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FORECLOSURES CONTINUE: WHAT NEEDS TO

CHANGE IN THE ADMINISTRATION’S RESPONSE

HEARING

BEFORE THE

SUBCOMMITTEE ON DOMESTIC POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

SECOND SESSION

FEBRUARY 25, 2010

Serial No. 111–134

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

(

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

http://www.oversight.house.gov

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

JUDY CHU, California

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

BLAINE LUETKEMEYER, Missouri

ANH ‘‘JOSEPH’’ CAO, Louisiana

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

SUBCOMMITTEE ON DOMESTIC POLICY

DENNIS J. KUCINICH, Ohio, Chairman

ELIJAH E. CUMMINGS, Maryland

JOHN F. TIERNEY, Massachusetts

DIANE E. WATSON, California

JIM COOPER, Tennessee

PATRICK J. KENNEDY, Rhode Island

PETER WELCH, Vermont

BILL FOSTER, Illinois

MARCY KAPTUR, Ohio

JIM JORDAN, Ohio

MARK E. SOUDER, Indiana

DAN BURTON, Indiana

MICHAEL R. TURNER, Ohio

JEFF FORTENBERRY, Nebraska

AARON SCHOCK, Illinois

JARON R. BOURKE, Staff Director

(III)

C O N T E N T S

Page

Hearing held on February 25, 2010 ....................................................................... 1

Statement of:

Berenbaum, David, chief program officer, National Community Reinvestment Coalition; Julia Gordon, senior policy counsel, Center for Responsible Lending; Ronald M. Faris, president, OCWEN Financial Corp.;

and Edward J. Pinto, real estate financial services consultant and

former chief credit officer of Fannie Mae (1987–1989) .............................. 149

Berenbaum, David ..................................................................................... 149

Faris, Ronald M. ........................................................................................ 211

Gordon, Julia ............................................................................................. 185

Pinto, Edward J. ........................................................................................ 229

Caldwell, Phyllis, Chief Homeownership Preservation Officer, U.S. Department of Treasury .................................................................................... 91

Sheil, Bill, investigative reporter, WJW–TV8, Cleveland, OH; Jim

Rokakis, treasurer, Cuyahoga County, OH; and Patricia Stringfield,

homeowner, Washington, DC ....................................................................... 128

Rokakis, Jim .............................................................................................. 129

Sheil, Bill ................................................................................................... 128

Stringfield, Patricia ................................................................................... 136

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

Berenbaum, David, chief program officer, National Community Reinvestment Coalition, prepared statement of ....................................................... 152

Caldwell, Phyllis, Chief Homeownership Preservation Officer, U.S. Department of Treasury, prepared statement of ............................................ 94

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

of Maryland, prepared statement of ............................................................ 31

Faris, Ronald M., president, OCWEN Financial Corp., prepared statement of ........................................................................................................... 213

Gordon, Julia, senior policy counsel, Center for Responsible Lending,

prepared statement of ................................................................................... 187

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

prepared statement of ................................................................................... 8

Kaptur, Hon. Marcy, a Representative in Congress from the State of

Ohio, prepared statement of ........................................................................ 245

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio:

Letter dated February 25, 2010 ............................................................... 108

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

Pinto, Edward J., real estate financial services consultant and former

chief credit officer of Fannie Mae (1987–1989), prepared statement

of ..................................................................................................................... 231

Rokakis, Jim, treasurer, Cuyahoga County, OH, prepared statement of .... 132

Stringfield, Patricia, homeowner, Washington, DC, prepared statement

of ..................................................................................................................... 139

Turner, Hon. Michael R., a Representative in Congress from the State

of Ohio, Follow-up Report and Policy Considerations ................................ 38

(1)

FORECLOSURES CONTINUE: WHAT NEEDS TO

CHANGE IN THE ADMINISTRATION’S RESPONSE

THURSDAY, FEBRUARY 25, 2010

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON DOMESTIC POLICY,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m., in room

2154, Rayburn House Office Building, Hon. Dennis J. Kucinich

(chairman of the subcommittee) presiding.

Present: Representatives Kucinich, Issa, Turner and Jordan.

Staff present: Jaron R. Bourke, staff director; Yonatan Zamir,

counsel; Jean Gosa, clerk; Charisma Williams, staff assistant;

Leneal Scott, IT specialist, full committee; John Cuaderes, minority

deputy staff director; Adam Fromm, minority chief clerk and Member liaison; Kurt Bardella, minority press secretary; Hudson Hollister, minority counsel; and Brien Beattie and Mark Marin, minority

professional staff members.

Mr. KUCINICH. Thank you very much for being here. Good afternoon, I’m Dennis Kucinich, Chairman of the Domestic Policy Subcommittee of the Committee on Oversight and Government Reform.

Welcome to today’s hearing, ‘‘Foreclosures Continue: What Needs to

Change in the Administration’s Response.’’

Today’s hearing is a continuation of the subcommittee’s series of

hearings examining the characteristics of the ongoing residential

foreclosure crisis and the impact of the administration’s response.

Now, without objection, the Chair and the ranking minority

member will have 5 minutes to make opening statements, followed

by opening statements not to exceed 3 minutes by any other Member who seeks recognition. And without objection, Members and

witnesses may have 5 legislative days to submit a written statement or extraneous materials for the record.

I want to acknowledge the presence of my colleague from Ohio

Congressman Turner from the Dayton area. Welcome. I appreciate

you being here. I know that you have another hearing to go to. And

we’re going to move through the opening statements and give you

a chance to be heard from as well.

This subcommittee began holding hearings on the subject of the

foreclosure crisis and solutions to it 3 years ago. Since that time

we’ve met nine times on the subject. It’s not hyperbole to say that

this is the worst economic crisis to hit America since the Great Depression. The fallout from the crash in the housing market and the

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recession that has overtaken our country has left no community in

the country untouched. Nearly every level of economic activity has

been affected negatively. Nationally the unemployment rate is approximately 10 percent, and in some States it’s nearly 15 percent.

Foreclosures continue; 2.9 million borrowers received foreclosure

notices in 2009, and it’s predicted nearly 21⁄2 million more borrowers will lose their homes—will lose their homes to foreclosure this

year.

According to the most recent data, more than 15 percent, one in

six, of all mortgages are in trouble; 2.6 million borrowers have

missed at least three payments on their mortgages, making them

seriously delinquent. This is double the level of 1 year ago and is

the highest number of delinquencies on record since 1972, according to the Mortgage Bankers Association.

Now, let’s be clear, this foreclosure crisis started well before the

current administration came into office, but like the Great Depression, the administration that inherited the crisis will be judged for

how they respond, and that judgment can be as harsh as if they

had created the crisis themselves.

The American people expect and the American people deserve

bold initiatives from their government to help as many people as

possible. Unfortunately, in my opinion, much time has been wasted

by relying on lenders and investors to choose to modify loans to

keep people in their homes. Indeed, even as this administration

quickly created a program that the previous one wouldn’t even consider, the Making Home Affordable program, it continued to rely on

the charitable impulses of the industry that has nearly bankrupted

the Nation. But the industry that received a trillion-dollar bailout

has been unwilling to absorb the losses, to write down bad debts,

and their recalcitrance is holding up the resolution of the foreclosure crisis.

Thus, the administration’s centerpiece loan modification program, known as the Home Affordable Modification Program

[HAMP], has not lived up to its high expectations. The Treasury

points out that 75 percent of the 1 million or so borrowers who

have been offered modifications under the program are making

their payments, and it’s just a matter of borrowers getting all their

documents to lenders. And certainly for a program that is just

under a year since its creation, the efforts to publicize it and encourage participation are laudable, but it’s also severely flawed. It

doesn’t address one of the key problems facing borrowers, the problem of negative equity of a house that is worth less than the mortgage. It is marred by geographical disparities. And its affordability

objectives rely upon stretching out the payments, an approach that

can saddle the borrower with more debt, not less, and which makes

sense only on the assumption that home values are eventually

going to go right back up.

Now, on Friday this administration announced a pilot initiative

to distribute $1.5 billion in TARP money to five States. That list

did not include Ohio or other States that were hit harder and earlier by the foreclosure crisis. Even if Ohio had been included in

that list, it would not have been enough to make a meaningful

headway in a crisis. In fact, the State set a record for foreclosures

last year, the 14th year in a row of increases. But as we will hear

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today, no matter how grim the statistics are, there are still plenty

of people in Ohio and in many other States that are hoping and

waiting for some relief.

Americans will be able to tell if Washington is faking it. Millions

of people will have personal knowledge of whether or not the government gave them real help which for many borrowers must necessarily include principal reduction. There is still time in Ohio and

in communities across America to create a positive and fruitful legacy of this administration’s response to the foreclosure crisis. My

hope is that this administration feels the urgency and the need to

make this decisive difference.

I want to—in addition to acknowledging our first witness Ms.

Caldwell, I also want to acknowledge the presence in the audience

of the treasurer of Cuyahoga County, OH, Jim Rokakis, who has

been a stalwart in not just examining this, this matter of the impact of foreclosures, but has really been a leader nationally in suggesting solutions and a way forward.

So, Treasurer Rokakis, I appreciate your presence here today.

We also have a local TV reporter, Bill Sheil, who actually did an

investigation that we’re going to give this committee a quick

glimpse of in the same panel a little bit later that Mr. Rokakis is

on. So welcome to Washington.

[The prepared statement of Hon. Dennis J. Kucinich follows:]

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Mr. KUCINICH. I’m going to proceed right now to the opening

statement from our ranking member, Congressman Jordan of Ohio.

You may proceed.

Mr. JORDAN. Thank you, Mr. Chairman.

Let me, too, thank Mr. Rokakis for being with us, and Ms.

Caldwell. I know they were both there in Cleveland when we had

the field hearing a few months back.

Mr. Chairman, we do appreciate this hearing today. Homeowners

across the country are suffering. Just last week the Mortgage

Bankers Association reported that the combination of loans in foreclosure and one payment behind in their mortgage was over 15 percent, the highest in the history of the survey. Meanwhile home

prices keep falling, U.S. banks are posting their sharpest declines

in earning since 1942.

At the recent field hearings of this subcommittee in Atlanta and

Cleveland, we have received overwhelming evidence of the failure

of the administration’s policies and programs to stem the tide of

mortgage defaults and foreclosures. In addition to trade organizations, think tanks and government accountability groups have produced reams of reports that demonstrate how the administration’s

most active program, HAMP, has not only failed to accomplish the

administration’s promise of assisting 3 to 4 million American homeowners, but is actually harming homeowners in the broader economy.

This harm, Mr. Chairman, can be measured in several ways.

First, the administration’s mortgage modification efforts are costing

taxpayers as much as $75 billion. Since the President took office,

he has told the American people time and again that the answer

to our economic problems is more government spending and new

government programs. And time again this administration has told

the American people that they should expect a return on their investments through bailouts and stimulus spending. And they have

been told that they will be able to track this return through an unprecedented level of transparency and accountability. But once

again, the administration is breaking these promises to the American people in the face of widespread bipartisan criticism of HAMP.

For example, the Treasury Department has retreated into secrecy

by halting the dissemination of information on the program’s Web

site that would allow the public to track the program’s success rate.

The public is also harmed when the government spends their

money on failed programs. It is doubly harmed when the government tries to disguise its failures by hiding information from the

American people.

We’ve also learned that many of the people who have received

temporary assistance through the administration’s programs are

now discovering they’re ineligible for the long-term mortgage modification. As the New York Times has recently reported, this means

that many Americans are throwing their money into homes that

they believe the government would help them keep only to find out

thousands of dollars later that they will face foreclosure anyway.

Delaying foreclosure, Mr. Chairman, does not help the many

Americans who are fighting to keep their jobs or find new ones. Delayed foreclosures only serve to prolong the economic hardship,

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drain them of much-needed resources, and defraud them the opportunities to find more affordable housing options.

In fact, it seems that the only good thing that the administration’s efforts have accomplished is to reinforce in the minds of the

American people the reality that technocratic tinkering is not an

effective solution to our economic problems. The only viable, longterm solution is to keep more Americans in their homes and in

their jobs. For that matter it is a broad-based economic recovery

built on the foundation of free markets, fiscal responsibility and

limited government that has made our Nation strong and prosperous for more than 200 years.

Mr. Chairman, I would also ask unanimous consent to enter into

the record a staff report that was released this morning along with

ranking member of the full committee Mr. Issa, the title of which

is ‘‘Treasury Department’s Mortgage Modification Programs: A

Failure Prolonging the Economic Crisis.’’

Mr. KUCINICH. So ordered.

Mr. JORDAN. Thank you.

Mr. KUCINICH. Without objection.

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

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Mr. JORDAN. Yield back.

Mr. KUCINICH. The Chair recognizes Mr. Cummings from Maryland.

Mr. CUMMINGS. Thank you very much, Mr. Chairman. Mr. Chairman, I thank you for holding this hearing. In my 14 years in Congress, I’ve devoted more energy to addressing the current foreclosure crisis than almost any other issue facing our Nation. Because of that I thank you for holding this hearing, as well as the

field hearings in Atlanta and Cleveland, for using the Domestic

Policy Subcommittee to shine a light on this very tragic problem.

I also thank all of today’s witnesses for joining us. Your input is

crucial to our developing real solutions for real people who are suffering real problems.

More than a year ago I decided that we were not doing enough

to address foreclosures in my district in Baltimore, so I hired someone in my district office to work only on helping our constituents

keep their houses. Most of us only have 20 employees. That’s between Washington and the District. And I then soon discovered I

needed another one. So literally 10 percent of my staff only deal

with foreclosures keeping people in their houses.

After I hired the first one, I decided that there was still more

that we could do. We figured out that the most common barriers

to mortgage modifications were lost paperwork, understaffed lender

call centers, and lender and servicer denials without any explanation. And another one was just the idea that sometimes when

they got ahold of the lender, the lender just simply did not take the

time to work with the borrower. And I want to say that it was not

always in a good-faith manner, but I won’t go that far.

But one thing that we did discover is that once my staff member

would sit down a lot of times and go over the paperwork with the

borrower, we discovered that, say, about 80 percent of those cases,

they were able to get a modification.

So this past Saturday we held our third foreclosure prevention

workshop in Baltimore. Over the last year these events have

brought together some 3,000 people from my district, and, by the

way, from all over the country. We had over 25 lenders, and created the opportunity to keep hundreds, if not thousands, of families

in their homes. We discovered something as simple as a face-to-face

meeting—this is not rocket scientist stuff—a face-to-face meeting

does not seem that important, but for the men and women who approached me on Saturday literally in tears after negotiating a

modification, it meant everything. But they are just for whom the

options are severely limited; they are unemployed.

We can do a lot of good with President Obama’s mortgage modification infrastructure. I watched it happen on Saturday in Baltimore. But the blight of 14.8 million unemployed Americans demand that we do even more, and more is these three things. First,

we need mortgage assistance; we need mortgage assistance whether through grants or loans for unemployed persons while they continue to look for work. We managed to get $3 billion into the Wall

Street Reform and Consumer Protection Act, but that funding is

far from a done deal.

I was pleased that the President’s recently announced 4HM program, Help for the Hardest-Hit Housing Markets, will include asVerDate 11-MAY-2000 13:14 May 26, 2011 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65124.TXT KATIE PsN: KATIE
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sistance to the unemployed, as well as those who are underwater

in their mortgages. While I would have hoped to see the program

implemented in more than just the five hardest-hit housing markets, we have to start somewhere.

The second thing we need to do is we need a real jobs package. The Senate’s package yesterday of the $15 billion so-called jobs bill

is better than nothing, but it is not nearly enough, and it’s anticipated we will move on that in the House this week.

Finally, we need job-training programs that allow workers to

adapt and improve. As CBO Director Douglas Elmendorf said on

Tuesday to another committee which I sit on, the Joint Economic

Committee, so many of the lost jobs simply are not coming back.

New jobs will come from new firms who embrace new technology

and innovation. Worker training, whether through community college career centers or traditional 4-year schools, must be part of a

long-term solution.

Clearly we need a comprehensive strategy to help the unemployed, one that should include the elements I just mentioned, but

today’s task, foreclosure prevention, is the first and biggest element

of that solution. And so, Mr. Chairman, I look forward to the testimony. I want to thank the witnesses. And with that I yield back.

[The prepared statement of Hon. Elijah E. Cummings follows:]

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Mr. KUCINICH. The Chair recognizes Mr. Turner of Ohio.

Mr. TURNER. Thank you, Chairman Kucinich. I want to thank

you for your leadership and efforts in the areas of the mortgage

foreclosure crisis, and also the issues of how you’ve looked to protect families who are in Ohio as we struggle with how to address

the issue of the mortgage foreclosure crisis and its effects on our

neighborhoods. I want to thank you and the ranking member for

holding this hearing today to focus on the effectiveness of the administration’s Home Affordable Modification Program in helping

struggling families facing foreclosure stay in their homes.

My congressional district, as well as the entire State of Ohio, has

been significantly impacted by the current foreclosure crisis. In the

counties located within Ohio’s Third Congressional District, there

have been over 6,000 housing foreclosures reported in 2008 alone.

While Congress has made attempts to address the root causes of

the housing crisis, we need to continue to improve Federal housing

policies in order to find new solutions to address these challenges.

We must conduct a comprehensive reevaluation of our Federal,

State and local housing policies in order to stabilize the housing

market, keep people in their homes and help displaced families return to their homes.

To better understand how the greater Dayton area has been particularly affected by the current housing crisis, in August I convened a forum in coordination with the Northeast-Midwest Institute consisting of two panels to examine the impact of the housing

crisis in our community and to discuss the Federal response. The

Northeast-Midwest Institute is a Washington, DC-based nonprofit,

nonpartisan research organization dedicated to economic vitality,

environmental quality and regional quality for Northeast and Midwest States.

The first panel was composed of Miami Valley leaders who discussed the effects of the housing crisis in the region. We have in

attendance today Jim McCarthy, who is in the back of the room,

from the Miami Valley Fair Housing Center, who has previously

testified before this committee on the issues of the effects in Miami

Valley. The second panel was composed of Federal policy experts

who discussed the Federal response to this crisis. Both panels highlighted recent successes and identified some of the serious challenges we face as we continue to determine the appropriate role of

Federal Government addressing the housing issues in our region.

The panelists also provided considerations that address the current legal and regulatory framework governing the housing and

mortgage-lending markets; the prevalence of fraudulent mortgagelending practices; the effectiveness of certain housing tax credits,

grants and programs; as well as providing a complete reevaluation

of Federal housing policies and their impact on communities across

the Nation.

Today I present the report that summarizes a number of the policy considerations based on the individual testimonies of discussions held at the housing forum that may assist us in helping families stay in their homes and stabilize our neighborhoods. The report, entitled, ‘‘The Impact of the Housing Crisis on Local Communities and Federal Response,’’ discusses preventing predatory lending by increasing financial product transparency and preventing

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the issuance of inappropriate loan products, streamlining the mortgage-servicing industry, standardizing housing counseling and

loan-modification regulations, improving the neighborhood stabilization program, and building local organizational capacity in

distressed communities, and rethinking the impact of low-income

housing tax credits on older cities.

The report also provides Congress, government officials and

housing industry with a thorough understanding of the implications of Federal housing policy’s effects on cities like Dayton.

With that, I would like to offer the report, without objection, for

the record.

Mr. KUCINICH. Without objection, so ordered.

Mr. TURNER. Mr. Chairman I thank you your support for that,

and I also thank you for your advocacy on behalf of Ohio within

this programs that’s the subject matter of this hearing. Thank you.

[The information referred to follows:]

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Mr. KUCINICH. I thank the gentleman, and I thank you for the

opportunity to work with you on this, and also my other colleagues

on this committee.

We are now going to hear testimony from the witnesses. The subcommittee is going to receive testimony from a witness on the first

panel. Ms. Phyllis Caldwell is the Chief of the Office of Homeownership Preservation at the U.S. Department of Treasury. Ms.

Caldwell oversees management of the Obama administration’s

Making Home Affordable program. Previously Ms. Caldwell was

president of the Washington Area Women’s Foundation, a public

foundation solely focused on improving the lives of women and girls

by fostering philanthropic giving in the Washington metropolitan

area.

Ms. Caldwell, I want to thank you for being before this subcommittee. It is the policy of the Committee on Oversight and Government Reform to swear in all witnesses before they testify, and

I would ask that you please rise and raise your hand.

[Witness sworn.]

Mr. KUCINICH. Let the record reflect that the witness answered

in the affirmative.

Ms. Caldwell, I ask that you give a brief summary of your testimony. Please try to keep that summary under 5 minutes in duration. Your complete written statement will be included in the hearing record, and I ask that you proceed.

STATEMENT OF PHYLLIS CALDWELL, CHIEF HOMEOWNERSHIP PRESERVATION OFFICER, U.S. DEPARTMENT OF

TREASURY

Ms. CALDWELL. Well, Chairman Kucinich, Ranking Member Jordan, thank you for the opportunity to testify today about the Treasury Department’s comprehensive initiatives to stabilize the U.S.

housing market.

It has been 1 year since the launch of Making Home Affordable

of which the Home Affordable Modification Program [HAMP], is a

key component. Today HAMP is making significant progress with

over 1 million trial modifications started, yet we recognize the challenges remaining. We continue to monitor and update program

guidelines, to improve implementation and help more homeowners.

At the end of January, nearly 1 million homeowners were in active trial or permanent modifications. More than 116,000 homeowners now have permanent modifications, nearly doubling the

number from December. An additional 76,000 permanent modifications have been offered and are waiting only for the borrowers’ signature.

Homeowners in modifications are achieving significant savings

on their mortgage payments, over $500 per month on average. And

HAMP has proven that it is helping homeowners who have faced

real financial hardship. Nearly 60 percent of borrowers in permanent modifications have faced a reduction in income, including loss

of wages or hours, or unemployment of a spouse.

But it’s important to remember that HAMP is just one part of

the administration’s broader effort to stabilize the housing market.

Together the Treasury and the Federal Reserve have purchased

over $1 trillion in agency mortgage-backed securities, helping to

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keep interest rates at historic lows. Millions of Americans have

been able to refinance their mortgages into lower-rate 30-year,

fixed-rate mortgages, saving an average of $1,500 per year on a refinance. And thanks to the recently extended first-time homebuyer

tax credit, more Americans are now able to reenter the housing

market and stem the slide in home values.

Through HUD’s Neighborhood Stabilization Program, hundreds

of communities across the country are taking important steps to restore and maintain properties in neighborhoods that have been

hardest hit by concentrated foreclosures and home price declines.

Finally, the administration last Friday announced that it will al- locate $1.5 billion to work with State housing finance agencies to

help address the foreclosure problems in the five States that have

been the hardest hit by the aftermath of the burst of the housing

bubble as measured by housing prices. Eligible housing finance

agencies means the funding on a number of homeowner support

programs, including programs for unemployed borrowers, for reducing the burden of negative equity or for addressing challenges that

arise from second liens. And while there is still significant risks,

we are seeing some signs of emerging stability. Housing inventories

continue to fall. House prices measured on a year-over-year basis

are declining less rapidly, with some house price measures posting

increases in recent months. Data released by the Mortgage Bankers Association on February 19th showed that the 30-day delinquency rates on one to four-unit residential mortgages fell in the

first quarter along with the number of new foreclosures started.

Going forward, we recognize that there are still a number of

challenges ahead. The permanent modification conversion campaign in December and January yielded valuable insights for program improvements. We have made a number of program changes

to improve implementation. For example, at the end of January,

Treasury released guidance which requires greater income documentation prior to beginning a trial modification. A simple and

standard package of documents will be required prior to the

servicer’s evaluation of the borrower for a trial modification. We

took these steps to speed up the process of conversions from trial

to permanent modifications in the future. This new upfront documentation will be required for all new HAMP modifications that

become effective after June 1st, although mortgage servicers may

implement it sooner.

And we continue to make more changes to improve implementation. One important improvement we are working on now is protections for homeowners to ensure that the modification process treats

borrowers fairly. Treasury anticipates releasing guidance soon

which will include a set of improved protections for homeowners in

the HAMP mortgage modification program. Notably the package

will standardize outreach for homeowners who fall behind in their

mortgages, and make an offer to include them in HAMP if they

qualify.

Additionally, we recognize that the foreclosure process is often

confusing to homeowners already in distress, and we have been

regularly reviewing guidelines around the process as part of our

ongoing commitment to ensuring transparency and maximizing

program effectiveness.

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HAMP has made great progress in its first year. We look forward

to working with you to enhance the program’s performance and to

help keep American families in their homes. Thank you.

Mr. KUCINICH. Thank you very much, Ms. Caldwell, for your testimony.

[The prepared statement of Ms. Caldwell follows:]

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Mr. KUCINICH. Last week the administration announced a $1.5

billion program to help five States deal with the foreclosure crisis.

But in designing that program, you excluded a number of hard-hit,

long-suffering States such as Ohio, Pennsylvania, Texas, to name

just a few.

I have here a letter from a dozen members of the Ohio delegation. It’s a letter that is circulated by myself and Congressman

LaTourette, signed by Democrats and Republicans alike, demanding to know how you could possibly justify the exclusion of Ohio

from any foreclosure initiative. And I ask for your answer now before this subcommittee.

[The information referred to follows:]

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Ms. CALDWELL. Well, first let me say having testified in your district in Cleveland a few months ago, we really understand that

there are residents suffering in the State of Ohio and in Cleveland

in particular. And I think it’s important to also set the context that

HAMP and the programs announced last week are just one part of

a broader administration’s—the broader administration’s efforts to

stabilize housing. And Ohio was the recipient of over $145 million

in neighborhood stabilization grants, including $40 million in Cuyahoga County, to deal with the very real foreclosure processes that

were in place before HAMP was even started.

But I think stepping back to the announcement last week, as

Representative Cummings said, negative equity is a severe problem, and we had to start somewhere. And so we looked at those

markets that had price declines of over 20 percent based on the

peak to trough, and those markets are the markets that are going

to be the target of this particular program.

Mr. KUCINICH. I noted that in looking at the States that you

chose, all but one of the States in that new initiative are so-called

Sun States. I know they’ve been hit hard, but they don’t have a

monopoly on the pain caused by the foreclosure crisis and predatory lending.

What assurance can you give this committee that future administration initiatives will not similarly focus primarily on the Sun

States to the exclusion of the hard-hit Midwestern States like

Ohio?

Ms. CALDWELL. Mr. Chairman, I think it’s very important to understand that we have a broad array of initiatives, and while this

particular one was focused on those States that had very high

rapid price declines on purchased homes, every day we are studying the problems facing homeownership in American families and

continue to iterate our programs to address those needs.

Mr. KUCINICH. When you make a major public unveiling of this

kind of initiative in Ohio where we, particularly in the Cleveland

area, are acutely aware of the kind of help that other areas are getting, and we’re standing there with massive amounts of—massive

areas that have been foreclosed, some of which, unfortunately, have

been abandoned, your explanation, well, that’s your explanation, is

not really acceptable, because when you have these initiatives,

you’re still setting priorities.

That’s the message you’re sending out. And you’re going to have

to do better. You’re going to have to be able to come back to those

of us who are in the Midwest and come up with some specific programs, not—you know, we appreciate the neighborhood stabilization, that’s fine, I just won $145 million. You’re talking about a

$1.5 billion program you announced. We know the difference. And

Ohio, you know—and our area is the epicenter of the subprime

meltdown. That’s not the only problem.

I’m going to—I have one more question here. Banks and investors are holding millions of mortgages that are not worth anything

near their paper value. The value of the houses that secure this

debt has fallen to just a fraction. These bankers and investors have

no hope to ever recoup their investment. But even after they get

a taxpayers’ bailout, these bankers and investors refuse to write

down the losses. So far the government hasn’t seemed willing to

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ask the bankers and investors to pay their fair share. HAMP hasn’t

resulted in many principal reductions.

Now, the American people are wondering, is it the political influence of the very banks and investors that taxpayers bailed out that

is causing you to avoid taking the necessary step of promoting principal reduction in the Federal response to the foreclosure crisis,

and when is the administration going to roll out a real program for

getting principal reduction?

Ms. Caldwell.

Ms. CALDWELL. Mr. Chairman, we continue to speak about principal reduction and the challenge facing real American families

who wake up every day and realize that the value of the largest

asset that they have is below what they owe on the house. So we

have continued to study how we can make negative equity and

principal reduction work better for HAMP.

Currently the program allows lenders to take principal reduction

at any point in time in the modification. But one of the things that

we’ve learned is most of the people who are underwater on their

mortgage default after they’ve had an employment shock or income

shock. And so this program was designed to target that affordability payment and keep them in their homes, recognizing that we

continue to put pressure on the financial institutions to sign up for

our second lien program so that we can have more principal writedown on the second liens and continue to have more on the first.

Mr. KUCINICH. I’m going to ask the committee to just indulge me

in a quick followup.

So what’s stopping Treasury from writing down the principal of

those loans and thereby giving the borrower a more affordable

mortgage?

Ms. CALDWELL. I think as we step back and look at HAMP, I

think it’s important to remember that when this program was

started, we were looking at a crisis of epic proportion and a mortgage industry and a program that was largely voluntary where

there were mortgages, there were servicers, there were investors,

and there were banks. And while many people look at the place

where they write their checks, and they see the name of the bank,

and they think that’s where their mortgage is, when their mortgage, in fact, has been sold to an investor. And one of the things

that this program has done over the last year is brought together

banks, borrowers, servicers and investors to reshape a mortgage

modification industry that last year was just about collecting payments. This is about keeping people in their homes with affordable

payments. And I think the next stage is to look at how we can enhance the program to continue to address the challenges that go

forward.

Mr. KUCINICH. Thank you, Ms. Caldwell.

The Chair recognizes Mr. Jordan.

Mr. JORDAN. Thank you, Mr. Chairman.

And, Ms. Caldwell, thank you again for being with us a second

time.

In your testimony you say in 1 year HAMP has made significant

progress. The numbers we have as of the end of last month, January 31, 2010, HAMP had achieved just over 116,000 permanent

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mortgage modifications, again, the stated goal being 3 to 4 million.

So I guess my question is is that really significant progress?

Ms. CALDWELL. Member Jordan, I think it’s important as we step

back and look at the program goals, the program was set out to

provide an opportunity for 3 to 4 million homeowners to have a

chance at a mortgage modification from program inception, which

was a year ago, through the end of 2012. In its first year we have

1 million homeowners in trial modifications, and in those trial

modifications, they are realizing close to 40 percent reduction in

their monthly payment.

Mr. JORDAN. Let me ask you this: Do you expect by 2012 to have

3 to 4 million homeowners in a permanent status? A trial is one

thing. I mean, that’s your term, ‘‘trial modification,’’ so trial is not

there, it’s trial. So do you expect it to get to the goal, stated goal,

right from the outset, 3 to 4 million—do you expect to get to that

number in 2 years based on the fact only 116,000 are there today

after 1 year?

Ms. CALDWELL. Well, again, just to reclarify the goal, I think—

first let me just say we have never seen a mortgage crisis of this

proportion, so it’s too soon 1 year in the program to talk about

what will happen 2 years out. But the program is designed to offer

3 to 4 million homeowners an opportunity for a mortgage modification, not a permanent modification, an opportunity. And 1 year in

we have 1 million homeowners saving $500 a month in modification.

Mr. JORDAN. I’m sure you’re working hard, and I just question

this whole idea that the big Federal Government can do these kind

of things. They come out with a promise, we’re going to do—I

mean, we’re going to do a stimulus plan, it’s going to keep unemployment at 8 percent; we’re going to do a home modification program, we’re going to help 3 or 4 million people, and we’ve done

116,000 in 1 year; but we’re going to get to 4 million, we promise,

promise, promise by 2012. I mean, do you, yes or no, do you think

by 2012, 2 years from today, you will have 3 to 4 million people

in a permanent modification plan?

Ms. CALDWELL. I’ll just say, again, we’re 1 year into a mortgage

modification program that is at a scale that has never been done

in history, and it’s really too soon to predict what will happen in

2012.

Mr. JORDAN. OK. Let me move to a second one. Let’s go to the

transparency issue, if I could, Mr. Chairman, and if I run out of

time, I will wait until the second round. Let’s go to—can we put

up slide 1, I think?

This is the number of requests. And I guess my question is going

to go to—they’re going to be hard to see. Let me just cut right to

the chase. Why did you decide to quit—if I understand, in July of

last year, August, September, October, November, every month on

your Web site you were putting up the number of requests for financial information. And here the last 2 months you’ve decided not

to display that number. Is there a reason why you decided not to

put that number up? And if you had continued the practice you

started with, what would the number be today?

Ms. CALDWELL. Well, first of all, let me just emphasize that since

its inception the HAMP program has been focused on affordability,

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stability and transparency. And so we are very committed to transparency of the program.

Mr. JORDAN. But you admit you’re no longer putting that piece

of information up.

Ms. CALDWELL. Correct. The number you’re referencing there

was removed because it was confusing to the public. Just to clarify,

the number is the number of requests for information that lenders

send or servicers send to their entire portfolio of 60-day delinquent

borrowers. It’s not a measure that has anything to do with applications to HAMP or the Making Home Affordable program. That’s

just a measure of solicitations or inquiries on any modification. And

many people were confusing it with HAMP, and so we removed it

because it was causing confusion in the report.

Mr. JORDAN. Well, I mean, you’ve heard from taxpayers, you’ve

hear from American citizens that was confusing, or you just decided that it was confusing?

Ms. CALDWELL. We heard from a number of people on conference

calls, on Hill visits and press visits. But if it’s an important number to the public, we’ll put it back in.

To your question on what would it be today, it’s about 3.5 million.

Mr. JORDAN. So it’s up. So you’ll make a commitment to put that

number back up there.

Ms. CALDWELL. We will, but with more clarity that it relates to

overall solicitations, not just HAMP.

Mr. JORDAN. I think that’s a good thing. Transparency is transparency. The American people are smart people. They put Kucinich

and Jordan in Congress. No, I’m kidding. They can figure it out,

so I think that’s something that should be up there.

Thank you, Mr. Chairman. I yield back.

Mr. KUCINICH. I thank the gentleman.

The Chair recognizes the gentleman from Maryland. Mr.

Cummings, you may proceed.

Mr. CUMMINGS. Thank you very much, Ms. Caldwell.

What does the average trial modification—what’s the savings for

the borrower in a trial modification, and is that different than the

savings in the permanent?

Ms. CALDWELL. In terms of the data collection, we don’t have

exact data on the savings in a trial modification, but if there’s been

no change in the borrower’s income, it should be the same. And so

our population has a median savings of just over $500 per month.

Mr. CUMMINGS. So in other words, when they negotiate the trial,

if they don’t—if their income doesn’t change when they move to

that date that would make them permanent, then you would assume it’s pretty much the same, right?

Ms. CALDWELL. Right. Because it’s based on affordability, on 31

percent debt to income.

Mr. CUMMINGS. It was reported in the press on Monday that

Treasury plans to implement changes to HAMP, including a prohibition against lenders filing foreclosures while a borrower is in the

modification process. Are you familiar with that, right?

Ms. CALDWELL. I am familiar, yes.

Mr. CUMMINGS. And I’m very pleased about that because I cannot tell you how many people in my event on Saturday and the two

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previous events that we had said that their lender went ahead with

filing foreclosure while they were in the process.

If you could please run down other changes in HAMP that are

being considered? Are there other things that are being considered?

Ms. CALDWELL. Well, let me just first back up to the changes

that you reference that were mentioned in the paper earlier this

week. Those have not been confirmed or approved; those are

changes under discussion. And as a program that has multiple

stakeholders, those were changes that are being recommended, considered and were being vetted with stakeholders, and that were

leaked to the press in advance of approval. And I think everyone

in this room has experienced an advance leak. So that certainly is

along the lines of what is being considered, but it is not yet finalized. In terms of——

Mr. CUMMINGS. Let me just ask you real quick. And what would

be the process for finalizing those things that have been leaked to

the press?

Ms. CALDWELL. Full approval within Treasury.

Mr. CUMMINGS. And——

Ms. CALDWELL. But let me go on to say just in terms of future

iterations to the program, every single day my office is looking at

the homeowner experience in this program and what we can do to

make it better. And so we have continually made adaptations, and

we will continue to iterate until we are doing the service that we

need to have to American homeowners.

Mr. CUMMINGS. Is there a—tell me about the sense of urgency

with regard to the one change that we just talked about with regard to not putting people out while they are trying to modify.

Ms. CALDWELL. Well, let me just be clear at the front. The

HAMP current guidelines prohibit a home from going to foreclosure

sale while the homeowner is in HAMP trial modification. And so

these changes are not—these changes are designed to enhance the

communications so that homeowners have a clear understanding of

their rights, and that they know that their home cannot go to sale

while they are in a HAMP modification. That has been the case

since the program was started.

Mr. CUMMINGS. And how important is it that you have cooperation of the lender or servicer in the HAMP program?

Ms. CALDWELL. It’s very important. HAMP is a voluntary program, but I think it’s important once a servicer signs up for HAMP,

they are under contract with U.S. Treasury, and they must perform. When the program was launched a year ago, folks said, you’ll

never get servicers to sign up to modify mortgages. Within the first

year we went from zero servicers to 100 servicers, covering 90 percent of U.S. mortgages. And so while it is a voluntary program,

once someone is in, they are under contract, and they must comply

with the regulations.

Mr. CUMMINGS. And that leads me to the question, in my district,

you heard what I said a little earlier. I mean, we work very hard

to put lenders together with borrowers, and the No. 1 complaint is

that the borrower can’t get ahold of anybody in the lender’s office.

I don’t care who it is. We dealt with 25, we had them all in one

place this weekend, past weekend, weekend before last.

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And so I’m trying to figure out where the problem is here.

There’s a disconnect. Are you following me? And I’m sure this is

happening all over the country. And that’s the No. 1 complaint.

And I can get 1,000 people out on a Saturday morning in the snow,

I’m serious, but they can’t get a lender—and the reason why they

come to me—and they shouldn’t have to have a Congressman to facilitate them. You know, so I’m just trying to figure out. I mean,

you just said that you all were trying to make sure that you try

to address all the issues because I know you want to be as effective

and efficient as you can be, and I’m just wondering if there is anything that we’re missing here.

Ms. CALDWELL. Well, let me first say that homeowner events like

the one you held last weekend are very important. I was actually

supposed to speak at the one when it was originally scheduled for

the first part of February when we had the big snow, and so those

are very important.

I happened to be at a similar event that our office was hosting

in Houston, Texas, and that opportunity for face-to-face connection

with the servicer is important. But I think it is important to remember a year ago servicers were just in the business of collecting

checks, making phone calls and foreclosing. And as part of this crisis, they have had to fundamentally reshape their operations to

handle homeowners in crisis, to follow the rules of a government

program, to shift modifications from those that used to increase a

homeowner’s payment to those that are long-term and sustainable.

And so as they have ramped up, there have been some implementation challenges. Some signed up before they were ready; some are

doing better than others. And part of our commitment to transparency is publishing a monthly servicer performance report so

that we can judge who is getting the job done and who is not.

Mr. KUCINICH. Thank you.

The gentleman’s time is expired.

The Chair recognizes Ms. Kaptur.

Ms. KAPTUR. Thank you, Mr. Chairman, for holding these hearings.

Welcome, Ms. Caldwell.

Could you please for the record state at which institution you

first began as a mortgage loan officer?

Ms. CALDWELL. I have never been a mortgage loan officer.

Ms. KAPTUR. Thank you.

Have you ever in your prior positions handled the assets and liabilities of a financial institution and how they actually account for

the value of real estate?

Ms. CALDWELL. Yes, ma’am I, have.

Ms. KAPTUR. OK. And for which institution was that?

Ms. CALDWELL. With Bank of America.

Ms. KAPTUR. Bank of America.

Have you ever been a part of the resolution of an institution or

any instrumentality of Bank of America as they tried to work out

on the books of that institution troubled real estate loans?

Ms. CALDWELL. Yes.

Ms. KAPTUR. And have you marked, been a part of an effort to

mark, the value of those assets to market for those institutions on

their own books?

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Ms. CALDWELL. Certain asset classes are required to mark to

market, and some aren’t, so it really depends on the accounting

rules with the various assets that I’ve been a part of.

Ms. KAPTUR. I am trying to understand. Now, you’re over at the

Treasury Building, right?

Ms. CALDWELL. Correct.

Ms. KAPTUR. I have found this whole approach to dealing with

the housing market foreign to anything I have ever known. And in

a way I think you have a job that’s doomed to failure. And I don’t

understand why the last administration and this administration

are using these means to deal with the real estate implosion in this

country.

So some of my questions—and I asked Secretary Geithner yesterday to come and see the people over in the administration who are

involved in these programs, because I can’t figure out if Treasury

has been selected to try to dig out of this avalanche of troubled

loans because the system can’t find the loans on the books of the

institutions that originated them and then sold them upstream, or

if they’re doing it for some other reason that I don’t really understand.

But what’s been happening in communities like my own, foreclosures are going up and not down. Home values are going down,

not up. Credit is frozen across this country because the banking

system doesn’t have confidence that the regulators or those in

charge of regulating the financial institutions of this country have

any consistency in what they are doing.

And so this recent decision by TARP, TARP, the group that decided that Merrill Lynch would be merged but Lehman would go

down, now the same instrumentality has decided that five States

are going to get TARP money to deal with home foreclosures, but

45 other States aren’t. And I can tell you I represent a district

where the unemployment rates in the four counties I represent are

higher than the unemployment rates of the States of Nevada and

California and Florida and the other States that were selected. So

it’s really I’m thinking, hmmmm. So Treasury now picked five, but

it didn’t pick troubled areas of the other four.

It makes no sense to me. And I’m wondering why the FDIC and

the SEC aren’t being used to deal with home value in a normal

manner so that the books are resolved at the institutions that have

held these loans, but rather all this is being thrust at you, at

Treasury, which is not a housing agency. It never has been. It’s a

bonding agency. It sells bonds, it collects taxes. That’s what it does.

The real housing knowledge is inside of HUD, it’s inside of FDIC,

because those lines are on the books of the institutions that made

the loans, and it’s over at the SEC.

So we’re not resolving the—in fact, what we’re doing, what’s happening is the approach is procyclical. What’s being done to date is

driving us into further recession, less lending and more delinquencies. And I can tell you—I mean, I’m not the only one up

here—in the HAMP program it’s not working. As hard as you try,

they’ve given you an impossible job. And to resolve what’s wrong

with the housing market, I asked Secretary Geithner for a meeting,

and I guess he’s agreed to do it. He’s not a houser, hasn’t been involved in real estate.

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This is really complicated. We need to use the proper regulatory

instruments, and we’re not using them. And it’s beyond me why,

unless you can’t find the loans, unless they’re missing somewhere,

and I don’t believe that. I think that we can resolve them on the

books.

So I guess rather than giving you all the troubled real estate

loans in the country, what I think should be happening is every

single institution that made those loans, we should be resolving

and taking those losses, writing down the principal on those assets

and liabilities on the books of those banks. That’s what bank examiners do. That’s what the FDIC does. So my fundamental question

is why aren’t we doing that?

Mr. KUCINICH. The witness will have time to give a brief response.

Ms. CALDWELL. Let me just say for the HAMP program, which

is what my team does every single day, when you look at the mortgage structure that we have today, over 90 percent of the mortgages in the United States are serviced by HAMP-eligible servicers.

And that happened from within its first year of operations. We

have 1 million homeowners that are saving 40 percent a month on

their mortgage payment. And this is only one piece of the administration’s overall housing solution when you think about interest

rates, you think about refinance, you think about the purchase of

mortgage-backed securities, and you think about HUD neighborhood stabilization funds. There are a number of agencies working

together to address what is the largest housing crisis of our time.

Mr. KUCINICH. We’re going to go to Mr. Tierney of Massachusetts, then we’re going to have one more round, Ms. Caldwell, because myself, Mr. Jordan and perhaps other Members have some

additional questions.

What about Ohio? Tell me what are you going to do, what are

you going to do for Cleveland? You’ve got to do more. What are you

going to do?

Ms. CALDWELL. Well, I think it’s important to keep in mind that

right now there are over 22,000 homeowners in trial modifications

in the State of Ohio, and our job No. 1 is to get those homeowners

into permanent modifications, and so we are focused on that every

day.

Mr. KUCINICH. Don’t you have about 19.4 percent of people in

Ohio that are already underwater?

Ms. CALDWELL. I don’t know the underwater statistics for Ohio,

but we continue to look at everything we can do in Ohio and across

the United States to keep homes—to keep those people in their

homes.

Mr. KUCINICH. OK. That’s not good enough. You’re going to have

to do more. We’ll be in conversation about these things, but I’m not

satisfied. Listen to what Mr. Rokakis has to say on the next panel,

because he has some of the granular details about what’s going on

in Cleveland, Cuyahoga County.

I’m sure you’re doing your best, but this is a wake-up call, and

consider it a friendly wake-up call. I’m concerned that you haven’t

done enough to pressure the loan servicers and investors, and all

the effort put into this program will not make a meaningful difference for the large number of homeowners in America who need

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help. That is the underwater borrowers, the borrowers who do not

get modifications because of conflict of interest by the lenders owning both the first and second mortgages. Four biggest banks control

two-thirds of all loan servicing. What’s Treasury doing to address

this problem?

Ms. CALDWELL. We’re doing a number of things. I think that—

and transparency is key here. Beginning in November with our—

actually our data published in December. We published by servicer,

by servicer performance reports, and that is a big motivating tool

in getting those modifications made and converted.

In addition we’ve hired Making Home Affordable Compliance. It

is a separate unit of Freddie Mac that goes in and inspects all the

major servicers to make sure that they are appropriately soliciting

homeowners that are eligible for HAMP modifications, and that

they are doing it in the appropriate way.

And third, we run a call center in partnership with HOPE NOW

and NeighborWorks to make sure that we are providing homeowners across America an opportunity to get help on their loan and

get referred to a counselor where needed.

Mr. KUCINICH. I’ve looked at your testimony, all of it, and it touts

the accomplishments of the HAMP program, but it’s hard not to

conclude that the administration has created a system that’s all

carrot and no stick. All along we’ve heard reports of the poor treatment of borrowers by loan servicers. Counselors in foreclosure prevention programs across the country relayed their stories through

the media. And we heard that one of the most common reasons

loan servicers deny borrowers modifications is the alleged reason

that the borrowers’ hardship isn’t permanent.

What can you tell borrowers who are getting this kind of treatment from loan servicers?

Ms. CALDWELL. You know, our office and the call centers speak

with borrowers every day on the phone. We have been out to 40

cities across the United States, or made a commitment to go to 40

cities—we’ve been to 22—to meet with homeowners in person. We

regularly go out into the district offices because we want to hear

about the experience that people are having. This program was designed with the borrower at the forefront, and every day this office

takes seriously the experience of homeowners across America.

Mr. KUCINICH. How do people get ahold of you and—and indicate

their experience? Do you have a Web site?

Ms. CALDWELL. We have a Web site, and we——

Mr. KUCINICH. What is that address?

Ms. CALDWELL. It is MakingHomeAffordable.gov, and we have a

phone number which I’ll have to provide to you, but I know the last

four digits are H-E-L-P.

Mr. KUCINICH. We don’t want that to be wrong. Well, we will

make sure that we work with you in circulating that information.

Now, one big complaint among borrower advocates is that loan

servicers can proceed with a foreclosure while the borrower is still

being evaluated for and is in a trial period for a loan modification.

What are you doing to change that?

Ms. CALDWELL. Well, again, as I said earlier, I think it is important to understand that HAMP guidelines have always said that a

home may not be sold, go to foreclosure sale while a borrower is

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in HAMP. Foreclosure laws do differ across States, and so there are

some States where there may be borrowers or homeowners in a

foreclosure process, albeit not a sale, while undergoing HAMP. And

so one of the things that we are very committed to doing is making

sure that homeowners understand that process, that servicers understand their responsibility in the process, and that there are no

situations where a homeowner goes through an avoidable foreclosure.

Mr. KUCINICH. My time—thank you. My time has expired, but I

am going to ask you to be open to submissions by members of this

subcommittee of followup questions that we may have. I have a followup question about underperforming services, but I will put it in

writing.

We’re going to move along with this and get to the second panel

after other Members have had a chance to ask a second round of

questions.

The Chair recognizes Mr. Jordan. You may proceed for 5 minutes. Thank you.

Mr. JORDAN. Thank you, Mr. Chairman.

Ms. Caldwell, let me get back to the transparency concern of— for the $75 billion—potentially $75 billion program. The Special Inspector General for TARP has made a recommendation that Treasury should require the servicer to compare the income—I mean, it

is straight out of the book—compare the income reported on the

mortgage modification application with the income reported on the

original loan. They list in their latest report that this recommendation has not been implemented. Why hasn’t it? I mean, that seems

to me, looking at potential fraud, just a good government type of

thing that could happen. Why haven’t you done that? Why haven’t

you required that?

Ms. CALDWELL. The HAMP program is a modification program,

not an origination program, and so this program is designed to prevent avoidable foreclosure. So the focus is on what is the homeowner’s current hardship and the documentation of the income that

they have today——

Mr. JORDAN. But don’t——

Ms. CALDWELL [continuing]. And keeping affordable payments.

Mr. JORDAN. Ms. Caldwell, don’t you think in light of all that

took place a few years ago when we talked about some of these

loans that were made, and there was maybe no documentation,

not—there was potential fraud, don’t you think it makes sense—

you as a professional who serves in this industry, don’t you think

it makes sense to look at that? And the guy who is supposed to inspect, the inspector general of the program, is supposed to watch

out for the billions of taxpayer dollars potentially at risk. I mean,

why wouldn’t you do it? The inspector general is telling you to do

it. It makes sense. It was part of what started us in this mess to

begin with a few years back. It seems to me that would be something, oh, yeah, no-brainer, let’s do it.

Ms. CALDWELL. Our focus right now in the HAMP program is

getting the documentation in from the borrowers currently in trial

modifications on their income and the hardships that they are facing today so that they——

Mr. JORDAN. Do you——

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Ms. CALDWELL [continuing]. Converted to permanent modifications, not on whatever documentation——

Mr. JORDAN. Do you intend to at any point over the next 2 years,

as you are trying to get to this goal of 3 million, 4 million, and you

have only done 116,000, do you intend at any point over the next

2 years to do what the inspector general has asked you to do?

Ms. CALDWELL. We’re always looking at ways to iterate and improve the program to provide a better experience for the borrower

and for the taxpayer. Right now we’re focused on the conversion

from trial modifications to permanent modifications, but will continue to look at the program.

Mr. JORDAN. Is that a no? You’re not going to do what the inspector general suggests you do?

Ms. CALDWELL. It is a—I can’t say today 1 year into the program

what we’re going to do between now and 2012, but I can commit

that we will continue to review it.

Mr. JORDAN. What’s the qualification rate? One million people

have—have applied and are in trial modification. What—116—do

you know the percentage of folks—- do you anticipate those who

are still in trial modification, what percentage of those will make

it into permanent modification of their loan? Are the vast majority

going to continue to be rejected? Is that your—that’s the history.

You anticipate that being the case as we move forward?

Ms. CALDWELL. In terms of a conversion ratio, it is too early to

predict what the long-term conversion ratio can be. The one prediction that I would be prepared to say is that when documentation

is required up front, the conversion ratio will be higher, because

the documentation collection has been a challenge.

I do think it is important to just again emphasize that the program is designed to provide 3 to 4 million in opportunity for modification, not a commitment to modify 3 or 4 million mortgages.

Mr. JORDAN. OK. Well, let me ask, it looks like a high number

are going to be in trial and not make it to the permanent. With

that fact in mind, if homeowners who get trial modifications but

don’t qualify for permanent ones end up defaulting on their mortgages, wouldn’t it have been better for them to pursue some other

type of approach, some other type of remedy for the difficult economic situation they are in?

Ms. CALDWELL. I think it’s important to remember that HAMP

is a pay-for-success program, so incentives do not get paid to the

servicer until the loan becomes permanent. And then there are incentive payments as the loan stays current over a 5-year period. So

to the extent that a loan does redefault, taxpayer money is not paid

to support that loan.

In terms of keeping homeowners in their home and avoiding foreclosure for a longer period of time, I think that is a good outcome.

Mr. JORDAN. Let me ask one final question, if I could, Mr. Chairman.

This is from a week or two ago, a Wall Street Journal piece on

a program, the date February 9th. Former head of Freddie Mac

David Moffett said—he and others warned administration officials

that the loan modification goals were unrealistic, that borrowers

whose homes weren’t worth what they owed were unlikely to take

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part, and that many participants would be likely to redefault within months. They didn’t want our views, Mr. Moffett says.

It looks like he was somewhat, you know, visionary or prophetic

on his statement there.

Is that statement accurate in your mind, Ms. Caldwell? And

were, in fact, you—those of you at Treasury, I don’t know if you

were there quite yet, but do you know if folks at Treasury were

warned about, you know, got this warning that Mr. Moffett states

in the article?

Ms. CALDWELL. You’re—you’re correct, I joined Treasury in November 2009, so I can’t speak to what people were thinking at

Treasury, but what I can say is that in the program today we have

over two-thirds of the homeowners current on their mortgage, and

that is—we’ve never had anything at this scale, so we don’t have

historical data to fall back on, but what we do know in loss mitigation prior to this crisis, close to 45 to 50 percent redefaulted. So we

are outperforming in terms of prior history.

Mr. JORDAN. Mr. Chairman, if I could, you know, if you have another hearing, I don’t know if you’re going to, but if you do, we may

want to get Mr. Moffett.

Mr. KUCINICH. I have the feeling we’re about to become good

friends here.

Mr. JORDAN. Mr. Moffett may be someone we want in front of the

committee. Thank you.

Mr. KUCINICH. Thank you very much.

The Chair recognizes Mr. Cummings.

Mr. CUMMINGS. I thought Mr. Tierney was——

Mr. KUCINICH. Mr. Tierney waived that in the last round, but I

would be happy to begin with Mr. Tierney.

Mr. CUMMINGS. No, I’ll yield to Mr. Tierney.

Mr. KUCINICH. OK. Mr. Tierney.

Mr. TIERNEY. Thank you. Thank you.

I apologize for missing your remarks and the early part of the

questioning, so some might be repetitive, I’m sure it probably is,

but as long as we’re here, can you tell me why the administration

hasn’t considered any sort of principal reduction program or whether it might do that in the future, and what it would look like if it

did?

Ms. CALDWELL. Right now HAMP currently allows for principal

write-down at any point in time in the mortgage modification. I

will also say that——

Mr. TIERNEY. It allows for it, but it doesn’t naturally move in

that direction.

Ms. CALDWELL. It doesn’t require it. And the administration has

been studying ways to look at principal write-down as part of the

mortgage modification, but one of the things that we have learned

is that the bulk of the people who are underwater in their mortgage are currently paying, and so we’re always examining that in

the lens of cost to the taxpayer, moral hazard and keeping the program running. And so with that in mind, this program was designed for affordability to make sure that people could stay in their

homes with a payment they could afford.

Mr. TIERNEY. Now, when you’re looking at this new plan to divert about $11⁄2 billion in TARP funds to just five States, will there

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be a change in attitude with respect to that since there is TARP

money in a lot of those banks that may be involved, actually took

taxpayer money, will be requiring a little bit more from them in

terms of principal forgiveness?

Ms. CALDWELL. Right now we’re looking at this program announced last week. We’re trying to get it up and launched and

learn from what the local housing finance agencies are doing. And

like with everything else we have done with this kind of crisis, that

is something we’ve never seen before in our history. We want to

take the lessons that we learn from this and all of our other housing initiatives and try to make our program better.

Mr. TIERNEY. So that’s a no, right?

Ms. CALDWELL. It’s a—it’s a too early to tell. We’re all learning

through this together as we go along.

Mr. TIERNEY. Well, you have not done it in the past. There was

nothing to learn from the past about doing it because you haven’t

done it, so I am asking you whether or not you are going to take

some consideration and maybe emphasis on trying something new,

particularly where some of the banks involved have already taken

the taxpayers’ money, and now say, in some instances where appropriate we are going to make a conscious effort to aggressively go

and get principal reduction, see if we can get these people to stay

in their homes and have these banks do something responsible? Is

that not something you’re going to go aggressively after?

Ms. CALDWELL. Our office has been aggressively considering proposals from—on all areas that we can do to address the foreclosure

crisis in this country and prevent affordable foreclosures. But as I

said earlier, we have to do that with the lens of affordability, stability and transparency, and we have to think about it with the

taxpayer dollars.

Mr. TIERNEY. All right. It seems to the me you have an aversion

to that, but we’ll see how it develops.

Yield back to Mr. Cummings.

Mr. KUCINICH. Mr. Cummings.

Mr. CUMMINGS. Just one quick question. He just yielded back to

me, Mr. Chairman.

One of the disturbing things that you said that upsets me tremendously, and I just checked with my office to make sure, there

are people—I don’t care whether it is in law or not, there are people who are being foreclosed upon, whether it is in the law or not.

And we can give you name, dates, and serial numbers. And some

kind of way we have to get to that. I mean, apparently there is no

enforcement mechanism, that’s No. 1.

No. 2—in the HAMP program, by the way. No. 2, I was—you

seem to make a big deal out of this thing of listing the servicers

and how many—what they did. I’m trying to figure out how do you

see that as an incentive? The—is there any data that shows that

they get—I mean, they get overjoyed or something when they see

their name listed, and there are a lot of—you know, they have a

lot of—they have done a lot of these modifications, because it

doesn’t seem to be working.

Ms. CALDWELL. You know, public pressure and transparency is

one tool, but I think it is also important to remember that HAMP

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is a pay-for-success program. So modifications don’t convert,

servicers don’t get paid. And so you get paid for success.

In addition, if there are modifications that have not been done

appropriately, then under the contract Treasury can go back and

take back that incentive.

Mr. CUMMINGS. So if we have situations where people are doing

that, the thing about with the foreclosures while they are working

out the HAMP program, we should get that information to you?

Ms. CALDWELL. Absolutely. If there are cases where you have

servicers in your market that have violated the guidelines under

HAMP, we want to know about that.

Mr. CUMMINGS. And what will you do?

Ms. CALDWELL. We then turn that to our compliance agent. We

have a compliance committee. They review it, they determine the

facts, and then there is a recommendation made about remedies.

Mr. CUMMINGS. Thank you, Mr. Chairman.

I yield back.

Mr. KUCINICH. I thank the gentleman.

The Chair recognizes the ranking member of the full committee

Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman.

Ranking Member Jordan had asked you about transparency pursuant to the special IG for the TARP, and I don’t think he got a

satisfactory answer.

Do you believe that the American people deserve 100 percent

transparency on your actions and your progress?

Ms. CALDWELL. I do. As we said, this program has been designed

to look at affordability, stability and transparency.

Mr. ISSA. OK. Well, going to the transparency, since you’ve only

done 116,000 permanent loan modifications, or 3 percent of your

goal, and we are well into your time horizon, how can we see in

a transparent way your progress so that we can determine whether

or not you have any hope of, in a qualified way, in an effective way,

achieving anywhere close to your original goal? Or if you’re not to

take back a substantial portion of the 75 billion—because ultimately if you’re not going to get close to 3 to 4 million in permanent loan modifications, shouldn’t we encourage the President to

reallocate that money?

Mr. CALDWELL. Let me answer, I think, your first question was

about the 3 to 4 million, and it’s important to again stress as I did

for Member Jordan that it was not designed to provide a commitment of modifications to 3 to 4 million people, but rather 3 to 4 million homeowners an opportunity for a permanent modification. So

if you come in the first year——

Mr. ISSA. Well, let’s go back through. How much of the 75 billion

have you used with 116,000 permanent loan modifications?

Ms. CALDWELL. I don’t have the exact answer to that, but it is

important to remember that——

Mr. ISSA. OK. If we’re going—ma’am, if we’re going to have

transparency, then where can I go and find out how much you

spent in somewhere close to real time? This committee wants

transparency; we demand it. We’re demanding it of the banks. We

are demanding it of all kinds of institutions we didn’t before. If you

don’t have—if you come before the Congress in a scheduled hearVerDate 11-MAY-2000 13:14 May 26, 2011 Jkt 000000 PO 00000 Frm 00127 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65124.TXT KATIE PsN: KATIE
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ing, and you don’t have the answer to a question of how much

you’ve spent, then I would like for the record a place where my

staff can go on a daily basis from here forward, click on a public

site, or, if there is a reason for it not to be public, then a less than

public site, and get that answer. Can you make that commitment

to me today that you will bring us back that answer?

Ms. CALDWELL. I can bring you back an answer on the amount

spent, yes. But I will again say because the—because the program

only pays for permanent modifications, it has not spent much.

Mr. ISSA. OK. Do you, by the way, receive a tally on a daily basis

or as requested immediately of how much has been spent? Is that

a question you ask and get answered periodically?

Ms. CALDWELL. It’s a question asked periodically, but not daily.

Mr. ISSA. When you ask it, how long before you get an answer

usually?

Ms. CALDWELL. It is hard to say.

Mr. ISSA. Well, just give me a—one example, that would be fine.

A day, a week, a month, an hour?

Ms. CALDWELL. Within the time requested, but it is published.

Mr. ISSA. You’re telling me that this is published, and my staff

could go during this meeting and get that information?

Ms. CALDWELL. From the TARP funds, yes. There is financial

statements for the TARP.

Mr. ISSA. The special IG basically said, no, there isn’t. That’s one

of the problems is the accountability and transparency in his report, which is rather lengthy, it comes up with a not so good. You

know, this is not a B-plus exercise, this is a D-minus exercise in

many of the things that he said.

Well, let me move on to just maybe one or two other questions.

You’re now well enough into it with 116,000 modifications. Let

me go to a question that was asked before maybe to set a stage.

How many banks did we give money to in the TARP? Not in your

program, in the TARP overall. Did we give money to anybody, or

did we loan money to them?

Ms. CALDWELL. In the TARP?

Mr. ISSA. Yes. We loaned money to the banks, right? And they

paid back with interest, and most have exited, the largest banks

have exited.

Ms. CALDWELL. Most, yes.

Mr. ISSA. When you’re going to the banks and asking them to do

loan modifications to basically forgive, in some cases, substantial

portions of principal, you haven’t given them any money; the only

money is the money that you, in fact, are standing there out of

your 75 billion? Isn’t that correct that their inducement is whatever

you bring in with your $75 billion in funds; is that right.

Ms. CALDWELL. And enforcement under a contract that they have

signed.

Mr. ISSA. If they choose to participate with you.

Ms. CALDWELL. Of which over 100 servicers have covering 90

percent of the mortgages. And the TARP banks servicers have all

signed up.

Mr. ISSA. But those are those who chose. I just wanted to make

clear that the gentleman on the other side was implying we gave

money and therefore had an obligation. But the only people who

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have an obligation are those who signed up for this program and

you are giving them money from the 75 billion; is that right?

Ms. CALDWELL. For their performance under the contract, correct.

Mr. ISSA. Very good.

Thank you, Mr. Chairman.

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

The gentleman recognizes Ms. Kaptur.

Ms. KAPTUR. Thank you.

Mr. Chairman, I want—I would appreciate it if Ms. Caldwell

would answer do you possess a degree in finance, or banking, or

accounting?

Ms. CALDWELL. Finance.

Ms. KAPTUR. Accounting science?

Ms. CALDWELL. No.

Ms. KAPTUR. Your degree is in science.

Ms. CALDWELL. The degree is in finance.

Ms. KAPTUR. Finance. Thank you very much.

According to the information that I have, in Ohio in the past

year, 2,529 homeowners got what are called permanent modifications. That doesn’t mean that anything actually happened, it just

means they went through some process that got them to some

point. Of the programs that you have responsibility for the HAMP

program, what percent of those individuals that have come to the

Government of the United States through your programs have actually been resolved? All those servicers you said that signed up for

your program, what percent? Is it 5 percent, 3 percent? What’s the

number for the country?

Ms. CALDWELL. I’m sorry, can you ask the percentage of what—

I didn’t understand your question.

Ms. KAPTUR. Of the home loans that have actually been refinanced and resolved where the people were able to stay in their

homes either through principal reduction, reworking of the mortgage loan, whatever, what percent in your program?

Ms. CALDWELL. In our program we at this point in time, because

we have homeowners in a temporary review, at the end of December we put homeowners in a trial modification to do one more review so that we could make sure that those—that they understand

what documents needed to be in and that they had a chance to become current. So therefore, we have not had very many people declined in order to—so that’s not a number we can give you. Everyone that’s still in a trial, unless their property is ineligible for

HAMP or they have withdrawn from HAMP, they have not been

able to be declined.

Ms. KAPTUR. Well, according to the numbers I have, Ohio had

about 90,000 homeowners who were foreclosed on in the last year,

and of that number we have 2,529, a very small percentage, who

got permanent modification to their mortgage. But when you really

probe beneath that surface, that permanent modification doesn’t

necessarily mean that they remained in their home, because something can change, because it’s in the program, and something else

can happen to it. So my point is it’s a very, very small number of

people who have gotten any home security out of this program after

1 year in Ohio. Maybe it is different in other States, I don’t really

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know, but certainly in Ohio we don’t see any kind of real bounce

from this program.

If it is all right, I would like to state some of the difficulties that

we are having in Ohio. The servicers really aren’t serious. Participation is voluntary; they can fiddle around with a loan for months.

There is no strong arm of FDIC in there or the SEC working with

the institutions, which goes back to my original question. It is very

curious to me that these mortgage loans are being worked out at

Treasury. That’s never been a housing—Treasury certainly doesn’t

do servicing. I mean, it’s just an odd place in the Government of

the United States to conduct these activities.

But let me just state for the record a couple of real problems

here. The 31 percent threshold that is used in the program that

you manage is unrealistic in regions that have traditional affordable housing stock like Ohio. We didn’t have the big bump-up like

Arizona. I’m sort of offended, California, you know, Arizona, all of

places that have hyperinflation, they get attention. And yet, you

know, the heartland gets run over with a Mack truck because the

people in our area were paying less than 31 percent of their income

for their mortgage. And the modification process actually increases

their payment and exceeds the 31 percent threshold, so, again, it

is just another—it becomes a procyclical means of denying people

the ability to work out their mortgage.

As you know, there is huge lack of coordination between the

legal, the loss mitigation, the collection, and the homeownership offices of lenders or servicers, total confusion, loss of documents. And

I will tell you one of the worst companies is Bank of America. We

get so many complaints about Bank of America, your former firm,

and documents are constantly being lost. And I just wonder what

you think——

Mr. ISSA. I would ask unanimous consent that the gentlelady

have an additional minute.

Mr. KUCINICH. The gentlelady’s time is expired. There’s a unanimous consent to give her another minute. You can ask—if you

could ask a question, we’ll ask Ms. Caldwell to respond.

Ms. KAPTUR. I thank the chairman, and I thank the ranking

member.

I want to know what you can do to get the servicers to really do

their job.

Ms. CALDWELL. Now, I think it’s—again, as I stated earlier, this

program went from startup to 1 million homeowners in trial in a

year and zero to 100 servicers in the first year. And we have acknowledged there have been implementation challenges as this industry fundamentally restructured. And so we continue every day

to learn from what’s happened in the prior month to make improvements.

Now when you talk about permanent modifications, we started

the month of December with 31,000 modifications. Back when I testified for the chairman and the ranking member a few months ago,

we had 31,000 modifications. Through daily efforts with the

servicers, setting goals, improving processes, we now have 116,000

modifications, that’s in 2 months, with another 76,000 out the door

awaiting signatures.

Ms. KAPTUR. Can you define what ‘‘modification’’ really means?

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Ms. CALDWELL. The permanent modifications where a homeowner has been through trial and converted to permanent modification. So that’s been a doubling of pace in the last 60 days, and

that’s a result of just growing into the system and learning from

the startup process.

Ms. KAPTUR. If there is a third round, Mr. Chairman, I will continue my questioning.

Mr. KUCINICH. The gentlelady’s time has expired. This is the end

of the second round of questions.

We’ve got three panels, and we’re going to need to move on. To

my colleague Congresswoman Kaptur, Ms. Caldwell has consented

to answering any questions that can be put in writing.

Ms. KAPTUR. OK.

Mr. KUCINICH. And we’ll make those, if we get a timely response,

part of this.

As has been pointed out by my colleague, SIGTARP has said that

the American people deserve better. Ms. Caldwell, I hope that you

will agree. Thank you very much for being here,

Mr. KUCINICH. We’re going to ask our second panel to come up.

I want to thank all my colleagues, Mr. Tierney, Mr. Cummings,

Ms. Kaptur, Mr. Jordan, Mr. Turner, Mr. Issa, for being here.

The second panel, will you step forward, and we will move to

swear in the witnesses. While you’re coming forward, I will do

some introductions.

Second panel consists of Mr. Bill Sheil. Mr. Sheil is a journalist

and investigative reporter for WJW FOX channel 8 in Cleveland,

OH, where he’s won numerous regional Emmys, as well as the Edward R. Murrow award for his reporting.

Mr. Jim Rokakis has served as the Cuyahoga County treasurer

since 1997. Under his leadership the office took an early role in

combating the foreclosure crisis, particularly with regard to abandoned properties and the creation of a county land bank. He helped

create and oversee the county’s Don’t Borrow Trouble mortgage

foreclosure prevention program.

Finally, Ms. Patricia Stringfield is a resident of Washington, DC,

and has lived here all her life. She has been a homeowner since

1988 and has sought a modification of her home mortgage under

the HAMP program.

So I’m going to ask the witnesses to stand.

It is the policy of the our committee to swear in all witnesses,

and I would ask if you would rise and raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Let the record reflect that each of the witnesses

have answered in the affirmative.

Now I am going to ask that each of witnesses give a brief summary of their testimony. Please keep in mind that your testimony

should be no more than 5 minutes in duration. Your complete written statements will be included in the hearing record.

Mr. Sheil’s our first witness, and his testimony is in the form of

an excerpt from an investigative report he produced for FOX Cleveland’s I-team. If we can play the video, and if you have any comment over the video, that would be fine, Mr. Sheil.

Can we—staff, do you want to—you’re working on it?

[Video played.]

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STATEMENTS OF BILL SHEIL, INVESTIGATIVE REPORTER,

WJW–TV8, CLEVELAND, OH; JIM ROKAKIS, TREASURER, CUYAHOGA COUNTY, OH; AND PATRICIA STRINGFIELD, HOMEOWNER, WASHINGTON, DC

STATEMENT OF BILL SHEIL

Mr. SHEIL. So what we did here is these are some pictures in

New Orleans, and these are some pictures in Cleveland interspersed, and we’re asking you, can you tell the difference? That’s

part of Hurricane Katrina. Some of this video is Cleveland. They

are interspersing with New Orleans. The point of the story was to

be that you can’t really tell which is which. That is Cleveland right

there, those four homes in a row that are vacant.

Tony Brancatelli is a councilman.

That’s Slavic Village and what it looked like about 30 years ago,

a middle-class neighborhood just south of the city. This is a sense

of what Slavic Village looks like today. These are pipes inside a

house that’s more than a century old that had gas lamps in it,

plumbing in the back.

Obviously, another shot of Katrina as we go back to New Orleans.

The Councilman Brancatelli showing us that it was the perfect

storm in Cleveland that led to this housing crisis in many ways.

These homes have outlasted their usefulness. The plumbing is in

the back because they predate indoor plumbing, and the plumbing

was attached later. They are often flipped and sold and paint

slapped on them, and then they are resold. And we have the problem again and again and again, which is what I’m saying, hopefully

better than you’re hearing it from me now, right there. And the

question is are there ways that we can, you know, improve the region, and are there ways that we can make things better?

This is a pair of teachers. They are talking about the problems

in their neighborhood, and how they want things to get better, and

how they want to be part of the solution, and how they want to

purchase this old, abandoned home. And they had some problems

making the purchase; some problems, quite frankly, dealing with

the governmental agency that I think have been resolved now.

But this is on the west side of Cleveland; this is a totally separate area from Slavic Village. We are focusing only on one house

here because it is next door to the new home that they invested in,

and they are trying to make the city work just in their neighborhood, but it is very hard to do with that eyesore next to them; that

they want to be part of the solution for bringing it down and putting a park, quite frankly, on that corner, which is not far from

Lake Erie. It’s a beautiful piece of property. And they are explaining that they are just frustrated by what’s happened in the neighborhood that they’ve invested in, and that they want the neighborhood to get better, and they want the Government, however it

should, to help them. That’s their house on the right. That’s the

property that’s on the corner. Behind them is a view of the lake.

Councilman Brancatelli in Slavic Village indicating that, you

know, the local officials need help making this happen; talking

about all the different for sale areas around Slavic Village.

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We had a lot of copper stolen from all of these homes when copper prices were high. This is what some people think the solution

is actually, which is to knock down these homes that no longer

have value, give them to the neighboring homeowners, plant trees,

do something other than having boarded-up drug houses in the

areas.

This is—that is—if you look up top there, that’s where kerosene

came in, predating electricity. This is where all the copper was stolen when copper prices were high from these abandoned homes,

and the people sold them for money.

The tragedy in these neighborhoods in part is a lot of older people still live in the area who can’t leave. We’re talking here, I

think, about the infrastructure that still exists in these neighborhoods, banks, gas stations. The neighborhoods have not yet died.

There still is the infrastructure that creates neighborhood there if

something can be done about what you’re seeing behind me here.

And I want to say these are not isolated neighborhoods. You

could go to 12 neighborhoods in Cleveland and get this.

This is explaining a process where—how money flowed into a

government account and how that was part of the problem. Again,

I think that’s been addressed. And I think that’s the portion we’re

showing.

Mr. KUCINICH. I want to thank you, Mr. Sheil, for being here and

for the investigative report. We’re going to go to questions to you

when we finish with the other witnesses, but thank you for that

presentation.

The Chair recognizes Mr. Rokakis. You may proceed for 5 minutes.

STATEMENT OF JIM ROKAKIS

Mr. ROKAKIS. Thank you, Mr. Chairman.

I’m going to ask the gentleman from IT to have the slides ready,

I hope they are up.

I’m the treasurer of Cuyahoga County. While the collapse of the

real estate market has shifted the focus away from Cuyahoga

County, OH, it’s important to note, as you pointed out, Mr. Chairman, that no other community has suffered the cumulative impact

worse that Cuyahoga County, OH

Cuyahoga County was first nationally from 2000 to 2006 when

the real estate bubble burst at the end of 2006. When this dubious

distinction, worst in the country, moved to other communities and

places like California, Nevada, Arizona and Florida, this crisis did

not go away in communities like Cleveland or in States like Ohio.

In 2006, the last year Cuyahoga County led the country in foreclosures, we had 13,600 foreclosures. We had over 13—14,000 in

2007, when we were no longer first; almost 14,000 in 2008; 14,000

in 2009; and we’re expecting a similar number in 2010.

A quick review of the county foreclosure maps. I don’t know if

you have them there. We have a glitch with ITMs. Every time I

attempt to do this, Mr. Chairman, I botch it. But a quick review

of these maps would show you that the foreclosures, while they

have decreased just a bit in Cleveland, the core city, in part because there is nothing left, they have really picked up in the innerring and outer-ring suburbs. If you move the progression through

130

to 2009, you’ll see those shifting dark shades result—are density in

foreclosures. They have moved from the core city, 2007, 2008, 2009

the last year, and as you see, this cancer has spread out.

Even more troubling is evidence that tens of thousands of loans

that could be foreclosed are backed up and are at least 90 days late

as evidenced by this next progression of slides. You will see, and

these slides clearly demonstrate, that delinquent loans are backed

up in the foreclosure queue. Look at the 90-day slide to the right.

Just keep progressing forward. What you will see, that there are

tens of thousands of loans in Ohio that are now 90 days late. They

backed up in this foreclosure dam, and when they burst, and they

will burst, it will add to the misery and despair we feel in our communities.

This crisis has resulted in at least 35,000 vacant properties,

18,000—18,000 to 20,000 properties awaiting demolition in Cuyahoga County, and a population loss in Cuyahoga County that is

second only to Orleans Parish in Louisiana, and we know why they

are first. Cleveland, which had 473,000 residents in the 2000 census, it has been estimated may drop to as few as 325,000 residents

in the 2010 census, a 30 percent loss of population in just 10 years.

Property values have plummeted throughout the county. Half of

all sales in Cleveland last year, Mr. Chairman and members of the

committee, were sheriff sales. The consequences on governmental

budgets, especially public schools which rely heavily on property

taxes, will be felt for the next generation. In one recent study, if

you could put that up, it’s a study of negative equity, Ohio shows

up as negative ninth in the country, but Congressman Kaptur

made a very good point. We never experienced the run-up of real

estate prices that many of the other States ahead of us on that list

experienced, so our losses are more significant as they took away

real value, not one driven by real estate speculation.

We are talking here today about the disappointment with the

HAMP program. Those reasons have been well reported. But

HAMP has been especially ineffective in Ohio, as you see on that

chart, members of the committee, as only three States have experienced a lower percentage of loan modifications than Ohio.

For all these reasons we were stunned to see the roll-out of the

plan last week by the Obama administration to use $1.5 billion in

TARP funds to assist California, Nevada, Florida, Arizona and

Michigan. How can a State at the epicenter of this crisis for so long

be ignored once again? How is that possible?

The only effective remedy, in our experience, that works in this

fight is foreclosure counseling. And to Congressman Cummings’

port—point, I am not talking about the 1–800 call-in numbers to

call-in centers. I’m talking about the intense, face-to-face, personal

counseling where trained foreclosure counselors work with homeowners in distress and stay with them as they do loan modifications.

A program we established in Cuyahoga County, our Don’t Borrow

Trouble campaign, is one of the most effective in the country. It

takes people who call 2–1–1 and refers them to four trained counseling agencies where people sit down face to face again, not over

a long-distance phone number. Homeowners are then assigned to

foreclosure counselors who meet with them, gather financial inforVerDate 11-MAY-2000 13:14 May 26, 2011 Jkt 000000 PO 00000 Frm 00134 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65124.TXT KATIE PsN: KATIE
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mation, assess the situation, and proceed to work on their loan

modifications with the servicer.

Our success rate in 2008 was 56 percent of those who came in

and sat down with our counselors has the loans modified. Now,

some of these mortgages are beyond repair, but our success rate

when a homeowner calls us, again, as I said, we think is the best

in the country.

Which brings me for my major reason for being here today,

which is to plead with you, Mr. Chairman and members of this

committee, to restore funding to the National Foreclosure Mitigation Counseling Program [NFMC], which is an arm of

NeighborWorks.

Reduction at the Federal level to this program resulted in direct

funding cuts to counseling agencies in Cuyahoga County and Ohio,

organizations like ESOP, a nationally regarded community group

that is, I think, the most effective housing counseling agency in

Ohio. Last year ESOP received $1.7 million in funding through

NFMC. Because of reductions in funding, their allocation this year

is only $568,000. They are laying off counselors, housing counselors, beginning Monday. Other organizations throughout the

State are doing the same. Last year ESOP counseled 8,000 family

statewide; this year as a result of the cuts, they expect to only be

able to counsel 3,000 families.

The chart I’d like to show you there, the last chart, graphically

demonstrates Federal policy is moving in the wrong direction. Delinquencies are moving up, but foreclosure counseling dollars are

moving down. This is incomprehensible, nonsensical and wrong.

Time is running out. If only two-tenths of 1 percent of the amount

allocated each of those States, assume an even split, $300 million,

if two-tenths of 1 percent of the moneys allocated to those five

states last Friday were allocated to these programs, we could keep

these housing counselors on and continue what I think is the good

fight and the only effective program that has worked thus far.

Thank you, Congressman Kucinich and members of the committee, for listening to me today.

[The prepared statement of Mr. Rokakis follows:]

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Mr. KUCINICH. Mr. Rokakis, your testimony is very important,

and I have just had staff take a copy of it over to Ms. Caldwell,

who, unlike most people who testify in front of our committees, actually stays to hear what other people have to say.

I always appreciate that about you, Ms. Caldwell. But I—make

sure that Mr. Rokakis’s testimony—if you look at the maps and see

the progression, I think it would be helpful. And you understand

why those of us in Cleveland, Cuyahoga County, and in the State

are so concerned when we get a signal from the administration

that perhaps it is not looking closely enough at what’s happening

in our communities.

I also want you to know, Mr. Rokakis, that this afternoon we’ll

have a copy of your testimony sent over to the Treasury Secretary

as well. We believe this is a very important message.

Mr. KUCINICH. Another important message about to be delivered

to us from someone who lives in the neighborhoods of Washington,

DC.

Ms. Stringfield, would you proceed with your testimony and

share with this subcommittee what your experience has been. I

thank you.

STATEMENT OF PATRICIA STRINGFIELD

Ms. STRINGFIELD. Good afternoon. My name is Patricia

Stringfield. I am a resident of the District of Columbia, and I have

come here today to tell you a story of my situation. I am a single

mother who has worked my entire life to make sure that my son

and I are taken care of and that he had a stable home environment. In 1988, I purchased my home from my mother. I did so because I had grown up in the neighborhood, and I knew it would

provide me with a peace of mind. I purchased the home for

$66,000. Over the years I refinanced a few times to cover expenses,

take advantage of lower interest rates, and to do some repairs and

cover college expenses for my son.

When things seemed like they were under control, my mother developed a medical condition forcing her to no longer be able to

work, and I had to take over paying her bills. My mother has now

been diagnosed with dementia, and I am now her primary caretaker. She receives Social Security payments to cover her insurance

and her medicine, but little is left to cover food and basic expenses.

When I contacted my lender, they told me that they would happily

refinance my loan again to help me cover the increased balance on

my credit cards and to pay off my son’s school expenses.

They suggested that I go to another lender to get a second mortgage, as my home had plenty of equity, and it could help me pay

the bills. I followed their advice and took out a second mortgage.

This finally solidified my situation for a few years until the price

of gas and utilities rose sharply. I depend on my car to get to work.

Making ends meet became so difficult that I had to dip into my

savings accounts until it was depleted. And at this point I turned

to taking out loans on my 401(k) until I no longer could be allowed

to do so.

Despite the financial stress, I was able to keep making mortgage

payments for several months; however, I finally missed my first

payment in September 2008. And as I ran out of ways to get extra

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income, I attempted to work with my lender several times, but was

not given any option for resolutions. I had to turn to my neighbors

to help pay for food for me and my mother. I missed a few payments, received warnings of foreclosure from my lender.

When I finally was able to get in contact with National Community Reinvestment Coalition, NCRC, NCRC was able to arrange a

workout only to find out that the lender on my first mortgage was

unable to find an acceptable workout solution. This caused my

lender on the second loan not to offer anything because the first

was not modified.

As the days passed and the foreclosure sale date approached, I

decided to move out of my home because my mother’s doctors didn’t

think she could handle being thrown out on the street. I began to

move out on February 22, 2009, into a rental apartment with my

mother. We awaited until NCRC got a resolution. The lender canceled the foreclosure sale, and I was put into a 3-month HAMP

trial period.

Because of the modification on the first loan, my second loan

holder was able to reduce my monthly payments by $100. But this

news—excuse me, with this news we returned to our home in April.

The landlord, however, asked me for 6 months of rent, claiming I

had broken the lease. NCRC then stepped in again and is engaged

in negotiation with the landlord.

When I received the first trial modification, I made two payments on it, but then sent—but then was sent another agreement

to begin in June 2009 with a different payment amount. I made my

payments for 5 months only to be told that it was denied because

of missing information. This was not the case, as we had submitted

all documents to them.

NCRC tried several times to get them to reduce the amount I

owed, but was not successful even though my house is worth less

now than the amount currently owed. After they declined me

again, my counselor at NCRC went back to the lender, asked them

to review the file once more for the program.

After several weeks of being told that I was in foreclosure again,

I began to panic. I thought that we had already fixed everything

back in April 2009, but we were still in a back and forth. I do not

understand how this works and became frustrated to the point of

crying almost every night.

I have listened to everyone that has helped me, and through the

hard work of so many people over at NCRC, I hope that this is the

last modification that I received this week will be the final one and

will be approved. I have had four HAMP trial modification loans.

I hope that you can take my situation to heart and understand

that these issues face real people, and the decisions that you make

affect us all. I don’t understand how I can be told 1 month that we

are OK and everything is on track to be modified, begin the trial

period, and have it turned down because it seems to be technicalities. It seems to me that if I owe more than what my house is

worth, they could just reduce what I owe to the value of my home.

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Thank you again for your time. I hope you can provide some help

to other homeowners like myself who are struggling to get by every

day, but want to pay their bills and take pride in owning their

homes. Thank you again.

[The prepared statement of Ms. Stringfield follows:]

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Mr. KUCINICH. Ms. Stringfield, thank you very much for testifying in front of this subcommittee. And in a moment I’m going to

ask some questions of you to try to bring out more about the plight

that you and your family have experienced, which is really something that many Americans are experiencing.

It’s my time for questions. I have 5 minutes, I want to start with

Mr. Sheil. You showed pictures of a neighborhood in Cleveland, but

you get around the city a lot because that’s your job. Would you

say that the effects of the foreclosure crisis in Cleveland’s residential neighborhoods is—just based on what you’ve seen, is it pretty

evident as you get around?

Mr. SHEIL. You can’t miss it. Cleveland, as you know——

Mr. KUCINICH. Make sure that mic is on. Would you try again?

Mr. SHEIL. Can you hear me now?

Mr. KUCINICH. Yeah.

Mr. SHEIL. You can’t miss it. You could go into every neighborhood, you know. When we show pictures like this, one of things

that we’re concerned about is do people think we just went and

took the one bad street in the neighborhood and took it? I could

have pointed my camera in probably almost every neighborhood in

Cleveland and found similar scenes. And as Treasurer Rokakis indicated, he has the statistics, ours is just visceral. When you go out

to suburbs now, you can start to see this as well. It is just—it’s rotting.

And I think, Mr. Chairman, what is significant when we talk to

local people there, they want to save these neighborhoods. They

still have the infrastructure of neighborhoods in place, but in 5

years I don’t think that infrastructure will be there.

Mr. KUCINICH. Well, thank you, Mr. Sheil, again for your testimony to this subcommittee.

Mr. Rokakis, you made a case about instability in neighborhoods

in Cuyahoga County. Can you talk about how principal reduction

would make a meaningful difference? And what have loan servicers

said about it?

Mr. ROKAKIS. Chairman, I’ve been involved in this crisis now actually for about 9 years. We went to the Federal Reserve Bank of

Cleveland back in the fall of 2000 with complaints about what was

going on with loans and lending in northeast Ohio in the hopes

that the Fed would step up under HOEPA and take some measures

to slow the runaway train down. So I’ve been involved going back

to late 2000, very intensely involved in the past, let’s say, 5 years

with banks and counselors and workouts, and I have to tell you I

am exhausted.

And I find that the tools that we really need—as long as these

are all voluntary agreements, we are right where we were when we

started this process years ago. As long as all we have is maybe a

carrot but no stick, as long as all we—all we can do is rely on the

goodwill of the banks, voluntary—the words ‘‘voluntary’’ and the

phrase ‘‘bank loan modifications,’’ bank loan modifications typically

don’t go together. And what we have found, I’m not surprised by

the low percentage of workouts. We’ve experienced this for years,

it is hand-to-hand combat.

I think the one tool that we would like to have is the tool that

you and other Members alluded to, Congressman Tierney. If we

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had the ability to force principal reductions of loans, I think we

could—pick a number—triple, quadruple our success of loan modifications.

Mr. Chairman, what I find stunning is that when they agree—

when they refuse to modify those principal loan balances, typically

the loan and the foreclosing, the family ends up leaving, the property ends up being vandalized, the home value is completely lost,

as opposed to partially some of the value lost, and it destroys remaining value left in neighborhoods. If we had the ability to force

principal loan modification write-downs, I think we could make a

real impact on this problem, but we’re losing hope, Mr. Chairman.

Mr. KUCINICH. Thank you very much for your testimony, Mr.

Rokakis.

I would like to go to Ms. Stringfield. I want to know a little bit

more about your experience with the lending industry. You said

that you’ve been able to refinance your home over the years, and

since you bought your home in 1988, for about 20 years you managed just fine with your payments. Now—can you tell us, were you

marketed by your lenders?

Ms. STRINGFIELD. Yes, they contacted me.

Mr. KUCINICH. Did they try to get you to refinance?

Ms. STRINGFIELD. Yes. How are you doing? How is things going?

Are you having any problems? Yeah, things are a little rough right

now.

Mr. KUCINICH. What did they tell—what did they tell you about

the—what kind of money you could get, what kind of loans you

could get?

Ms. STRINGFIELD. They said that I could refinance my first mortgage.

Mr. KUCINICH. For how much?

Ms. STRINGFIELD. Depends on what I needed, like——

Mr. KUCINICH. Did they tell you your home was worth $420,000?

Ms. STRINGFIELD. Yeah, yeah. I mean, when I talked to them, I told them that I took the loan out for $66-, and when I refinanced

with them, it was——

Mr. KUCINICH. You told them what?

Ms. STRINGFIELD. $66,000.

Mr. KUCINICH. And they wanted to refinance $420,000?

Ms. STRINGFIELD. Because that’s what the guy came back that

did the appraisal.

Mr. KUCINICH. So what happened?

Ms. STRINGFIELD. They came back—well, the first time they

came back with the $420-, I said, I don’t need that much. They

says, well, you can get another $50,000 on your home, and that

would pay your son’s college, it would help you with your bills. OK.

And it is not going to make your payment that much more.

Mr. KUCINICH. So they kept trying to get you to borrow more and

more money on a house that wasn’t worth——

Ms. STRINGFIELD. Yeah. When it turned out—when I came back

to them and said, listen, I need to restructure my loan because my

mom is really ill, I don’t have any money, I need to get this restructured, I don’t want to default. All I want you to do is restructure

it and let me lower the interest and get it where I can handle it.

And they says, well, we’ll have to send somebody out and do the

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appraisal. This appraisal came out, and he valued the house at

325-.

Mr. KUCINICH. Wow. Now, when you told—you know, you’re getting—this value of the house keep getting bigger as they want to

loan you more money.

Ms. STRINGFIELD. Yeah.

Mr. KUCINICH. The question is, did you ever have a discussion

with them about what happens if you get in trouble paying the

loan back?

Mr. STRINGFIELD. Oh, yeah. I asked, I says, well, you know, right

now I don’t have this money. What if I don’t get—oh, Ms.

Stringfield, you’ll be all right. You know, you can always work it

out. We can help you.

Mr. KUCINICH. They’ll work with you, right?

Ms. STRINGFIELD. There is not going to be any problem, we’ll

work with you.

Mr. KUCINICH. Did they work with you?

Ms. STRINGFIELD. No.

Mr. KUCINICH. What happened when you fell behind.

Ms. STRINGFIELD. When I got in trouble, you—the first thing I

did was from the literature is call your mortgage company, let

them know before you get in trouble. I called before I got in trouble. I was told, we can’t do anything until you are 1 month late.

Well, ma’am, I’m trying not to be 1 month late. The day of that call

was May 3, 2008. And at that time they told me I would have to

write a letter. May 15th that letter was in their office because I

faxed it in along with a financial report of my earnings and what

I had going on.

They then had HOPE NOW contact me. The HOPE NOW representative said, Ms. Stringfield, you’re overextended. You need to

let your house go. I said, sir, I’ve been in this house since 1962.

Why would I want to let go of my home? Well, you can’t afford it.

What you need to do is let go of the home and contact D.C. or

Maryland and try to get into one of the welfare homes.

Mr. KUCINICH. Now, you did eventually get in touch, though,

with the National Community Reinvestment Coalition?

Ms. STRINGFIELD. Right. A friend of mine told me about them.

Mr. KUCINICH. Did they help you?

Ms. STRINGFIELD. They have helped me.

Mr. KUCINICH. I want to thank you for your—your answer to the

question, Ms. Stringfield.

We’re going to go now to Mr. Jordan of Ohio for any questions

he may have.

Mr. JORDAN. Thank you, Mr. Chairman.

To our witnesses, thank you for being here. And you all were

here, I believe, when Ms. Caldwell gave her testimony. Do you

think the HAMP program has demonstrated significant progress

over its 1 year?

Mr. ROKAKIS. I can’t speak to the results in Arizona, California,

Nevada. I saw the chart just like—I can only speak to the results

in Ohio, and I can speak to the results in the community I represent. And the chart speaks for itself. We’re third from the bottom.

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I spoke with a group of housing counselors who were on a conference call last week. I believe Mr. McCarthy was in on the call.

And I thought it interesting that one of the comments made by

folks on the phone is that they felt that servicers were more willing

to work out a $500,000 mortgage in California than they were to

work out seven $70,000 mortgages in Toledo or Cleveland or Dayton. And they felt that they had prioritized which mortgages were

really worth their time and energy. They might bristle at that suggestion, but I heard it from too many people on that phone call and

others.

So I think that chart—you have to look at that chart that we

posted up on those slides. We are third from the bottom.

Mr. JORDAN. Significant progress or not?

Mr. SHEIL. Pardon me?

Mr. JORDAN. Significant progress or not?

Mr. SHEIL. In my role I don’t like—I’m not going to comment per

se on government—I’m not going to comment on whether a government program is making progress or not. I will say this: Really just

going around Cleveland and Dayton and Akron, you can see—you

don’t really—the charts prove it, but if you just tour the neighborhoods, I don’t know whether it is this program or not, but there is

an evident decline. I’ve been covering Cleveland for 20 years. The

neighborhoods do not look like what they looked like two decades

ago.

Mr. JORDAN. Mr. Rokakis, you talked a lot about the counseling

program. This is a local counseling program, is my understanding,

local people.

Mr. ROKAKIS. There are four counseling agencies we work with.

I mentioned ESOP because, at the request of the attorney general

and the Governor, ESOP expanded statewide. They have 11 offices

around the State. They’re very effective in doing what they do.

Mr. JORDAN. But there are people in Ohio helping Ohioans figure

out what’s at stake, what’s involved, how they’re going to do it.

Mr. ROKAKIS. Face-to-face counseling, not a call-in number, faceto-face counseling, which, as Congressman Cummings pointed out,

is the most effective.

Mr. JORDAN. I understand.

In your professional judgment, years of experience with this,

years of being in Cuyahoga County, years as the treasurer of that

county, something as a conservative Republican I believe in is,

don’t you think you would be better off, instead of having this $75

billion program, 116,000 mortgage modifications done, 3 million the

goal but only 116,000 done in 1 year; might we be just a little better off if we said, instead of going with this crazy program, let’s

take a few of those dollars and let local people help local people,

people like Ms. Stringfield, if she were in Ohio or, in the case of

D.C., here, help them with some counseling, help them deal with

it on a local level versus this concept that we have so embraced

around this town over the last 11⁄2 years, big Federal Government

with regulations and spending taxpayer dollars and doing all the

things they’re doing? Do you think maybe that might be a little

better approach?

Mr. ROKAKIS. I have seen two programs now. One was a program

under the prior administration. I’ve seen this program. And obviVerDate 11-MAY-2000 13:14 May 26, 2011 Jkt 000000 PO 00000 Frm 00149 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65124.TXT KATIE PsN: KATIE
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ously, both have fallen short. The only thing I can tell you is nothing beats face-to-face counseling one on one, local people helping

local folks.

The difficulties faced by Ms. Stringfield, just multiply that by

millions of homeowners like her who try to navigate these complicated documents, mortgages being sold once and twice and three

times, servicers that aren’t responsive. Nothing works better than

a counselor.

Mr. JORDAN. I just want to make clear, big Federal Government

programs administered by Republicans are no better than big Federal Government programs administered by Democrats; that’s the

problem. So something on the local level done with a lot less dollars would be much better for the folks who are in a tough situation and, frankly, much more respectful of the taxpayers across this

country who are paying for the darn thing.

Mr. ROKAKIS. I would love to avoid those layoffs on Monday. Unfortunately, there are a lot of people going to be looking for help

in Cleveland and in Ohio on Monday. They are going to get a taperecorded message sending them to an 800 calling number.

Mr. JORDAN. Thank you, Mr. Chairman.

Mr. KUCINICH. Thank you very much Mr. Jordan.

The chair recognizes Ms. Kaptur.

Ms. KAPTUR. Thank you, Mr. Chairman, for holding this hearing.

I’m really honored to join my Ohio colleagues, and I want to

thank this panel for being here today. What’s left of democracy in

this country we are helping to move forward by your presence. And

we are up against some pretty big forces.

What’s happened in Cleveland and in Washington and every

place else is the largest transfer of wealth in American history.

That has come from the equity, from the heart of America, and

transferred to a group of people in some of the biggest banks in the

world here in our country on Wall Street and down there in Charlotte, NC, who have no conscience for what they have done. In fact,

their bonuses this year will be bigger than last year.

Those banks are Bank of America, JP Morgan Chase, Wells

Fargo, HSBC and Citigroup.

I was going to ask you, Ms. Stringfield, and thank you very much

for being here, which bank were you dealing with? Are you allowed

to say?

Ms. STRINGFIELD. Wells Fargo.

Ms. KAPTUR. Thank you. So it’s on the list.

The whole conversation about servicers in a way is irrelevant because you can’t get at them. They’re cleverly sandwiched in between the big banks, who have all the power and are making all

the money, despite the unemployment rate of this country and people losing their homes, and Main Street America. You just can’t get

them.

And in fact, by the servicers extending the servicing period,

they’re making fees all the time, so they’re making more money out

of your grief, so they have no incentive. Even though it looks like

HAMP gives them an incentive to try to settle, forget it, they’re

making more money through the Tax Code and through servicing

fees by letting the agony continue.

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It’s interesting we don’t have a list of who the 100 or 110

servicers are. I will ask Ms. Caldwell to provide that for the record.

But we have to put the pieces of this puzzle together. What didn’t

come out at most of the hearings in Congress yet is the

securitization process failed. The banking system has been changed

to not provide accountability and responsibility for those who created the damage. It is a very clever system. It is so clever. You

have to have masters degrees in order to create, probably Ph.D.’s,

to create this kind of house of cards. But they have done it masterfully.

We need to restore the mortgage loan process, so, Ms. Stringfield,

you’re not dealing with somebody way out there, but you’ve got a

financial institution here in the Nation’s Capital that you can deal

with face-to-face and you don’t have to go through some absentee

counselor here and some group here, but in fact, that the prudent

lending system of this country is restored.

And that’s the real fight, because the net yield of all of this over

all, the crisis that the American people are facing right now is that

the biggest banks caused this problem, five of them, now hold over

40 percent of the deposits in this country. It used to be 35, 33.

They’re going to get half. Five institutions are going to have that

much power, and they have that much power.

I was interested in what several of you recommended.

Mr. Rokakis, you’re a giant in my eyes. Thank you so much for

what you’re doing, and don’t lose faith because this is the process

that should restore America, or at least we have some hope of it

happening, if we do our job right.

And I want to thank our chairman. He’s got the courage of his

convictions, and he’s trying to help us in a Congress that’s really

locked down and not holding the kinds of hearings.

Ms. Stringfield, we should have a thousand of Americans like you

testifying. But this Congress isn’t meeting its responsibilities to the

people, and our people are suffering all over this country. So your

presence here today is very important because it’s like water in a

desert. And so you’re doing what you must do on behalf of many

that are not being invited to testify by the other committees that

should be a part of this.

The idea of principal loan modifications should be being done like

that. And if the Securities and Exchange Commission and the Accounting Standards Board and the FDIC were doing its job, that

would be happening, but they’re not. They’re not. And so what’s

happening is, the net yield is those that caused this have profited

so handsomely, grossly, unethically are being rewarded.

And the only way that this changes is if conscious people in the

press, like Mr. Sheil, you keep doing your job.

And Mr. Rokakis, don’t lose hope, don’t lose faith. You keep doing

your job.

And Ms. Stringfield, you work with the Community Reinvestment Group; they’re wonderful.

We have to keep doing our job and take this to America because

the people are losing hope, and we haven’t lost hope, so this process really does work.

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man—he offered that Ohio could meet with him—we take him up

on that offer.

In fact, I was going to call you, Mr. Rokakis, because I said I

know an expert who is not in my district but in ESOP and many

other groups. Through the chairman’s efforts here, maybe we can

structure a session with Mr. Geithner either directly by bringing

people to Washington or through teleconferencing where we can get

the Treasury, and they shouldn’t be the only ones in the room—

we should have the FDIC and the SEC and some bankers who really know how to resolve troubled loans on books—in that room and

try to make it work for Ohio. And if we make it work for Ohio, it

will work for the rest of the country.

Mr. KUCINICH. To respond to my colleague’s question and suggestion, we, this subcommittee, in fact, and myself as chairman, we

are in touch with Treasury and Mr. Geithner’s office about this

specific matter. And I’m glad that he responded to you, because I’m

hopeful that he’ll be similarly responsive to a meeting with Ohioans and the Congress that want to see what can be done to try to

save all these homes that are being threatened.

If nothing is done, we can come back here a year from now and

all what we’ll see is the kind of maps that Mr. Rokakis presented

today, just widening. There won’t be any open space at all. And we

know there will be more people with Ms. Stringfield’s story, and

there will be more reporters who will be covering neighborhoods

across America that are boarded up and abandoned.

I have to tell you, we’re going to dismiss this second panel right

now, but when I saw, Mr. Sheil, your report and I saw the claw

of that steam shovel going to the house, I actually could feel that.

I come from a neighborhood like that. And I represent people in

those neighborhoods. We all do. But I come from a neighborhood

like that. Being from a Slavic Village, in my district, I know the

people that lived in homes like that. I know how people put their

entire life on the line to get that kind of a house, who worked day

and night, who worked their fingers to the bone to be able to just

have a little something, have a piece of that American dream that’s

called homeownership.

And then you see the big claw just crushing it. It breaks your

heart, it really does.

Thank you all for being here with this testimony, and really

much appreciated.

We’re going to go to the third panel.

Thank you.

While the panel is in transition, I’m going to make the introductions of the credits of the individuals who are going to be before

us. They have quite a number of accomplishments, and I think

that, by the time they’re seated, I’ll still be reading those accomplishments.

Mr. David Berenbaum is the Chief Program Officer of the National Community Reinvestment Coalition. It’s an association of

600 community-based organizations that promote access to basic

banking services, including credit and savings, to create and sustain affordable housing and job development.

Mr. Berenbaum is responsible for coordinating NCRC’s fair housing and fair lending compliance initiatives, and he also manages

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NCRC’s Housing Counseling Network, which, with its affiliates, is

a HUD-certified housing counseling intermediary participating in

the Neighborhood Works Foreclosure Mitigation Counseling Program.

Ms. Julia Gordon is Senior Policy Counsel at the Center for Responsible Lending. It’s a not-for-profit, nonpartisan research and

policy organization dedicated to protecting homeownership and

family wealth by working to eliminate abuse of financial practices.

She specializes in legislative and regulatory policy issues relating

to consumer lending, particularly in the area of mortgage lending.

Mr. Ronald Faris is the President of Ocwen Financial Corp. and

Ocwen Loan Servicing, LLC; served as Director of Ocwen since

May 2003 and as President since 2001. Prior to serving as President of Ocwen, he has held numerous executive positions there and

served as comptroller for a subsidiary of Ocwen. He’s also served

in the General Audit Department of Price Waterhouse Coopers

LLP.

Finally, Mr. Ed Pinto served as Executive Vice President and

Chief Credit Officer for Fannie Mae in the late 1980’s. Since then,

he has worked as a consultant to the financial services industry,

focusing on credit policy, marketing and product development, published research, commentary and views which are regularly cited

by numerous major newspapers, magazines and think tanks.

I would ask the witnesses to stand. It is the policy of our Committee on Oversight and Government Reform to swear in all witnesses before they testify.

I ask that you raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Let the record reflect that each of the witnesses

has answered in the affirmative. I ask that each of the witnesses

give a brief summary of your testimony. Please keep this summary

under 5 minutes in duration. I want you to know that your complete written statement will be included in the hearing record.

Mr. Berenbaum, you’re our first witness. Please proceed. Thank

you.

STATEMENTS OF DAVID BERENBAUM, CHIEF PROGRAM OFFICER, NATIONAL COMMUNITY REINVESTMENT COALITION;

JULIA GORDON, SENIOR POLICY COUNSEL, CENTER FOR RESPONSIBLE LENDING; RONALD M. FARIS, PRESIDENT,

OCWEN FINANCIAL CORP.; AND EDWARD J. PINTO, REAL ESTATE FINANCIAL SERVICES CONSULTANT AND FORMER

CHIEF CREDIT OFFICER OF FANNIE MAE (1987–1989)

STATEMENT OF DAVID BERENBAUM

Mr. BERENBAUM. Thank you.

Good afternoon, Chairman Kucinich, Ranking Member Jordan,

and other distinguished members of this committee. We are honored to testify today before you regarding mortgage reform, mortgage foreclosure prevention and the activities currently under way

to suggest improvement in this area.

Solving the foreclosure crisis is critical for the economic health of this country. Since the onset of this crisis, $7 trillion of household wealth has been lost. This loss of household wealth translates

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into reduced consumer spending, depressed business activity, lower

gross national product, lower property tax receipts and higher local

and State budget deficits.

Foreclosures not only impact individual homeowners but entire

neighborhoods through declining property values, increases in

abandonment, decay, crime and vandalism. In short, the continued

failure to adequately address this crisis multiplies the profound social, cultural and economic injury to our Nation.

The foreclosure tsunami has been further compounded by the

highest unemployment rates in the last quarter century. In a vicious cycle, the record rates of unemployment and reduction in

wages are now feeding continued foreclosures.

In the face of this great recession, the Bush administration encouraged the private sector to create the HOPE NOW Alliance. The

HOPE NOW Alliance recorded 3.1 million loan workouts during

2007 and 2008. But two-thirds of these workouts deferred or rescheduled borrower payments without lowering monthly payments.

Meanwhile the foreclosure crisis worsened.

Subsequently, the Obama administration created two programs;

the Home Affordable Modification Program and the Home Affordable Refinance Program. Unfortunately, as been noted already both

by the chairman and the ranking minority member, these programs are not keeping pace with the foreclosures that we are seeing today.

Our written testimony discusses in detail the origins of the crisis,

problematic nonprime and nontraditional lending, compounded by

regulatory failure, greed and malfeasance, little or no fair lending

or consumer protection oversight, and serious safety and soundness

lapses. An analysis of the public information that is available documenting the performance of each of the programs is in our written

statement.

The experiences of our Housing Counseling Network, qualified

housing councils around the Nation, as well as the testimony of

Mrs. Patricia Stringfield document the importance of HUD counselors in this process. However, the magnitude of the foreclosure

and unemployment crisis calls for more proactive intervention, and

that means a private partnership between both government officials as well as servicers, investors, securitizers and others.

Despite the best of intentions, we are not seeing results in these

programs because of their voluntary nature, and a more considered

mandatory approach should be taken. Yesterday, the Mortgage

Bankers Association announced a voluntary unemployment borrower bridge to HAMP modification programs. That will help a limited number of borrowers who experience temporary unemployment

for a period of up to 9 months.

It certainly will not address the preexisting problematic underwriting that occurred, overvaluation, or serve as a substitute for

permanent principal reduction or other programs, such as NCRC’s

HELP Now model that we have suggested in our testimony. The

HELP Now model originated in discussions with Wall Street. It

uses Wall Street’s own reverse auction process to in fact promote

the sale of large groups of mortgages, mortgage-backed securities

to Treasury or another agency. It could also be, for example, other

departments; it could be HUD. But using the current market value

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of the homes and then passing those savings on to the homeowners, so they have principal reduction, and in turn selling those

loans back as 30-year, 40-year fixed rate loans to the private sector

at little or no cost to the taxpayer.

Authority for this program exists under the current TARP program. It exists under eminent domain, and frankly, it could be

done with modest changes to the tax requirements if in fact Congress chose to act in that direction.

As well, we want to see loan programs established for the unemployed, such as H.R. 4173 passed by the House, as well as more

broad interpretation for principal reductions within the HAMP program. Substantial research documents that the most successful

loans, the loans that are not falling out of permanent modifications

are in fact loans that have had principal reduction. Last week the

administration announced a $1.5 billion initiative to target five

States.

We agree with this committee that in fact a much more broad

need is necessary. There is no reason to focus on volume or size of

loans over the quantity of modifications that are currently needed

across our Nation.

In closing, let me say that we also suggest other improvements

for HAMP. Those improvements include greater transparency in reporting of data. It includes also expanding areas of the law and judicial modification, as well as expanding and modernizing the Community Reinvestment Act. Thank you.

[The prepared statement of Mr. Berenbaum follows:]

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Mr. KUCINICH. I thank you, Mr. Berenbaum, for your testimony.

Ms. Gordon, you’re recognized for 5 minutes. Thank you.

STATEMENT OF JULIA GORDON

Ms. GORDON. Thank you.

Good afternoon Chairman Kucinich, Ranking Member Jordan

and members of the committee.

Thank you so much for inviting me today to talk about the Government’s response to the foreclosure crisis. We need a much more

robust and effective plan to save homes and prevent unnecessary

foreclosures. Over 6 million homeowners are now behind on their

mortgages and at risk of foreclosure. More than 2 million foreclosures have occurred in the past 2 years alone.

By 2014, researchers predict that up to 13 million foreclosures

may have taken place. This crisis has been particularly hard on African American and Latino communities, widening the already sizable wealth gap between whites and minorities and wiping out entire formerly middle class neighborhoods. The spill-over costs are

massive, including lost property values, even for homes current on

their mortgages; erosion of the tax base; and the increased burden

on municipal services.

Before I talk about the details of foreclosure prevention, I want

to refer to the many people who will try to convince you that this

crisis was caused by public policies aimed at expanding the American dream of homeownership to all communities. This claim is

nothing short of outrageous and insulting. Every single bank regulatory agency has pronounced this allegation false, and there is no

good data to back it up. This foreclosure crisis was caused by toxic

loan products that were sold to people for profit purposes and that

preyed particularly on the communities that I’ve mentioned above.

Most borrowers could have qualified for cheaper mortgages with

less risky terms, and the vast majority of these loans weren’t even

sold to first-time home buyers. These products were designed to become unaffordable within a couple of years so that mortgage brokers could refinance the same customers over and over again, like

Ms. Stringfield, and receive a fee each time. Wall Street’s appetite

for risky loans was seemingly insatiable, and lenders scrambled to

deliver more loans to keep the money coming.

It’s also not true that unemployment right now is the culprit

rather than bad lending. Risky loans are approximately three times

more likely to default no matter what the underlying economic conditions or where you live. In fact, during every other period of high

unemployment in recent decades, foreclosure rates remained essentially flat because people had home equity that could cushion the

blow.

In responding to this crisis, the Government so far has given the

most help to the people who need it the least. Programs to lower

mortgage interest rates and the home buyer tax credits have

helped support the housing market in the face of historic levels of

default but haven’t helped the people at highest risk of losing their

homes.

As we’ve discussed already, the centerpiece of the administration’s foreclosure prevention effort, the Home Affordable Modification Program, has not reached its potential. A key obstacle impedVerDate 11-MAY-2000 13:14 May 26, 2011 Jkt 000000 PO 00000 Frm 00189 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65124.TXT KATIE PsN: KATIE
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ing HAMP’s success is that the private servicing industry has been

either unable or unwilling to do the job they need to do. Originally,

the HAMP program was meant to be coupled with other legislative

changes that would have backstopped the program and provided

other incentives for servicers to perform, but those legislative

changes did not occur.

As a result, HAMP is essentially a voluntary program where

homeowners themselves still have no power or control over their

situation. Participating servicers routinely violate the program’s

guidelines and fail to convert performing trial modifications into

permanent ones in a timely way. Homeowners are given very little

information about how their loan modification request was evaluated, and they have no independent appeals process if they believe

their request was denied unfairly.

In our written testimony, we’ve laid out a number of detailed

suggestions for improving HAMP. What I want to focus on here is

the importance of requiring servicers to reduce the principal balances for under water homeowners. Being under water is the most

accurate predictor of default or redefault. And until mortgages are

right sized on a routine basis, it is unlikely we will see the end to

this cycle of redefault.

We also need action outside of HAMP to make HAMP work. A

law requiring that servicers evaluate all homeowners for loan

modification prior to initiating foreclosure could give homeowners

the right to fight their foreclosure if such an evaluation were not

conducted.

It’s also crucial to permit judicial modifications of mortgages on

primary residents. This solution costs nothing to the U.S. taxpayer.

It’s the only solution that cuts through the Gordian knot of second

liens, securitizations, negative equity and back-end consumer debt.

Finally, we need commonsense rules that prohibit lenders from

making loans that borrowers can’t afford, and we need an independent Consumer Financial Protection Agency. If there’s nothing

else that we’ve learned from this crisis it’s that it’s much easier

and far less expensive to prevent problems than to clean up after

them.

Thank you so much for inviting me today, and I look forward to

your questions.

[The prepared statement of Ms. Gordon follows:]

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Mr. KUCINICH. Thank you for your testimony.

The Chair recognizes Mr. Faris. You may proceed.

STATEMENT OF RONALD M. FARIS

Mr. FARIS. Thank you Chairman Kucinich, Ranking Member Jordan and distinguished members of the subcommittee for the opportunity to participate in today’s hearing. My name is Ronald Faris,

and I am the President of Ocwen Financial Corp. At Ocwen, we

share your sense of urgency to find a lasting solution to our Nation’s daunting foreclosure crisis, a crisis that threatens millions of

families with the loss of their home.

Ocwen is not a loan originator. We did not make the bad mortgages that are causing the problems. But as a loan servicer, we are

doing everything we can to fix them. We were the first in the industry to adopt a comprehensive loan modification program, one

that provides homeowners in distress lower mortgage payments

that are both affordable and sustainable and result in greater cashflow for investors than from foreclosure. We are proud to have

saved well over 100,000 homes from foreclosure since the onset of

the mortgage crisis through loan modifications.

Ocwen supports the administration’s HAMP program. We believe

it is a well designed response to the mortgage crisis. Even so, almost a year into HAMP, too many homeowners facing foreclosure

are having difficulty getting their loans modified. In our view this

is due mainly to a lack of sufficient capacity and expertise in the

industry to handle the volume. Ocwen has invested over $100 million in R&D to build our own loan servicing technology. Our platform is both scaleable for high volumes and incorporates behavioral

science research for effective customer communication.

Using technology, we have been able to convert trial modifications to permanent modifications at a rate that is 10 to 20 times

higher than the big banks in the program. But the key metric for

long-term success is the redefault rate. According to a recent industry report 3-month redefault rates on HAMP mods have ranged

from 18 to 33 percent. Through our technology advantage we have

kept our redefault rates to below 5 percent.

As part of Ocwen’s continuing commitment to make HAMP a

success we would like to share with the subcommittee some of our

recommendations for program enhancements. First, the required

debt-to-income ratio should be lower to below 31 percent. One out

of every four HAMP applications is rejected for failing to meet this

standard. Usually these are families struggling with higher household expenses for food, clothing and education. HAMP should instead use a flexible residual income approach to determine a payment that the homeowner can actually afford. Alternatively, there

should be either an across-the-board DTI of 28 percent or a sliding

scale DTI that varies based on the number of dependents on the

borrower’s tax return.

Second, principal reduction modifications are needed to overcome

the negative equity problem. This is a primary driver of defaults

on mortgages. In redefaults on modified mortgages, 11.3 million

mortgages in this country or 24 percent are currently under water,

and these numbers will likely grow. In Ocwen’s experience negative

equity increases the chance of a redefault by 1.5 to 2 times. AccordVerDate 11-MAY-2000 13:14 May 26, 2011 Jkt 000000 PO 00000 Frm 00215 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65124.TXT KATIE PsN: KATIE
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ingly, approximately 15 percent of all of our loan modifications

have involved some element of principal reduction.

HAMP already addresses principal forbearance, but there is no

provision for principal forgiveness. We believe step principal forgiveness is best; that is incremental principal reductions over time

so as long as the loan remains current. Third, additional funding

should be made available for housing counseling groups. Grass

roots organizations like NCRC, who is here today; ESOP in Ohio;

Home Free-USA; National Council of La Raza; and so many others

around the country are providing much needed homeowner outreach and counseling. We urge financial support for any HUD-certified counseling organization assisting homeowners through a successful permanent modification under HAMP.

Fourth and last, underperforming HAMP servicers should be required to outsource to performing servicers. Whether for lack of effort or just an inability to handle the volume, too many banks are

not producing the results needed to achieve program goals. Treasury should be empowered to redirect servicing to those with a proven track record and available capacity to execute trial modifications

and convert them to permanent solutions. Let me conclude by

thanking you again for inviting me to testify today and asking that

my full written statement be entered into the record. Thank you.

[The prepared statement of Mr. Faris follows:]

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Mr. KUCINICH. It is so ordered. And thank you.

Mr. Pinto, you may proceed for 5 minutes. Thank you.

STATEMENT OF EDWARD J. PINTO

Mr. PINTO. Chairman Kucinich and Ranking Member Jordan,

thank you for the opportunity to testify today. Let me first provide

some background regarding the cause of the foreclosure crisis. I

have a chart. Chart one demonstrates the loan-to-value ratios and

foreclosure rates that have been increasing in this country for decades. You will see that FHA has been leading the way for decades

also in rising loan to values. FHA foreclosure start rate now stands

at 32 times the level that it had in 1951. The collapse of the mortgage market had a single cause: the accumulation of an unprecedented number of weak loans. In 2008, approximately 50

percent——

Mr. KUCINICH. I’m going to ask the gentleman to suspend. We’ve

got to make sure we can hear you. You need the mic, and speak

into it. Thank you.

Mr. PINTO. The collapse of the mortgage market had a single

cause; the accumulation of an unprecedented number of weak

mortgages. In 2008, approximately 50 percent of outstanding single-family mortgages were weak and prone to failure with twothirds being the result of Federal programs. How did this happen?

In 1995, the Federal Government issued its national homeownership strategy. It required the use of flexible and alternative lending

in, quote, an unprecedented public-private partnership to increased

homeownership to record high levels over the next 6 years. With

this national policy in place, the lending equivalent of Gresham’s

law took place. Weak lending drove out good.

Turning to the administration’s Home Affordable Modification

Program, I would like to recall HAMP’s original goal that still is

posted on their Web site. To help as many as 3 to 4 million financially struggling homeowners avoid foreclosure by modifying loans

to a level that is affordable for borrowers now and sustainable over

a long term.

The Treasury Department has consistently painted rosy scenarios regarding HAMP’s progress. In an apparent desire to post

big numbers early on, the concept of a trial modification was introduced. Borrowers were allowed to enter a trial without qualifying

on the basis of income. This wasn’t fair to borrowers who had no

chance of qualifying. Many will be worse off than if they had been

given a quick no and encouraged to find alternative housing.

As a result, the HAMP pipeline became hopelessly clogged with

a lion’s share of the blame, in my opinion, falling on Treasury. The

January 2010 HAMP report contains a statement that strains credulity. It noted, ‘‘the program is on pace to meet its overall program goal of providing 3 to 4 million homeowners the opportunity

to stay in their homes.’’ That was not the goal.

The truth is HAMP has been a spectacular failure when measured against that goal. In the first 11 months, there have been

116,000 homeowners who received permanent modification. Subtract expected redefaults and you might end up with 75,000 homeowners who are safe from foreclosure, about 2 percent of the goal.

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I predict that ultimately HAMP will only meet a small percentage

of its 3 to 4 million foreclosure goal.

The same redefinition of program goals applies to HARP, the

Treasury’s refinance program. It was to help 4 to 5 million homeowners shut out from refinancing because their current loan to

value was above 80 percent. Through December 2009, Fannie and

Freddie have completed 190,000 HARP refinances, less than 5 percent of their goal. Not a problem. Making Home Affordable 2010,

a January 2010 report, now takes credit for 4 million refinances of

all type regardless of LTV.

Treasury promised transparency. What we get are disingenuous

progress reports when it comes to program goals. This committee

and the American people deserve an honest assessment of what

HAMP and HARP can do. Why is the problem so intractable? We’re

facing a more challenging situation than ever because credit standards were severely compromised by Federal policies prior to the

onset of the current crisis.

What delinquent borrowers in the housing market need is triage

that provides quick answers and fast decisions. This will allow the

shadow inventory of millions of defaulted loans that cannot benefit

from modification to end up in the hands of qualified homeowners.

Late last month Treasury announced changes to HAMP process

which should help meet the goal of providing quick answers and

fast decisions. It will hopefully put an end to no-doc trial modifications. Unfortunately, the changes do not take effect for three more

months.

One last note, in Ms. Caldwell’s testimony, it’s noted that $2 billion in savings have already been recognized by HAMP participants

and administrative action has kept interest rates at historic lows.

But I think we must be honest; there is no free lunch. Tens of

millions of Americans, many pensioners living on their savings,

many of your constituents, are suffering a real loss of income due

to these low rates. Households in this country own $11 trillion in

fixed assets. Many now earning about 2 percent less than previously. That’s over $100 to $200 billion a year in lost income and

tens of billions of dollars in lost taxes. Thank you, and I look forward to your questions.

[The prepared statement of Mr. Pinto follows:]

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Mr. KUCINICH. Thank you, Mr. Pinto.

There’s no such thing as a free lunch but apparently, there’s

multi-billion dollars in bonuses for bankers who got TARP, so we

have to figure out that squares with folk wisdom.

I heard Ms. Gordon correctly talk about the root of the crisis.

And I think we should be clear that this foreclosure crisis started

well before the current administration came into office, and it is

rooted in policy decisions that created the largest asset bubble in

American history, an $8 trillion home mortgage bubble. So to call

this crisis a prime crisis would miss the point.

The bubble was created by Federal Reserve policies that kept interest rates low for the explicit purpose of allowing home prices to

inflate, knowing and expecting and tacitly encouraging that homeowners would use their rising home values to supplement stagnant

wage incomes using a house as an ATM. It wasn’t a product of

greedy and irresponsible homeowners, it was a product of a shrewd

but ultimately disastrous government calculation and policy.

And American workers have been the biggest losers in this crisis

so far. They’re the ones who have been thrown out of the work

place in large numbers, had their hours reduced, their benefits cut,

they’re the ones who have been forced to give up their family

homes and do a bankruptcy and the ignominy of public foreclosure

proceedings, so labeling this crisis a subprime crisis would really

be blaming the victims.

The crisis was not caused by people who lost their homes and

their life savings and their reputation, it was caused by people who

perpetrated what I think is kind of a hoax. Responsibility for the

crisis in repairing the damage falls on every person and every institution, including past and current Representatives of both Members—of Congress or both parties in Congress, rather, as well as

the last administration, and this current administration now has

the responsibility, who should have been and are responsible for

assuring the ethical and financial integrity of our banking and

monetary system.

We’re picking up the pieces here.

Now, Mr. Berenbaum, you mentioned in your testimony the role

of credit rating agencies and influencing loan servicer behavior

making them to be more inclined to act on a delinquent loan first

by foreclosing on it, then modifying it and only as a last resort cutting principal. Can you elaborate how credit rating agencies influence this process?

Mr. BERENBAUM. Certainly, Mr. Chairman.

There’s, unfortunately, more and more growing evidence now

that the SEC failed to appropriately regulate or monitor the credit

rating agencies in this Nation. And the way the system worked, in

fact it worked toward incentivization of profit and simply affirming

whatever paper was presented before those rating agencies.

They actually even called themselves publishers of information

rather than in fact reviewers of that information. This also led to

significant fair lending issues because if you look at in fact many

of the triple A ratings that those agencies gave, subprime, nontraditional, it was the companies such as Ameriquest, New Century

and others which is impacted not only on Ohio, but frankly low- to

moderate-income communities across the country.

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Mr. KUCINICH. Thank you, Mr. Berenbaum.

One final question, Ms. Gordon. Are there legal solutions to the

obstacles that some might see in doing principal reduction for borrowers.

Ms. GORDON. I’m not sure what you mean by legal solutions. But

one of the obstacles right now is that a number of these loans held

by investors have second liens on them; about half of all securitized

loans have a second lien.

Mr. KUCINICH. So does Treasury have leverage to get around

that?

Ms. GORDON. Treasury has a program—Treasury unveiled a program in the spring of last year, the 2MP program, designed to try

to attack the second lien program, but no servicers have used it.

I had heard that Bank of America has now signed up for it. I don’t

exactly know what that means. But as far as I know no one has

yet used the 2MP program in the HAMP program. It seems to us

that Treasury should require servicers to use the 2MP program to

resolve these second liens, which are essentially worthless at this

point in most cases.

Mr. KUCINICH. Thank you.

Mr. Jordan.

Mr. JORDAN. Thank you, Mr. Chairman.

Ms. Gordon, do you believe that HAMP is, do you believe HAMP

is working at all? Do you think it’s a pretty bad program? I mean,

do you think like I do; do you think the track record of HAMP is

terrible?

Ms. GORDON. It’s clearly underperforming what we need to do to

get ahead of this crisis.

Mr. JORDAN. Here’s how I’m a little confused. Because in your

testimony, you said Federal policies had nothing to do with contributing to the mess that we got in. So the Government had nothing

to do with contributing to the mess we got in, even though the

track record of Government trying to fix is pathetic.

Ms. GORDON. The Federal policies I’m referring to in that section

are there’s been a lot of talk about how the Community Reinvestment Act and other policies, in fact I think Mr. Pinto mentioned

this earlier, are somehow responsible for the toxic loan products,

when in fact, for the most part, the loans made under CRA were

safer loans and ended up having a much better performance profile

than the risky loans that were made outside of that system.

Mr. JORDAN. Mr. Pinto, is that an accurate statement, the loans,

the one that Ms. Gordon just made relative to the Community Reinvestment Act?

Mr. PINTO. The accurate part of the statement is most Community Reinvestment Act loans were fixed-rate, lower-interest-rate

loans. If you compare those loans to other fixed-rate loans that had

higher interest rates, my research shows that the default rates on

the CRA loans are also high.

I’ll give you one example, ESOP, with Third Federal Savings,

and ESOP has testified a number of times about the great job that

Third Federal had done. What they haven’t testified about is the

performance of those loans. These were CRA loans, low interest

rates. They were subsidized generally. They are running at 37 perVerDate 11-MAY-2000 13:14 May 26, 2011 Jkt 000000 PO 00000 Frm 00244 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65124.TXT KATIE PsN: KATIE
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cent delinquency rate on a $300 million portfolio. Third Federal has

suspended the program because of its poor performance.

Mr. JORDAN. Do you agree with my statement that I made in my

question to Ms. Gordon that Federal policies—I know you agree

with this—Federal policies helped get us in this mess; how in the

world are Federal programs going to help get us out of it? I come

from this whole thing, big government spending, big government

programs are going to get us out of this economic concern we have

been in. Well, heck, we would have been out of it a long time ago,

because that’s all we’ve been doing for 2 years. We have seen

things we never imagined we would see in the United States of

America.

And we can’t even get, now, Treasury just to comply with—I

mean, you were here for my earlier question of Ms. Caldwell—we

can’t even get them to comply with what the Inspector General

wants them to do on the original no-doc loan, getting documentation. I mean, it just highlights and underscores, when you travel

down this road, you end up making things worse. And when you

attempt to solve it, what you do is put a lot of taxpayer money at

risk, and not really help the people who, I agree with my colleague,

who has passion. I mean, we all do. You don’t really help the folks

who, frankly, need some help, so comment on that and then I will

yield back.

Mr. PINTO. Let me just comment that in the first quarter of 2009

the OCC, OTS puts out their mortgage metrics report, and there

were 190,000 modifications that were done in that quarter. There

are about 150,000 that were done in the second quarter. This is before HAMP got ramped up. And there was a growing tide of those,

heavily growing tide into interest rate reduction, much like HAMP.

Since then, the number of modifications reported has declined, and I believe we’re going to end up seeing that the $190,000—excuse me, 190,000 loan number that existed in the first quarter

won’t be surpassed in 2009, so it’s actually slowed down the process. And I think my suggestion is focus on Fannie and Freddie,

which I think are 60 percent of HAMP, and let the private sector

on their loans deal with them the way they were actually doing

many things back in early 2009.

Mr. JORDAN. Homeowners would be better off financially. They

would get some quicker remedy, you know, quicker action, whatever that would be, and we could focus on what the bigger problem

is with Fannie and Freddie.

Mr. PINTO. Right.

Mr. JORDAN. Great point, great point.

Mr. KUCINICH. I thank the gentleman.

The Chair recognizes Ms. Kaptur.

Ms. KAPTUR. Thank you, Mr. Chairman. This has been an outstanding panel. And I thank you very much for coming today and

what you’ve placed on the record.

Several witnesses today, including many of you, recommended

principal write downs. Let me offer the observation that I don’t

think servicers can do principal write downs. Many servicers have

business with the five biggest banks that caused this mess to begin

with, coupled with the changes in the banking laws back through

the 1990’s that changed prudent lending to securitization, and local

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banks holding a portion of those loans, and we moved it to a bond.

We changed a loan to a bond, and they sold it to everybody on the

face of the earth.

And so the collectability issue, Mr. Pinto, you used three words,

collateral, credit and capacity. I always say character, collateral

and collectability. There’s no collectability. And so, how do you do

the loan workout? How do you do the normal accounting changes,

that’s where I want to go, by using FDIC, SEC and those involved

in that given loan? I don’t think we can get it through the

servicers. I think HAMP is proving that. We can’t do it.

So we need to be able to do what we did back in the 1980’s. We

need to be able to work out those loans, get the assets and liabilities to balance on those books, and there’s going to have to be

some real estate write downs. We’re going to have to get down to

some level within the banking system, and that is what is not happening.

And I wanted you to comment on that. I wanted you to comment

on two things for me. One is your view of servicers being able to

solve this problem through HAMP, even as you ask for principal

write downs. And if you were to recommend to the President how

to rearrange what he’s doing in order to get at this real estate crisis so we don’t have millions of homes vacant across this country,

who would you tell him to bring into his office, the Oval Office, all

these agencies so we can get at the value of real estate and do loan

workouts where we can get them done?

So I want you to comment on the principal write down, who can

actually do it? And I don’t believe the servicers can. And then what

would you say to the President to get to where you want to go and

help us to move the housing market to a more positive position and

keep people in their homes?

Mr. BERENBAUM. Ms. Kaptur, if I may jump in, I think that’s an

excellent question. And I will respond quickly to allow each of the

panelists their opportunity. Right now, there’s an overreliance in

balloon payments by servicers across this country, so really there

is no principal reduction.

Frankly, what we are hearing from the investor community is

that they are ready to begin some serious principal reductions, and

to paraphrase, they are ready to take their share of the haircut

that’s necessary to correct the marketplace. But the system right

now is loaded with conflicts. For example, you noted earlier that

a majority of the seconds are held by the banks, the same banks

that operate a majority of the servicers in this Nation, conflict No.

1.

Conflict No. 2 is some of the accounting rules that we’ve been

discussing in this presentation and before this hearing as well.

Issue No. 3, we have to get beyond the blame game. Everyone

is at fault. There is shared blame here. And if we are going to move

ahead, we need to ensure a meaningful regulatory structure that

embraces the Community Reinvestment Act for what it has done

in responsible lending for community reinvestment. We need to embrace the strong Consumer Financial Protection Agency, and we

need to work with responsible servicers and lenders who are willing to do business in the way that is required to bring trust back

to the market that you spoke to earlier.

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We are not going to see global investors or pension funds or others buy in the secondary market until those minimum requirements are made.

Last one more point that I would like to make is that we do need

to focus on the HARP program as well. Ultimately, who owns that

$400 billion of risk right now? It is not the private sector; it is the

taxpayers. What a wonderful way to go about, in fact, reaching 70

percent of the outstanding mortgages by, in fact, reducing the risk

associated to the taxpayer through principal reduction. We have

the power to do that through eminent domain or through the power

of Congress.

Ms. KAPTUR. Thank you.

Ms. Gordon, did you want to say something there?

Ms. GORDON. Well, I agree with most of what Mr. Berenbaum

has said.

I will note that servicers in serving accounts that are held in

portfolio seem quite able to do principal reductions. There are principal reductions happening; they’re just not happening for the

securitized loans.

Ms. KAPTUR. And what percent are represented of the portfolio

of securitized loans?

Ms. GORDON. That depends on the servicer. But in terms of the

troubled loans, quite a lot of them are securitized.

The places where the portfolio loans are doing the most principal

reductions is with respect to payment-option ARMs, which for the

most part are so under water, not only because they’re located in

some of these highest price decline States, but also because they

had negative amortizations built into the loans. These loans are

poorly served by HAMP. HAMP can’t really help them for a variety

of structural reasons.

So it’s clear that the problem does have to do with these conflicts

of interest. And I completely agree with you that not all of the

banking and securities regulators that need to be at the table seem

to be at the table rowing in the same direction with the Treasury’s

program. I know the folks at Treasury, and despite my concerns

about the underperformance of the program, I know that they’re

trying their best, but there needs to be a team approach here, and

we already know that the prudential regulators have not had a history of putting consumer interests at the top of their agenda. That’s

why it’s so important to have an independent consumer protection

agency.

But most of all, this is why it’s so important to do things like

change the Bankruptcy Code. I mean, ultimately, you need someone to just—who has the power to cut through all of this, regardless of the various interests and conflicts involved. We already have

a system set up in this country for that. The entire bankruptcy system does just this. Principal-residence mortgages are the only type

of debt that can’t be restructured. Your second home mortgage can

be. Your yacht can be, but not the home that you live in and have

made your life in.

Mr. KUCINICH. Thank you very much for your testimony.

I want to thank all the witnesses.

This is the Domestic Policy Subcommittee joined by my colleague, Congresswoman Kaptur, and we’ve had a full hearing today

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with many Members of Congress testifying—or rather participating.

I’m Congressman Dennis Kucinich, Chair of Domestic Policy. We

are going to continue our work on this issue, and we are going to

continue to work for a serious program of principal reduction in

order to help keep people in their homes.

Thank you very much. Adjourned.

[Whereupon, at 4:50 p.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Marcy Kaptur and additional

information submitted for the hearing record follow:]

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