U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

65–129 PDF 2011

EXAMINING LOCAL EFFORTS TO ADDRESS THE

CONTINUING FORECLOSURE CRISIS: PERSPECTIVES FROM CLEVELAND, OH

HEARING

BEFORE THE

SUBCOMMITTEE ON DOMESTIC POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

DECEMBER 7, 2009

Serial No. 111–130

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 December 7, 2009 ........................................................................ 1

Statement of:

Foley, Mike, Ohio State Representative, 14th Legislative District; Tim

Grendell, Ohio State Senator, 18th Legislative District; Michael Dudley, Sr., council member, Garfield Heights Ward One; Daryl Rush,

Director of Community Development, city of Cleveland; Jim Rokakis,

treasurer, Cuyahoga County; and Phyllis Caldwell, chief homeownership preservation officer, U.S. Department of Treasury ............................ 7

Caldwell, Phyllis ........................................................................................ 48

Dudley, Michael, Sr. .................................................................................. 25

Foley, Mike ................................................................................................ 7

Grendell, Tim ............................................................................................. 15

Rokakis, Jim .............................................................................................. 42

Rush, Daryl ................................................................................................ 28

Seifert, Mark, executive director, Empowering and Strengthening Ohio’s

People; Frank Ford, senior vice president, Neighborhood Progress, Inc.;

Robert Grossinger, senior vice president for community affairs, Bank

of America; Claudia Coulton, co-director, Center on Urban Poverty

& Community Development, Case Western Reserve University, Mandel

School of Applied Social Sciences; and Howard Goldberg, renewal administrator, city of Lorain ............................................................................ 68

Coulton, Claudia ........................................................................................ 100

Ford, Frank ................................................................................................ 81

Goldberg, Howard ...................................................................................... 115

Grossinger, Robert ..................................................................................... 92

Seifert, Mark .............................................................................................. 68

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

Caldwell, Phyllis, chief homeownership preservation officer, U.S. Department of Treasury, prepared statement of ................................................... 50

Coulton, Claudia, co-director, Center on Urban Poverty & Community

Development, Case Western Reserve University, Mandel School of Applied Social Sciences, prepared statement of .............................................. 102

Dudley, Michael, Sr., council member, Garfield Heights Ward One, prepared statement of ........................................................................................ 27

Foley, Mike, Ohio State Representative, 14th Legislative District, prepared statement of ........................................................................................ 10

Ford, Frank, senior vice president, Neighborhood Progress, Inc., prepared

statement of ................................................................................................... 83

Goldberg, Howard, renewal administrator, city of Lorain, prepared statement of ........................................................................................................... 117

Grendell, Tim, Ohio State Senator, 18th Legislative District, prepared

statement of ................................................................................................... 18

Grossinger, Robert, senior vice president for community affairs, Bank

of America, prepared statement of .............................................................. 95

Rokakis, Jim, treasurer, Cuyahoga County, prepared statement of ............ 44

Rush, Daryl, director of Community Development, city of Cleveland, prepared statement of ........................................................................................ 30

Seifert, Mark, executive director, Empowering and Strengthening Ohio’s

People, prepared statement of ..................................................................... 71

(1)

EXAMINING LOCAL EFFORTS TO ADDRESS

THE CONTINUING FORECLOSURE CRISIS:

PERSPECTIVES FROM CLEVELAND, OH

MONDAY, DECEMBER 7, 2009

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON DOMESTIC POLICY,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Cleveland, OH.

The subcommittee met, pursuant to notice, at 10:14 a.m., at the

Carl B. Stokes Federal Courthouse, 801 West Superior Avenue,

Cleveland, OH, Hon. Dennis J. Kucinich (chairman of the subcommittee) presiding.

Present: Representatives Jordan and LaTourette.

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

counsel; Christopher Hixon, senior counsel; Joseph Benny, Office of

Representative Kucinich; Laurie Rokakis, Office of Representative

Kucinich; Martin Gelfand, Office of Representative Kucinich; Marian Carey, Office of Representative Kucinich; Morris Pettus, Office

of Representative Kucinich; and Steve Inchak, Office of Representative Kucinich.

Mr. KUCINICH. Thank you for being here. This meeting is going

to come to order.

I want to begin by thanking my colleague, the ranking member

from Ohio, Representative Jordan, for his work with me throughout

the financial crisis. Mr. Jordan and I have worked together, he is

a ranking member of our subcommittee on just a wide range of economic policy issues and I appreciate your presence here today.

My partner in the Cleveland area longstanding has been Congressman Steve LaTourette. And Congressman LaTourette and I

have worked together on every major economic issue that’s affected

the county, the State and the country, and I am very grateful for

his presence here and without objection, Congressman LaTourette

will be considered as a member of this subcommittee for the purposes of this hearing.

The hearing today is entitled ‘‘Examining Local Efforts to Address the Continuing Foreclosure Crisis: Perspectives from Cleveland, OH.’’ Our first panel, we are going to hear from State Representative Mike Foley; State Senator Tim Grendell; Councilman

Michael Dudley of Garfield Heights; Daryl Rush, the Director of

Community Development, city of Cleveland; Treasurer of Cuyahoga

County, Jim Rokakis; and Ms. Phyllis Caldwell who is the chief of

home ownership preservation and the officer for the Department of

Treasury.

2

Today’s field hearing is part two of a series of hearings intended

to examine the local characteristics of the ongoing residential foreclosure crisis.

Without objection, the Chair and ranking member will have 2

minutes to make an opening statement, followed by opening statements not to exceed 2 minutes by any other Member who receives

recognition and without objection, Members and witnesses may

have 5 legislative days to submit a written statement or extraneous

materials for the record.

The economic recession that has hit the U.S. economy and the

residential foreclosure crisis that has accompanied it have devastated communities across the nation. Nationally, the foreclosure

rate is four times the historical average and predictions are that

10 to 12 million homes will be foreclosed on before this crisis subsides. For some time, the crisis was synonymous with the predatory

subprime mortgage loans, which were given disproportionately to

African-Americans and other minorities. But now the crisis has

spread. Foreclosures are occurring on homes financed with prime

loans in communities and neighborhoods that have previously

viewed home foreclosure a strange aberration. Now what is fueling

this crisis is unemployment. Nationwide joblessness is at a 25-year

high. Today one in eight Americans and one in four children rely

on food stamps.

For the people of the Cleveland metropolitan area, the crisis has

been particularly acute because depressed housing prices and widespread unemployment have not been limited to the past 2 or 3

years. The Cleveland metropolitan area was passed over by the

housing boom of the earlier part of this decade, experiencing high

rates of foreclosures as early as the year 2000. Yet, northeast Ohio

still suffered from a wave of predatory lending and lax regulatory

action that characterized the housing boom elsewhere. According to

economist George Zeller, Cuyahoga County alone has lost nearly

110,000 jobs since 2000. The result, unsurprisingly, has been that

wave after wave of foreclosures have left nearly 11,500 vacant

homes in Cleveland alone.

When this subcommittee began holding hearings on foreclosure

in March 2007, Cleveland was the epicenter of the crisis and the

window onto the future troubles that would rapidly overtake the

entire nation. Today we return to Cleveland to find out what local

officials, advocates and organizers of this region have done to address the phenomenon. What more can be done and what role must

the Federal Government play? Today we hope to learn the answer

to these questions and start to build a record that we hope will

shape policy and how to most effectively address the devastating

effects the foreclosure crisis has had on these neighborhoods.

Among the excellent witnesses we will have at today’s hearing

we will hear from the Federal Government: An official from the

Treasury Department will discuss the Federal response to the overwhelming number of foreclosures. The Treasury administers the

administration’s primary response to the crisis known as the Home

Affordable Modification Program. This program, which was unveiled in March of this year, has been far too slow in accomplishing

its stated goal: Giving loan servicers a monetary incentive to modify as many home mortgage loans as possible so that millions of

3

more people do not end up in foreclosure. The simple fact is that

nationally the pace of foreclosures continues to outpace the rate of

mortgage modifications and the same is true for this region.

Treasury will no doubt tell us that their latest initiative announced last week will finally change this scenario for the better.

But there are millions of Americans who are unemployed or underemployed, whose incomes are vastly reduced and whose homes are

worth less than the mortgage they owe. For many Americans

things are not expected to change anytime soon. The question is:

What must government do to reverse the cycle of borrower default,

foreclosure, vacant and abandoned housing, and even more depressed housing values.

The subcommittee has come to Cleveland today to bear witness

to the turmoil caused by the housing foreclosure crisis and resulting economic devastation to its communities. The subcommittee is

working to shape the reform of the existing regulatory structure

that allowed this crisis to envelope our nation. And we also intend

to ensure that this administration upholds its promises to provide

relief to distressed homeowners and hold banks and their loan

servicers accountable requiring them to do everything in their

power to keep homeowners in their homes.

We look forward to the important testimony we are going to hear

today. At this time I recognize the distinguished ranking member

of this subcommittee, Mr. Jordan of Ohio. You may proceed.

Mr. JORDAN. Thank you, Mr. Chairman. I appreciate the chairman’s comments. We do have—when chairman talked about our

working relationship, he wasn’t just talking like a politician; it’s

true. And I appreciate the passion he brings to this process and the

many issues you had a chance to work on this past year. It’s also

great to have our colleague, Mr. LaTourette, who does a great job

for our State as a member of the Appropriations Committee as part

of this hearing today as well.

Mr. Chairman, thank you for calling today’s hearing. It’s important for our committee to hear from people across the country suffering this recession, including the fine people of Ohio. Across the

Nation and in the Cleveland area, more families are losing their

home to foreclosure than at any other time in history. The national

foreclosure rate more than tripled from 2005 to 2008 and only six

States were hit harder than the State of Ohio in the year 2008.

The Federal Government is a primary culprit in this national

nightmare, in my judgment. Federal laws push banks to make unsound loans. Fannie Mae and Freddie Mac starting in 2004 bought

$1.6 trillion worth of risky mortgage loans which provided artificial

demand. House prices collapsed, foreclosures soared and families

are suffering because of the well-intentioned but misguided Federal

intervention into the marketplace. The Federal Government can’t

run the economy and we cause disasters when we try.

The administration is trying to fight the foreclosure wave with

the same demanding control philosophy that caused it. We spent

$75 billion to modify mortgage loans. The administration’s program

applies a one-size-fit-all net present value calculation to every family anywhere in this country who applies for a modification. The

Treasury Department has kept its net present value calculation

model a secret. The public doesn’t know when a modification will

4

be offered and when it won’t. Other Federal agencies who run

mortgage modification programs have published their net present

value tests, but Treasury continues to resist transparency and accountability.

This committee has learned a large truth. Despite the intent of

the program, these efforts are failing. While the administration

promised the American people that the program would be resolved

in 3 to 4 million modified loans, we’ve recently learned from the

congressional oversight panel that the program has accomplished

fewer than 2,000 permanent mortgage modifications. This isn’t the

first time the government mortgage modification program has completely flopped.

The HOPE for Homeowners refinancing program which started

in 2008 was supposed to help 400,000 families, but when the congressional oversight panel examined the program this fall, HOPE

for Homeowners had closed only 94 loans, 94 loans.

The only true solution for the families who are in danger of losing their homes is a broad-based economic recovery. Economic recovery is the only solution that will work for everybody, not just

a narrow slice of families who pass the Treasury Department’s net

present value test. Economic recovery is the only solution that

won’t just postpone the hardship that many homeowners are feeling. An economic recovery will not come from government efforts

that spend billions of dollars and pour them into a one-size-fits-all

program that simply doesn’t work. Instead, Mr. Chairman, economic recovery will only come when government gets out of the

way of job creation.

Thank you again for calling today’s hearing and I look forward

to hearing from the witnesses and asking questions.

Mr. KUCINICH. I thank the gentleman for his statement.

The Chair recognizes Congressman LaTourette of Ohio. You may

proceed.

Mr. LATOURETTE. Chairman Kucinich, thank you very much for,

one, letting me participate in this hearing and thank you also for

having this hearing. And I just echo the comments that you made.

I’m entering my 15th year in Congress and you came in a little bit

after I did, but I have enjoyed working with you and I think that,

as the country cries out for bipartisanship and wonders why it is

people fight all the time rather than getting solutions done, I think

our partnership has been a good one, and so much so that we’ve

even been able to bicycle together.

Mr. JORDAN. And that’s quite significant.

Mr. LATOURETTE. And I would just also indicate that this is one

of the few times that I’ll be on your left during the course of our

moving forward.

I also want to welcome Jim Jordan to Cleveland. Jim represents

the West Side of our State and a newer Member of the U.S. Congress. And Congressman Jordan has already made his mark, and

to be a ranking member of the subcommittee so early in your career, that’s a wonderful accomplishment and you deserve it.

Less than a month ago, the Mortgage Broker’s Association issued

a report on where foreclosures were and what’s been going on and

the news is not good. It says that one out of every six Ohio homeVerDate 11-MAY-2000 13:23 May 23, 2011 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65129.TXT KATIE PsN: KATIE
5

owners finds themselves in foreclosure, the national average is one

in seven. And so we are behind the national average.

And the landscape is changing and I think both of my colleagues

are correct. This is no longer a situation where people bought

houses for greater than they could afford, it’s no longer a situation

where people were just looking at subprime loans, where people

were taken advantage of by predatory lending. Things are now

growing with homeowners who have good, low-rate home loans.

The report also indicates that the foreclosure rate probably won’t

peak until the end of 2010 at the earliest, and while so much emphasis has been placed by the Federal response on subprime people

that have been under water, we now have, when you put on top

of it, the fact that we have 51⁄2 million people who have lost their

jobs in this year, you have people that can’t make their mortgage

payments. And my grandmother used to call it ‘‘bass ackwards.’’

Some of the programs that have been crafted in Washington will

come in and assist the homeowner who is under water and who has

been delinquent for 3 months or more, but there is no small part

of the calls that I get from my office, and I’m sure it’s the same

for you, Dennis and Jim, are from people who want to pay their

mortgage but the breadwinner has lost their job. They are not behind yet 3 months and so there’s no program to give them a hand.

And we just had a couple call the office the other day, an elderly

couple, and they are struggling to make their mortgage. And when

they called the bank and the Federal arm, they said you got to be

behind 3 months.

Now, you know it would be a strange piece of advice for any of

us as Congress-people to advise their constituents not to pay their

mortgage for the next 2 months so they can become eligible for one

of the Federal programs. So, clearly, we not only have to continue

the response and deal with the subprime mess and predatory lending, but we also have to deal with those people that are now hit

with this savage unemployment that is going through the economy.

And I’d just like to throw out one germ of an idea that’s certainly

perking around my head and when we get back to Washington

later today or tomorrow, I think I’m going to draft a piece of legislation. And it seems to me that something like the student loan

program would be in order in this situation in that in the student

loan program, you have the ability to defer the principle. If you pay

your interest, and Rokakis will be happy to pay your taxes still, but

you could defer the principle. And unlike some of the other ideas

like moratoriums and stopping things and everything else, the

bank isn’t a loser because you just extended the term on the loan,

you still have to pay for the house that you live in, but getting relief until you get a job and your financial situation improves might

be one way that we can help everybody, rather than those that just

find themselves in the subprime mess.

So I look forward to this hearing. I look forward to hearing from

our elected officials and others. I want to thank you for letting me

participate.

And just as a parochial note, I really think that, I was on the

radio this morning, and they said ‘‘give me some good news.’’ I

think the good news here, at least some of the good news in Cleveland, is for the first time we had Glenville and Chagrin Falls in

6

the State football championships. And although that didn’t work

out, we are all proud of both the city of Cleveland School and the

school from out where I’m from. And I thank you.

Mr. KUCINICH. Thank you very much, Congressman LaTourette.

There is also good news in the LaTourette household. Congressman

and Mrs. LaTourette have just had the blessing of their second

child, so congratulations, Congressman.

And I look forward to working with you on any of the proposals

that can bring relief to people who are trying to save their homes.

Before I swear in our witnesses, I want to acknowledge the presence of City Councilman Anthony Brancatelli. You have really done

tremendous work at the ward level in trying to do everything you

can to help the people in the Slavic Village area, an area that I was

privileged to represent one time in the city council. So I want to

thank you very much for your presence here and the work that

you’ve done.

We are going to move now to the witnesses and I want to start

by introducing our witnesses. Representative Mike Foley has been

representing constituents in Brookpark, Parma Heights and Cleveland Wards 19, 20 and 21 since 2006. He is formerly the executive

director of the Cleveland Tenants Organization and now in the

Ohio Legislature, he continues to focus on housing issues, the environment and consumer rights, among other important issues.

Representative, or the Honorable Senator Tim Grendell has been

a State senator from Ohio’s 18th District since 2004, representing

constituents in Lake and Geauga Counties, as well as Cuyahoga

County communities of Gates Mills, Mayfield Heights, Mayfield

Village and Highland Heights. He serves as chair of the Judiciary

Criminal Justice Committee and his legislative focus has been on

such issues as sex offender registration laws and comprehensive

eminent domain reform.

Councilman Michael Dudley Senior is council member for ward

one of the city of Garfield Heights and has been serving since 2007.

He also served as a staff sergeant in the U.S. Army from 1978 to

2007.

Mr. Daryl Rush is the director of community development of the

city of Cleveland under the administration of Mayor Jackson. His

department administers Federal funding from the Department of

Housing and Urban Development, provides financing and assistance for housing development and offers housing services to residents.

Jim Rokakis has served as Cuyahoga County treasurer since

1997 and under his leadership, the office took an early role in combating the foreclosure crisis, particularly in regard to abandoned

parties and the creation of the county land bank. He helped to create and oversee the County’s ‘‘Don’t Borrow Trouble’’ mortgage

foreclosure prevention program. And I have to say that more than

any county official in America, you really have been on top of this,

Mr. Treasurer, and I just want to thank you for the leadership that

you’ve shown.

Ms. Phyllis Caldwell was recently named the chief of the Homeownership Preservation Program for the U.S. Department of Treasury where she implements administration policies designed to address the needs of homeowners. Prior to this appointment, Ms.

7

Caldwell was president of the Washington Area Women’s Foundation and also headed community development banking at Bank of

America. Thank you for being here.

It’s the policy of the Committee on Oversight and Government

Reform to swear in all witnesses before they testify. I would like

to ask the witnesses, if you please rise and raise your right hands.

[Witnesses sworn.]

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

in the affirmative.

I ask that each of the witnesses now give a brief summary of

your testimony. I would like you to keep the summary to 5 minutes

in duration. Your entire written statement will be included in the

record of the hearing so try to help us out and hold to that.

I’m going to call on Mr. Foley and thank him for the many different programs that we worked on together and for your advocacy

for people, which has always been very strong, and I’m grateful

that you are here, and you may begin with your testimony.

STATEMENTS OF MIKE FOLEY, OHIO STATE REPRESENTATIVE, 14TH LEGISLATIVE DISTRICT; TIM GRENDELL, OHIO

STATE SENATOR, 18TH LEGISLATIVE DISTRICT; MICHAEL

DUDLEY, SR., COUNCIL MEMBER, GARFIELD HEIGHTS WARD

ONE; DARYL RUSH, DIRECTOR OF COMMUNITY DEVELOPMENT, CITY OF CLEVELAND; JIM ROKAKIS, TREASURER,

CUYAHOGA COUNTY; AND PHYLLIS CALDWELL, CHIEF

HOMEOWNERSHIP PRESERVATION OFFICER, U.S. DEPARTMENT OF TREASURY

STATEMENT OF MIKE FOLEY

Mr. FOLEY. Thank you, Chairman Kucinich, and I appreciate the

opportunity to, for the last 10 or 15 years, be able to work with you

as an advocate on affordable housing issues and now as a State

Representative.

Good morning, Chairman, members of Domestic Policy Subcommittee of the House Oversight and Government Reform Committee. I would like to thank Congressman Kucinich for allowing

me to provide testimony on the foreclosure crisis in Ohio.

As a State Representative and chairman of the Ohio House

Housing and Urban Revitalization Committee, I have had the opportunity to see and hear firsthand the effect that this crisis has

had on Ohioans, while also working on legislation that hopes to

prevent both foreclosures and the negative consequences they have

on homeowners, neighborhoods and cities. From my experience, I

can tell you this: The Ohio House of Representatives has taken this

crisis seriously. Today I would like to touch on a few of the bills

that we are working on as they wind their way through the legislative process, the statehouse or have already been enacted. Foreclosure in Ohio follows a judicial, not an administrative, process

and depending on the circumstance, can take anywhere from 4 to

12 months. The bills introduced at the State level seek to address

the foreclosure issue at several stages along the process and are

best discussed as they take place within this process. Our goal is

to first do what we can to help keep homeowners in their homes,

and if that is not possible, to move them through the process as

8

fast and with as much transparency as possible while minimizing

the effect vacant, foreclosed properties have on neighbors and the

communities.

In February 2009, State Representative Denise Driehaus and I

introduced House Bill 3, the Foreclosure Prevention Act, which is

a fairly comprehensive act. In addition to keeping borrowers in

their homes, it helps to protect the loss of investment dollars by

maintaining home values, encouraging payment workouts that

guarantee greater returns than sheriff sales. Many of the provisions in this bill are temporary and are intended to provide flexibility during an extraordinary time when inactions have allowed

many thousands of homes to fall into foreclosure displacing countless Ohioans and washing away the property value of their communities.

This bill has four primary components: A conditional, 6-month

moratorium on certain foreclosure judgments, a licensing on regulation package for mortgage servicers, an information package

which includes a mortgage servicing data base, foreclosure notification requirements and transparency requirements during foreclosure proceedings, and a foreclosure filing fee that would provide

funding for data base administration, community redevelopment,

financial education and, I think most importantly, credit and foreclosure counseling. House Bill 3 passed out of the House in May

2009 and is currently awaiting its first hearing in the Ohio Senate.

While the relationship between homeowners and lenders is well

discussed, renters are too often direct and unnecessary victims of

foreclosure crisis. House Bill 9 is a bill that Representative Ted Celeste and I introduced and passed out of the House in May 2009

also. It would basically protect tenants in the foreclosure process,

give them more time and notice that the foreclosure is occurring

and allow them to become month-to-month tenants at the end of

their tenancy, at the end of the foreclosure process.

Recently we’ve been seeing problems that happen after the foreclosure judgment occurs. In 2007 and 2008, Representative Lou

Blessing from Cincinnati and I passed House Bill 138 which required sheriffs to file foreclosure deeds after a foreclosure had occurred. In all too many circumstances, foreclosures were occurring,

deeds were being prepared by the sheriff, given to the lenders but

not being filed so we didn’t know who owned property. This bill

passed in House in 2008 and we think it’s been fairly effective at

the back end of the foreclosure process.

That back end has now moved up, however, and Representative

Dennis Murray is bringing or brought a bill that basically would

force lenders to use their judgments after a foreclosure judgment

or lose it. Right now we are seeing that lenders are getting foreclosure judgments, but are not filing to go to sheriff sales, so

they’ve moved up this kind of process of not marking their title or

not filing the title. Representative Murray has been working diligently with a number of the folks in this room to make sure that

we are able to figure out who owns property and that lenders aren’t

engaging in our foreclosure process but not using—going through

the full fruition of what they should be doing.

Last, we think that one of the most important things that Ohio

needs to do is develop a comprehensive land bank system. Last

9

year Cuyahoga County was able to develop a land bank process

that Treasurer Rokakis has been very good at implementing. Every

other city and county in the State wants this, for the most part,

the larger cities in the county want this ability to do land banking,

to be able to take the vacant properties that are sitting foul and

affecting the property values of every other property in their system, to bring it back in and reuse those properties in a more logical, rational way.

Representative Kucinich, I appreciate your having these hearings. It’s very important, it’s very timely and it’s stuff that we

think that needs to happen at both the State and the Federal level.

Especially I just want to say that servicers who are in the middle

of this kind of whole process, this bureaucracy of the foreclosure

process, really need regulation and really need Federal regulation.

We look to the Federal Government to engage in that. Thank you.

[The prepared statement of Mr. Foley follows:]

10

11

12

13

14

15

Mr. KUCINICH. All right. Thank you, Gentlemen.

Senator Grendell, thanks for being here. You worked with Congressman LaTourette and I on some major matters relating to city

hospitals and steel mills. You’ve really been a champion of the people and I just want to thank you for making the kind of bipartisan

cooperation that we know is a possible reality. So thank you for

being here and you may proceed for 5 minutes.

STATEMENT OF TIM GRENDELL

Mr. GRENDELL. Good morning, Chairman Kucinich, ranking

member of the former Ohio Senate and colleague Congressman Jordan and my Congressman, Congressman LaTourette. And I want

to thank you, Chairman Kucinich, for bringing Congress to Cleveland and for providing me with this opportunity to address the

foreclosure and finance issues that now contribute to our State’s

and country’s financial problems.

While currently I have the privilege of serving in the Ohio Senate, I have also over 22 years of legal experience representing home

buyers, home builders and developers and have negotiated numerous real estate financing transactions from simple home loans to

multi-million dollar development homes. I have also represented

the parties in foreclosure lawsuits. As a State legislator, I have

been actively involved in the passage of land banking legislation,

to which I applaud Jim Rokakis, and consumer protection legislation.

While the national foreclosure crisis is generally dating to the beginning of the late 2006, early 2007, the seeds for that crisis were

planted in 2000 when Federal law changes invited the broadening

of access to home purchase financing, which, in turn, contributed

to the loan crisis.

Because of the scope and personal nature of the current foreclosure situation and its contribution to the decline of national and

State financial institutions, there is a tendency to paint these

issues with a broad brush or to seek more government intrusion

into the free market lending process. The loosening of the home

loan process promoted by Federal intervention may have been motivated by the admirable policy goals of increasing individual homeownership. However, admirable policy cannot override reasonable

economic principles. If someone cannot afford to buy a home, a

home should not be purchased. Traditionally, individuals were required to make attempt at a 10 to 20 percent down payment. Those

individuals saved their money and made a substantial equity investment when they purchased their home, usually with a 15 to 30-

year fixed rate mortgage.

This millennium, individuals were able to purchase homes with

little or no equity and with a variety of variable rate loans. In

Cleveland, some speculators were able to borrow excess dollars

based on friendly or inflated appraisals and actually profit from

their home purchase. Often these properties were then rented out.

While some foreclosures resulted from involuntary events such as

the unexpected job loss, others resulted from the abandonment of

overinflated valued buildings purchased on non-recourse terms or

by insolvent buyers. To the extent more job losses contributed to

the foreclosure problem, focus should be on reducing taxes and regVerDate 11-MAY-2000 13:23 May 23, 2011 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65129.TXT KATIE PsN: KATIE
16

ulatory burdens on business to promote economic development and

new job creation.

There are several factors that invited and fueled this unfortunate

situation. These include Federal encouragement of high-risk home

financing, overly aggressive lending fueled by the subprime loan investment market, failed regulatory oversight and a lack of personal

responsibility by borrowers who were encouraged to borrow beyond

their means.

A strong argument can be made that the last factor is the most

important because no one can be forced to borrow money, especially

if such a loan is beyond the borrower’s economic ability. Simply

put, an individual who enters into a contract to borrow money is

and must be expected to be bound by the contract. To hold otherwise, threatens the sanctity of private contracts, which forms the

foundation of our free market economic system.

Especially because of the scope and the publicity involved with

the current foreclosure situation, there is a tendency to pursue further government intervention; however, prudence is warranted. No

action should be taken that interferes with private contract rights.

For example, forced restructuring of private loan agreement terms,

or private contract enforcement rights, for example, delay or moratorium of foreclosures. The idea that private contracts can be rewritten or suspended by government in times of crisis is dangerous

and potentially destructive to America’s democratic free enterprise

economic system.

Moreover, it’s important that the Federal Government should

comply with the 10th amendment to the U.S. Constitution and refrain from interfering with the peoples’ right to real property ownership and the banks’ right to foreclosure.

I respectfully submit that the current foreclosure and financial

crisis results from a deviation from fundamental free market principles and that a return to free market principles, not more governmental intervention would be the appropriate way to work our way

out of this crisis.

To the extent Federal policies encouraged or pushed lenders into

making bad loans or that the resulting access to easy money encouraged borrowers to enter into bad loans, government intervention exacerbates the process. More government intervention will

only further degrade the situation.

With this in mind, I respectfully make the following suggestions:

One, the Federal Government should immediately cease and repeal

any policies that encourage lending to unqualified buyers as determined by sound financial practices. Two, the Federal Government

should resist the impulse to pass legislation that jeopardizes the

enforceability of private contracts. Three, the Federal Government

should recognize and honor the 10th amendment to the U.S. Constitution taking no action that interferes with the rights of the

States to enact their own respective real property laws and foreclosure procedures as spelled out by Representative Foley. Four, return to free market principles which recognize that property values

are based on what a willing buyer is willing to pay a willing seller

and loan decisions should be made by a prudent lender to a qualified borrower based on sound economics and the borrower’s likely

ability to perform its contractual repayment obligation.

17

At the end of the day, the goal should be a return to a free market system with minimum reasonable regulatory oversight. Lenders and borrowers must both act responsibly and the individuals

must appreciate that they will be held responsible for meeting their

contractual obligations. Neither Congress nor State Legislature

should absolve those folks from those obligations no matter the

scope or publicity or political benefit such legislation intervention

may generate.

President Dwight D. Eisenhower said it best, ‘‘without free enterprise, there can be no democracy.’’ The solution is more jobs, not

more government. Thank you for the opportunity to address the

Congress today.

[The prepared statement of Mr. Grendell follows:]

18

19

20

21

22

23

24

25

Mr. KUCINICH. Thank you very much, Senator Grendell.

The Chair recognizes Councilman Dudley of Garfield Heights. We

appreciate your presence here. You may proceed for 5 minutes.

STATEMENT OF MICHAEL DUDLEY, SR.

Mr. DUDLEY. Well, thank you, Mr. Chairman. I’d like to thank

the Committee of Oversight and also Government Reform.

I honestly would like to be able to say that you never know what

the feeling is until you get an opportunity to feel it firsthand what

it is to have your house go in foreclosure. I got that opportunity to

know how it was several years ago. When I was first elected, my

second job didn’t materialize as I had to leave my State job because

the city of Garfield, OH councilman position is a part-time position.

You do everything that a full-time representative will have to do.

One, not being able to be able to work in the second job, it didn’t

materialize, I found myself in foreclosure, me and my wife and my

family.

We can sit here and we can talk about rules and regulations and

how government shouldn’t get involved, but I’m going to tell you

that’s not true. You need the government at some point to be getting involved in helping people. When you can walk around in the

neighborhoods and you can see how many people are going to lose

their home or how many people say—a good example is modification. Modification is OK to a certain extent, but we also lack the

education to the people. That’s the main concern. People are not

being educated about the modifications. You can go into a modification in the month of March and don’t know what your circumstances are going to become the month of August. Say the

month of August you lose your job or you lose the second job you

didn’t actually acquire. Now you cannot go back and get a modification, they put you into what they call a forbearance plan. The word

‘‘bear’’ in that plan explains itself. You are not going to be able to

bear to make those payments. So you are surely being lined up to

lose your property or give your home, once again, turn it back in

to the lender.

I don’t think enough is being done. I think we need to find some

programs out there, we need to get something to educate these people. Nothing is being done about that. I think when we turn around

and we actually give billions of dollars to these lenders and we

don’t put no stipulations on there as to how the money will be

spent, but they have to be fair.

Let’s say the lender gives $31⁄2 billion. They go and they put it

into the Federal Reserve on Friday, from working with a company

called Brink’s, Inc., I know they are going to make some big interest on that money on that weekend. But when it comes time to get

a loan to an individual such as myself and others who are out there

living in the community, they want to give us 6.7. They want to

give us 8.

I had a senior, she is about 67 years old. Her modification says

she will get 4.25 percent for 4 years. At the end of the 4-years, she

is going to more than 81⁄2 percent on that loan. In 4 years she’s

going to lose her home. She can barely make the payment that they

got her now at 700-something dollars, what’s she going to do when

that 81⁄2 is due? She is gone.

26

There’s a lot of people. My community such as I live in ward one

area, we got more homes what they call the grass cutting, than the

entire six other wards put together. I have seen people say they

were just tired of going through, should I say, the so-called modifications or not being dealt with what I say good faith by some of

the lenders and a lot of them are just walking away from their

homes. Some of them just can’t take the pressure no more.

Some of these cities, like when I say Cleveland, Garfield is basically right there on the border of Cleveland, so we feel the same

pain that they’re feeling in Cleveland. We are turning there cities

and the suburban areas that surround Cleveland almost into ghost

towns.

A lot of them say, ‘‘Mike, now our home is not even worth the

value that the lenders are charging us for it.’’ The lenders turn

around in a particular modification plan and they tell you don’t

send no money until your modification is due. That’s 6, 7, sometimes 8 months down the road. At the same time, you are being

penalized and they are not educating the people once again, telling

the people you’re going to pay a penalty for not sending no money

in. By the time that $600 a month and 8 months later, you don’t

owe them $3,000 or whatever it takes and they bill $3,200 whatever, you end up owing 7,000 or more. So now that payment that

you couldn’t afford at $700 before is now a $900 payment. So tell

me how can a homeowner who couldn’t pay 600 is going to be able

to pay 900. They are setting us up for failure. It’s not helping us.

And I would like to say that we do need some more government

funding. Some funding has been given to organizations, our communities shares, ESOPs and other organizations out there. The key

is not you don’t have to keep bailing the people out, but you have

to educate the people, let them know what they are getting into.

They are fighting for modification, they don’t have no attorneys to

go pay and take them to. It should be somewhere that they can

take this at no cost to them, have somebody to review it and give

them an opportunity to let them know do they want to go through

with it because most of them is just signing so they can buy time

and have a place to live. And that’s what it’s really about.

We can sit up here and we can read a bunch of statements and

stuff, but when you go back to the community where people are

hurting the most, they are the ones without jobs. They are the ones

without medical benefits, paying out of their pockets to go to the

doctor today. In the process of paying to go to the doctor and buy

food, sometimes they can’t make the house payment. And you see

most of them, the people who end up on the street, the shelters

can’t keep the families together no more.

So I’m asking that somehow, some way to find some money to

put into a program that can educate and help these people so they

don’t keep losing their homes. We need to do something. These are

the same people who elected us to office, we do not elect ourselves.

We are there to represent them and we have to look out for their

best interests. And I thank you.

[The prepared statement of Mr. Dudley follows:]

27

28

Mr. KUCINICH. Thank you very much for your communication to

us. We appreciate that very much.

Mr. Rush, you are representing the city of Cleveland. Please let

Mayor Jackson know that we are grateful for your attendance and

we are grateful for your service as the director of community development. You may proceed for 5 minutes.

STATEMENT OF DARYL RUSH

Mr. RUSH. Thank you, Mr. Chairman. And good morning, Mr.

Chairman and representatives of the committee, fellow panel members and members of the audience. I’m honored to be before you to

represent the city of Cleveland and its mayor, Mayor Frank G.

Jackson for today’s hearing on the ongoing residential crisis.

Let me first point out that yes, while Cleveland has been known

as being at the epicenter of the crisis, what is not as well-known

is that the city, under the leadership of the mayor, has taken an

aggressive posture in responding to the challenges. And the subject

today is about the ongoing foreclosure crisis. But it is imperative

that we locally look, not as a crisis of foreclosure, but as a collapse

of the housing market and the housing structure. And our approaches, as you will hear from some of our partners today, are

comprehensive and multifaceted. In order for us to dig out of the

hole locally, we have to address all of the weakness in the entire

housing system.

Cleveland battled the exploitation of the housing market as it

changed from flipping to predatory lending to foreclosure to dumping. It is imperative to acknowledge that the tricks deployed for

profiteering evolve. Our response locally has to evolve as the impact on the market changes because of the actors and the approaches that they take.

My comments that I’ll make this morning are more detailed than

my written comments, but will I describe not only the impact on

the local market, but also the approaches that we are taking and

some of challenges that we face. It is important to note that, as the

city of Cleveland has tried to battle the foreclosures and the impact

of the foreclosure crisis, it was during the period where our revenue from HUD and other programs was declining. So the impact

on our budget is two-fold. One, we have increased funding for nuisance abatement by a factor of two between 1995 and last year. We

spent $890,000 just on nuisance abatement. That’s board-ups,

that’s debris removal. We have also increased our funding for demolition from 1.8 million in 2004 to, with the assistance of NSP, to

15 million this year. This is not enough, even with those funds.

We conducted a survey of vacant, distressed properties last year

and we have 8,009 throughout the city of Cleveland. That is less

than the vacant properties that are largely the result of foreclosure,

but those are the ones that are screaming to have action, either to

be put back on line or to be demolished. We are updating that survey. It will be done by the end of the year.

But we have to come up with approaches that will fit within the

budgetary constraints that the city has. The decline in property tax

and revenue as a result of the foreclosures further impedes the resources, the effective use of the resources that we have available

to us.

29

What we have done locally is to buildupon the strength of our

local infrastructure to design approaches that will not only address

and prevent the foreclosure itself, but also the aftermath. What do

we do with the house, whether it’s demolished or whether it’s

rehabbed and put back on line, how to get people to be in a position

to buy the house or to rent the house. The entire delivery system

has to be addressed in order for us to have effective resolution of

the problem locally.

We have a lot of partners within the delivery systems locally.

The county, we have strength in our relationship with the county.

City council. We have a non-profit infrastructure and a neighborhood infrastructure of non-profit organizations referred to as CDCs.

It’s an all-hands-on-deck approach that we have taken locally to be

able to respond to the crisis.

We have created, using NSP funds, an operation prevent program for the department of urban housing to be more aggressive

with going after illicit and illegal dumping of properties locally. We

have increased our data management so that we can have a better

sense of the extent of the problems, what is the impact on the market and how we can identify the people who own properties, the

people that are flipping and dumping property. We worked with

Case Western Reserve University in their NEO CANDO system in

order to get a better handle on our data.

Our strategies are based on a neighborhood typology which allows us to look at the relative market strengths of each neighborhood at a block group level. What is important is there have been

several comments about intervention. Government intervention is

necessary in working with the people to stay in their houses and

throughout the rest of the process.

As we continue to fight the impact of foreclosure locally, we will

continue to be creative in how we come up with responses and continue to work with our partners to be effective. Thank you.

[The prepared statement of Mr. Rush follows:]

30

31

32

33

34

35

36

37

38

39

40

41

42

Mr. KUCINICH. Thank you very much, Mr. Rush.

Mr. Rokakis, you may proceed for 5 minutes. And I’m very grateful for your presence here. Please continue.

STATEMENT OF JIM ROKAKIS

Mr. ROKAKIS. Mr. Chairman, members of the committee, thanks

for the opportunity to address you today about the impacts of the

foreclosure crisis on this county, Cuyahoga County, where I serve

as treasurer.

This is, I believe, the fourth time I’ve had the honor to appear

before a congressional committee.

It’s sad to say that this State and this county have never been

in worse shape, never. Worse yet is the fact that things will worsen

and that we have not bottomed out. People talk about endless wars

these days in Congress. Mr. Chairman and members of the committee, this is an endless war. We’ve been in the middle of a foreclosure crisis here since the late 1990’s. We are losing that war.

Consider these facts: Serious delinquencies, not foreclosures, but

properties that are delinquent 90 days and beyond, are at an alltime high. If you look at this chart, you can see from the graph

loans that are at least 90 days late, 90 days in arrears, we call

them zombie loans, we talked about zombie bankers, zombie loans

as well, loans that aren’t curing and will never cure. Banks have

simply stopped filing foreclosures on these properties. They don’t

want them, they refuse to compromise on these loans either guaranteeing they get into that category of 90-day-late loans.

This growing number of 90-day plus delinquencies hides the sad

truth. Supreme Court statistics in Ohio show that foreclosures in

the State are up 11⁄2 percent over last year, but if you include these

delinquencies in the foreclosure filings, it would push Ohio’s filings

to over 100,000. And it’s right there on the chart.

If you take a look at where we are today, that’s more than twice

the number we saw back in 2000. I believe there’s another chart,

Steve, and Paul you got to get up. You have the other chart there.

Take a look at that, look at the 90-day plus that are foreclosure filings in the State of Ohio. It’s more than twice the number we had

in 2000, the first year Ohio led the court file on foreclosure filings,

more than twice the number in 2001 and 2002.

This is no longer a city problem. More and more this foreclosure

crisis is a suburban problem. I’d like to show in the next graph

which will show you that filings now in the suburbs far outstrip filings in the city of Cleveland.

The increase in unemployment in this region has led to a historic

increase in foreclosures and delinquencies, as you said, Mr. Chairman, now on prime rate loans. The historic cure rate on delinquent

prime loans, those are prime loan borrowers that catch up on their

delinquencies, have fallen from 45 percent in 2000 to 2006. Again,

that’s the percentage of people who are in foreclosure back on

prime rate loans, 45 percent of those folks who cure fall into just

6.6 percent in the August study by Fitch Rating Services.

To complete the perfect storm, we are now in the situation where

declining home values have trapped thousands of our county homeowners in upside down mortgages where the value of the home is

less than the value left on the mortgage. These people are effecVerDate 11-MAY-2000 13:23 May 23, 2011 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65129.TXT KATIE PsN: KATIE
43

tively tied to the land, not very different from serfs under the feudal economic system. People who have to sell their homes for a new

job or transfer are simply out of luck. The same is true for people

who lose their homes, people who lose their jobs or have their

hours cut back as the councilman stated.

Three of Ohio’s metropolitan areas are ranked in the top 50 for

cities with mortgages under water. The Home Affordable Modification Program [HAMP], has failed here in Ohio. You will hear details from others, but suffice it to say, the program here has

flopped with the fourth worst loan modification rate in the country

right here in Ohio. Why do we continue in government to tout

failed programs like HAMP? Why? Why don’t we just admit that

the program is a failure and start over with a program that actually works?

What does actually work, Mr. Chairman, is foreclosure counseling, not 800 numbers, but a sit-down, face-to-face counseling session where a trained counselor helps troubled homeowners navigate muddled foreclosure waters. We know that counseling works.

For 3 years we have had our own local prevention efforts here monitored by the Center for Community Planning and Development at

Cleveland State. We’ve had hard data to back up that assertion.

When delinquent homeowners work with counseling agencies here

in Cuyahoga County, 53 percent of the time foreclosures can be

averted. This is a remarkable success rate, but the number of needful homeowners still far exceeds the capacity of our local non-profit

groups that serve them. Counseling is a long and hard slog. It’s not

easy, fast, but it’s effective and relatively inexpensive, especially

when weighed against the staggering costs to our communities.

When a foreclosure proceeds to judgment sale, we know what the

cost is to the community. We need to make the investment in solutions that experience demonstrates actually works and stop relying

on the lending industry to solve the problem that they helped to

create in the first place.

The National Foreclosure Mitigation Counseling Program funding for Ohio is being slashed from five million to $21⁄2 million statewide, with some of that money coming in to Ohio going to legal

services leaving less than $1.2 million for State counseling. We

need that amount here in Cuyahoga County alone. Please, if you

do nothing else, please help us at that level of funding.

I saw a report, members of the committee, last week that Chairman Geithner, Treasurer Geithner makes calls on a daily basis to

folks on Wall Street, five or six bankers, he touches base to see how

the economy is doing. I passed my card out to Ms. Caldwell. I think

the Treasury Secretary needs to call people in the counseling programs here in this room. He needs to make calls just once in a

while to ask how the programs are doing and I think he’ll get the

sad truth that they are not working here in northeast Ohio. Thank

you.

[The prepared statement of Mr. Rokakis follows:]

44

45

46

47

48

Mr. KUCINICH. Thank you, Mr. Rokakis. Excellent suggestion.

I want to thank Ms. Caldwell for being here to represent the

Treasury Department, talk about the HAMP program. I look forward to your testimony. You may begin.

STATEMENT OF PHYLLIS CALDWELL

Ms. CALDWELL. Chairman Kucinich, Ranking Member Jordan,

Councilman LaTourette, thank you for the opportunity to testify

about the Treasury Department’s comprehensive initiatives to stabilize the U.S. housing market and support homeowners.

The administration has made strong progress in ramping up the

Making Home Affordable programs. Although the number of homeowners being helped continues to grow, we recognize that Making

Home Affordable a success faces challenges in converting borrowers

to permanent mortgage modifications and fostering effective communication between the servicers and borrowers. We can all do better in ensuring that these programs are a success.

I’d like to briefly address four issues that we are very focused on

with the Making Home Affordable program. First is conversion

from trial to permanent modification; second, foreclosures; third,

the transparency; and fourth, unemployment. On conversion, our

most immediate critical challenge is converting Home Affordable

Modification or HAMP trial modifications to permanent modifications. Servicers report that about 375,000 trial modifications will

be more than 3 months old and eligible to convert to permanent

prior to December 31st. The Treasury is implementing an aggressive campaign to increase the number of permanent modifications.

We have required conversion plans from the seven largest servicers

which account for 85 percent of the market. Treasury and Fannie

Mae account liaisons are assigned to these servicers and followup

daily to monitor progress. We have engaged 81 HUD field offices

and thousands of State and local governments in this effort. We are

using our Web site to simplify the modification process through instructional videos, downloadable forms and an income verification

checklist. This week we hold our 20th formal event connecting

servicers, housing counselors and homeowners.

We understand that foreclosures are a growing concern. In

HAMP, any pending foreclosure sale must be suspended and no

new foreclosure proceedings may be initiated during the trial period. Foreclosure proceedings may not be initiated or restarted

until the borrower has failed the trial period and has been considered and found ineligible for other foreclosure prevention options.

We are working with stakeholders to review and develop improvements to the communication between servicers and borrowers and

to existing rules so no borrower being evaluated for HAMP is subject to foreclosure.

On transparency, beginning in August, we publicly reported

servicer specific results. October’s report contained trial modification data by State. The November report scheduled to be released

this Thursday will contain permanent modification data by

servicer. And beginning in January, reports will include a matrix

for selecting servicer performing in categories such as response

time for completed applications.

49

In addition, we are requiring servicers to send borrowers notices

that clearly explain to borrowers why they did not qualify for

HAMP modification. Borrowers are also able to ask for a second

look on their application.

Regarding the transparency of the net present value model, a key

component of the eligibility test, we are increasing public access to

the net present value white paper, which explains the methodology

used in the models. We are also working to increase transparency

of the model so that there can be a wider understanding of how it

works among housing counselors and borrowers.

Regarding unemployment, HAMP is designed to allow unemployed borrowers to participate. Borrowers with nine or more

months of unemployment insurance remaining are eligible to include unemployment insurance in their income for consideration in

the modification request. We recognize, however, that some unemployed borrowers will have trouble qualifying, impacting markets

facing high unemployment. The Treasury is aware of a number of

policy proposals that have been advocated to further assist unemployed borrowers. While our focus is helping as many borrowers as

quickly as possible under the current program, Treasury is actively

reviewing various ideas to improve program effectiveness in this

area.

While we acknowledge those concerns, HAMP is on track to provide a second chance for up to three to four million borrowers by

the end of 2012. Based on a recent survey of servicers, we estimate

that, as of the beginning of November, up to 11⁄2 million homeowners were both 60 days delinquent and likely to meet the HAMP

requirements. This puts the approximately 650,000 borrowers who

had begun trial modifications as of the beginning of November in

complete context.

As of November 17th, over 680,000 borrowers are in active trial

modification. Servicers report that over 900,000 borrowers have received offers to begin trial modifications. On average, borrowers in

trial modifications have had their payments reduced by over $550

a month, for a reduction of roughly 35 percent from their prior payment.

Over 230,000 adjustable rate mortgages and nearly 450,000 fixed

rate mortgages have been modified on a trial basis to sustainable

levels. HAMP has made great strides in less than a year and we

look forward to working with you to enhance the program’s performance and help keep Americans in their homes. Thank you.

[The prepared statement of Ms. Caldwell follows:]

50

51

52

53

54

55

56

57

58

59

60

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

The committee is now going to go to the period where we begin

to question witnesses. Each one of us will have 5 minutes, and I’m

going to begin my 5 minutes right now. A question to Ms. Caldwell:

The HAMP program, the Home Affordable Modification Program is

strictly voluntary, is it not?

Ms. CALDWELL. It is voluntary to the servicers and we signed up

over 71 servicers accounting for a large portion of the market.

Mr. KUCINICH. Investors have shown that they do not—do not

want to voluntarily allow a reduction in loan principal. That’s, in

large part, a way to explain the failure of the Home Affordable

Modification Program. Can you say to us today that we can continue to rely on voluntary efforts of loan servicers and expect to see

different results?

Ms. CALDWELL. At this point in the program, the focus was really

on getting people signed up for the program, which we did, and

then it was focused on getting people into trials as quickly as possible. And we now have 650,000 people in a trial modification. Now

is the point in the program that we need to focus on converting

those trial modifications to permanent modifications.

Mr. KUCINICH. Mr. Rokakis, do you have a response to that as

someone who has to deal with——

Mr. ROKAKIS. Mr. Chairman, I would uphold because there are

some really, really capable housing counselors back here who are

going to be speaking at length about their experience with HAMP,

and I think you need to speak with Mark Seifert and others——

Mr. KUCINICH. We’ll get to that.

Mr. ROKAKIS. Just from talking to them, Mr. Chairman, I get an

entirely different——

Mr. KUCINICH. We’ll have a chance to speak with them.

Ms. Caldwell, the data shows that loan servicers have, through

their voluntary efforts, made Ohio borrowers among the least likely

to receive a loan modification under the program. Ohio ranks 48th

out of 50. Why does this program treat Ohioans so unfavorably?

What’s the business justification? And what’s going to change that

calculation?

Ms. CALDWELL. The HAMP program has offered trial modifications to over 14,000 residents in Ohio, and while it is approximately 2 percent of the mortgage modifications in a trial period,

the State of Ohio accounts for a little over 3 percent of the 60-day

plus delinquencies nationally.

Mr. KUCINICH. You are not justifying it, you are explaining it?

Ms. CALDWELL. I’m putting it in context. And then moving on to

say that, again, the focus has been to get people in trials as fast

as possible and it has not been on a geographically targeted basis.

When we get through this conversion phase to see how many trials

convert to permanent and begin to report the data on a State-byState and MSA basis, we will have the ability to look at the program and understand the impact across different States.

Mr. KUCINICH. Thank you. Now, according to the Treasury Department’s own data, about 25 percent of borrowers who have been

helped under the administration’s mortgage modification plan have

already fallen behind on their new mortgage payments. It’s been

61

said that this program is targeted to the foreclosure crisis as it existed 6 months ago, not as it is today.

Ms. Caldwell, is the Treasury Department ready to admit that

the Home Modification Program has been a failure? Don’t you

think it’s time to implement a program that reduces the principal

that borrowers owe on their homes rather than just lowering the

interest rate and pushing the payments down the road, Ms.

Caldwell?

Ms. CALDWELL. The HAMP program was set up to provide affordable monthly payments for homeowners and it is on track to provide a second chance to three to four million homeowners by the

end of 2012. While we do understand that foreclosures are a growing concern and we continue to explore ways that we can address

the foreclosure crisis, and we have worked with our borrowers and

servicers to improve communication in that manner, the program

is on track to achieve what it has set out to do in terms of affordable monthly payment adjustments for homeowners.

Mr. KUCINICH. I have time for one more question. A witness on

our second panel is Mr. Mark Seifert, the executive director of the

ESOP, the statewide organization provides free foreclosure prevention counseling and assists borrowers with the paperwork necessary to request a modification. He has told us that all ESOP

modification requests have the full and complete paperwork with

them when they are submitted. Yet, as of 400 HAMP trial modification packages ESOP has submitted since the program started,

they only have one that’s been converted to a permanent modification. ESOP tells us by their calculations, they should have near

300 by now. So ESOP’s modifications are waiting and waiting and

waiting, then what about the folks who don’t have dedicated counselors helping them? Do you have any comment on that?

Ms. CALDWELL. We have acknowledged the issues that servicers

have had in ramping up the program to convert borrowers from

trial to permanent modification. Part of the reason for the conversion campaign that was announced was to hold servicers accountable for those loans that they had in their office that had documentation and put a plan in place to get those loans through decision and to be held accountable for that. And we will see the results of that at the end of this month.

Mr. KUCINICH. Thank you. The Chair recognizes the ranking

member, Mr. Jordan. You may proceed.

Mr. JORDAN. Thank you, Mr. Chairman. Let me also thank our

panel for being here today and for your continued public service in

your respective areas.

Ms. Caldwell, I want to come back to you, and I think Mr.

Rokakis said it right, that the program is a miserable failure, it

doesn’t work. In fact, let me just start with the basics. How much

TARP money, how much taxpayer money has been allocated to be

available for this program?

Ms. CALDWELL. The program allocation is $50 billion.

Mr. JORDAN. $50 billion. According to Treasury’s most recent

TARP transaction report, $27 billion of that has already been allocated; is that correct?

Ms. CALDWELL. That’s correct.

62

Mr. JORDAN. Twenty-seven billion, and according to an October

9, 2009 congressional oversight panel, the panel created by the

TARP legislation to oversee how taxpayer dollars were being used,

the promise was that three to four million people will be helped in

this program. You indicated in your testimony that there were like

600,000 in the trial modification, but according to the congressional

oversight panel’s report on October 9th of this year, only 1,711 people have actually had modifications, less than 2 percent; is that accurate?

Ms. CALDWELL. That’s accurate. And the focus, you know, the

conversion from trial to permanent has been a source of disappointment to the Treasury.

Mr. JORDAN. $27 billion of taxpayer money has already been out

there, has already been allocated. Less than 2 percent are actually

fully in the program, when the promise was some three to four million homeowners would be helped. Isn’t it also true, and I’m looking

at a story from this weekend, the Washington Post indicates that,

of the people who actually make it into the final modification, 40

percent of those folks, as I think some of the other witnesses, by

their testimony, would support, 40 percent of those folks are going

to redefault. They are not going to be able to even comply with the

modifications that have been made, and 22 percent of those don’t

even make their first payment; is that accurate? This is a story in

the Washington Post from this Saturday.

Ms. CALDWELL. I don’t have the source of the data for the Washington Post.

Mr. JORDAN. What you have noticed is your redefault rate for the

small number who are already in the program?

Ms. CALDWELL. The program has not been up long enough and

we have not been reporting redefault rates. But let me go on to say

that December is the first month that we have had a large number,

a large enough number that have been in the program long enough

to convert, and so while we have not been satisfied with the number of permanent modifications converted to date, by the end of December, because we’ve steady growth in the number of trial modifications through the fall, we have a point where we have 375,000

trial modifications that are reported being eligible for conversion.

Mr. JORDAN. What does your model suggest that the redefault

rate might be? The model that, I mean, frankly, we would like to

see from your model, and I noticed in your testimony, your written

testimony, you said ‘‘we are increasing public access to the net

present value white paper which explains the present value used

in the model. We are also working to increase transparency at the

net present value model for new tools that counselors can use to

assist distressed homeowners applying for modification.’’ What does

all that mean? Why can’t you just let the world know what kind

of model you are using to make these determinations?

Ms. CALDWELL. We’re looking at ways to increase transparency

for the net present value model. They are a lot of——

Mr. JORDAN. Why can’t you just let us know what model you are

using? Why the secrecy?

Ms. CALDWELL. We are looking at ways to increase the transparency. Right now it is not available publicly. We are looking at

ways, we have put forth the net present value white paper that disVerDate 11-MAY-2000 13:23 May 23, 2011 Jkt 000000 PO 00000 Frm 00066 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65129.TXT KATIE PsN: KATIE
63

cusses the assumptions in the net present value model and we are

developing a model that can be distributed to the public. The models are generally proprietary and we are committed to increasing

transparency.

Mr. JORDAN. I’m running out of time, but let me just summarize

if I could, Mr. Chairman. Here is what happened.

Mr. KUCINICH. Take your time to ask the question.

Mr. JORDAN. $50 billion of taxpayer money allocated for this pro- gram, $27 billion already spent, already out the door—how it’s

been spent, we don’t know, it’s already out the door—on a model

we don’t even know exactly, you know, how that determination is

made, how it’s going to work, with a projected redefault rate of 40

percent, to get a grand total of 1,711 families helped. I mean, this

is one more example of a big Federal Government program that

doesn’t work. I mean, we can go on and on and on, but when you

start doing things at the Federal Government—and the answer is,

as I think several of us have talked about, is we need to get our

economy moving again. We don’t need another big Federal Government program out there. Mr. Rokakis has talked about how this

program doesn’t work. That’s the concern I have and the focus has

to be on those policy changes that are going to actually help our

economy grow so people don’t lose their jobs, so they do have employment out there so they can continue to make their mortgage

and those things that we want to see how they actually happen.

And with that, Mr. Chairman, I would go back.

Mr. KUCINICH. Thank you, gentlemen, for those questions.

The Chair recognizes Congressman Steven LaTourette. You may

proceed, sir.

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

Ms. Caldwell, I’m going to give you a break and I’m going to talk

to somebody else for a couple of minutes.

But, as you know, and also, in an attempt to be a bipartisan

basher here, Congressman Jordan talked about the TARP program.

The dumbest thing I ever saw in my life, and it started under

former President Bush. And his Treasury secretary came to Capitol

Hill and I was on Financial Services at the time and I remember

he said, ‘‘today is Monday, if you don’t give us $700 billion by Friday, the world is going to come to an end.’’ So they put the first

$350 billion out the door.

Obama’s administration came in and thought it was such a good

idea. Part of the problem, quite frankly, is that the new guys at

the Treasury look a lot like the old guys at the Treasury. And Secretary Geithner is the former head of the New York fed, is at the

helm on this thing. And the reason that it’s not working is it’s not

working to get to the problem that Rokakis is talking about and

the State legislatures are talking about.

And I can remember when the first tranche of money went out,

I wrote an amendment that said that if you are a bank and you

get $5 billion and the purpose of that $5 billion is for you to put

liquidity in the market and make money available so people can

buy homes and/or stay in their homes, you should tell us what you

spent it on. And the banks went nuts. They said we take your $5

billion and mix it with our $5 billion and we can’t tell you what

we did with it. Well, that’s just crazy.

64

And it seems to me that if we provide $5 billion of tax money

to an institution, they should be able to say that, because they

have to report this quarterly, they should be able to say this month

we did $5 billion more in consumer lending. But, you know, at the

end, we can talk about all these programs that we want, but what

solves a lot of problems in the United States of America, whether

it’s healthcare or homeownership is a job.

And so the multiplier effect of this spending is it’s not like you and I had $700 billion in our mattress and we just pulled the

money out and decided we were going to spend it. We borrowed it

from people. We borrowed it from China. So you are going to see,

not only the crisis cascade, we got to pay that money back. And

anybody that doesn’t think that there is going to be an inflationary

effect on interest rates as we begin to work our way through it is

just not thinking clearly.

And what I found, and maybe you both have the same experience, when I go out and talk to people that are trying to employ

people, trying to pay them a decent wage, trying to get them

healthcare, and they go to the bank, and a lot of these banks have

received TARP money, the banks aren’t loaning them, they are

pulling their lines of credit. And you say what’s the matter with

that?

And then so what’s happening, sadly, with Treasury, in my opinion, is the money is going out and the Wall Street guys are healthy

and they are not going to pay some of the money back. But the

whole purpose behind the program was for them to lend the money

out so that people could have jobs and it’s just not working.

And so I do hope, I happen to think the President of United

States is a very smart guy, and I do hope that some of these things

are rethought.

Treasurer Rokakis, one of the reasons you are my second favorite

Democrat behind Kucinich is you tell it like it is. And I can remember at the end of the 1990’s, Paul Gillmor, a former colleague who

has since passed away, had the first meeting as he saw this thing

coming and we had the bank that’s run by the Polish guy, Third

Federal.

Mr. ROKAKIS. Stephanski.

Mr. LATOURETTE. Stephanski.

They came in and——

Mr. ROKAKIS. Best run bank in Ohio.

Mr. LATOURETTE. And that’s what I’m getting to and it gets to

your counseling point. We can throw them $27 billion to do this

and take care of 1,700 families, but they were bragging on the lowest default rate because they actually sat down with people and he

said they had the experience where some people said, you know

what, today even though I’d love to have the dream of home ownership, today is not the day. I can’t make that nut. And they went

through the ARM and they said well today, I can make $700 with

this interest rate, but when that thing adjusts 3 years from now,

I can’t make it. So I couldn’t agree with you more. And it’s that

face-to-face thing that really gets it done and I give you credit for

what you’ve done.

I would just like to ask you as a guy in the front lines, and sort

of felt that the sad thing is when I have time, I think of stuff, and

65

this business about, I’m not so crazy about the moratoriums because I think that just kicks the can down the road. And so you

can have a 6-month forbearance or a 6-month moratorium on foreclosures, but at the end of the day, you still owe all the principal

and the interest and whatever else is just built up.

What if to help the folks that don’t qualify for HAMP and haven’t

been behind for 3 months, we figure out a system that, as I suggested, that you pay the interest and taxes so you are taken care

of, but that you don’t pay the principal until you get a job again?

What do you think?

Mr. ROKAKIS. Mr. Chairman, Congressman LaTourette, not a bad

idea. I think the chances of the servicers and the banks going along

with that would be about as likely as they are to go along with a

forbearance or a moratorium.

Mr. LATOURETTE. And that’s a great point, but you know what?

Here’s the skinny going back to TARP. I understand the importance of the banks. I’m a Republican, we like banks, we like business, but I’m going to tell you something, that if I gave you,

Rokakis, $5 billion to get your butt out of trouble, I think I have

the right to expect certain things from you. And so those that

didn’t participate, they don’t have to follow the rules. But if you

have taken some of the $700 billion that we put out on the street,

I think you have an obligation. And I don’t think it’s unreasonable

in that situation and that doesn’t violate Grendell’s principle that

you shouldn’t mess around with contracts because you are entering

into a new contract. But if you want $5 billion, you’ve got to do

something for that $5 billion. And I don’t think it unreasonable to

expect people to be part of the solution here.

Last, if I could have your——

Mr. KUCINICH. Go ahead.

Mr. LATOURETTE. To our State Representatives, and Representative Foley, listening to Senator Grendell, I don’t think H.R. 3 has

passed in the Senate.

Mr. GRENDELL. That’s fair.

Mr. LATOURETTE. Just I picked up on that this morning.

I’ll tell you the thing that I hear and I know that you hear as

you go out and you see your constituents, there’s another thing besides TARP that’s out there, it’s stimulus. The stimulus bill has the

same objective, it wasn’t to keep people in their homes, but it was

to create three million jobs. The report out of the White House said

that, in my district which is, you know, we do OK, $100 million

was spent of stimulus money to create or save 126 jobs. Now, I

could do better than that and I’m not the brightest bulb on the

tree, but if you gave me $100 million, I bet I could do better than

that.

What I’m hearing is that the money that’s come down from the

feds in the stimulus bill is stuck in Columbus, that it’s stuck at the

Ohio Department of Development, that you have men and women

who want to create opportunities and employ people. A guy came

up to me the other day, his natural gas or electric buses all over

the trades, it’s clean, it’s green, and he wants to build a plant right

here in Ohio to build these buses. He can’t get people in Columbus

to return his phone calls. Not you guys, I’m sure you call people

back all the time. But the Department of Development.

66

No, I know Lieutenant Governor Fisher is not there anymore,

but who is in charge and why can’t they get this money out to help

people, put people back to work so people can stay in their homes

and people can have healthcare? Grendell, what do you think.

Mr. GRENDELL. Congressman LaTourette, I’m suffering the same

experience you just described in my district dealing with the Department of Development. They seem to be overly cautious in the

way they pursue potential projects. It strikes me they want to invest in projects that are already winners and those projects don’t

need the investment. I suffer the same frustration. I cannot give

you a better answer than we’ve lost several projects in our mutual

district because of the inability to get development to put the

money out.

Mr. LATOURETTE. Representative Foley, what do you think?

Mr. FOLEY. Congressman, I think that the department started

giving money late summer. I think they are doing the best they

can, considering they don’t have all the staff that they should have

to make sure all projects get out in as thorough and efficient time

as possible. I do know that I’ve had contractors in my district who

have benefited from this already, they’ve got jobs and they are

working. So I don’t think it’s perfect but it shows the imagination.

I know that there’s dollars that still need to be allocated and given

out. I know that we just had a clean energy job, a press conference

with the Governor last week where at least the Cleveland area is

going to receive 7 to 10 projects that are going to be run, advanced

energy projects in the Cleveland area. So I think that it’s taking

a little bit of time and it’s complicated. But I think that there’s

folks trying to do the best they can. I think it’s going to take a little

bit of time.

Mr. LATOURETTE. Listen, anything you two can go through to

sort of goose them down in Columbus, I would appreciate very

much because, you know, you talk about contractors, I had a contractor—unemployment out in Ashtabula County is 13 percent—

and a contractor calls me and says we got a job ready to go waiting

for the stimulus money, but ODOT won’t let us start the job until

we’ve had this big ass ugly green sign up for 2 weeks saying that

it’s paid for. So the sign makers made a lot of money and then they

had full employment out in Ashtabula County, but the people that

are actually going to build the roads do not. So I thank you.

Mr. GRENDELL. Mr. Congressman, if I can address that for 1 second. Congressman LaTourette, I agree with you on the sign issue

and the fact there’s legislation to prohibit the State from wasting

the over a million dollars they’ve already wasted on those signs.

Thank you, Mr. Chairman.

Mr. KUCINICH. All right. I want to thank my colleagues, Mr. Jordan, Mr. LaTourette for their participation in this panel.

Two things have occurred to me based on the questions that have

been asked here. First of all, you are looking at probably the only

congressional panel you’ll see where every member of the panel

voted against the TARP program bailouts.

Now, one of the things that you may be aware of, Mr. Jordan and

Mr. LaTourette, is that when the administration, the Bush administration was coming in with the TARP program, there were also

people in the incoming—well, at that point the Obama administraVerDate 11-MAY-2000 13:23 May 23, 2011 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65129.TXT KATIE PsN: KATIE
67

tion was hoping to come in. And the incoming administration actually was arguing against loan modification, so you had an agreement on the part of both the previous president and the incoming

president that there would be no loan modification. I mean, that’s

something to think about in terms of where we are at today and

something to think about in terms of continuing to justify the position that those of us took in total opposition to the bailouts.

I want to thank the members of this first panel. You have all

made a contribution to our understanding of the issue and to some

of the philosophical issues that we are faced with and some of the

practical applications of laws that we have to deal with. Cleveland

is the epicenter and how you do in Cleveland is really going to tell

if your program ever can hope to work.

And I hope that Ms. Caldwell here will take some of the testimony back to Mr. Geithner and that the treasurer will take heart

about the experience that the people are having in our community

with this program.

I want to thank you for being here. Thank you to the members

of the panel.

We are going to start our second panel, if members of the second

panel will come forward. First panel is dismissed. Second panel

come forward and we are going to move forward with the second

panel when they are seated.

[Recess.]

Mr. KUCINICH. Thank you very much. If you are not participating

in the second part, I would ask you to kindly leave the room.

I want to introduce our second panel of witnesses. Mr. Mark

Seifert is the executive director of ESOP, which is the Empowering

and Strengthening Ohio’s People Organization, which is a nationally recognized organization fighting predatory lending and providing foreclosure prevention counseling throughout the State of Ohio.

Mr. Robert Grossinger, the senior vice president of Bank of

America’s Community Affairs Department, he is responsible for coordinating the bank’s real estate owned sales process with the cities, counties and States that receive funds under the HUD neighborhood stabilization program.

Claudia Coulton is the Lillian F. Harris professor of urban social

research, Mandel School of Applied Social Sciences, as well as the

co-director of the Center on Urban Poverty and Community Development at Case Western Reserve University. She has conducted a

series of studies on the foreclosure crisis in Cleveland and is a nationally recognized expert on using property data systems to understand the pattern and magnitude of the program.

Mr. Howard Goldberg is renewal administrator in the Department of Community Development, city of Lorain, OH under the

leadership of Mayor Tony Krasienko. He has been working in community development for that community for nearly two decades.

And Mr. Frank Ford is the senior vice president for research and

development at Neighborhood Progress, Inc. Where he directs a

land assembly vacant property reform and foreclosure prevention

initiative. Mr. Ford’s been working in the field of community development for 33 years.

This is a very important panel. I want to thank each and every

one of you for your presence, your willingness to testify.

68

It is the policy of the Committee on Oversight Government Reform to swear in all witnesses before they testify. I would ask that

you rise and raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Let the record reflect that each of the witnesses

has answered in the affirmative.

As with the first panel, we ask that each witness give a summary of his or her testimony. Please keep this summary to 5 minutes in duration. Your complete written statement will be included

in the record of the hearing. We know how important it is and

Members read these carefully because they relate to what we know

we need to do to try to address the issues that you are raising.

At this point I would like to ask Mr. Seifert if he would proceed.

STATEMENTS OF MARK SEIFERT, EXECUTIVE DIRECTOR, EMPOWERING AND STRENGTHENING OHIO’S PEOPLE; FRANK

FORD, SENIOR VICE PRESIDENT, NEIGHBORHOOD

PROGRESS, INC.; ROBERT GROSSINGER, SENIOR VICE

PRESIDENT FOR COMMUNITY AFFAIRS, BANK OF AMERICA;

CLAUDIA COULTON, CO-DIRECTOR, CENTER ON URBAN POVERTY & COMMUNITY DEVELOPMENT, CASE WESTERN RESERVE UNIVERSITY, MANDEL SCHOOL OF APPLIED SOCIAL

SCIENCES; AND HOWARD GOLDBERG, RENEWAL ADMINISTRATOR, CITY OF LORAIN

STATEMENT OF MARK SEIFERT

Mr. SEIFERT. Good morning, Chairman and members of the committee. Thank you for the opportunity to address you today on the

ongoing foreclosure crisis in Ohio.

I am Mark Seifert, the executive director of ESOP, Empowering

and Strengthening Ohio’s People. We are a HUD certified counseling, foreclosure prevention counseling agency with 11 offices

throughout Ohio serving communities large and small, urban and

rural. ESOP, formerly known as the East Side Organizing Project,

started as a neighborhood based organizing group working on safety and educational issues, much of it in Chairman Kucinich’s

neighborhood.

Over the last 18 months, our organization has grown from a staff

of three in Cleveland to more than 60 statewide, a direct result of

Federal funding recognizing the need for foreclosure prevention

counseling in Ohio. We have been on the front lines of Ohio’s foreclosure epidemic since 1999. During the last 5 years, we have

helped more than 13,000 families save their homes. Almost 8,000

of those families have walked through our doors in the last year

alone. We know all too well the toll this crisis continues to exact

on struggling families.

That is the focus of my testimony today, the unending state of

the foreclosure crisis, the failure of Federal programs meant to reverse course and the possible extinction of foreclosure counseling

services in Ohio and around the country.

Let me start by saying this hearing could not come at a more important time. The foreclosure crisis is far from over. Last month

the Mortgage Bankers Association announced record-breaking third

quarter foreclosure filings and delinquency rates in Ohio. Fifteen

69

percent of loans serviced in Ohio are in foreclosure or past due.

Two years since the foreclosure crisis first rocked this country, all

signs point to an ever growing problem of foreclosures that won’t

even peak until late 2010, according to Rich Sharga, a top executive at the real estate firm, Realty Track.

In this landscape, ESOP’s foreclosure prevention and counseling

services have emerged as a lifeline for homeowners who don’t know

where to turn or get lost in the process when they do respond to

notices from their lender or servicer. This year alone, ESOP will

welcome 8,000 families facing foreclosure through 11 statewide offices. We expect to help 6,500 of them receive affordable loan modifications, a success rate of over 80 percent has made ESOP a leader

in the State.

All this has been achieved through an annual budget of just $1.8

million, 70 percent of which is money channeled through the National Foreclosure Mitigation Counseling [NFMC] Program, via the

Ohio Housing Finance Agency [OHFA], who has been a key partner

in our response to this crisis.

Let me be clear, the documented impact of foreclosure prevention

counseling on Ohio’s ongoing foreclosure crisis is under attack, and

without congressional action, will vanish in the first quarter of

2010. To date, NFMC funding has been immediate and effective. It

has also been the sole source of Federal dollars for foreclosure prevention counseling. However, in the next funding cycle for the year

2010, NFMC funding for Ohio will be cut by more than half.

I assure you these cuts will severely cripple ESOP’s ability to

continue to serve the thousands of people who we serve each year.

And it costs about $200 per home, it’s definitely money well invested. Instead of serving 8,000 families next year, ESOP’s cuts

will result in only being able to serve approximately 4,000 families.

As you may well know, Ohio’s Save the Dream Program, a multiagency State effort that funds hotline operators, marketing and

outreach, as well as a Web site, has been recognized as one of the

best in the nation. Save the Dream operators refer callers to counseling agencies and also to their respective lenders and servicers.

Approximately 65 percent of our caseload comes from Save the

Dream referrals. Without future NFMC funding, however, Save the

Dream will have few to zero agencies left for homeowner referrals.

That brings me to the Federal program to assist homeowners in

the foreclosure, the Obama administration’s Making Home Affordable Program [HAMP]. I save my remarks on HAMP for last as

HAMP not only holds great promise, but has also wreaked great

havoc. Since mid June when HAMP finally sprung into action,

about 55 percent of ESOP’s caseload turned into potential HAMP

modifications.

Homeowners who finally end up at ESOP come with horror stories. Communications from lenders trying to offer HAMP modifications often only provide 800 numbers, sending borrowers into automated loops. When they do gather the paperwork and send it in,

it’s routinely lost in a maze of disorganization and bureaucracy

that constitutes the loan modification arms of most banks.

The sad truth is that experienced counselors at ESOP are also

having trouble working with lenders and HAMP. Take Wells Fargo,

for example, it leaves a lot to be desired. For example, conference

70

calls go nowhere, we ask a question, they say ‘‘let me check on it.’’

We never hear back from them. Other banks such as J.P. Morgan/

Chase are similar.

There has been much in the news recently about HAMP modifications that have not been converted into permanent workouts. At

the end of June through the end of October, ESOP has done more

than 400 HAMP trial modifications. By now at least 275 should

have been converted to permanent mods, yet we have one example

of that at this point.

HAMP has a lot of promise, though. We think HAMP could work.

ESOP does the heavy lifting for the lenders. We provide all the paperwork, we give them the complete packages, we provide counseling and as a result of our work, the rate of redefaults dropped significantly. However, without NFMC funding, we won’t be able to

continue to do that. Thank you.

[The prepared statement of Mr. Seifert follows:]

71

72

73

74

75

76

77

78

79

80

81

Mr. KUCINICH. Thank you, Mr. Seifert.

The Chair recognizes Mr. Ford. You may proceed for 5 minutes.

Thank you.

STATEMENT OF FRANK FORD

Mr. FORD. Thank you, Mr. Chairman, members of the committee.

I do have a short video, 21⁄2 minutes. Can we dim the lights just

slightly, I think? And I can control it from here.

Mr. KUCINICH. What’s the video about?

Mr. FORD. It’s a vacant house. It’s a walk-through. A picture says

a hundred words, a video says a thousand.

This is a house in the St. Clair, Superior neighborhood of Cleveland.

[Videotape being played.]

[The following are statements made on videotape.]

Mr. FORD. My name is Frank Ford. I’m executive director of

Cleveland Housing Renewal Project, a subsidiary of Neighborhood

in Progress, Inc.

I’m standing out here in front of 1232 Addison in the St. Clair,

Superior neighborhood in the city of Cleveland. It is May 8th, approximately 12:30 p.m. This is a house owned by Wells Fargo. And

when I was out here last Saturday, it was wide open and vacant.

It’s serviced by Home Eq. There’s some stickers on the window

from Home Eq. And when I was out here before, the side window,

side door was wide open and there was water rushing in the basement. The side door is still wide open. And that’s a Burger King

bag.

I think I’m going to go inside. Anybody here? I think you can

hear the water rushing in the basement, the basement door. Probably not enough light to see. I’m holding the camera over the basement stairs. And I think that’s it. I don’t think I want to be here

too much longer.

I’m going to take a look at the back of the house here. So, anyway, this is a house owned by Wells Fargo, wide open, clearly a

danger to anybody who lives near this house, anybody who’s got

children certainly. That’s it.

[Videotape ends.]

Mr. FORD. Thank you. Now I’ve limited myself to a minute and

50 seconds so I’m going to have to talk very fast, but I thought that

a walk through the inside of a property brings home the stark reality of what is happening.

It was said earlier by a witness that it would be dangerous to

consider loan modifications. That’s dangerous (indicating) for the

people who have to live near it if they have children.

I think we have two major problems still facing us, one is we

have to find out how to stop the continual pipeline of foreclosures,

and it’s not working as other people have testified. We have a great

foreclosure prevention system in Cleveland, stops 50 percent of the

foreclosures of people who get into that system, but only 20 percent

of the people are getting into the system. We really do need stronger action, either—now, maybe a moratorium is not palatable to people, but then some other pressure, whether it’s regulatory pressure,

certainly the idea of using the TARP or any bailout money connectVerDate 11-MAY-2000 13:23 May 23, 2011 Jkt 000000 PO 00000 Frm 00085 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65129.TXT KATIE PsN: KATIE
82

ing that to greater willingness to do loan modification, that’s the

first problem.

The second problem we have is the damage being done by the

veritable tsunami of vacant property that’s flooding our neighborhoods. And this is stemming from three—stemming from irresponsible behavior on the part of the lenders. It really comes from three

things. First of all, they are not maintaining these properties up

to code, they are not complying with city laws. Second, they’re

dumping these properties irresponsibly to flippers and speculators

from out of State; and third, the latest thing is they’re walking

away. They are filing the litigation, pursuing it to judgment, but

then not taking it to sheriff’s sale, which means they can avoid liability and responsibility for the physical condition. We need to

have some way of holding lenders accountable for the condition of

these properties at the minute they file a foreclosure.

And I see I have 3 seconds left, so I’m probably going to stop.

I could continue, but I won’t. Your pleasure.

[The prepared statement of Mr. Ford follows:]

83

84

85

86

87

88

89

90

91

92

Mr. KUCINICH. I appreciate that you brought the video here and

I can say that, Mr. Rokakis, we have unfortunately seen a lot

worse. You know, Slavic Village, I don’t know if Mr. Brancatelli is

still here, we went on a tour last year, it’s incredible. But I appreciate you being able to bring a video here and point out how just

simple things like securing a property are not happening and we

all know what the implications are from that lack.

Mr. Grossinger, you may proceed for 5 minutes. Thank you.

STATEMENT OF ROBERT GROSSINGER

Mr. GROSSINGER. Thank you, Chairman Kucinich and Ranking

Member Jordan. Thank you for giving me the opportunity to speak

today. My name is Rob Grossinger. I’m the Senior Vice President

of Bank of America. I do, as a sort of full-time job, coordinate the

bank’s REO work with cities, counties and States that receive

money under the stabilization program. I also have worked on a

number of pilot projects dealing with some of the subjects we’ve

talked to today with respect to loan modification, customer outreach and again on the vacant building problem.

I do want to quickly update you on the bank’s loan modification

efforts. I will say that, though I’m going to give you some statistics

and our support for the HAMP program, I would be remiss without

saying that we all do not feel it’s a total success right now and are

hoping for better days ahead in terms of its success.

We do support Make Homes Affordable. We do voluntarily comply. We have, to date since January 2008, modified 600,000 customers, only 150,000 of those have been under HAMP, the other

450,000 were under our own programs. The 150,000 I referred to

with respect to HAMP are in trial modification. We are now increasing our efforts to pull people through.

I think the discussion in the first panel around the, what everyone would agree was the dismal performance of moving people into

permanent. Last week alone we sent out 50,000 pieces of mail to

50,000 of our customers asking them, with specific statements

about which documents we still needed to pull them through, asking them to get those documents in so we could move them into

permanent modification.

With respect to customer outreach, we are also participating in

a number of efforts nationally. We are a sponsor and helped form

the Alliance for Stabilizing Communities, which is a partnership

with the National Counsel of LaRaza, the National Urban League

and the National Coalition for Asian Pacific American Community.

We will be holding 40 housing rescue fairs with that alliance over

the next year-and-a-half in 24 communities. We have done 215

community outreach events in 30 different States.

I would like to turn the remainder of my time to some of the

pilot efforts we are doing because, quite frankly, this is new to a

servicer. This issue has blossomed to the point where any creative

thinking is necessary at this point. So, for example, in Chicago we

have piloted in four zip codes an outreach effort working with two

community organizations. We have turned over the names under,

of course, anonymous disclosure agreement, with 1,500 of our customers who are 60 days delinquent and beyond. The community organizations are door knocking those customers and will continue to

93

door knock until those customers hopefully respond in some way.

Those that seek help will receive actual counseling. We have created the dedicated staff to work with those counselors so that documents won’t be lost, documents won’t go into cyberspace. It will be

a direct relationship between our staff and these counselors.

But finally, and actually in reference to Congressman Jordan’s

comments from the first panel, we are going to be doing an analysis of every declination. The NPV model is a bit of a mystery to

everybody, especially when it comes to inner city communities. And

so we want to see with our community partners what effect it has

by having to use statewide averages, for example, on the REO discount provision of the NPV model. If we were to look at actual census tract data or city data versus statewide, would the NPV decision come out differently? We don’t know the answer to that, we

want to partner with these organizations to learn that and will be

using this pilot as a learning laboratory on that question.

The second piece of this pilot is homeowners who we can’t help

under any scenario. Could we consider renting back to those homeowners while we market the property? We are going to be looking

at that with these groups. We feel those homeowners will need

counseling. The groups have agreed to provide the counseling.

Another opportunity which we are looking at in Detroit is possibly selling those homes to not-for-profit organizations who could

then enter into lease to purchase with the homeowners. There are

a lot of creative potential solutions out there that require an honest

assessment without prejudging results, and the bank is looking at

every opportunity to do that because again, as I stated before, we

are all learning at this. This is a massive issue. We are a servicer,

we are not a social service organization, so we have to partner with

those that are to reach the conclusions that we all hope to reach.

Finally, I want to talk about neighborhood stabilization. We

talked about, in some of the statements earlier, about let servicers

not finishing the foreclosure process—we are working in Chicago,

we are voluntarily providing an Excel spreadsheet of every vacant

property, whether we foreclosed on it or not, to the city. We are

registering everything we can under the MERS system. And I

would highly encourage every city to adopt MERS as a registration

for vacant property. But because the city requires us to have property insurance on properties in order to register with their system

and we can’t have property insurance on something we don’t own,

we are voluntarily giving them a spreadsheet of everything, whether we foreclosed or not, we are taking responsibility for maintaining them, for stabilizing them.

And most importantly, we ventured into a property preservation

contract with a local organization that does job training and they

are doing the property preservation for us and doing a phenomenal

job so far. So we are going to expand their work into the rest of

the parts of the city. We believe that that sort of property preservation has to happen on the ground, using local groups who have a

belief that the community, that that’s an asset to the community

that can be saved, if the property can be saved.

And I’ve met with Mayor Daley twice in the last month. If it’s

a frame house, he grew up in brick bungalows, if it’s a frame house

94

that presents a danger, he wants us to demolish it, and if it’s to

that extent, we will. We will actually pay for the demolition.

So that’s some of the things that we are looking at doing on a

creative basis, we have to continue that and we hope to get that

support from local community groups as well.

[The prepared statement of Mr. Grossinger follows:]

95

96

97

98

99

100

Mr. KUCINICH. Thank you.

Professor Coulton, you may proceed for 5 minutes.

STATEMENT OF CLAUDIA COULTON

Ms. COULTON. Chairman Kucinich and members of the subcommittee, it’s an honor to appear before you today to present research on how the foreclosures crisis has played out here.

The most visible side of the current foreclosure crisis is that foreclosures more than quadrupled in recent years, reaching a peak of

more than 14,000 in 2007 and remain as high today. Since 2006

alone, one in five homes have foreclosed in the hardest hit areas

of Cleveland, some more than once.

But the seeds of the crisis were sewn in the preceding decade as

independent mortgage companies began to dominate local mortgage

markets in the city and some inner ring suburbs with subprime

loan products. Our study that tracked mortgages from the point of

origination found that, holding other factors constant like borrower

income and loan-to-value, subprime loans were over eight times

more likely to foreclose than prime loans. Many of these loans

originated by unregulated independent mortgage brokers were destined to fail at the outset. We found the foreclosure rates peaked

at the 12th and 36th month after origination. Just a few companies

dominated the market here. For example, one company out of California that is now defunct was a major player. Our studies showed

that 65 percent of what they originated here went into foreclosure

in the first 24 months.

Subprime lending and foreclosure did not fall evenly on everyone.

In fact, the research shows that African-Americans compared with

whites of similar income were four times more likely to get

subprime loans. Racial disparities in subprime lending translate

into the region’s highest rate of foreclosure in predominantly African-American neighborhoods.

The foreclosure process typically ends with homes being sold at

foreclosure sale. In a typical market, there is a reasonable demand

for these properties, but due to huge numbers, they now languish

in REO for 12 to 18 months, sitting vacant and unattended often.

Properties that get stuck in the foreclosure process itself can be

even more problematic. For example, currently more than 5,000

properties have a decree of foreclosure, but more than 180 days

have elapsed without a foreclosure sale. Referred to as possible

bank walk-aways, the homeowner retains responsibility for the

taxes and maintenance of the property but typically doesn’t even

know it.

The glut of mortgage failures has ignited a downward spiral in

the housing market causing enormous loss of equity and value.

Properties sold out of REO in Cleveland are going for a mere 13

percent of their previous market value. More than $800 million in

equity has been lost so far on these foreclosed homes, and it’s not

over yet. And that does not count the negative spillover effects on

the sales prices of other homes nearby.

Even worse, a very recent trend is for REO properties to be sold

off in bulk at extremely distressed prices, we define that as $10,000

or less, mainly to out-of-state corporations and individuals looking

for bargains. Unheard of as late as 2005, the practice increased

101

tenfold in just 3 years. On the East Side of Cleveland, it is now

the norm. Nearly 80 percent of the REO properties were sold at

these extremely low prices. Most of these transactions are coming

from just a few big sellers. By and large the buyers are out-of-state

corporations or investors who purchase them sight unseen. The

properties become tax delinquent and are resold quickly in very

poor condition or offered on land contract to unsuspecting home

buyers.

At every stage of this distraction, Clevelanders have fought back.

Yet despite local efforts and recent help from the Federal Government, the enormity of the devastation is such that the region cannot recover without our assistance with clean-up and policies to

stabilize the housing market and neighborhood.

The research suggests more policy issues for your attention. One,

implement stronger mechanisms to enforce responsibilities by lenders and servicers to modify loans and to protect properties. Two,

strengthen consumer protections on loan products and extend fair

lending mandates to more of the industry. Three, preserve affordable housing options including sustainable home ownership, rental

opportunities and healthy homes. And four, provide longer-term

support for neighborhood stabilization and land reutilization for

highly impacted regions. Thank you.

[The prepared statement of Ms. Coulton follows:]

102

103

104

105

106

107

108

109

110

111

112

113

114

115

Mr. KUCINICH. Thank you very much, Professor Coulton.

Mr. Goldberg, you may proceed for 5 minutes.

STATEMENT OF HOWARD GOLDBERG

Mr. GOLDBERG. I would like to thank the honorable members of

the subcommittee for allowing me to testify.

We know that Ohio suffered from the worst mortgage origination

in the country from 2002 to 2006. This portfolio of loans has yet

to reach its peak of defaults. The number of vacant homes will continue to increase. In Lorain, OH, we have expended, designated or

committed almost 70 percent of our acquisition rehab and demolition Neighborhood Stabilization Program funds. We will run out of

funding very soon as an urban community that will enter into 2010

with no new funding source unless we receive NSP II funds. We

are faced with the frustration of fighting this challenge in the

trenches house by house. I guess Wall Street and lending institutions cannot possibly cut through the red tape fast enough at its

call centers with its asset personnel, even trying to dispose of the

normal foreclosed homes, let alone the problem properties that I

now respectfully ask for more help from lenders and Congress.

In my community are vacant homes everywhere where the owners have filed bankruptcy and abandoned the home. No one is getting a modification here. They are beyond repair, they have no

value except to landlords and speculators. Typically, the lender,

through their foreclosure law firms, has dismissed the action or

they failed to initiate one. I have personally called foreclosure law

firms about dismissed cases and the attorney typically provides me

with a 1–800 customer service number for their client. In the

meantime, the property sits vacant. I have no cooperation from the

lender.

The first request is a change in requirements placed on lenders

as follows: If a vacant property has no value and the condition of

it is such that its renovation cannot be justified, that the lender

offer the local community or a designated local nonprofit with demonstrated capacity the option of an assignment of its mortgage. Let

us perfect the foreclosure. The money the lender will save in legal

fees, file management and staff time alone will make you a more

profitable lender.

I have a case right now, the owner filed bankruptcy. He would

gladly quitclaim the deed to us, he abandoned it 2 years ago. I have

called, e-mailed and begged the lender that holds the first mortgage. I obtained written release from the owner authorizing my entering the property, permitting me to contact the lender, permitting

the lender to discuss the loan, the property, the condition of the

home. I had the property appraised, inspected by the health department, and I literally begged the lender to do something about

their mortgage. That bankruptcy and loan default is 3 years old.

I begged them to assign the mortgage to the city, that we would

take the job over. We could save them the fees. Instead, now that

they’ve received the notice of intent to declare it a public nuisance,

they have hired an outside servicing company which will run up

the costs to the lender and only prolong this problem.

Please find a way to compel lenders on properties that are valueless to assign us the mortgage, let us perfect the foreclosure and

116

wash their hands of this problem the same way cities solve these

problems, house by house. I have had some limited success doing

it, but it shouldn’t take months of calls and e-mails. Cities are financially strapped and have less staff to solve these problems than

lenders.

My second request is that Fannie Mae and all of their lenders,

with the exception of HUD that is giving cities preferential treatment, contact the cities before homes are marketed, allow us to

prove with evidence that a home cannot be renovated for basic

quality of living for home ownership, that it be sold to the city for

a dollar, taking into account the cost of demolition. Typically, we

are competing with landlords to do the bare minimum to a home

who will outbid the city. We are expending precious NSP funds in

bidding wars to acquire properties for demolition and land banking.

In the last 22 homes that I have acquired that will be demolished,

my average cost of acquisition is $9,000, the cost of demolition will

be at least $8,000. The average loan default was $80,000. And I’m

sorry for the lenders that made them; however, cities will run out

of money to solve this problem.

Every time I look at a property, whether it’s a rehab or demolition, I’m thrown into a multiple-offer situation where we are forced

to compete with investors, speculators and landlords and we are

having to overpay for these properties. When we run of out NSP

funds, and I pray that we don’t, and we get more money, we are

going to have very little to be able to solve this problem of the repossessed homes.

In conclusion, I respectfully request consideration of four items.

Compel lenders to assign us mortgages, compel lenders and Fannie

Mae to not make us compete with landlords. If restructuring loans,

please make them at market value so that homeowners don’t have

an incentive to walk. Please fund our NSP II application.

And a famous phrase from the Talmud, ‘‘The day is short, the

work is much, the reward is great.’’ Thank you.

[The prepared statement of Mr. Goldberg follows:]

117

118

119

Mr. KUCINICH. Thank you very much, Mr. Goldberg.

I’d like to acknowledge the presence in the room of representatives of four congressional offices, Senators Voinovich and Brown

are represented here. I would like to thank you for your offices’

presence. We also have Congresswoman Fudge and Congresswoman Sutton who are represented here as well. I appreciate the

fact that each office has sent a representative and want to acknowledge that.

I also want to acknowledge the fact that Ms. Caldwell of the

Treasury Department has remained here to take notes. That’s encouraging because often we have these ceremonies and people testify and it wasn’t a most receptive audience. Sometimes they leave

right away, but you stayed here and that’s good and we appreciate

that. I just want to note that.

We are going to go to questions of this panel. I would like to start

my 5 minutes with Mr. Seifert. Would you tell us what you think

about the two or three things that Federal Government should do

to stem the foreclosure crisis?

Mr. SEIFERT. Thank you, Chairman Kucinich.

No question funding is critical.

Mr. KUCINICH. Funding what?

Mr. SEIFERT. Funding foreclosure prevention. The simple fact is

it’s not giving money, it’s not giving the homeowner a service, it’s

not funding the community social service network, it’s an investment. If we want these HAMP mods to work, we have to make sure

that they are good HAMP mods going forward, up front as opposed

to these trial mods and we need to collect these documents, maybe

not, maybe look at other expense, maybe not. Counseling provides

a good, cold hard look at what the owner can afford and will counsel them on hardships or maybe discretionary spending that needs

to be readjusted. Counseling works. We know counseling helps. We

estimate the redefault rate at about 25 percent, the national average is about 50 percent. Under HAMP, sir, I guarantee it’s going

to be 80 or 90 percent.

Mr. KUCINICH. I had talked to, in a previous panel, Ms. Caldwell

about this. What do you think is the business justification for the

fact that Ohioans rank 48th of 50 in likelihood to receive a loan

modification through the HAMP program? What do you think is

going on there?

Mr. SEIFERT. Mr. Chairman, I think a house out in California

has a mortgage of a half a million dollars and has a value of maybe

of $250,000 costs the same amount to modify that mortgage as it

does here in Ohio where the house might only be worth $25,000.

I think the industry, frankly, is going where they are going to get

the biggest bang for their buck. And you look at California, you

look at Florida, you look at Texas. Yes, they are hurting, they’re

devastated, but their values have not tanked quite like Ohio.

Mr. KUCINICH. You know, that raises some interesting questions

about equal protection of the law.

Mr. SEIFERT. I agree.

Mr. KUCINICH. And our staff Attorney Marty Gelfand is here. I

would like you to talk to Mr. Seifert after this meeting because I

would like to pursue that.

I thank you for raising that point.

120

Finally, can we continue to rely upon the voluntary judgments of

loan servicers as this Federal program currently does?

Mr. SEIFERT. If we want the same results, we can. If we want

them to actually start modifying loans, it’s got to be mandated that

they have to be required to do it. And that includes principal reduction, by the way, which they are not doing.

Mr. KUCINICH. Professor Coulton, what should the Federal response be to the tenfold increase in REO bank-owned property in

Cuyahoga County?

Ms. COULTON. It’s a huge increase in REO and then the problems

that are occurring after that, which is the deterioration of the property, the bulk selling of the property for very small amounts and

the, what’s now emerging as the failure to take the properties all

the way to sale and move them forward.

I think that we need, obviously, more policies that hold the parties responsible and put more of the burden on the parties that

have to make these decisions. Some of these are State and local

policies that need to change, but I think the Federal response is

through the TARP, as you called it, a potential contract as far as

those dollars.

Mr. KUCINICH. It is amazing, Mr. Jordan, that we can hear testimony such as we are hearing and yet you really still don’t see that

TARP is addressing it in a meaningful way, which is pretty shocking, actually.

The HAMP program is one thing. Ms. Caldwell, I’m glad you are

in Cleveland, but if you had a chance to just go around and just

look at some of our neighborhoods here, I think that you would return to Washington with tremendous passion for the cause of our

community and communities like it where people are just starving,

communities are starving.

So I want to ask Mr. Grossinger, you heard Mr. Goldberg who

works for the city of Lorain, OH tell us that we need a mechanism

to get lenders and servicers to cooperate and coordinate with municipalities and local governments so that the community does not

have to bear the burden of a vacant and abandoned property. Mr.

Grossinger, what can Bank of America’s model teach us for encouraging lenders and servicers nationwide to act more responsibly?

Mr. GROSSINGER. Well, Mr. Goldberg and I talked previously

about the Neighborhood Stabilization Program. I think one of the

things we, as an institution, need to do a little bit better, and we

are moving in that direction, is the integration between the REO

department over here and the group that’s handling the loan toward foreclosure over here. When we talk about that set of properties that are preforeclosure, it’s being willing to get in there to

do an evaluation of its value and determining with the local government whether or not this property is a candidate for demolition.

I would take some issue with some of his comments that every single property needs to be, in effect, first looked to the city. It really

can’t be that way. We are bound by our pooling and servicing

agreement to sell these properties if there’s some value. So, unfortunately, if an investor is willing to pay more than the city, we are

not capable of making that distinction and saying sorry, we can’t

accept your higher bid because we have to sell it to the city over

here.

121

Mr. KUCINICH. Mr. Goldberg, would you like to respond? You

seem to be indicating an interest in doing so.

Mr. GOLDBERG. The problem I have in the trenches is we get outbid all the time.

Mr. KUCINICH. By?

Mr. GOLDBERG. By investors, in and out of State, by the landlords in the community whose names I’ll save harmless, and they’ll

throw paint on the house, do a minimal fix-up and create something that has a three- to 5-year economic life and then we have

to go in legally and knock it down anyway. We can’t afford to pay

a fortune to knock a home down. We are using Federal funds to

do it already and lenders who aren’t as forthcoming as Bank of

America, specifically, are also getting the Federal money to hold

onto these properties. So we are paying for it two or three times.

Mr. KUCINICH. Do you have a response, Mr. Grossinger?

Mr. GROSSINGER. There are programs that we could develop. I

think, unfortunately, we can’t—as a servicer, we can’t make a distinction in terms of who we are selling to and specifically we would

get sued by our investors on a daily basis if we were to say no, we

are going to accept a lesser bid for a social good. I wish we could

do that, it’s just not in the structure of what we do.

On the other hand, one of the things that cities do and can do,

I think Cleveland is doing a pretty good job at this, and I know

Chicago is ramping up, using code enforcement and using those

tools they have to mark it more in our interest as a servicer to

work with them, whether that be toward a demolition or toward a

different sale. We do have programs here. We are working with the

REO Clearinghouse here in Cleveland on those properties where

the fines and fees exceed the value of the house. Right now Cleveland is looking at nine different properties that we would donate

to them because we have determined and the city has determined

it’s in both of our interests for us to do that as opposed to move

toward foreclosure and then let it sit, or worst case scenario, not

move toward foreclosure.

Mr. KUCINICH. Mr. Goldberg, I’m going to give you the final word

on this exchange.

Mr. GOLDBERG. Thank you.

I think those are very laudable efforts. I think they are special.

But two things: No. 1, Fannie Mae right now has us in bidding

wars on more junk properties than any other lender.

Mr. KUCINICH. We would like a list of that. OK?

Mr. GOLDBERG. We can put it together. It happens all the time.

Mr. KUCINICH. I know, but we are tracking what Fannie Mae is

doing.

Mr. GOLDBERG. Right. But the other thing is Congress can compel lenders if they are being given Federal funds through the bailout to have to sell to the cities.

Mr. KUCINICH. Thank you for that suggestion, and you know we

will take that under advisement with members of the committee.

We are going to now go to Mr. Jordan for his questions.

Mr. JORDAN. Thank you. Mr. Grossinger, we’ve had some experience, the chairman and I, with your company in front of our committee on, frankly, numerous occasions.

122

And I want to talk to you about this: There seemed to be this

attitude that somehow lenders aren’t complying at all. I want to

talk about any pressure that may be exerted on you and other

lenders. Let me get the program straight. It’s voluntary when you

sign up someone on the HAMP program. It’s voluntary when you

sign up, but once you agree, and I think we heard testimony earlier, close to 70 or 80 percent of the market, of the servicers in the

market are signed up for the program; is that right?

Mr. GROSSINGER. Correct, as far as I know.

Mr. JORDAN. OK. Once you sign up and you begin to go through

the modification trial or whatever, are there a set of rules you are

then obligated to follow? If, for example, this homeowner comes to

you and they qualify, whatever that means, we don’t know, we

haven’t seen all the models and the other things that we talked

about in today’s hearing, once they qualify, are they then obligated

to go forward?

Mr. GROSSINGER. I’m going to answer this within—to the extent

that I have the expertise, which we are skating on the edge of this

because most of my focus is on the vacant property issue, but yes,

if we follow the rules of the HAMP program and if somebody is

qualified, they get a loan modification.

I will say, and I want to say this publicly, that I’m very encouraged about Ms. Caldwell’s appointment, not just because she is a

former Bank of America person, but her reputation in community

development and caring about communities is longstanding. We actually never overlap, so it’s not as though I’m doing this for a

friend.

Mr. JORDAN. So the blame can’t—I mean, there’s going to be

blame for this dismal performance of this program, it’s—I mean,

you have to do it. Once the criteria is met, whatever that criteria

happens to be, you have to move forward.

Mr. GROSSINGER. That’s correct. I’m not going to say that there

isn’t some blame that should go to servicers. I don’t think Mark

would let me walk out of here alive.

Mr. JORDAN. Let me ask you this: What kind of pressure—I was

looking at a story from this summer. There was a meeting, and I’m

going to read what the New York Times letter demanding that representatives from the top 25 mortgage servicers assemble in Washington on July 28th, it is likely to be every bit as—it’s interesting—

it is likely to be every bit as painful for them as the pulse of the

meeting last October was with the banking CEOs, and we brought

that hearing or that meeting up in previous committee hearings.

Were you or someone from your company at that meeting on July

28th?

Mr. GROSSINGER. I actually don’t know, unfortunately.

Mr. JORDAN. You don’t know if anyone from your bank was

there?

Mr. GROSSINGER. I would assume there was. Again, it’s not

where I focus. Unfortunately, I don’t know. I would assume so.

Mr. JORDAN. Have you had folks from Treasury say you need to

increase staffing, you need to increase call centers, you need to increase the rates you are doing, you have to improve? Have you had

that kind of pressure come from the government?

123

Mr. GROSSINGER. Well, you are characterizing it as pressure. I

would say that certainly the Treasury has asked us to do better

and do better in all sorts of ways. Whether that’s pressure or not

is in the eye of the beholder.

Mr. JORDAN. You guys have always been reluctant to use the

term in hearings talking about the pressure that was exerted on

the CEO to do the Merrill merger, he was reluctant to use that

term as well.

Mr. GROSSINGER. Certain terms are just better left unsaid.

Mr. JORDAN. I understand. I mean, you paid the money back

then, you can be straightforward, you paid it all back last week,

right?

Mr. GROSSINGER. We announced we were paying it back. It was

coming out of my account and I haven’t yet transferred it. No. We

have announced we are going to be doing it.

Mr. JORDAN. Are you at all troubled—frankly, by any of our witnesses. I understand what you expect to come from it and we are

all trying to help the families who are in tough situations, but are

you at all troubled by what I would characterize, and we will start

with Mr. Grossinger and then we will let others jump in if they

want, just this unbelievable involvement we now see of the Federal

Government in the private market?

We have TARP, we’ve got HARP, we’ve got HAMP, we’ve got

stimulus, and I know I’m forgetting a lot, we’ve got the auto bailout, and now we’ve got Members of Congress talking about we need

to bail out some of the folks in the press, some of the big newspapers. We’ve got the unbelievable, in my mind, situation now

where we have the Federal Government pay czar in the United

States of America telling private American citizens how much

money they can make. All of that happening, all that spending

happening at a time when we’ve got a $12 trillion national debt,

as Mr. LaTourette referred to earlier in his comments. Does that

begin to trouble you at all, Mr. Grossinger, what we are seeing

happening right now?

Mr. GROSSINGER. It’s really irrelevant what I think personally. I

will tell you, however, that there are some things, as with everything, there are some very good opportunities for us in the current

environment if we put aside sort of the walls that have been created between the different aspects, government, private sector, the

not-for-profit world. There are some opportunities to do some good

things, but those walls have to come down. What I think about government involvement is irrelevant.

Mr. JORDAN. OK. Anyone else want to comment?

Mr. Ford.

Mr. FORD. What troubles me most is not so much the availability

of the bailout money, is that there is no conditioning its receipt

upon performance. I think there is sort of a status quo point of

view at the financial institutions. And I have been on council with

Mr. Grossinger, I respect him quite a bit, but when he said that

the lenders simply can’t let these the properties go for less money

because they are servicing and pulling agreements from priors to

be competitive, I’ve got a list that I can provide the committee of

the last 2 years’ REO sales. Ninety percent of them are below

124

$10,000. Eighty percent are below $5,000. The average is only

about $3,000.

It’s just ludicrous to assume that these properties have to somehow be going to speculators in Omaha. At those prices, they should

be going to land banks, nonprofits, municipalities. There’s no reason for that. The reality is that the prices are absurdly low and

they are going to irresponsible hands.

Mr. JORDAN. Mr. Seifert.

Mr. SEIFERT. When the government wasn’t involved, we see what

happened. When the government sort of got involved, we see what’s

happened under the HAMP stuff. For an example, we’ve done over

400 HAMP trials. We’ve had one that’s been converted because the

government is just not clamping down.

Another point on that, though, is all 400 that we’ve done, we’ve

given them all the paperwork. Ms. Caldwell testified that the whole

notion of the trial mod was to give the homeowner an opportunity

to turn in all the paperwork. Our mods are going in with good paperwork. We have the pay stubs, we’ve got the tax returns. That’s

the heavy lifting we do. Why, out of 400, do we have one that’s

been permanently modified? And that’s because the government

hasn’t clamped down enough. So, I guess, I’m troubled by some of

it, I’m not troubled by that instance.

Mr. GOLDBERG. Lenders are paying somewhere between $1,500 and $2,000 in real estate commissions for a house. They are paying

private asset disposition entities and unless they have brought everything in the house, large amounts of money to try and maintain

property and manage it, all these additional costs that these entities receive fed funds are not going back to the lender, they are not

going back into the bottom line of the banks, they are just being

wasted away. When these homes come to us anyway, all that extra

money was wasted except we pay Federal funds for the services

also. There needs to be a way to deal directly with us on the properties that are just not in condition to be sold anymore. It needs

to be expressed. It will save the lenders a large amount of money

and time.

Mr. JORDAN. Professor, do you want to add anything?

Ms. COULTON. No. I think it’s been said.

Mr. JORDAN. Thank you, Mr. Chairman.

Mr. KUCINICH. Thank you very much, Mr. Jordan. This hearing

entitled ‘‘Examining Local Efforts to Address the Continuing Foreclosure Crisis: Perspectives from Cleveland, OH’’ has brought two

panels who are very much involved in the day-to-day issues of foreclosures.

In particular, Mark Seifert from ESOP has talked about foreclosure prevention programs that actually work and the need to

make sure that they continue to be funded. But why Cleveland?

Again, because we see that Cleveland has been the epicenter of the

home foreclosures in the United States.

There was a calculated effort on the part of certain lenders to go

into minority communities in Cleveland and to sign people up without people really having full knowledge of what was going on, signing them up and then within 2 years to 3 years, they were foreclosed. There was a deliberate effort to circumvent the Community

Reinvestment Act where many institutions have an affirmative obVerDate 11-MAY-2000 13:23 May 23, 2011 Jkt 000000 PO 00000 Frm 00128 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65129.TXT KATIE PsN: KATIE
125

ligation to loan money into communities. They not only did not

meet that obligation, but they came up with these subprime packages that resulted in devastating effects. And it wasn’t only the

people who lost their homes, it was the people who stayed in the

neighborhoods whose property values tanked who lost 30, 40 percent of their property value because everything else around them

was falling apart. This has not played out yet.

The reason why we hold this hearing is that one of out every

eight homes in the United States is still facing foreclosure, that we

are seeing the rate of foreclosure actually start to pick up. This

hasn’t played out yet. That’s why the work of our committee and

our subcommittee is so important, because we see that, for whatever Congress thought it was doing in passing the bailouts, we

didn’t address the problem of what do you do about helping people

save their homes. Did not address the problem. And while the administration is making an effort with the HAMP program, it’s really trying to play catch-up for something that started years ago.

When I look at my community in Cleveland and I hear the testimony of Professor Coulton how homes have been selling in Cleveland for 13 percent of their estimated market value, think of what

that means to people who put their time and energy into those

homes, who put a lifetime of work into their homes and invested

their own sweat and their money into those homes, only to find

that the value of them had been wiped out by these foreclosure

schemes.

I agree with Mr. Grendell when he was here about people have

to take responsibility, you sign a contract, you have to take responsibility. But it’s interesting to know that the foreclosure crisis

started in this community where people had, let’s say, a disadvantage because they weren’t as familiar with the fine print. And I

don’t care who you are and what your education is, that fine print,

you can have a college degree and that fine print can leave you

with a foreclosed home if you are not careful.

So we are, this subcommittee is going to continue to track this.

Our community’s on the line here. Our property values have been

dropping. Our schools’ funding has been dropping. The demand on

local communities such as Cleveland and Lorain have been going

up, more police protection, more housing code enforcement, more

health and safety issues that abound in areas where there’s foreclosed property. We are fighting for our communities’ lives. So your

testimony here is very helpful.

Mr. Grossinger, I’m glad that Bank of America is stepping up. I

appreciate what you’ve done in Chicago and hopefully some others

in your industry will see that it’s time for them to step up as well.

This is the Domestic Policy Subcommittee of the U.S. Congress.

I’m Congressman Dennis Kucinich of the Cleveland area and chairman of the committee. I want to thank all of you for being here.

I thank the staff for its help in organizing this. I also want to

thank the presiding judge of the Northern Ohio District Court,

Judge James Carr for his indulgence in permitting us to have this

room, and also Geri Smith, Clerk of Courts for assistance in all the

staffing here.

126

This committee stands adjourned.

[Whereupon, at 1:31 p.m., the subcommittee was adjourned.]

[Additional information submitted for the hearing record follows:]

127

128

129

130

131

132

133

134

135

136

137

138

139

140

141

142

143

144

145

146

147

148

149

150

151

152

153

154

155

156

157

158

159

Æ