homes. 

Home prices have been falling dramatically the last 2 years, 

meaning that even higher percentages of older homeowners face 

foreclosure and the loss of retirement security in coming years. 

To date, it has been noted the only systemic efforts that have 

been made to help individual borrowers avoid foreclosure have involved voluntary efforts by lenders and servicers, and the available 

data suggests that these voluntary efforts have been inadequate 

both in the number of mortgages modified and the level of relief 

provided to homeowners. 

These actions often do little to actually improve the borrower’s financial condition and have resulted in loan modifications in which 

relief for homeowners has been either temporary or unsustainable. 

A number of obstacles have tended to limit the willingness of 

loan lenders and servicers to engage voluntarily in loan modifications. Most mortgages are combined in mortgage securities, making 

it difficult to obtain investors’ consent. 

Loan servicers fear investor lawsuits. Holders of second liens can 

refuse consent. And servicers have little incentive to engage in 

modifications, as was noted, since service contracts typically pay 

forforeclosures, but not the more labor-intensive loan modifications. 

These obstacles help explain why the spreading foreclosure crisis 

cannot be resolved through voluntary efforts. A mechanism is needed to enable courts to implement economically rational loan modifications where mortgage lenders or servicers are unwilling to do 

so. 

Court-supervised loan modification through the bankruptcy court 

offers quick and effective relief for millions of homeowners without 

the added cost to taxpayers. 

AARP supports, and we urge Congress to enact, a broad bankruptcy reform provision as part of the economic recovery legislation. 

73 

Currently, judicial modification of loans in bankruptcy is available, as noted, for owners of commercial properties, investment 

properties, vacation homes, yachts, family farms and other 

securitized property. 

It is denied to struggling homeowners to protect the home they 

live in. Eliminating this exemption to the bankruptcy code would 

create a number of immediate and important benefits. First, it 

would allow bankruptcy judges to cut through the various obstacles 

that have doomed the voluntary loan modifications. 

It would provide a process for loan modification that recognizes 

all debts a household is facing and provide sensible and affordable 

loan workouts. 

And it provides a process in which the legitimate interests of 

lenders, servicers and investors are recognized and where all parties can realize greater returns. 

And finally, it would create an incentive for servicers and lenders 

to engage voluntarily in loan modifications rather than have the 

bankruptcy judges do it for them. 

Mr. Chairman, AARP strongly believes that judicial modification 

of primary mortgages must be part of any solution to the foreclosure crisis. Continued reliance on voluntary approaches to loan 

modification will not adequately address the problem. 

Chapter 13 bankruptcy offers an existing structure and an impartial process that can help hundreds of thousands of families 

save their homes. 

And as a matter of basic fairness, it is time that Congress provided average homeowners with the same rights and opportunities 

to protect their primary assets in bankruptcy that corporations, investors, farmers and others have relied on for many years. 

Thank you. 

[The prepared statement of Mr. Certner follows:] 

74 

PREPARED STATEMENT OF DAVID M. CERTNER


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Mr. CONYERS. Thank you very much, Mr. Certner. 

I am now pleased, of course, to recognize Mr. Mason, Matt 

Mason, from UAW-General Motors Legal Services, located in Detroit, Michigan. 

We welcome you for your testimony, Mr. Mason. 

TESTIMONY OF MATTHEW J. MASON, ASSISTANT DIRECTOR, 

UAW-GM LEGAL SERVICES PLAN, DETROIT, MI 

Mr. MASON. Thank you, Mr. Conyers. Now the mike is on. 

My name is Matthew Mason, and I am an assistant director with 

the UAW-General Motors—— 

Ms. LOFGREN. Would the gentleman pull his microphone a little 

bit closer so we can hear? 

Mr. MASON [continuing]. Located in Detroit, Michigan. 

I wish to thank the Chairman, Mr. Conyers, and the Ranking 

Member, Mr. Smith, and all the Members of this Committee for allowing me to testify today on behalf of the UAW-GM Legal Services 

Plan concerning the two bills pending before this Committee, H.R. 

200 and 225. 

I believe these bills deserve your support. It is critical. The bills 

both allow bankruptcy judges the power to modify mortgages on 

personal residences in Chapter 13. 

From our perspective in the field, this power is necessary to 

break the tide of unabated mortgage foreclosures and to end the 

barriers to meaningful, voluntary modifications both inside and, I 

must say, outside of bankruptcy. 

The voluntary loan programs—we have heard comments. They 

are just not working. From our experience in Detroit and around 

the country—and I have also surveyed the 3,300 members of the 

National Association of Consumer Bankruptcy Attorneys—it is very 

clear to us that the programs in existence now not only aren’t 

working but, in fact, are working less well than they had previously. 

In early 2008, to me, loan modifications seemed promising. I met 

with Mr. Conyers at a symposium in Detroit on a cold winter day, 

he may remember, and we had some hopes that actually the modification programs that were constantly being rolled out would actually have some effect. 

Pressure had been mounting on the mortgage companies to rewrite the loans voluntarily, not only to reflect the economic reality 

but also to keep from adding to the volume of foreclosed homes on 

the market. 

And our attorneys did have some limited success in obtaining 

some modifications in early 2008. Perhaps an adjustable-rate mortgage was converted to a low-rate 30-year fixed mortgage. Arrears 

were either waived or added to the end of the mortgage. And a 

modest reduction was accomplished in the principal balance. 

But true, the vast majority of the modifications were no modifications whatsoever. Those were clearly the exceptions, but they were 

somewhat encouraging. 

A typical modification was nothing more than a forbearance program. You would double up on your payments. Maybe you would 

add a few to the end of the loan. But there would be no substantive 

82 

change to the mortgage terms. If there ever was an interest rate 

offered, it was small, and it was for a very short period of time. 

But by the summer of 2008, even our limited success ground to 

a halt. And this fall, in meetings I have had even similar experiences reported to me—the modifications we were able to obtain 

even before don’t really exist now. 

And just this week, I re-surveyed our staff and the bankruptcy 

attorneys around the country to see if things had improved. Not to 

much surprise, they had either stayed the same or gotten worse. 

Attorneys reported that fewer modifications were approved inside 

or outside of bankruptcy, the time to complete modifications had 

increased, more lenders demanded bankruptcy petitions be dismissed before considering modification and then no guarantee of 

the modification after the dismissal. And the size of the interest 

rate reductions not only decreased, but the length of time that they 

are allowing to decrease the interest rate decreased as well. When 

working families see layoffs, cuts in hours, cuts in benefits, wholesale closings of factories for weeks at a time, a small reduction in 

interest rate is simply not enough. 

And finally, there was no consistent pattern to the modifications 

that we saw. There is no way to tell why one borrower qualified 

for a modification and another did not. 

Now locally, in Detroit, turning to 2009, one might have thought 

that all the foreclosures that could have happened had, but in fact 

that is not true at all. There is still over 12,000 foreclosed homes 

for sale in Wayne County and the vast majority in the city of Detroit. Foreclosures are increasing nationally, as we have heard, and 

in fact they have doubled from 2007 to 2008. 

Locally, for the week of January 12 through 16, this is just last 

week, there is an average in Wayne County of 126 homes each day 

being foreclosed upon. 

If lenders cannot voluntarily address this crisis, then borrowers 

should be given the opportunity to reorganize. Just like any other 

obligation in bankruptcy. The goal is not to encourage bankruptcy 

filings, that is clear, or to reward the undeserving. And in fact, by 

filing bankruptcy, people do just the opposite. They have the opportunity now to walk away from their homes, but undertaking a 

modification in bankruptcy, they elect to stay in their homes. 

They submit to the court their payments for 3 to 5 years, whatever money is left over gets paid to unsecured creditors, including 

mortgage companies, and it is in a process that is verifiable, a process that is quick, designed to work and it is effective. 

From our perspective, Mr. Conyers, we believe that it deserves 

a chance and deserves a chance that we think will be successful. 

Thank you. 

[The prepared statement of Mr. Mason follows:] 

PREPARED STATEMENT OF TESTIMONY OF MATTHEW J. MASON

My name is Matthew J. Mason and I am an Assistant Director of the UAW-GM 

Legal Services Plan located in Detroit, Michigan. 

I wish to thank the Chairman, Mr. Conyers, the ranking member, Mr. Smith and 

all of the members of the Committee for allowing me to testify today on behalf of 

the UAW-GM Legal Services Plan concerning the two bills pending before this committee, H.R. 200, ‘‘Helping Families Save Their Homes in Bankruptcy Act of 2009’’ 

and H.R. 225, ‘‘Emergency Homeownership and Equity Protection Act.’’ These bills 

address what is one of the most pressing issues of my legal career, the unrelenting 

83 

pace of mortgage foreclosures and the failure of any voluntary system of modifications to arrest this crisis which is now in its third year nationally and what seems 

like forever in Michigan. This statement reflects my views on this current crisis and 

does not and is not intended in any way to reflect the views of the General Motors 

Corporation or any of its subsidiaries or the International Union, UAW. 

I have been a practicing attorney and administrator for almost 35 years. I have 

been active in the practice of bankruptcy law for over 30 years and previously testified before this Committee in 1998 on what became the far reaching amendments 

to the bankruptcy code that took effect in 2005. 

The UAW-GM Legal Services Plan and its sister Plans, provide legal services to 

over 700,000 eligible UAW members on a wide variety of subjects. We have 65 offices in 20 states that handle all types of non fee generating civil matters. In the 

housing area, we handle buys and sells, loan modifications, work out agreements, 

deeds in lieu of foreclosure as well as provide foreclosure defense for active workers 

and retirees alike. We also provide legal services for bankruptcy, but only as a last 

resort. 

I also currently serve as a member of the Board of Directors of the National Association of Consumer Bankruptcy Attorneys (NACBA), an organization of over 3300 

consumer bankruptcy attorneys located in all fifty states and Puerto Rico. 

I believe that these bills deserve your support, if for no other reason, than the 

simple fact that both bills allow bankruptcy judges the power in Chapter 13 to modify mortgages on personal residences. This power is necessary to break the unabated 

flood of mortgage foreclosures and end the barriers to meaningful, voluntary modifications outside of bankruptcy. 

I. THE VOLUNTARY LOAN MODIFICATION PROGRAMS ARE NOT WORKING

In preparation for NACBA’s 16th Annual Conference in May 2008 I surveyed both 

our legal plan attorneys and the members of NACBA to determine what was actually happening inside and outside of bankruptcy concerning loan modifications. 

In early 2008 pressure had been mounting on mortgage companies to rewrite the 

loans not only to reflect economic reality but also to keep from adding to the volumes of foreclosed homes already on the market. 

By May of 2008 our legal plan attorneys reported that in most cases lenders were 

offering forbearance agreements, with no changes in term, interest rate, principal 

reductions or changing the term of the loan. The terms of the forbearance agreements also varied greatly, from adding a few payments to the end of the loan to 

allowing an arrears to be paid over a period of time, perhaps as much as a year. 

They also reported some very modest success in obtaining a meaningful modification, typically where a variable rate mortgage was converted to a 30 year fixed, arrears either waived or added to the end of the terms and a modest reduction in the 

principal balance. 

However counterbalancing those cases were modification proposals that were unreasonable, such as one where the lender wanted upfront money before they would 

even process a loan modification. ($6000 in 5 days.) 

I also surveyed the NACBA membership who reported similar results, though not 

even as encouraging. Specifically, they reported in early 2008 that: 

1. About 60% of the attorneys assisted with loan modification for clients, 

whether in or outside of bankruptcy. 

2. The vast majority of responders (68%) said that they obtained modifications 

in less than 10% of the cases. 

3. When they referred clients to mortgage counselors, virtually all of the clients 

came back. Again the vast majority responded (78%) that less than 10% of 

those clients received a modification through a mortgage counselor. 

4. Modifications on average took more than 4 weeks, and many of them took 

in excess of six weeks. 

5. In about 30% of the cases where a modification was available, the lender required that the bankruptcy be dismissed. 

6. In cases where the lender required dismissal of the bankruptcy, it caused almost 75% of those clients to reject the modification. 

7. Many modifications involved interest rate reductions, 75% of which were reduced by 4% or less. 

8. Interest rates for ARM’s were typically frozen for the life of the loan. 

9. In the few cases where principal was reduced, in 85% of the cases the reduction was for $30,000 or less. 

84 

By the summer of 2008 even those limited successes seemed to evaporate. Our 

legal plan attorneys reported that meaningful modifications seemed to grind to a 

halt. The initial problem with not being able to reach lenders continued. By the end 

of 2008 our bankruptcy filing rate increased and our percentage of Chapter 13 cases 

where we could save the home decreased. 

In the last few days I re-surveyed the NACBA membership and my staff to see 

what experience they were having with loan modifications in late 2008 and early 

2009. 

The results are unchanged if not worse. My staff reported that effective modifications, typically involving a long term rate reduction and decrease in principal were 

nonexistent. In a few instances they were able to accomplish those modifications but 

only after initiating some kind of litigation proceeding, such as an objection to a 

claim, a forced modification in bankruptcy or an adversary proceeding alleging some 

kind of fraud in the transaction. 

The survey of NACBA attorneys produced a similar picture of fewer modifications 

being offered with poorer terms. For modifications obtained from October 1, 2008 

to the present, they reported: 

1. Less than ten percent (10%) of their clients who need a modification obtained 

one. 

2. Even after the clients were referred to loan counselors, still less than ten 

percent (10%) received loan modifications. 

3. The approval rates for modification have actually decreased from early 2008. 

64.7% of the respondents reported that approval rates for modification 

dropped since October 1, 2008. 

4. The time to complete a modification has increased. 56.7% of the respondents 

reported that it took in excess of six weeks to get a modification approved 

as compared to 38. 6 % who responded to the same question in April, 2008. 

5. A higher percentage of lenders are now requiring borrowers to dismiss their 

bankruptcy petitions before giving a modification. (42.2% in 2009 and 28.4% 

in 2008) In both cases, the overwhelming majority still reported that the requirement to dismiss the bankruptcy resulted in the client rejecting the 

modification and surrendering the home. (88.9% in 2009 and 73.9% in 2008). 

6. Most modifications still involved interest rate reductions, but even there, the 

size of the rate reduction decreased. Relatively few borrowers received a decrease in excess of 2% and almost no borrowers received a rate decrease of 

4% or more. 

7. The length of time interest rates were frozen decreased. Now more attorneys 

reported that the rate was frozen for three years or less, not the life of the 

loan. In 2008 the overwhelming majority (87%) reported that the rate was 

frozen for the term of the loan. In 2009 that decreased to 42%. 

8. The respondents still reported very few reductions in the principal balance 

of loans and then only in relatively small amounts, under $30,000. 

In a couple of instances the lenders were taking an even harder line. In one case 

a large lender in the FDIC program offered to reduce the borrower’s payments for 

a few years, provided he prove monthly income of at least double what he actually 

has (and which he had on the date of loan origination) while proposing to increase 

his mortgage balance by more than $84,000. 

II. NEW MORTAGE FORECLOSURES CONTINUE TO BE A SERIOUS PROBLEM IN 2009. 

In his recent article, Rewriting Contracts, Wholesale Data on Voluntary Mortgage 

Modifications from 2007 and 2008 Remittance Reports, (Working Draft), Alan M. 

White, Assistant Professor Valpariso School of Law, Professor White undertook an 

empirical review of loan modification data taken from subprime lender reports to 

its investors. In the article he concluded that the foreclosure crisis continued 

unabated thorough June, 2008. 

Professor White found that the number of mortgage defaults and foreclosures increased steadily in the 2007–2008 time frame. In July 2007 the average delinquency 

rate in the mortgagte pools he studied was 19%. In addition 1.4% of all loans entered into foreclosure that month. That translated into a 16.8% annual rate of new 

foreclosures as a percentage of that portfolio. 

By June 2008 he found that the delinquency rate had nearly doubled to 34% and 

new foreclosures were occuring at an annual rate of 27%. 

In an article from January 15, 2009 the Associated Press just reported that mortgage foreclosure rates doubled in 2008 compared to 2007 

85 

‘‘WASHINGTON—More than 2.3 million American homeowners faced foreclosure 

proceedings last year, an 81 percent increase from 2007, with the worst yet to come 

as consumers grapple with layoffs, shrinking investment portfolios and falling home 

prices. 

Nationwide, more than 860,000 properties were actually repossessed by lenders, 

more than double the 2007 level, according to RealtyTrac, a foreclosure listing firm 

based in Irvine, Calif., which compiled the figures.’’ 

Our experience locally supports those findings. For example, for the first six 

months of 2007 there had been 28,075 foreclosures in Detroit and Wayne County 

Michigan, a 26% increase over the last six months of 2006, and over 90% of them 

in the City of Detroit. There were over 14,000 properties listed for sale on foreclosure.com just in Wayne County Michigan. 

Now in January, 2009 Wayne County still has almost 12,000 homes listed on for 

sale on a single website, foreclosure.com. Nationally over 2.2 million homes are listed for sale on this same site as homes in some stage of foreclosure. 

In reviewing our local Detroit Legal News we found that on January 20, 2009 

there were 551 homes slated for foreclosure sale, all of them in Wayne County. On 

a daily basis now homes were added to the list at an alarming rate. 

In just six days, from January 12, 2009 through January 19, 2009 there were, on 

average, 126 homes each day listed for foreclosure sale for the first time 

Professor White also sees no bottoming out of the foreclosure crisis at least as of 

June, 2008. As credit for refinancing dried up and borrowers have become less credit 

worthy because of job losses, cuts in wages and hours, the mortgage foreclosure 

rates increased into June 2008. 

III. THE MODIFICATIONS OFFERED DO NOT SOLVE THE PROBLEM

Professor White also noted that the modifications currently being offered do not 

solve the fundamental problem, that is lower the payment to an affordable rate as 

well as reduce the principal balance to reflect the market value of the home. 

Most of the modifications involved recasting arrears, which is adding delinquent 

payments to the balance of the loan or a modest, temporary reduction in the interest 

rate. Very few loans had principal balances reduced. Furthermore in 23% of the reported modifications, the monthly payment even increased. Page 20–21. 

Professor White concluded that, at best, the current modification programs were 

only putting off the day of reckoning. He stated at page 27: 

‘‘More importantly, homeowners have not been relieved of the devalued debt, either through completed foreclosures sales or loan concessions. Many are still stuck 

in a ‘‘sweat box’’ struggling to pay above-market interest rates on above-market 

loans.’’ 

Therefore it would not be surprising to see even those borrowers who are listed 

as having ‘‘modified’’ their loan, default in the future, placing that home in the new 

foreclosure start category. 

Finally Professor White noted in his research that there was no consistency 

among servicers in their approach to loan modifications. Our experience bears that 

out as well. 

For example, in Saginaw, Michigan a foreclosure case was commenced for a client 

who was behind on their mortgage. We were told by the foreclosing attorneys that 

we had to deal with the servicer directly. We called the mortgage company and 

asked for loss mitigation. They said they would send a loan modification application 

but that it would take 30 days or more to process. We asked for an adjournment 

of the mortgage sale to allow time to process the modification. Three (3) times we 

called the person with the authority to adjourn and each time we got the voice mail 

message that the voice mail box was full. We faxed a request for an adjournment 

but received no response. We filed the loan modification application but have not 

received a response. In the meantime the loan is proceeding through the foreclosure 

process. 

In Dearborn, Michigan we applied for a modification to stop another sale. We 

were able to reach that company but they only offered to suspend payments for 

three (3) months and then add those three months to the existing arrears. The effect 

would have just been to increase the total amount due. There was no offer to reduce 

the interest rate, principal or amount of monthly payments. 

Even when we try loss mitigation such as deeding the property back to the lender 

we have run into great difficulties. In one case out of Indiana we initially asked for 

a loan modification which was denied. We then offered to provide the lender with 

a deed in lieu of foreclosure. Now eighteen months later the mortgage company has 

yet to complete the documents to accept the deed in lieu of foreclosure, even though 

no payments are being made. 

86 

Talking with local loan counselors confirmed my view that some large lending institutions are actually getting worse in their modification practice. They have hired 

outside firms to do loss mitigation and are adding the fees of those firms onto the 

modification. They only offer interest rate reductions and then not much. They will 

still not talk to borrowers who are not yet in default. Even if they are in default, 

the response from the lender typically comes within days of the foreclosure sale, if 

at all. 

IV. MODIFYING MORTGAGE LOANS ON PERSONAL RESIDENCES IN BANKRUPTCY IS THE

ONLY PROPOSAL THAT GIVES HOMEOWNERS RIGHTS THEY CAN ENFORCE. 

Currently the various proposals for loan modifications all start with an application to the lender. The lender determines who gets the modification, what kind it 

is and for how long it will last. It has been our experience that the modification 

terms vary wildly between clients, for no apparent reason. The modification terms 

also do not take into account, in most instances, the value of the property and what 

the borrower can really afford. 

As a consequence borrowers are often encouraged to abandon their homes, especially when they can rent or perhaps even buy a new home in the same neighborhood for a fraction of the cost of their existing home. However that process is slow 

and has enormous costs. There are costs to foreclose, costs to move and costs to 

maintain abandoned properties that will never be recovered. In addition neighborhoods continue to deteriorate and house values continue to fall. 

Allowing a borrower to propose their own modification in bankruptcy puts a plan 

on the table that actually assigns a value to the collateral, and then proposes to 

pay the loan based on current market interest rates. The plan has to be feasible 

and is tailored to the borrower’s income and expenses. That information is subject 

to verification through the six months of pay stubs that are required to be filed in 

every bankruptcy. Tax returns must also be filed. If there is a dispute as to the 

value of the house, appraisals will be typically exchanged, with the judge having the 

final decision. 

Lenders still have the possibility of recovering some of their losses. The existing 

loan is split into two parts, secured and unsecured. The creditor always maintains 

a claim for the unsecured balance of the loan. Payments are mandated on the unsecured balance if the debtor’s income or assets warrant it. Furthermore borrowers 

and lenders could agree to a claw back provision that could return equity to the 

lender if the home appreciated. 

V. BANKRUPTCY PROVIDES A UNIFORM SOLUTION TO THE FORECLOSURE CRISIS AND

CUTS THROUGH ALL THE PROBLEMS OF LENDER COOPERATION

Bankruptcy also provides a uniform solution to the foreclosure crisis. Your loan 

is not evaluated from the lender’s perspective that might include the fear of being 

sued by their investors. Instead it is open to any borrower who has income and can 

qualify. They propose a plan, it is confirmed or not and the case moves on. Currently bankruptcy courts process hundreds of thousands of Chapter 13 plans each 

year. The issues presented by modifications are quite familiar to them. 

A Chapter 13 modification also addresses the issues of lender liability. Servicers 

have already been sued on the basis that their voluntary loan modification programs 

exceed the authority granted to them. To the extent that the threat of suit by investors has negatively impacted the scope of modification programs, bankruptcy eliminates that issue. 

Professor White notes that it could take ten to fifteen years to work though the 

mortgage crisis using the current voluntary methods. It could even take longer, especially if the holding pattern of voluntary modification only leads to another default, starting the cycle of default and foreclosure all over again. Homes remain 

unsold. The economy never recovers. 

However bankruptcy cuts through many of these issues. The plan is confirmed or 

not in a matter of months. The plan lasts from 36–60 months. The modification is 

not voluntary so the lender cannot be sued for overstepping its discretion. Second 

liens can be valued and allowed or stripped. Since the bankruptcy court is open to 

everyone, it provides a fair, expeditious, tested and familiar structure for families 

to save their homes. 

CONCLUSION

The current voluntary programs are a failure. We continue to have difficulty, even 

in reaching some lenders to propose a timely modification. For whatever reason 

lenders are still not capable of consistently voluntarily modifying loans in such a 

way, that would grant to borrowers the repayment terms necessary to save their 

87 

homes. Typically that would involve an interest rate reduction, a curing of the arrearage, a reduction in the principal balance, whether combined with an equity 

sharing arrangement or not, and moving the loan from a variable rate to a fixed 

rate. H.R. 200 and H.R. 225 both cut through the voluntary modification process 

and provide an effective mechanism to modify mortgage loans in Chapter 13 bankruptcy. 

Mr. CONYERS. Our final witness is Professor Christopher Mayer 

of the Columbia Business School, and we welcome your presence 

here today, sir. 

TESTIMONY OF CHRISTOPHER J. MAYER, PAUL MILSTEIN 

PROFESSOR OF REAL ESTATE AND SENIOR VICE DEAN, COLUMBIA BUSINESS SCHOOL, NEW YORK, NY 

Mr. MAYER. Thank you, Mr. Conyers, Ranking Member Smith 

and Members of the Committee. 

We are witnessing an unprecedented crisis. House prices are in 

near free fall. More than 2.2 million foreclosures were started last 

year and things are likely to get much worse. 

Over 4 million Americans are at least 60 days late on their mortgages. We must act promptly. 

Bankruptcy cram downs may seem appealing, but in fact would 

exacerbate the crisis. If just 1 in 12 existing homeowners decided 

to stop paying and pursue bankruptcy, we would have double the 

current delinquency rate and a larger catastrophe. This is not unprecedented, it has happened before with credit cards. 

Proponents of bankruptcy reform argue the cram downs will not 

cost taxpayers any money. This claim is simply not true. Taxpayers 

are on the hook for $5.6 trillion in mortgage guarantees from 

Fannie Mae, Freddie Mac and the FHA. Taxpayers could lose tens 

or hundreds of billions with cram downs and mortgage losses and 

money needed to stabilize banks who suffer additional losses. 

Yet cram downs are unnecessary. The Government can freely 

modify 35 million of the 55 million outstanding mortgages it controls through Fannie, Freddie and the FHA. Another 12 million 

mortgages are in the hands of private lenders, not just money center banks, but community banks and credit unions. These lenders 

are now undertaking appreciable efforts to modify their own loans. 

And the Obama administration has promised to spend $50 to $100 

billion to reduce foreclosures. 

Bankruptcy reform would delay the process of restructuring 

mortgages, the same costly mistake that Japan made in the 

1990’s—368 bankruptcy judges now handle an average of 2,630 

cases each year. The courts would have difficulty handling a dramatically increased caseload with the care necessary to successfully 

modify loans. Even with this case load, it is an incredibly important thing to note, more than two-thirds of Chapter 13 plans ultimately fail. Bankruptcy reform is just simply not a panacea. 

The best private mortgage modification programs have much better success rates. Given the choice, servicers might prefer bankruptcy to loan modification because a typical securitization agreement reimburses servicers for expenses incurred in any legal proceeding, including foreclosures as well as bankruptcy, but not for 

modifications. 

88 

Finally, cram downs would truly raise the cost of future borrowing and make credit less available to disadvantaged borrowers, 

even results that show up in tables 2 and 4 of Professor Levitin’s 

study. 

Instead, I suggest a comprehensive three-pronged solution to the 

crisis. It is not okay to just stand where we are. 

First, Dean Glenn Hubbard and I propose that the Government 

arrange for the GSEs to issue new mortgages at a rate that is 1.6 

percent above the rate of the 10-year treasury, as low as 4 percent 

today. Our plan would stimulate as many as 2 million new home 

purchases and really importantly, if we want to stop foreclosures, 

puta floor on house price declines. Lower mortgage rates would also 

allow as many as 34 million Americans to refinance their mortgages, saving $424 to $25 per month, per year, a total of $174 billion per year of a stimulus every year. This is like a large middle 

class tax cut. Permanent reductions in mortgage payments would 

also stimulate much higher consumption growth than temporary 

tax changes. 

Next, and important for this Committee, Columbia professors Edward Morrison, Tomek Piskorski and I have developed a new proposal to prevent needless foreclosures. Recent research has showed 

that banks that manage their own mortgages are one-third less 

likely to pursue foreclosure than servicers of securitized mortgages. 

Securitized mortgages represent 15 percent of outstanding loans, 

but half of all foreclosure starts. That is where the problem is. 

We propose that servicers be paid an incentive fee equal to 10 

percent of mortgage payments, up to $60 a month. This program 

aligns incentives between servicers and investors and makes modification the preferred solution. If a mortgage is ongoing, the 

servicer receives a fee. If it goes to foreclosure, the servicer receives 

nothing. 

Second, the Federal Government should promptly eliminate all 

contractual restrictions on loan modification. Ambiguous provisions 

should be clarified via a safe harbor that insulates reasonable good 

faith modification from litigation. 

Our proposal helps homeowners. A homeowner is a prime candidate for loan modification when her income is sufficient to make 

payments that exceed the foreclosure value of her home, the same 

standard as envisioned for cram downs. 

Our third proposal deals with troublesome second mortgages. 

Under this plan, the Government would offer second lien holders 

up to 1,500 to drop their claim if the first mortgage is modified, 

which could facilitate another 1.4 million new modifications. 

These proposals are an alternative to cram downs and they address the current crisis at a cost of $12.8 billion that would be payable through TARP funds. Why risk cram downs when more effective, quicker and less costly solutions are available? 

[The prepared statement of Mr. Mayer follows:] 

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PREPARED STATEMENT OF CHRISTOPHER J. MAYER


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Mr. CONYERS. This bankruptcy seminar conducted by the 39 

Members of the House Judiciary Committee has had presentations 

by two very distinguished professors. I now invite Professor Levitin 

to make his response, and then I will allow Professor Mayer to 

make yet another presentation. 

Mr. LEVITIN. Chairman Conyers, I came here today prepared to 

discuss H.R. 200 and H.R. 225, not to get into the merits and the 

problems of Professor Mayer’s proposal. 

That said, I think it is important to note this. There is some 

merit to what Professor Mayer says, that he correctly notes that 

there are problems with servicer incentives and that there are 

problems with restrictive contracts. These are things that any solution to the foreclosure crisis must deal with. However, these are 

not the only problems. And I do not believe that Professor Mayer’s 

plan, which ultimately relies on the private market to get this 

right, will necessarily work. 

I would hope it would, but that is a big gamble to take. And in 

a—if you think how long the legislative process takes, it is—if Congress decides that it wants to run with Professor Mayer’s proposal, 

that is going to take many months before it actually gets—it would 

become law. Those are months in which thousands and thousands 

of families would lose their homes. 

I don’t know that we have the time to find the perfect solution. 

I think we need to find the most immediately workable solution. 

Bankruptcy is immediately available. The bankruptcy courts are 

over-staffed relative to the historical level of filings. And what I 

think is really a major misconception about bankruptcy modification is the role of bankruptcy judges. 

Bankruptcy judges do not go and micro-manage each Chapter 13 

case. Most of that other work on a modification is performed by the 

debtors council and by the Chapter 13 trustee. The bankruptcy 

judge does not propose the modification. This is a common misconception. Instead, the bankruptcy judge decides whether or not 

to approve the modification proposed by the debtor if it conforms 

with the statutory requirements. 

This is not a proposal that would—the bankruptcy modification 

proposal would not result in a tremendous amount of additional 

work for the courts. The courts are ready, willing and able to handle this. 

I urge all of the Members of the Committee to go and speak to 

the bankruptcy judges in your districts. Ask them, can the courts 

handle this? And I tell you, they will almost unanimously say yes, 

we can do this. 

Actually, Chairman Conyers, if I may just add one other comment. About the two-thirds failure rate in Chapter 13. That is correct. Two-thirds of Chapter 13 plans fail. But that alone is a misleading figure. 

First of all, of course, to where we have a high failure rate in 

Chapter 13 plans. If you can—the home mortgage is typically consumers’ single largest debt. If you can’t fix that, if you can’t restructure that debt, then it is not likely that you are going to be 

able to fix your finances. So it is not surprising that currently we 

see a very high Chapter 13 failure rate. 

103 

The second thing to note is that just saying that two-thirds of 

Chapter 13 plans fail doesn’t tell us what failure means. That a 

Chapter 13 plan is going to be between 3 and 5 years. If the plan 

failed 4 years and 9 months into the plan, that is very different 

than if the plan fails in the first month. And what we don’t know 

is when plans fail. 

Also, a lot of mortgages are simply not dealt with in Chapter 13 

plans because there is nothing—there is really very little one can 

do with them. Instead, the consumers simply try to ride their mortgage through a bankruptcy. 

So I don’t know that, that two-thirds statistic, as scary as it 

sounds, actually tells us very much. 

Mr. CONYERS. Our other professor, Christopher Mayer. 

Mr. MAYER. So I think the—again, there are parts of what Professor Levitin’s comments that I agree with. I certainly do not 

think if we went this route we would see the mortgage finance system collapse, but I think I would, again, highlight that what would 

happen, and we know this from lots of research, not only Professor 

Levitin, but looking around the world, that we would see the cost 

of borrowing rise moderately for mortgages, and we would also see 

particularly disadvantaged borrowers, either ones that are pulled 

out of the market, they are the ones at risk of failing. They are the 

ones who are likely to lose credit. It is not going to be the medium 

borrower, it is going to be disadvantaged borrowers who disproportionately lose credit. 

The second thing is that the two-thirds failure rate, I think a lot 

of the comments that I have heard in favor of bankruptcy reform 

really think of it as something that is this is going to solve our 

problem. And I think it is—there is no evidence that it will. 

Maybe bankruptcy reform will do better than it has done. But so 

far, it hasn’t solved problems. And if we end up a couple of years 

from now with two-thirds of the people failing and all the mortgage 

debt back on our books, we are Japan. And that is incredibly costly 

to all of us, as taxpayers, and it is a huge risk to take from the 

balance sheet. 

The third thing is, there are programs that are successful. The 

statistics that almost everybody quotes about the failure of loan 

modifications really come from observing securitized mortgages by 

servicers who are conflicted, who face disincentives to modify. And 

those are really serious problems. So I think when we sort of look 

at the evidence, and I can point to some evidence and point to some 

studies that show there are some very, very successful loan modification programs being done privately that have failure rates that 

are much, much less than two-third. 

Mr. CONYERS. Robert Goodlatte? 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

Mr. Mayer, Professor Mayer, is there evidence that the bank loan 

modification programs that are being enacted right now by many 

banks are working? 

Mr. MAYER. Yes. There is a couple of different pieces. A colleague 

of mine, Tomek Diskorsky, along with two other co-authors, have 

a recent paper, which compare the performance of securitized loans 

versus portfolio loans. This study, which is a unique, and new 

study only finished in the last several weeks, shows there are apVerDate Aug 31 2005 16:51 Jun 10, 2009 Jkt 000000 PO 00000 Frm 00107 Fmt 6633 Sfmt 6601 H:\WORK\FULL\012209\46615.000 HJUD1 PsN: DOUGA
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preciable differences in foreclosure rates, and the banks foreclose 

on their own loans much less frequently than servicers. Third-party 

servicers are the problem, and we should focus our attention on 

getting that problem fixed. 

Mr. GOODLATTE. Are there specific things that Congress could 

take in that regard to make it easier for those securitized mortgages to be more readily dealt with by somebody to help people 

work through them? 

Mr. MAYER. Yes, I mean I think we need to immediately 

change—I think this is a place that legislation is needed. I think 

we need to immediately get rid of all impediments to securitization. 

This is a constitutional proposal, and it has been vetted by leading 

constitutional scholars. It is perfectly legitimate for the Government to do this, so I think we should get rid of that. 

And the second is—and this is even where I differ from Sheila 

Bair. Sheila Bair’s proposal, which I think is very well-intentioned, 

pays the servicer $1,000 to modify a loan, and it could default the 

next day. Under our proposal, servicers only get paid if that loan 

is performing month by month for 3 years. Very strong economic 

incentives to keep loans going, which is what we all really want to 

accomplish. 

Mr. GOODLATTE. And could these bankruptcy proposals that we 

heard about this afternoon undermine the tools the Federal Government already has to modify the loans that it control? 

Mr. MAYER. Absolutely. The Federal Government already controls the bulk two thirds of the mortgages through the conservatorship of Fannie and Freddie and the FHA. We have seen them undertake different programs than we see in the cram-down legislation. I think this just delays that process. 

Fannie and Freddie could much more quickly—and this is the 

growing part of the problem—our conforming loans. Fannie and 

Freddie, through the Treasury’s leadership and conservatorship, 

could much more quickly deal with this problem than pushing it 

into the courts, and I expect the new Administration is going to be 

much more successful in doing this. That is two thirds of the loans 

out there. 

Mr. GOODLATTE. You mentioned this in your testimony, but let 

me ask you to elaborate on it. How would current legislative proposals to modify bankruptcy laws for those facing foreclosure affect 

prospective homebuyers, people who want to get into this market 

that have the prospect of being able to meet the qualifications to 

buy a home? Are they going to be impacted by our changes in the 

bankruptcy laws here? 

Mr. MAYER. Yes. I mean, I hate to make the slippery slope argument because you always hear that argument here, but it really is 

true. The issues about putting first liens into bankruptcy predate 

this hearing and predate this crisis, and there is a large constituency of people who believe that should have been true and will be 

true now, so there is going to be an enormous political pressure. 

Once we go down the route and allow this to happen, there is going 

to be enormous political pressure to do this. 

And I think that that is just going to be really costly to our efforts not to subsidize the heck out of home ownership but to allow 

fair and equal credit to disadvantaged borrowers. They are the 

105 

ones from lots of evidence who lose when you end up with a process 

that creditors lose track of. And you don’t have to look at the 

United States. You can just go to other countries. Look at Spain. 

Look at Latin America and see places that don’t give lenders any 

rights. And when you take away lenders’ rights, you reduce the 

availability of credit, and that effect is a directly proportional effect. 

Mr. GOODLATTE. I have in front of me a Bloomberg.com article 

by Jody Shenn dated yesterday, which I would ask Mr. Chairman 

to submit for the record. 

Mr. CONYERS. Without objection, so ordered. 

[The information referred to follows:] 


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Mr. GOODLATTE. Thank you, Mr. Chairman. 

But I would also like each of the panelists to comment briefly on 

this. It suggests that the change we are examining here today 

would allow—allowing judges to reduce homeowners’ mortgages 

may boost the capital needs of banks and insurers by hundreds of 

billions of dollars, costing both the taxpayers through the guarantees they already have and the ability of banks to continue to function, and let me just go right down the line here. 

Professor Levitin, have you seen this article and are you familiar 

with this issue? 

Mr. LEVITIN. I have not seen that particular article. I am familiar with the issue, and I think it is important to compare what the 

impact would be with foreclosure, that if we continue as we are 

today, we are going to see lots of undercapitalized financial institutions because they are going to lose money in foreclosure. That, as 

long as they lose less money in bankruptcy modification than foreclosure, bankruptcy modification is a really good deal. 

Mr. GOODLATTE. Mr. Certner. 

Mr. CERTNER. I would agree with that notion exactly, and we are 

talking about here, while there are a large number of families who 

could potentially benefit from the bankruptcy legislation, we are 

probably talking somewhere in the range of less than 2 percent of 

all outstanding mortgages, so the impact will not be as dramatic. 

Mr. MAYER. I think it is an unfortunate view that this doesn’t 

cost taxpayers any money. It costs—bankruptcy cram downs would 

cost taxpayers an enormous amount of money and would severely 

hamper the existing banks that are still around, and that hammers 

all of us through the credit crisis. 

I also think it is important to note, to respond to Professor 

Levitin’s comment, that banks already understand this process. It 

is servicers who don’t, and it is really important to make the distinction because banks are modifying loans, and there is evidence 

they are successful at it. It is servicers who aren’t, and that is 

where we have to focus. 

Mr. GOODLATTE. I am not sure that Professor Levitin and Mr. 

Certner really addressed the issue that is raised here. Let me read 

a portion. It says, ‘‘The issue identified by investors stems from 

language buried in more than 100 pages of prospectuses of many 

prime, jumbo and ALT-A home loan securities. Some of the contracts state that bankruptcy-related losses greater than amounts 

sometimes as little as $100,000 get allocated equally among all investors in bonds backed by the loan pools rather than lower-ranked 

debt first. Holders, such as banks and insurers of senior classes 

may see their payments cut or interrupted, potentially forcing 

write-downs and rating downgrades that, in turn, could raise their 

capital needs.’’ 

And it is those capital needs that these banks are concerned 

about being raised dramatically that could put them out of business or require merger or takeover by the FDIC that we are talking 

about here, not just whether they save more money or lose more 

money by being able to reorganize a debt, which bankruptcy certainly under certain circumstances can allow them to do. 

Mr. LEVITIN. I have looked at dozens of securitization agreements. I have never seen that particular language, so that is new 

109 

to me. But I think it is important to keep a focus on there being 

two risks for investors. There is a risk caused by actual defaults 

when homeowners don’t pay, and therefore, the securitization 

trusts don’t have the money to pay the coupons to their investors. 

But there is also, and maybe much more importantly, there is a 

market risk that even if you are holding AAA paper and it has 

been paying the coupon timely every time, you may not be able to 

sell that paper for anything close to its face value, and that is because nobody knows how high these default rates are going to go. 

There is too much uncertainty in the market. 

What bankruptcy modification does is it cuts through that uncertainty, that right now we actually, I think, are in the situation that 

looks like Japan in the 1990’s where financial institutions are unwilling to take the write-downs necessary, and they keep holding 

non-performing loans on their books. What bankruptcy modification does is it forces those write-downs. It forces a housecleaning, 

and then that lets us have really a financial fresh start, not just 

for homeowners but for the whole system, that when one financial 

institution wants to deal with—— 

Mr. GOODLATTE. When those financial write-downs occur, the 

banks are required to change their entire lending practice because 

they are then required by the bank examiners to have more assets 

on hand that they don’t have that are performing that could simply 

put them out of business. We may inadvertently force action that 

would ultimately lead to what you are talking about but in the 

meantime cause major disruptions in our banking industry. That 

is what I think is expressed by this article. 

Mr. LEVITIN. We are already there, unfortunately, and I think 

that the mistake would be to try to sweep the problems in the 

banking system under the rug rather than deal with them up front. 

Bankruptcy modification will cause some upfront dealing with the 

financial problems. We are going to have to bite this bullet sooner 

or later, and the danger is that we wait too long to do this, and 

we lose the decade. 

Mr. GOODLATTE. Well, thank you, Mr. Chairman. You have been 

very kind with the time you have allotted to me. 

Mr. CONYERS. Bobby Scott? 

Mr. SCOTT. Thank you, Mr. Chairman. 

Let me, Professor Levitin, let me follow through on that. How is 

the bank any worse off with cram down under bankruptcy—the 

fact is that the security they have is the cram-down amount—the 

value of the house is the security for the loan, and if it is now 

down, whether it is crammed down or not, they don’t have any 

more security than anything actually there? 

Mr. LEVITIN. You hit the nail on the head there, that if the 

bank’s choice is between having a modified loan in bankruptcy, 

where it gets a secured claim for the value of the property and an 

unsecured claim for the deficiency, that is exactly what they get in 

foreclosure. And frankly, unless you think bankruptcy judges are 

systematically going to do worse jobs than foreclosure sales in valuing property, it is going to be a lot better for the bank. 

I don’t know how many of you have been to a foreclosure sale, 

but most foreclosure sales, the only one who shows up to bid is the 

foreclosing creditor. In New Jersey, for example, foreclosure sales, 

110 

the bidding starts at $100 by the foreclosing creditor. Most sales, 

that is the only bid there is. The property goes for $100. 

Now, that foreclosing creditor might try and resell the property 

later, but they are carrying a property on their books for a while 

that is not performing, not producing any income. And in this market, good luck selling it at anything close to what the price was 

when they made the loan. 

Mr. SCOTT. Professor Mayer, why is the bank worse off under a 

cram down, since that is all the security they have anyway? 

Mr. MAYER. I think it is important to recognize that there is lots 

of evidence about why people miss mortgage payments. It isn’t because their loan-to-value is above 100 percent. It is because they 

have trouble making their payments. So the right solution to dealing with this is really making sure people can make their payments on their homes. 

The cram-down portion actually erases the possibility that the 

lender can ever be made whole when there is temporary reductions 

in income. So if we look at previous cycles, many, many homeowners sat with the loan-to-value above one and made their payments. So if we want to keep people in their homes, we really have 

to worry about the payment issue. 

The difference for the lender and the reason that lenders—you 

know, lenders aren’t stupid. It is not as if they think this is in their 

interest, you know, that this is in their interest, and somehow they 

are all saying it is not. We have to sort of take them at their word 

if they think it is not. 

The difference—and this is where the huge write-downs come— 

is by cramming down the loan amount and giving the lender no 

chance of ever getting it back instead of reducing payments so people can stay in the house, and as the market recovers, lenders get 

some of that additional money back, you are immediately forcing 

a bigger loss on lenders than they would otherwise get. And that 

is a really important distinction, and there is lots of evidence in the 

academic literature to support that. 

Mr. SCOTT. But if they found that from the bankruptcy the bank 

would be in exactly the same situation they would be with the 

cram down. 

Mr. MAYER. No because the mortgage amount is crammed down. 

What you are doing is you are taking away a secured claim and 

giving them—taking away their secured claim, which forces a much 

bigger write-down—— 

Mr. SCOTT. Yes, but you have a secured claim on the value—the 

value of the property is all the security you have. Under bankruptcy, that is all the creditor is going to get at most. 

Mr. MAYER. But I made, you know, as a bank, I made a loan that 

is a secured loan, and I thought I had collateral to protect that, and 

I am willing to make a secured loan very differently. And we all 

understand a secured loan is a much lower cost loan than an unsecured loan. It is because the losses on unsecured loans—— 

Mr. SCOTT. Yes, but the only security you have is the house, and 

the value of the house is the extent of the security. 

Mr. MAYER. No, that is not true. 

Mr. SCOTT. And the cram down is to the true value of the house. 

111 

Mr. MAYER. I have two things when I have a mortgage. I have 

a promise to pay from a borrower, and then I have a security as 

a fallback. If I can keep that borrower paying, then I actually have 

something that is worth more than just the value of the house, and 

that is why the cram downs kill lenders. 

With all due respect, I apologize. I am used to an academic-style 

discussion. I apologize. 

Mr. SCOTT. Well, I mean, what you have is the homeowner over 

a barrel, didn’t want to have to leave the house and be homeless, 

and you are gouging them for more than you could get under the 

legal process because you have that leverage over them. It is not 

legal. It is leverage because they don’t want to be homeless. I am 

sorry? 

Mr. MAYER. I am sorry. 

Mr. SCOTT. No, go ahead. 

Is that not the leverage you have, the fact that they would be 

homeless and you can get more—you can gouge them now that you 

have got them over a barrel? And that is the security that you are 

talking about. 

Legally in bankruptcy you can get the cram down costs? That is 

all you ever get. And you won’t even get that because you have got 

more expenses in foreclosure. 

Mr. MAYER. I wouldn’t characterize in my own view of lenders 

as trying to gouge. What a lender is trying to do is to get the most 

payments they can with at the same time keeping someone in their 

house. The fundamental idea of my proposal is to have the lender 

receive as much payments as they can, the servicer, but if the payments stop, the servicer gets nothing. 

And so the idea is to keep people in their house, but I do think 

when you take out a loan, you have a responsibility to pay as much 

as you can back of that loan as possible, and I think that is an important responsibility. 

Mr. SCOTT. Mr. Chairman, if I could add. 

Professor Levitin, a quick question. Is there any point in making, 

if we pass the bill, to effect only present loans and not future 

loans? 

Mr. LEVITIN. I think it actually would be a good thing if it affected all loans. But, you know, I am willing—I would rather see 

a half loaf than nothing at all here. 

Mr. SCOTT. Five years, 10 years from now, we are not going to 

be right back where we are—the argument that when you made 

the loan, you knew who you were lending and what the rules 

where and, if we went down the road a little bit, we would be 

changing the rules retroactively? Wouldn’t it make more sense, in 

fact, to file a future loan rather than past loans? 

Mr. LEVITIN. Well, there is no—on past loans, there was reliance 

that there wouldn’t be bankruptcy modification. In the future, we 

have a lot of certainty about this. And I think that would actually 

be a very good thing because the possibility of loan modification in 

bankruptcy actually instills some discipline in the lending process. 

We would not have had the craziness of the last 6 years or so 

in the lending market had bankruptcy modification been possible. 

Bankruptcy modification is really a defense against systemic risk 

caused by out-of-control consumer lending. 

112 

Mr. SCOTT. Thank you. 

Mr. CONYERS. Judge Louie Gohmert? 

Mr. GOHMERT. Thank you, Mr. Chairman. And I appreciate the 

members of the panel. Of course, I have to comment on a few 

things, one earlier in the panel—in the first panel had comment 

the bailout bill vote we just showed—just took showed how people 

feel in the House about the bailout. 

I would only submit that had the Senate disapproved the bailout 

money, then the vote would have been substantially different. This, 

in the House, was a free vote so people could go back and tell their 

constituents we voted against the bailout knowing there had to be 

a vote of disapproval in both houses in order to keep the next $350 

billion from being squandered as the first was. My opinion. 

As far as the banking business, I am not a big fan of what has 

been going on by the investment banks. I think they are terribly 

at fault in much of our crisis these days. But I am very concerned 

about the community banks who have had very good lending practices and have been caught in the cross-fire between the loose 

standards of investment banks with the regulators who are now requiring more in reserve. 

I met with regulators, and they are saying, well, they are more 

nervous since—so they are requiring banks to hold more in reserves because of the situation and the chance that more may have 

to file bankruptcy. 

Now, Professor Levitin, I notice in your article—and I want to be 

fair. But when you say in the your article courts have interpreted 

the bankruptcy codes mortgage anti-modification provisions to 

apply only to single-family principle residence mortgages, that is 

correct. Thus, you surmise from that single-family principle residence mortgages may not be modified in bankruptcy. 

All other mortgages may be modified in bankruptcy. Therefore, 

you draw the hypothesis that, therefore, one would expect that if 

the market were sensitive to bankruptcy modification, there would 

be a risk premium for mortgages of the type properly currently 

modified. 

Isn’t the truth of the matter that those second home mortgages, 

in order to be modified, still must require that the principle that 

is reduced—that difference in the reduction—has to be paid within 

5 years? Isn’t that correct? 

Mr. LEVITIN. That depends on the court. And I think it is important to note that the second homes are really a red herring. The 

second homes are not the right comparison. It is the two-family 

homes that are really the good comparison, where you rent out the 

basement—— 

Mr. GOHMERT. Yes, but I am talking about this part and why so 

many deal with courts who say if you are going to lower the principle in these second home mortgages, you have to pay the principle within 5 years. Most people who are in bankruptcy cannot pay 

that difference in principle within 5 years. Therefore, it really has 

not had much effect on those situations because they know they are 

not going to be able to go in and ask for a reduction in principle 

on the second home because they can’t pay that other principle in 

5 years. 

113 

And I would submit to you that, that is really more the reason 

that, that has not had much effect. Whereas, what we are talking 

about in this bankruptcy change would not have that requirement 

that the difference in principle be paid within 5 years. So I am very 

concerned about the lending drying up even further. We were told 

by King Paulson that if we gave all this money to these banks, that 

credit would just be enhanced, lending would flow. It hasn’t. 

Banks have done different things with it, of course, as I am sure 

you well know. Some have bought up competition. Some have used 

it for bonuses, but they won’t come out and say because they say 

well, it went into the general banking revenue, therefore, we can’t 

say exactly what happened with it. 

But most of them have made lending more difficult. We are bailing out the car dealers and yet lending for the—I mean, we are 

bailing out the car manufacturers, but lending for the dealers is 

drying up. Lending for car buyers is drying up. 

The banks are telling me the regulators are getting tougher because of the economic conditions. We have got to have more in reserve. And all I can see is that if we approve this bankruptcy 

change where a bankruptcy judge—and there are a lot—and you 

know what will happen—they will flood into the—you know, of 

course, you are talking about local bankruptcy judges. But they will 

find the best judges, because usually there is more than one, and 

they will push to get the right judge so that they can avoid paying 

all of the principle that they contracted to pay. 

And once banks have no reliance on the principle that they contract for, then the lending is going to dry up even further. And I 

can guarantee you, just from my 4 years in Congress, we are going 

to see another big bailout proposal—let us bail them out again. 

And it will come back to the fact that we dried up more lending 

by what we are doing today. 

And I realize my time has expired. And I am sorry. I appreciate 

the indulgence. Thank you, Mr. Chairman. 

Mr. CONYERS. Does any Member wish to respond? All right. Two 

responses. 

Mr. MASON. If I could just—we talk a lot about the banks and 

the liquidity issues of the banks and the amounts of money that 

they might be required to have on hand in terms of dealing with 

the restructured loan situation. 

But I would like to bring the Committee back to the real fundamental problem, which is people are losing their homes. We really 

want to encourage people to stay in their homes. We don’t want to 

have more homes foreclosed on the market, further depressing the 

market. We would like people to stay in their homes who can continue to maintain a stream of payments that has been discussed so 

much here. 

And the fear of people somehow manipulating the system really, 

to me, is not justified. You have to commit your full amount of your 

income. And, therefore, if you come in with $2,000 of income over 

and above expenses mandated by the Internal Revenue Service for 

food and clothing, you have to pay all of that to your creditors. 

So even if the principle amount of the loan is reduced, reducing 

that payment, you still have to pay your excess income to the very 

114 

same creditor who maintains an unsecured claim. So I think—over 

5 years in most of these cases. 

And with the frequency of which mortgages turn over now, my 

guess is that it would be a pretty good deal for lenders if they could 

have a guaranteed stream of payments for 5 years in bankruptcy 

compared to a foreclosure situation where a house sits on the market. 

Mr. LEVITIN. Well, Congressman Gohmert, I certainly hope you 

won’t crucify me for Hank Paulson’s since I want to disavow any 

responsibility for his decisions. 

But I want to address three things that you raised that I think 

are very important. First, whether mortgages do have to be paid 

off in the 3 to 5 years of a plan. Secondly, I think the community 

banks are something that are an issue that deserves some attention. And, thirdly, the questions about how many more filings we 

will see as a result of passing bankruptcy modification legislation. 

So first, the uncertainty. I am sorry. First, the 3 to 5 years repayment. There is actually a lot of disagreement among courts. 

Most courts that have reported decisions about whether a modified 

loan has to be repaid within the 3 to 5 years of plan have said, yes, 

it has to be repaid within those 3 to 5 years. But it is not unanimous. There is only one circuit court of appeals that has touched 

on the issue. That is the 9th Circuit where panels frequently overrule each other. 

This is something that law professors argue about and can reach 

no agreement. I can give you a very good statutory reading that 

says that, certainly, that is not the case; that what has to be paid 

is value, not cash, over those 3 to 5 years. And value can be in the 

form of a new 30-year note or something. That is what we do in 

Chapter 11. 

But the point is not whether it actually has to be paid in those 

3 to 5 years or not. The point is that there is uncertainty that no 

lender actually knows what a bankruptcy court is going to doa bout 

that. And I can tell you, underwriting models just aren’t this sensitive. They don’t—when a financial institution is figuring out what 

is going to happen in bankruptcy, it assumes that, that modification can and will happen on a two-family property, on a three-family property, even on an investment property. 

So I think that it is actually a real thing that we—that we are 

not seeing the differences. I accept your point that there are some 

courts that say it has to be paid off in those 5 years. And this legislation would change that. This legislation that is proposed would 

allow, I believe, up to 40 years. I don’t think that we should, therefore, expect that bankruptcy judges would say a loan that has 3 

years left on it will become a 40—will get amortized over 40 years. 

I think, more likely, if it has 3 years left on it, maybe it turns into 

4 years. 

But the uncertainty is an important point here. 

Secondly, about community banks. Community banks really have 

gotten kind of the short end of the stick in what is going on here. 

And that is unfortunate because community banks were not the 

reckless lenders, by and large. They were careful. They knew their 

borrowers. They did traditional, prudent underwriting. And here 

115 

they are seeing their large competitors getting bailed out when 

they are not. That is a very concerning issue. 

What is important to note, though, is that community banks, 

first of all, they have lower default rates, I believe, because they 

made more prudent loans. And, secondly, they know how to do loan 

workouts that, as Professor Mayer mentioned, are for portfolio 

loans. And most community banks don’t securitize their loans or 

portfolio loans. We see a lot more loan modifications working. 

So we don’t have community banks where—faced with a massive 

problem of borrowers who can’t afford their loans and can’t get a 

workout. Borrowers don’t want—homeowners don’t want to file for 

bankruptcy. This is just such a horrible misconception. Bankruptcy 

is not a drive-by process. This is not fun. This is living for 3 to 5 

years on a court-supervised budget. If you want to get braces for 

your kid, you are going to have to go and bargain about that with 

the trustee and with the creditors. 

Mr. GOHMERT. In your statement—— 

Mr. LEVITIN. So I don’t think—I think people file for bankruptcy 

because they need to and they have to. They don’t do this because 

they are being strategic. They do it with a great sense of shame, 

most of them. And it you are concerned about protecting principle, 

which is something else you raised, you are going have to keep asking yourself how well does foreclosure—that is the alternative that 

is on the table right now. How will this foreclosure protect principle? It really doesn’t. 

Mr. CONYERS. Zoe Lofgren? 

Mr. GOHMERT. Mr. Chairman, since all of them were allowed to 

respond to me, might I have a response to—— 

Mr. CONYERS. You have never been denied in the 111th Congress, but you have come very close to it already. Yes. 

Mr. GOHMERT. I will be very brief. 

Regarding the comment we want people to stay in their homes. 

You are right. We want to afford more people the opportunity to 

stay in their homes. But in Congress, we are supposed to look at 

the big picture. And what I saw when Speaker Pelosi had all those 

children up there around the—I was about to tears. It was really 

a beautiful moment. 

But then what hits me was these are the kids that we are saddling with so much debt from what we are spending from this Congress. And now here, we could—if we do the wrong thing through 

this Committee—keep many of them from ever being able to get a 

loan to buy a home. 

So I want to keep people in their homes, but I do want those 

loans to be available. And I am hearing from community banks 

who have, up to now, had good lending practices, we are not going 

to be able to lend like this any more. We are going to have to cut 

out so many that we are currently lending to because they won’t 

qualify in the future when we know that a bankruptcy judge can 

cram down a lower principle. 

Thank you. 

Mr. CONYERS. Zoe Lofgren. 

Ms. LOFGREN. Thank you, Mr. Chairman. I will be brief. This is 

a very important hearing. 

116 

And I have a question for you, Professor Mayer, and I wonder if 

you could just say yes or no because it is a yes or no question. 

You have indicated in your testimony that the Government— 

Federal Government—is in the position to control the bulk of the 

workouts without bankruptcy. Is it your contention that in all cases 

involving Freddie Mac, Fannie Mae, or FHA where we have control 

that we have the ability to do a modification even where the mortgage has been securitized? 

Mr. MAYER. With the safe harbor provision that I put into place, 

that would absolutely be true. 

Ms. LOFGREN. Let me ask you about the pooling service agreement issue that you mention in your proposal. Do we know what 

percentage of PSAs contain a provision which limits—or prohibit 

modification? 

Mr. MAYER. Approximately a third of pooling and servicing 

agreements—we have law students in the process of looking at 

this—we think have explicit limits, but most other—most of the remaining ones have implicit—— 

Ms. LOFGREN. Okay. 

Mr. MAYER [continuing]. Rules which are very hard to determine 

and are generally viewed as also restricting modifications. 

Ms. LOFGREN. And do we know what percentage have been 

securitized? 

Mr. MAYER. Of mortgages? 

Ms. LOFGREN. Yes. 

Mr. MAYER. It is about standing mortgages today, it is somewhere between 7.5 and 8 million as of October of this year, of the 

roughly 55 million that are outstanding. 

I have my written testimony has documentation for all those 

numbers. 

Ms. LOFGREN. All right. 

I am wondering, Mr. Certner, if you know—it was kind of a parade of horribles that have been pulled out in the concept of changing this bankruptcy law, but we have maybe an opportunity to look 

at a real-life implication. 

We changed bankruptcy law relative to farms and also, in the 

consequence, houses on farms. When we did that, do you know 

what the impact was in terms of lending for farm housing? And did 

it have the kind of adverse impact that is being fussed about here 

today? 

Mr. CERTNER. I think the studies that look at that have no way 

of validly making that assessment, and I can talk about the details 

of that, but I think I would speak for most sort of academic economists that you can’t look at changes over time when lots of things 

are happening at the same time. 

Ms. LOFGREN. Well, that is always true, but one of the things we 

know is that the economists today also look at real-life examples 

to sample some—— 

Mr. CERTNER. Right. 

Ms. LOFGREN. I wonder if either Mr. Certner or the other professor has an opinion. 

Mr. MAYER. Yes, I think the—and I don’t know that I have seen 

any of the studies or details on that, but I—I think what we can 

117 

say is it did help the—the family farmers when the act was done 

back in 1986, the Family Farmer Bankruptcy Act. 

And I assume that Congress deemed it to be fairly successful, because we basically ended up after using that provision in the crisis 

for farmers ended up making that a permanent part of the bankruptcy code. 

Ms. LOFGREN. Right. 

Mr. MAYER. In 2005, 20 years later. 

My assumption from that is that this was a very successful program, and it has not adversely impacted the market but helped 

people. 

Ms. LOFGREN. Professor Levitin? 

Mr. LEVITIN. That is correct. I agree with Professor Mayer that 

it is hard to pinpoint a result, but I think we can say this very 

clearly. 

The sky didn’t fall after Chapter 12 was enacted—that farmers 

are still able to get credit, and the—you know, we are growing 

crops, and they are getting credit for it—that the—the parade of 

horribles that was trotted out just didn’t materialize. 

Ms. LOFGREN. I would just like to make a couple of comments 

and then let my colleagues ask their questions. 

Much has been said in the Congress about this Hope for Homeowners program, and we had hope for the Hope for Homeowners 

program. 

But I asked my staff to take a look at the FHA reports, and the 

FHA tells us that in the United States of America to date, only 370 

applications have actually been accepted under that program, and 

zero mortgages have been modified. So I think it is important as 

we discuss what to do next that, that be remembered. 

And just a little bit about the need—where we are with the 

banks needing to have their capital in place. It is important to 

think about what is really happening in the real world. 

And in California, I will just give you an example that came in 

to my district office recently, of someone who bought their house 

for $700,000. They put up equity. It wasn’t just, you know, that 

they didn’t put—have a stake in it. 

You know, there has been a lot of unemployment now coming in. 

And there was also cancer in the family. So they are having a problem meeting their mortgage. Their monthly payment is over $4,000 

a month. 

They paid $700,000. The house is probably now worth $200,000, 

maybe. They could pay probably $2,000 or $2,500 a month if they 

could restructure in some way. 

They couldn’t get an answer from the loan servicer, so the house 

was foreclosed. They are out of luck, and the bank is getting nothing, and the bank has gotten nothing for 6 months. 

So to say that the bank isn’t going to have a capital problem 

through foreclosure is simply not the case. If you extrapolate that 

out across the country, the banks are going to lose a lot of money. 

And I personally think the sooner we wash those losses through 

the system, and understand how much has been lost, and put a 

floor under it, the better off we are going to be, where we can move 

forward. 

118 

We are not going to have the same kind of mortgage market in 

the future that we have had in the past. And that is just a fact. 

It is going to be harder to get credit. And families are going to 

struggle more to become homeowners. And I say that with some regret, but that is obviously the case. 

So it is important that we move forward. I personally think that 

some kind of bankruptcy provision must be a part of this answer. 

I was very interested in Congressman Marshall’s comments. 

The idea of having some kind of equity sharing if there were a 

cram down, at least during the life of the plan, so if an asset appreciates that the lender could also benefit from that—I think that 

has—at least should be considered. 

I am also interested—and you don’t need to answer now, but we 

have FHA and VA guaranteed lending. I am wondering whether 

those guarantees ought not to also travel into the bankruptcy 

court. 

And I am also very interested in Congressman Marshall’s comment about eligibility if we were to do something here. You know, 

I will be honest. I really think if it were up to me, I would just remove the whole thing. 

But I think we might be able to come to some point of compromise here, where we talk about existing mortgages and move 

forward. So those are my thoughts. 

And I would ask unanimous consent, Mr. Chairman, to put this 

FHA report into the record. 

Mr. CONYERS. Without objection. 

[The information referred to follows:] 

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FHA-1.eps
120 


FHA-2.eps
121 

Ms. LOFGREN. Thank you for this—— 

Mr. CONYERS [continuing]. So ordered. 

Ms. LOFGREN [continuing]. This hearing. 

Mr. CONYERS. Gregg Harper? 

Mr. HARPER. Thank you, Mr. Chairman. 

I have a question, Professor Mayer. Professor Levitin argued that 

the bankruptcy process will actually reduce uncertainty. Do you 

have any position on that argument or position? 

Mr. MAYER. Yes, and I agree to some extent it will reduce uncertainty, but it will do it in a way that is extraordinarily costly, 

which is it will ensure that lenders bear much bigger losses than 

they would others. 

Mr. HARPER. Okay. 

Mr. MAYER. And that is not exactly the way of uncertainty we 

would like to—the way we want to reduce uncertainty. 

The second thing is it puts a floor—sorry, puts a ceiling on the 

lenders’ recoveries, but one of the things we know about bankruptcy—all of the comments here keep talking about bankruptcy as 

this process that reduces uncertainty and everything works out 

fine. 

All the evidence we have suggests that is just simply not the 

truth. So what we are doing is putting things into a process where 

most things fail. That is the track record. And we are hoping that 

somehow it is going to get better. 

What it may well do is continue to push the problem in the future. And as these loans re-default and run into trouble again, it 

actually is going to put a ceiling on our recoveries and lead uncertainty to be even lower than before. 

And I would just sort of highlight again, if one wants to just do— 

evidence, what happened to the financial institutions the morning 

after Citigroup’s agreement—this legislation was made public. The 

stocks of all the financial institutions fell appreciably. 

And I think to say that something is in their interest—the institutions—I think these are sophisticated enough institutions to understand what is in their interest. 

I don’t want to subsidize them, but I don’t want to dump on them 

losses that they, you know—that will hammer all of us in the process. 

Mr. HARPER. And I certainly want to thank each one of your time 

and your presentation, and certainly your expertise. It has been 

very helpful. And if you have addressed this, I apologize. 

But what happens in the event you go through this process, you 

do a cram down, they get—they go through it successfully, then 4 

years later, let us say, they sell the property for a significant profit? What happens to that gain? 

Mr. LEVITIN. If it is during the course of a plan? 

Mr. HARPER. After the plan. 

Mr. LEVITIN. Okay, because this is actually an important distinction, and I am sorry that Congresswoman Lofgren isn’t here to 

hear my answer on this, because during a plan, any income, including from a sale of a property, is going to go to creditors. 

So if it is a 5-year plan, if there is an appreciation in those 5 

years, that appreciation goes to the unsecured creditors, which include the deficiency claim on a cram-down mortgage. 

122 

Mr. HARPER. Certainly. But after that is completed. 

Mr. LEVITIN. Afterwards, any appreciation is going to be kept by 

the debtor. And I think it is important to note, though, that if there 

was a foreclosure, the creditor doesn’t get any appreciation. 

Once that property is sold, there is no appreciation on it in a— 

in the foreclosure sale. So whether it is better for the debtor to get 

the appreciation or have some sort of a shared appreciation or a 

clawback—I think there are some good arguments to have about 

that. 

But I am not sure that the creditor necessarily has the better 

claim to that appreciation, given that their—it is just crucial that 

the—you understand the framing here was not no loss versus 

bankruptcy-modification loss. It is foreclosure versus bankruptcymodification loss. 

In that case, you know, it is looking like—it is looking a lot—the 

creditor doesn’t have any real expectation of getting—of getting appreciation. 

I also just want to note—this is important—that Professor Mayer 

noted that the next morning after the Citigroup deal was announced that financial institution stocks fell. 

But if you go back to when the announcement actually happened 

that day, if you look at like the next half hour after the announcement—and we assume that we have pretty efficient markets that 

trade on information pretty rapidly—Citigroup’s stock went up 

about somewhere between 1 and 2 percent. So did its competitors’. 

So did Bank of America, J.P. Morgan. 

To look at the next morning—there is all kinds of other stuff 

happening. If you look right after the announcement, once it 

went—was made public about the Citigroup deal, bank stocks went 

up. 

Mr. CONYERS. Sheila Jackson Lee? 

Mr. MAYER. May I also answer that question? Thankyou. I do 

think that equity sharing is an important thing to think about in 

the process, although I—you know, continue to think that the sort 

of question of who is to gain—if I made you a loan on a house, and 

you haven’t made all the payments on the mortgage, and the house 

goes up in value subsequently, I don’t understand the argument 

that given that I made you the loan that, that moneywould be due 

the borrower and not due the lender. 

It is the fundamental basis of secured lending that if you lend 

on an asset and you haven’t made your points in full and paid off 

your asset that the value and any gains of that before the lender 

takes any losses are clearly due the lender, not the borrower, so I 

don’t understand the basis to which we would say that the homeowner should get the appreciation after a cram down, not the lender who has just had their interest destroyed in the process. 

So I think if I am not going to pay my mortgage in full—and I 

completely agree with the idea of reducing payments and keeping 

people in their houses. I couldn’t agree more with that principle. 

But the idea that what happens afterwards is that windfalls 

from that don’t go to the lender with the losses—that is exactly the 

reason that lenders are facing big hits on this. 

And by the way, I would say that Citi’s stock isn’t relevant. It 

is the stock of the other lenders who aren’t reliant on the GovernVerDate Aug 31 2005 16:51 Jun 10, 2009 Jkt 000000 PO 00000 Frm 00126 Fmt 6633 Sfmt 6601 H:\WORK\FULL\012209\46615.000 HJUD1 PsN: DOUGA
123 

ment, and the private market lenders got hammered that day by 

middle of the morning. 

Mr. CONYERS. Sheila Jackson Lee? 

Ms. JACKSON LEE. Let me, first of all, thank all of the witnesses, 

for their presence here today, late on a Thursday afternoon, speaks 

to the crisis and the pending necessity to move quickly. 

I think this should be the theme of this particular hearing, although we respect the disparate viewpoints. 

And, gentlemen, I enjoy an academic discussion. In fact, I miss 

my days in law school. But I would suggest that we have gone beyond an academic discussion. 

Let me just put on the record something that has already probably been put on the record, but let me just read it to you. During 

2007 through 2008, mortgage foreclosures were estimated to result 

in a whopping $400 billion worth of defaults and $100 billion in 

losses to investors in mortgage securities—my sympathies don’t fall 

too much in that direction, but let me just add that—translating 

into roughly one per 62 American households. 

The current foreclosure rate is approaching heights not seen 

since the Great Depression. I think that sometimes we don’t reinforce that, because there was a period of time in the last couple of 

months in the previous Administration where there was a hesitancy to use the word recession, and certainly no one wanted to use 

the word depression. 

All of us can’t count much of our time having spent—being spent 

during the Depression, but the stories we read about it—we know 

that, that was a horrific time in American history. 

The glut of foreclosures has adversely affected new home sales 

and depressed home values generally. 

And, Mr. Levitin, that is where I want to go with my questioning, because I think there is a lot of caution and doubt. And 

if we go on the words of our President, one of the things that we 

know is that the Federal Government is the last resort, the last big 

spender, and of course a lot of people run out of the room when 

they hear that. 

But we also know that we are at a point where the Federal Government has to be the one that either frames or infuses capital into 

the market. We did that with the TARP. We have some guidelines 

on this second point, second portion that I think—hope you will go 

back and study—$100 billion for mortgage workouts is sort of instructing the Administration and banks that that is what Congress 

wants to have happen. To get servicers to service those mortgages. 

So my question is, most of the victims, or many of the victims, 

and I am sympathetic to California and other places, very much so, 

but what I like about the two bills before us, and I would like your 

comment on it, is that it is not limiting to where you can say that 

you have concensus that have enormous amounts of foreclosure. 

Because there are other states where the foreclosures are there and 

there are families that need it, but they might not meet, say, a 

threshold that might be made by legislation. 

In the bankruptcy bills, it allows, if I am—as you have read 

these two bills, individuals to go to the courts and be addressed on 

their merits, which I think the banks should appreciate. I assume 

the bankruptcy courts will use the standards that they have typiVerDate Aug 31 2005 16:51 Jun 10, 2009 Jkt 000000 PO 00000 Frm 00127 Fmt 6633 Sfmt 6601 H:\WORK\FULL\012209\46615.000 HJUD1 PsN: DOUGA
124 

cally used, fraudulent persons, others who are glaringly abusing 

the system will be noted in a bankruptcy proceeding. 

And so I want to have you comment on that part. That there is 

a fairness because you have the courts actually assessing an individual’s plight. For example, I had—there is a story about a 

$700,000 homeowner. I have got a person making $18,000 a year 

living in an apartment as an able apartment owner—or not owner, 

a renter for eons of years, 20 years, and finally was pulled out of 

it, of course, during the period when they were giving mortgages, 

but they sign an adjustable rate mortgage. They might have survived on just a regular mortgage over 40 years. But they signed an 

adjustable rate mortgage. 

They are in the crux of a foreclosure—a potential foreclosure proceeding. They would benefit. Keeping their little bungalow, keeping 

the $18,000 a year job, hoping that they can and not being laid off. 

Microsoft laid off 5,000 people. And not making that block or that 

neighborhood get any worse. 

Would you comment on that individual aspect and the fairness 

of it for a bankruptcy proceeding? And would you add to that how 

we can make sure how this bankruptcy proceeding might be helpful 

to the low-income homeowners and others who are probably going 

to get lost in the crunch? 

Mr. LEVITIN. Bankruptcy empowers debtors to take control of 

their own fate. Right now, when homeowners are dealing with 

mortgage servicers, they are really at the servicer’s mercy that it 

can be everything from just if you are working two jobs, trying to 

get to a mortgage servicer, when you are just waiting on the phone 

for hours, you can’t do that. There is—you have no control over it. 

And even if you get through to the servicer, you don’t know if they 

are going to offer you any kind of reasonable deal. 

They might say, ‘‘Sorry, my hands are tied by a contract to which 

you aren’t a party.’’ The bankruptcy cuts through that, it empowers 

homeowners to save themselves. And that is very important. 

It also is very good at screening out abusive debtors. That there 

are some good, there are some people who take advantage of the 

bankruptcy system and act strategically. By all accounts, it seems 

like they are very few, but unfortunately they often become political poster children. But most debtors are not abusing the system 

and we, especially after 2005, after the bankruptcy abuse prevention in—I can’t remember if it is Consumer Protection Act or Creditor Protection Act, that we have even stronger statutory provisions 

to weed out abusive debtors. 

Bankruptcy really is not going to result in wealthy debtors getting a free ride. Instead, most debtors are really pretty low income, 

that your average bankruptcy filer in 2007 had an income of something like $35,000. That is not a wealthy person. 

Ms. JACKSON LEE. May I just finish, and I thank you for you 

that, by asking this question for all of the panelists? When you look 

at the two bills that we have, what would each of you add that 

would refine the process and add to the fairness quotient of each 

of those bills, across the board? Let me start with Mr. Mason? 

Mr. MASON. It seems to me that one of the issues raised here 

today is the issue about appreciation. While I think it is somewhat 

of a red herring kind of an issue, I guess there is some merit to 

125 

some sort of voluntary agreement between the lender and the borrower for some future appreciation. I could see that as a possibility. 

I don’t think that would affect the ability of the borrower to reorganize their debts, and I think that is certainly one possibility that 

could be done. 

I would also like to go back to your point, however, about the 

$18,000 income kind of a person. Before I came here, I spoke with 

someone from the Southwest Detroit Housing Coalition, and she 

was saying that she is now starting to get debtors from outside the 

county, who used to work for auto suppliers, who have lost their 

jobs. And these are people with—making $10 an hour. 

And I asked, ‘‘Well, what about the modifications we are offering?’’ She said, ‘‘Well, a point or two in the interest rate won’t keep 

them in their homes.’’ 

And I said, ‘‘Well, what if they were able to reduce the principal 

balance on the mortgage and rewrite the mortgage to a fixed term 

at a competitive interest rate? Would that allow them to stay in 

their homes?’’ She said, ‘‘Absolutely, yes.’’ 

Ms. JACKSON LEE. Thank you very much. Mr. Mayer? It is a provocative point, Mr. Mayer. 

Mr. MAYER. Thank you. 

Ms. JACKSON LEE. I am sorry. Did I pronounce it right? Or is it 

Mayer? 

Mr. MAYER. Mayer. 

Ms. JACKSON LEE. Mayer. Excuse me. I am sorry. 

Mr. MAYER. That is okay. 

Thank you. 

The first thing I would do is put in a safe harbor and eliminate 

all restrictions on modifications in all pooling and servicing agreements to allow servicers to do as much modification as possible. 

The second thing I would do, and I know this isn’t an appropriations bill, but I would try and find some economic incentive to deal 

with the servicers, to get them to modify loans. That is where half 

the foreclosures are. 

And the third thing is, if we are going down this route, I really 

feel as if we should deal with the payments, but not get rid of the 

secured claim by the lenders. So if one wants to write down the 

payments for some period of time for somebody to get into the 

mortgage, I think it is really important not to cram down the balance on the owner of the property. 

Ms. JACKSON LEE. Thank you. Mr. Certner? 

Mr. CERTNER. Ms. Jackson, we think both bills would be helpful 

that are before the Committee today. Of course we support the bill 

that provides a broader relief right now. 

To consumer fees, I appreciated your comment about listening to 

this academic argument. And we are here today to have an academic argument. We are here because we are hearing from hundreds of thousands, maybe millions, of our members who are facing 

foreclosure. And as you know, this is devastating to them personally. This is devastating to them not just in their current economic 

security, but for their future retirement security. It is devastating 

to their communities. It is often devastating for the families who 

have to come in and pick up the pieces. 

126 

Our members are looking around at the hundreds of billions of 

dollars that are being given out in TARP and in other parts of the 

efforts of Congress to get toward economic recovery, and many of 

these people who are facing devastating foreclosures, sometimes 

over predatory mortgage lending practices that you well know 

should not have been committed over these many years and wondering when the relief is going to get to them. 

And this is maybe not the only kind of relief that I can get them, 

but this certainly should be one component of the relief. And we 

urge you very strongly to move forward in getting this relief to the 

individuals who really want to see relief at the local level. 

Ms. JACKSON LEE. Mr. Levitin, thank you. 

Mr. LEVITIN. Certainly. As between the two bills, I personally 

prefer Chairman Conyers’s bill, that would offer a lot of relief. 

Ms. JACKSON LEE. What would you add if you could? 

Mr. LEVITIN. Well, what I would add, if you were truly concerned 

about shared appreciation, you could lengthen the period under 

which—of a bankruptcy plan, make it, say, 7 years rather than a 

maximum 5 years. Most mortgages are typically refinanced within 

a 7-year period anyhow, so looking at appreciation over a 30-year 

period is not what creditors are assuming in the first place. 

But for shared appreciation, it is important to realize that with 

securitized loans, who gets that shared appreciation? Typically, 

that goes at—any shared appreciation would go back, not to the investors, there might be pension plans and mutual funds, but it goes 

back to the originating lender. Now that is the bad actor that may 

have fraudulently underwritten a lot of these loans in the first 

place. 

So if we have shared appreciation, we need to be very careful 

that we don’t reward bad actors with it. That is a real danger. 

But in terms of overall improvements though, I think that there 

is something to what Professor Mayer says, about thinking about 

this, about how bankruptcy fits in a larger picture. Professor 

Mayer’s proposed a bunch of carrots to try and create incentives for 

lenders—for servicers to act. Bankruptcy, as Representative Miller 

described it, is a stick. 

There is no reason we have to have carrots and sticks separately. 

We can use both of these. And actually they might be more effective combined. You can imagine a plan that both offers—sort of has 

a clean-up period of, say, 3 months under which servicers have to 

get their act together and do modifications voluntarily. And if they 

don’t, then the stick comes out. And the stick doesn’t need to be 

limited to bankruptcy modification. It could also be prohibiting the 

Fannie Mae and Freddie Mac from doing future business with 

servicers that don’t don’t comply. 

There are lot of tools in the toolbox. Bankruptcy is an important 

one, but it is not the only one, though. 

Ms. JACKSON LEE. Thank you, Mr. Chairman. I think the point 

is well taken that the house is on fire and this bill is a hose that 

is probably long overdue, but we have got to get the water where 

it needs to be. And I want to move this as quickly as possible. And 

I think, Chairman, our people are suffering out there. Thank you 

very much, I yield back. 

Mr. CONYERS. Maxine Waters. 

127 

Ms. WATERS. Mr. Chairman, I want to thank you very much, 

again, for making this issue your number one priority and holding 

this hearing today. And I would like to thank all of our witnesses 

who are here today for taking time from your work to be with us. 

Let us be clear, I support loan modifications and bankruptcy, period. Period. And I will tell you why. Because I know about everything else that has been done and is being done now. 

How many of you know about the Hope Now Program? Do you 

understand what that is? 

How many of you think it is working? 

I am glad none of you think it is working. You didn’t raise your 

hand because the Hope Now Program is the volunteer program 

that was put together by the Bush administration, and it had all 

of the financial institutions at the table, and they are using the 

hired, certified counselors to go out and help people and they hold 

town hall meetings, they will come to us if we request them to 

come. And at town hall meetings they claim to be able to help people do loan modifications. 

When we went on break, I had about 12 of them in my office, 

certified loan counselors, and I asked them, ‘‘Are you really helping 

people do loan modifications? Because I do this work, I understand 

how it is done. And I want to know if you can sit here and tell me 

that you have been successful,’’ I said to them. 

And they all admitted, for the most part, no. We are not. 

And I knew why they were not successful. 

Number one, they were not trained to do and understand how 

loan modifications really get done and what real loan modifications 

are. And the servicers don’t have to talk to them. The servicers 

have a completely unregulated industry. And they don’t have to do 

anything. 

And in addition to that, not only do they not respond to these 

counselors, you can hardly get them on the phone. 

Now, Mr. Mayer, you seem to believe and have come to the conclusion that there is some difference between the independent 

servicers and their willingness and their ability to do loan modifications and the big banks, or banks who do their own servicing 

of their loans. Now the difference in all of this is, and the difference is between the small independent banks, and you are absolutely correct, they don’t have much in their portfolios. They didn’t 

really do this kind of lending that has created this crisis. And, yes, 

if we had the kind of community banking where they held the 

loans, Ms. Jones could go in and talk to her banker, who knows 

something about her. They could do the loan modifications a lot 

better. 

But have you ever tried to talk with the servicers of Bank of 

America? Of Wells Fargo? Of Countrywide? Have you ever done 

that? Anybody? 

No because most of this is academic. If you watched Nightline 

last night, you saw that they covered what I do in my office. They 

stayed in my office for a day and a half. For a full day, they 

watched me work on three cases. I am working on about 30 of them 

now. 

I have been advised by the Ethics Committee not to do this work. 

But I have said to anybody who would listen, I don’t care what the 

128 

Ethics Committee is saying. I am going to do this work. I am going 

to do this work because people are losing their homes. Their families are being destroyed. And communities are being destroyed. So 

I have one person in my office dedicated in Los Angeles, and 

whether I am in LA or there, I continue to work on loan modifications. So I dial, and I dial Bank of America. 

First of all, they are understaffed. You stay on the phone for 

hours. As a matter of fact, I called the CEO of Wells Fargo after 

I stayed on the phone 1 hour with his servicing company, a separate entity, awaiting for them to come. They play music and the 

recordings go over and over again to tell you to wait. That is number one. 

The average homeowner cannot negotiate with this mess. Waiting on the phone while some people are at work every day and they 

are trying to call a servicer on their lunch hour or steal some time 

from their employer to try and get it straightened out. 

They are understaffed. And guess what? The servicers are undertrained. You could not, for life of me, tell me what the definition 

of a loan modification is because there is none. And we have 

servicers at some of these companies, first of all, they try to have 

a cookie-cutter thing for them to follow. 

They can’t tell you what to do, how they would do it if you throw 

a little something extra in there, extra problem in there. They are 

not trained. You cannot get to them easily. And they can’t really 

do great loan modifications. Do you know what I have run into? I 

have run into people who have mortgage interest rates at 10.5 that 

they got in 2006 and 2007 when the market was at about 6 percent 

or 6.5 percent. 

So there are predatory loans, and they should be written down 

immediately to 4 or 5 percent. They don’t do that. They don’t reduce that for the most part. We know that Hope Now does not 

work. Hope for Homeowners, that is the Chairman’s bill of the Financial Services Committee says to the banks and the financial institutions if you write these loans down, I think, at about 10 percent, we will help you to get FHA financing. We restructured and 

strengthened FHA to be able to do this. 

The banks are not taking advantage of this at all. And guess 

what? If this written-down loan refinanced by FHA is defaulted 

upon, we pick it up. The Government will pay for it. Now, I want 

you to tell me why the financial institutions are not taking advantage of that. 

Finally, let me say this. We know that Sheila Bair has hit upon 

something with the IndyMac portfolio. We know that she is paying 

the servicers a thousand dollars. We know that she has done about 

6,000 modifications, more than anybody, really. And able to talk 

about what she has done. 

When she sent the letters out to the homeowners, she didn’t say, 

just come in and talk to us as Countrywide did. And that is why 

Countrywide got no responses. As a matter of fact, they shouldn’t 

even be working on the loan modifications because they were the 

biggest predatory lenders in the country. Now, they are working on 

their own loans, for the most part. 

But Sheila Bair’s letter said, come in; this is what we can do for 

you. You have an interest rate of 9 percent. We can reduce that. 

129 

Come in; you have an adjustable-rate mortgage. And I want to tell 

you, Mr. Mayer, you talk about people not being able to pay their 

mortgages. The average person with a 30- to 40-year loan with a 

reasonable interest rate can pay for their mortgage. And that is 

what they thought they bargained for. 

Unfortunately, there are those who didn’t understand adjustablerate mortgages. They didn’t know about these exotic products. 

There were those who were offered Alt-A mortgages. They didn’t 

know before they talked with the loan initiator that there was such 

a thing as getting a mortgage without having to verify your income. 

You may say it is the people’s fault, but I don’t think so. These 

are predatory loans. These are fraudulent loans where Countrywide and others put initiators out in the street without license. 

And California was a problem in this because we didn’t require licenses of all these people on the street. 

And so they are in trouble mostly on Alt-A and adjustable rates. 

Exotic products that should never have been in the marketplace in 

the way that they were. You take Ms. Jones or Mr. Jones who 

works everyday, who makes a decent salary working over there at 

GM or someplace, they can pay for their loan. But when you gave 

them an adjustable-rate loan where you suckered them into for little or nothing down and it resets in 6 months, 1 year, 2 years, and 

it doubled, quadruples, those margins that they put on top, you are 

right. They will not be able to afford them. 

But because Wall Street was greedy and they securitized all this 

junk and they put it in these traunches and they allowed them to 

invest in it, then I tell you, Mr. and Mrs. Jones got tricked. They 

got hoodwinked. They got misled. 

So I am not here today to try to convince anybody of anything 

except we should all get on the same track with the correct information. And to say that people who work every day, who got into 

this mortgage because they believed in the American dream of 

homeownership are not able to pay for that home is not a correct 

statement. They are able to pay for it if they had a decent and reasonable mortgage that they contracted with. 

What I would like to hear is when you talk about whether or not 

you are concerned about whether their lenders share in the appreciation, well, we are in a crisis and we—I don’t even know how to 

talk about appreciation when 50 percent of these loans are under 

water now. We should be doing mark to market. We should be 

writing down all this mess, all of this crap. 

But let me just say this that we should be talking about what 

we do with regulatory agencies to keep exotic products off the market that is going to get people into trouble. There are some folks 

who would say we have no right to examine the products before 

they go on the market. We should have been all over adjustablerate mortgages. 

We should be all over what the margin is when that margin readjusts. We are way behind, and it is shameful. And I am very 

ashamed of the fact that we have not been able to do what we 

should have done almost a year ago in getting on top of this. And 

we watch the defaults and the foreclosures continue to multiply, 

destroying whole communities. 

130 

And the banks are not keeping up the property. The roofs are 

falling in. Gang bangers are taking over houses. The weeds are 

growing up. The waters—the basements have water and the mold 

is setting in. And we are worried about whether or not they are 

going to share in the appreciation? 

If it was left up to me—and let FOX News get this right—I 

would nationalize the whole industry. 

I yield back the balance of my time. You don’t have to say anything if you don’t want to. 

Mr. CONYERS. Well, maybe you should say just a little something. 

Mr. MAYER. Ms. Waters, first, I would say I appreciate all your 

passion for this and also that you really are doing something that 

is important to help homeowners. And I have written substantially 

on the impact of subprime, on where it was located, and to whom 

it is coming. And you will see more research very soon that looks 

at that question. And it is depressing. 

But this is about getting out of the crisis. In many cases, the 

servicers were contractually prohibited from modifying a loan until 

it defaulted. There are terrible provisions in these pooling and servicing contracts. It has nothing to do with whether the servicers 

were good people or bad people. Their contract said this is what 

you have to do. And they were following the contracts. And they 

are bad contracts. 

And I have proposed that we get rid of these restrictions that are 

stopping us from modifying loans. So this is—I think, this is sort 

of a significant problem, and this is not an academic exercise. 

There is real evidence that people lending their own money have 

behaved differently, work out loans more frequently, and stop foreclosures more. Real evidence from what is happening that suggests 

that that is true. 

So I do think that this is a serious problem, but I also think that, 

you know, much as I would like to wipe out everything, if we were 

to wipe out all the negative equity in this country in housing, we 

would be looking at $2 trillion to $3 trillion—actually, probably 

more than that. 

That $2 trillion to $3 trillion, the Federal Government can’t even 

run Fannie and Freddie right at the moment. Hopefully, the new 

Treasury will be able to be effective at this. But how are we going 

to run Citi? How are we going to get them to make sensible decisions? We are just incapable as a Government of running the financial system nationalized. 

And the idea that we would just take losses of $2 trillion to $3 

trillion is just simply an extraordinary thing. I think we have to 

get out of this crisis. We have to stop foreclosures. But I think 

there is a way—there are ways to do it without completely bankrupting our financial system and taxpayers. 

And I think—— 

Ms. WATERS. No. I think you go too far when you assume that 

we can’t do loan modifications and the banks still make money. 

If you take a look at what the market interest rates are now and 

you take a look at the interest rates that many of our homeowners 

are saddled with, and the take a look at how much money has been 

made on these extraordinary interest rates by a whole lot of people 

131 

up the line, the reduction to 4 percentage points now would not be 

sacrifice at all. 

And I do believe that we could do more wholesale reduction of 

interest rates similar to where Sheila Bair is going with some of 

this and still they will not lose money. 

Mr. MAYER. Sheila Bair, even with her own performance at 

IndyMac, was unable to modify loans that IndyMac had as a thirdparty servicer when she could do them as her own loans. 

These contractual restrictions are really serious, and Sheila Bair 

said so as running the FDIC. So the kinds of things she was doing 

were things that she did with IndyMac’s own portfolio. But the 

securitization portfolio, she couldn’t do it. 

Ms. WATERS. Well, what we are finding is, first of all, they are 

not any contracts that say you may not modify loans. They are just 

a very few of those. I have done a lot of them. And it has only come 

up, you know, very seldom that they are written in the contract. 

What you are referring to is the ability of the investor to sue the 

servicer because the servicer did not make every effort to collect 

the money in the way that they thought they had contracted for it 

to do. And we are willing to limit liability in these cases. We are 

willing to do some of that. 

And that is really what I want to hear from people as we get on 

the same track about how to deal with this problem. I am not interested for 1 minute in crying tears of some of these predatory 

lenders who knew exactly what they were doing. And, as a matter 

of fact, when you talk about Fannie and Freddie, not many people 

will say it, but it has been documented that Mozilo over at Countrywide said you will take our crap or we will stop doing business 

with you. 

And in a highly competitive market where they were—they were 

writing so many mortgages, to talk about squeezing out both 

Fannie and Freddie, who once had good underwriting standards 

and fair play, then that is what caused the problem. 

Mr. MAYER. Right. I would just make one other comment, which 

is that they are all—some versions of this bill in the Senate, anyway, restricted the bill solely to so-called subprime and Alt-A loans 

which are loans which had these adjustable rate provisions in them 

or negative amortization. Such a provision would deal with them 

is leading loans and leave away from it the bulk of fixed-rate or 

much more standard kinds of loan contracts. 

So this bill goes well beyond, what I agree with you, were horrible practices by the industry. And somehow, if we could go back 

and grab all those bonuses and all the other stuff from people who 

made money, I think we would all agree that they should have to 

pay a price for having done this. It is just not feasible to do it. 

We can’t get that money back, but we do have to make the best 

of the circumstances that we are in and try and help homeowners 

and protect taxpayers and, as well, not destroy the financial system 

which is our—— 

Ms. WATERS. Well, I know that you have been very generous, and 

I thank you. And we could do that by writing down interest and 

writing down the principle. 

Mr. CONYERS. Trent Franks? 

132 

Mr. FRANKS. Well, thank you, Mr. Chairman. Mr. Chairman, 

first, I would like to ask unanimous consent to place a previouslywritten statement that I have for the record because I was in another Committee. You and, I think, the Armed Service Committee 

deliberately try to schedule your Committees all at the same time. 

This has been my experience. 

And so I would like to do that without objection. 

Mr. CONYERS. Without objection, so ordered. 

[The prepared statement of Mr. Franks follows:] 

PREPARED STATEMENT OF THE HONORABLE TRENT FRANKS, A REPRESENTATIVE IN

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

Mr. Chairman, I know that everyone here would agree that we are facing a foreclosure crisis and that this crisis continues to negatively impact the broader economy. 

As we search for solutions, I believe we should be extremely wary of the one we 

are considering today. In the last Congress, we held three hearings in the Commercial and Administrative Law Subcommittee on amending the Bankruptcy Code to 

allow for modification of home mortgage loans. Throughout those hearings and our 

consideration of this legislation in the last Congress, I was unconvinced that mortgage bankruptcy legislation was in the nation’s best interest. I remain unconvinced 

today. 

In the last Congress, proponents of this legislation continually asserted that bankruptcy relief was the way to go because taxpayers wouldn’t have to bear any cost. 

Bankruptcy relief, proponents asserted, is ‘‘costless.’’ 

I suspect that same argument will be made today. Yet, no matter how many times 

the argument is repeated, the fact of the matter is that allowing mortgages to be 

modified in bankruptcy will impose real costs not only on first-time homebuyers, but 

ultimately on the U.S. taxpayer. 

Through Freddie Mac, Fannie Mae, the Federal Housing Administration, the 

FDIC’s takeovers of Washington Mutual, Indy Mac and other failed institutions, and 

government guarantees for debt from loans to AIG, Citigroup, and Bank of America, 

the taxpayer will be on the hook if mortgage cramdown during bankruptcy is enacted. Taxpayers will bear the risks as borrowers move to cram-down the principal 

on their home mortgages. 

This legislation will also impose costs on future borrowers when they look to purchase a new home or refinance. In order to account for the increased risk that mortgage loans will present if they can be modified in bankruptcy, lenders will be forced 

to alter their lending terms. Lenders will make smaller loans and impose higher 

costs on borrowers. This will lead to fewer Americans being able to afford to purchase homes in the future. 

While some may find this result acceptable, we do not want to limit Americans’ 

ability to purchase housing based on artificial costs imposed by mortgage 

cramdowns. This is especially the case when we consider that 52 million borrowers 

are current on their mortgages, while 5 million are delinquent. Mr. Chairman, the 

vast majority of borrowers are able to make their scheduled payments. Why would 

we do this knowing that we will put all future borrowers at risk? 

Mr. Chairman, this legislation is problematic. It will impose costs on taxpayers, 

on future borrowers, and I believe will negatively impact other efforts at stemming 

the foreclosure crisis. 

There are many more targeted efforts underway aimed at keeping people in their 

homes. And we should give those programs a chance to work and allow the housing 

market to re-adjust rather than turning to unwise legislation that penalizes even 

those who made economically sound decisions. 

I look forward to the witnesses’ testimony and yield back the balance of my time. 

Mr. FRANKS. And then I would also, if it is without objection, like 

to insert three documents into the record. The first document is the 

written testimony of Todd Zywicki. Professor Zywicki teaches bankruptcy law at the George Mason School of Law and has testified 

several times before the Committee. 

133 

The second is the Joint Statement of several leading financial institutions including—including associations—including the American Banker’s Association, Independent Community Bankers of 

America, and the Financial Services Round Table. 

And the final one is a letter from the Department of Housing and 

Urban Development regarding these bankruptcies proposals. In the 

letter HUD states that these bills will lead to higher mortgage 

costs for most borrowers. 

Mr. CONYERS. There are no objections. So ordered. 

[The information referred to follows:] 


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Mr. FRANKS. Mr. Chairman, I know that the challenges that we 

face are pretty complex. So I guess I will just—before I direct a 

couple questions to Professor Mayer—just to point out that the primary difference between our economy and the socialist economies 

of the world—our economy and the Soviet economy at one time— 

is essentially what Professor Mayer’s central point was and that is 

when people loan their own money, when they do things that will 

affect them dramatically one way or the other, they have an entirely different view of how they do it. They still want to make 

money. They still want to loan money to—if that is their business. 

If their business is selling money—which that is what bankers 

do is sell money—they want to sell it, but they want to sell it in 

ways they think that are prudent. And when the Government came 

in and began to back all of these loans, a lot of the private sector 

simply said ‘‘Oh, great. The Government is going to back these 

loans. That is great. Well we will invest.’’ And it just created a runaway train, and I am convinced that we don’t seem to realize that 

when we try to do cram-down legislation—these kinds of things 

that change the fundamental structure of loans. 

What we do is we tell the private sector that they don’t have 

anything to—to have any predictability on and one of two things 

is going to happen. Either the private sector is going to come to the 

rescue of this economy and they are going to come and say ‘‘Well, 

are we going to try and buy these securities—make the best of it 

we can?’’ Or it is all going to fall on the shoulders of Government, 

and if we create—cram down the loans, the private sector is going 

to say ‘‘Okay. You guys take it.’’ And we are going to have more 

to do with than we possibly know what happened. 

Now as to Ms. Waters, I wish you were still here because I will 

try to temper my remarks—more since she is not here, but the notion that we should nationalize housing—I cannot think of a better 

way to bankrupt this economy completely than that. And I can’t 

think of a better way you know—Soviet Union had nationalized 

housing. 

I was there a few times, and it wasn’t the best plan, and I would 

just suggest that if we don’t step back as a Congress and as a people and recognize that free markets gave us the most productive 

economy and the most powerful Nation that history-humanity— 

and still has the hope of bringing us out of this thing, and if we 

think that just nationalizing everything and telling what—we will 

just blow ourselves up—sooner or later we are going to be trying 

to—to repeal the laws of mathematics and thermodynamics economically and we are going to be in a situation where nothing can 

fix this but a complete depression, and us having to relearn the 

fundamental laws of economics. And there are a lot of economists 

that can ‘‘prefatorymonatomic polysyllabic obfuscations math gymnastics and verbal circumlapution’’ on us to the extent we don’t 

know they are talking about, but there still remains that there is 

a fundamental reality here. 

Productivity is the only way we do it. If we simply cut a hole in 

taxpayer’s pocket to fill this hole we still have a hole and the only 

thing that can make this economy survive and get stronger is to 

incent private sector involvement and productivity. And I suggest 

to you that the cram-down legislation here is a way to de-emphaVerDate Aug 31 2005 16:51 Jun 10, 2009 Jkt 000000 PO 00000 Frm 00164 Fmt 6633 Sfmt 6601 H:\WORK\FULL\012209\46615.000 HJUD1 PsN: DOUGA
161 

size that and cause the private sector to step back even further 

than they already are. And so with that I would like to just ask 

Professor Mayer to tell us what do you think cram-down legislation 

will ultimately say to the private market to those that might be 

there with some capital other than taxpayer’s capital. 

Mr. MAYER. I mean I think it is clear and you know I, as Professor Levitin has, you know some points of agreement that you 

know one thing that I think is clear is that the intention of the— 

of many proponents including I think explicitly Professor Levitin 

are that this—that the idea cram down be made permanently into 

legislation and go beyond this, and I think the evidence is abundantly clear that such a permanent change in the law or even a 

temporary one is going to raise the cost of credit. 

You don’t need an economic model for this. It is really common 

sense. If you lend somebody money on something and you take 

away their rights to collect on that they are going to lend less 

money and they are going to charge more for that money. It is pretty simple intuition. The evidence for this globally couldn’t be more 

clear. 

Having spent some time recently in South America with my students in countries like Argentina and Brazil where the governments there do restrict—severely restrict the rights of creditors to 

collect on their debts. We understand that home mortgages are not 

freely available and very expensive. So whether this is 25 basis 

points—it is not 200. I completely agree with Professor Levitin on 

this. Whether it is the 5 percent of the population that can’t get 

a loan who would have otherwise—we don’t know. It really will affect the cost of credit. 

Mr. FRANKS. Yes. Well, Mr. Sherman, I am just closing here. I 

am going to suggest to you that the highway of history is littered 

with the wreckages of governments that thought that they could 

incent and produce—create productivity and maintain productivity 

better than the private sector, and I hope we don’t join that litany 

because I will tell you nothing has dragged more poor people out 

of poverty more than the free markets of the United States of 

America. And it is always true that free enterprise is often the unequal distribution of wealth, and that is too bad, but socialism is 

the equal distribution of poverty. Thank you, Mr. Chairman. 

Mr. CONYERS. Brad Sherman. 

Mr. SHERMAN. Chairman, I see myself sitting between Mr. 

Franks and where Ms. Waters was sitting—slightly closer to Ms. 

Waters. I think divine providence may have sat me in exactly the 

right chair. The private sector has much to be said for it—it is now 

providing loans at 4.5 percent rate to those with great equity and 

great credit. To think that still today even in the worst of times 

ordinary working people can buy—borrow 3 or 4 hundred thousand 

dollars is amazing and it is not available in an awful lot of other 

countries. 

Mr. MAYER. Mr. Sherman, I would comment that those mortgages are all being underwritten predominately by the Federal 

Government through Fannie and Freddie. 

Mr. SHERMAN. That is true and so it is not entirely a factor of 

the private sector, but then Fannie and Freddie are then selling 

those in the capital markets, which are private, but then there is 

162 

an implicit Federal guarantee, which is public and scrambling this 

egg would be particularly difficult. Whatever we do to help today’s 

homeowners we should try to have the least adverse affect on tomorrow’s homebuyers, and let us try to come up with something 

that raises the cost of future mortgages by 2 or 3 basis points and 

not 200 or even 25. 

The Professor Mayer said—estimated at 2 to 3 trillion dollars 

would be what would be written off if we lowered every home mortgage to no more than the fair market value of the home. My staff 

has done some research on this. They tell me it is 4 trillion dollars. 

We as a society cannot afford 4 trillion dollars. The financial sector 

can’t do it. The Government can’t do it. We got the $700 billion dollars to bail out the financial sector in a bill that was discussed on 

the floor today and passed last October. Last thing I want to see 

is $4—7 trillion dollars. 

My hope is that there would be only a slight increase or perhaps 

a negligible increase in future home mortgage cost if we convince 

the private sector that what we are doing today is a one time response to a 100-year event. 

That we have done—that we have taken the actions to make 

sure that it is not just a 100-year event, it is a never-to-be-repeated 

event because future interest rates will not reflect—what happened 

to mortgages today will be based on expectations of what will happen in the bankruptcy courts 20 years from now. And so I hope 

that the legislation we pass is temporary and, we will rely on the 

Financial Services Committee to make sure that the—Ms. Waters 

chairs the relevant Subcommittee on Financial Services—to make 

sure that we don’t see this happening again. 

So we could limit it to mortgages during a certain time. We could 

limit it to certain types of loans—the subprime loans, the teaser 

rate loans. We face a particular problem with regard to the stated 

income loans where first I got to dis’ the bond rating agencies because if anyone caused today’s crisis it is those who gave triple A 

to Alt-A. 

But with the teaser—with the state of income loans there are 

many people perhaps persuaded by a mortgage broker or mortgage 

officer of some sort who signed papers claiming they make a lot 

more money than they did and whether we provide them with the 

same relief—usually in bankruptcy courts you don’t get relief if you 

lied on the loan application. Here you have people who may have 

lied—may have said ‘‘Look, this is what you have got to do, everybody is doing it.’’ And I think that is an issue we have to look at 

carefully. 

As to the servicing contracts, Professor Mayer, I think you make 

a very strong case. We have got to rewrite those contracts in this 

Committee. We got to tell the servicers do what is smart, which 

also by the way happens to be what is in the interest of communities and what is in the interest of homeowners. We have got to 

give these servicers the right to renegotiate where it is in the interest to do so—it is in the interest of their own beneficiaries to do 

so, and we have to at least fully insulate them from any lawsuit 

from anyone of the many possible owners of that mortgage. Oh, but 

you should have done it differently. 

163 

So I hope that this Committee and the Financial Services Committee will give servicers the right and the mandate to do what is 

in the interest of everyone concerned. With that, I think the problem we are going to have with this bill is you got $4 trillion dollars, 

that mortgages are underwater, and we as a society are not going 

to provide $4 trillion dollars of relief. We have to ration that relief 

to those who really need it. 

The first thing we ought to do is provide appreciation—goes either to the U.S. government or lender depending on who is suffering from this write down because first—you know taxpayers deserve to get something, but second if you are—I have got people in 

my district—last I know the first question was why should I pay 

my mortgage. 

And I would like to be able to answer because you don’t want to 

give the Government 100 percent of the profit that you still hope 

to get when you sell that home 10 or 20 years from now so that 

those people who aren’t getting relief don’t feel like suckers. And 

I hope that we limit the mortgage relief to mortgages at a particular time and of a particular type. 

I think I have gone over my time and I thank you for your indulgence, Mr. Chairman. 

Mr. CONYERS. Dan Maffei? 

Mr. MAFFEI. Yes. Thank you, Mr. Chairman. I want to pick up 

a little bit on what Mr. Sherman was saying about—by actually 

asking a specific question about whether these contracts—restricted contracts—could be at least addressed by this Congress. In 

the Citi Group compromise and that was a few weeks ago—that 

would require the homeowner to certify that he or she tried to contact the mortgage owner or servicer requesting a modification before filing bankruptcy. 

I am concerned that the servicers of these mortgages reportedly 

are constrained from reaching an agreement with homeowners on 

an appropriate loan modification because they necessarily had the 

court authority to do so—to modify these mortgages under existing 

legal documents. So this would end up driving more homeowners 

into bankruptcy when an agreement between the mortgage company and the servicers would have otherwise been reached. 

Yesterday, we passed in the house the ‘‘Top Reform and Accountability Act of 2009’’ sponsored by Chairman Barney Frank. I, too, 

serve also on the Financial Services Committee. In searching 

through our files, that bell would provide a safe harbor to servicers 

who work with the struggling homeowners to agree to a reasonable 

modification. 

So it seems to me that if such a provision law is considered part 

of these bills—the ultimate goal of the bills would encourage reasonable modification so that people can stay in their homes would 

be met. So I do want to ask the panel just—and I will have a follow-up question if—depending on our time left, but if this legislation is included—does this bill include a provision like this section 

205? Would there be more of these modifications before we even 

need to do bankruptcy? 

Mr. CONYERS. I guess I will start. We will just start on the left. 

Yes. 

164 

Mr. LEVITIN. I think we will see some more modifications. I 

would not expect to see a sea of change. It is important to understand that there are problems that are not just contractual for 

servicers restricted in what they can do, and it is not just that they 

don’t have the proper incentives to do it. It is also that the business 

model just is not—they are not in the loan modification business. 

Mortgage servicers are in a transaction processing business. 

Their basic business is they collect—they send out bills, they collect 

payments, they remit them to the trust. This is a highly automated 

business. It involves no discretion. It involves very, very little manpower. 

Trying to do loan workouts involves tremendous manpower, involves a lot of discretion, and it actually involves a fair amount of 

experience. We don’t have the people out there with the experience—we don’t have that labor force out there. 

It takes about a year to train someone to really be good at this, 

and unfortunately, they—when you have people working in these 

call centers doing loan modifications, there is an amazing burnout 

rate. 

This is kind of—this is sort of like debt collection work. There is 

something like a 100 percent burnout rate every year on these people. We just don’t have the staffing to do this, even if we get rid 

of the contractual problems, and even if we try and change the incentives, as Professor Mayer suggests. 

Mr. MAFFEI. Mr. Certner, do you have a—— 

Mr. CERTNER. I think you need the—essentially to hammer the 

bankruptcy provisions to give people an area for relief. And I think 

by having these bankruptcy provisions in place—will also give a 

greater incentive for these loans to be worked out in advance of 

bankruptcy. 

Mr. MAFFEI. You know, I am not necessarily saying that I don’t— 

disagree with that. What I am saying is is that—is there a chance 

that we—that even with—that we could prevent bankruptcies even 

with this legislation if we had this sort of safe harbor provision? 

Okay, yes, Professor Mayer? 

Mr. MAYER. Yes. I think that the section 205, which I think came 

from part of this proposal at one point, is—you know, is a very valuable step. Unfortunately, I think it is not enough. 

I agree with Professor Levitin that servicers—just giving them 

legal protection is necessary but is not sufficient to solve the problem. I disagree that incentives are an issue, but I think it is really 

clear—a couple other things. 

One of them is that loan modification just doesn’t pay for a 

servicer to do it. So even if you get indemnity, you are going to 

spend upwards of $750 to $1,000 or more to modify a loan, and you 

just don’t get paid to do it. 

If you put the safe harbor provision into this law, unfortunately 

what you get is servicers who will say, ‘‘I haven’t got enough 

money. My business model doesn’t allow me to do this.’’ What they 

will choose is just let the trustees handle it, so essentially all loan 

modification will go into bankruptcy. 

That is the financial incentive the servicers have, because their 

pooling and servicing agreements tell them that they can get reimbursed within judicial hearings. I am not—may not be legally sayVerDate Aug 31 2005 16:51 Jun 10, 2009 Jkt 000000 PO 00000 Frm 00168 Fmt 6633 Sfmt 6601 H:\WORK\FULL\012209\46615.000 HJUD1 PsN: DOUGA
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ing this right. They can be reimbursed for the fees inside a judicial 

process. They cannot be reimbursed for the fees outside a judicial 

process. 

So what we do by doing that, without some additional piece of 

sort of payments to servicers to modify outside, all their incentives 

are still going to be to do it inside the bankruptcy process. 

If we want good modifications, we have to change what the 

servicers are doing, and I think if you offer somebody the payment—in my proposal, it would be as much as $2,500—if you keep 

a loan going for 3 years—I may be a little bit, you know, optimistic, 

but I think if you take a for-profit person, there are businesses out 

there who will do this for much less than that who you can contract 

out and do the servicing. 

I think we will very quickly see people like the idea of collecting 

that money. A financial incentive is just crucial to getting the 

servicers to do this out of bankruptcy. It is not a—205—the provision is wonderful, but we still have to change the economics of 

what we are doing if we don’t want to see many millions of bankruptcy filings. 

Mr. MAFFEI. Okay, Mr. Mason. I am a freshman, so I don’t want 

to go over time too much. 

Mr. MASON. Yes. Just briefly, I would be very leery of increasing 

incentives to servicing groups. I just talked with a mortgage counselor in southwest Detroit, and she said the most recent thing is 

that the servicing groups are outsourcing their modification work 

and paying them $800, which they are then charging back to the 

borrower. 

Now, if you are going to create an incentive where they are going to pay them $2,500, I ask you, is that also then going to end up 

back on the borrower, added to the mortgage and increasing the 

whole cost of the transaction? 

It seems to me the bankruptcy modification process is really simple. It cuts through the stuff. It cuts through lender liability. It 

gives them insulation because the loans are modified involuntarily. 

It can deal with second mortgages, which none of these proposals 

have really addressed, but bankruptcy can do. And it seems to me 

it is a much cleaner and efficient method than trying to create 

these other incentives, which at this moment we know don’t work. 

Mr. MAFFEI. Well, would you have a problem with the safe harbor that Section 205—Mr. Mason? 

Mr. MASON. I really don’t have an opinion on that. 

Mr. MAFFEI. Okay. Well, thank you very much. 

You know, Mr. Chairman, looking at this, I think obviously, I 

would like to see the TARP Reform and Accountability Act become 

law. But at this point, it is a little unclear what the Senate’s going 

to do with that. 

And I would urge the Committee to—the one thing I did get from 

all the panelists, I think, is that it wouldn’t harm—you know, 

maybe it wouldn’t solve the problem, maybe it is—for some, it is 

not enough, for others, it is—it, you know, doesn’t maybe solve the 

problem totally. 

But I would urge the Committee to look at that in the markup 

to include a similar provision in our legislation. Thank you very 

much. 

166 

Mr. CONYERS. Thank you. 

To the witnesses and all of the Members of the Committee, we 

are going to leave the record open because many of you have additional submissions you would like to have added into the record. 

We thank you so much for your time. 

The Committee stands adjourned. 

[Whereupon, at 5:36 p.m., the Committee was adjourned.] 

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PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, AND CHAIRMAN, COMMITTEE ON THE

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