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FORECLOSURE PREVENTION AND INTERVENTION:

THE IMPORTANCE OF LOSS MITIGATION

STRATEGIES IN KEEPING FAMILIES

IN THEIR HOMES

FIELD HEARING

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND COMMUNITY OPPORTUNITY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

NOVEMBER 30, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–81

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

MAXINE WATERS, California, Chairwoman

NYDIA M. VELA ́ ZQUEZ, New York 

JULIA CARSON, Indiana 

STEPHEN F. LYNCH, Massachusetts 

EMANUEL CLEAVER, Missouri 

AL GREEN, Texas 

WM. LACY CLAY, Missouri 

CAROLYN B. MALONEY, New York 

GWEN MOORE, Wisconsin, 

ALBIO SIRES, New Jersey 

KEITH ELLISON, Minnesota 

CHARLES A. WILSON, Ohio 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

BARNEY FRANK, Massachusetts 

SHELLEY MOORE CAPITO, West Virginia 

STEVAN PEARCE, New Mexico 

PETER T. KING, New York 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

GEOFF DAVIS, Kentucky 

JOHN CAMPBELL, California 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

(V)

C O N T E N T S 

Page 

Hearing held on: 

November 30, 2007 ........................................................................................... 1

Appendix: 

November 30, 2007 ........................................................................................... 91

WITNESSES 

FRIDAY, NOVEMBER 30, 2007

Albon, Michaela, Senior Vice President and General Counsel, Home Loans 

Division, Washington Mutual ............................................................................. 37

Arnold, LeFrancis, Vice Chair, Affordable Housing Committee, California Association of Realtors ............................................................................................. 72

Bates, Joseph C., Director, Santa Ana Homeownership Center, U.S. Department of Housing and Urban Development ......................................................... 15

Blackwell, Brad, Executive Vice President, Wells Fargo Home Mortgage ......... 39

Burnie, Evalyn, Leader, Los Angeles ACORN, accompanied by Richard Castro, NeighborWorks America ............................................................................... 79

Cho, Hee Suk, Homeowner, Camarillo, California, accompanied by Joshua 

Byung An, Korean Churches for Community Development, serving as a 

translator .............................................................................................................. 68

Clark, Yolanda, President-Elect, Multicultural Real Estate Alliance for Urban 

Change .................................................................................................................. 74

Deutsch, Tom, Deputy Executive Director, American Securitization Forum ..... 41

Frisbee, Margaret, Pacific District Director, NeighborWorks America ............... 78

Heedly, William, Homeowner, Carson, California ................................................ 67

Herrera, Pastor, Director, Department of Consumer Affairs, Los Angeles 

County ................................................................................................................... 21

Krimminger, Michael H., Chairman’s Special Advisor for Policy, Federal Deposit Insurance Corporation ................................................................................ 17

Lee, Karen, Homeowner, Los Angeles, CA ............................................................ 44

Leonard, Paul, California Office Director, Center for Responsible Lending ....... 45

Peters, Heather, Deputy Secretary for Business Regulation, Department of 

Business, Transportation, and Housing, State of California ............................ 19

Rogan, Sean, Director, Department of Housing and Community Development, 

City of Oakland, California ................................................................................. 22

Samuels, Sandor, Executive Managing Director, Countrywide Financial Corporation ................................................................................................................. 35

Smith, Ed, Jr., Vice President, California Association of Mortgage Brokers ..... 70

Thomas, Anna M., Homeowner, San Pedro, CA ................................................... 44

Twomey, Tara, Of Counsel, National Consumer Law Center .............................. 76

Villaraigosa, Hon. Antonio R., Mayor of Los Angeles, California ........................ 12

Young, Hon. Anthony, City Council President Pro Tempore, San Diego, California ..................................................................................................................... 10

APPENDIX 

Prepared statements: 

Lantos, Hon. Tom ............................................................................................. 92

Albon, Michaela ................................................................................................ 94

Bates, Joseph C. ............................................................................................... 99

Blackwell, Brad ................................................................................................. 103

Deutsch, Tom .................................................................................................... 108

Frisbee, Margaret ............................................................................................. 113

Herrera, Pastor ................................................................................................. 121

Page

VI

Prepared statements—Continued

Krimminger, Michael H. .................................................................................. 125

Lee, Karen ......................................................................................................... 141

Samuels, Sandor ............................................................................................... 142

Smith, Ed, Jr. ................................................................................................... 157

Twomey, Tara ................................................................................................... 165

Villaraigosa, Hon. Antonio R. .......................................................................... 176

Young, Hon. Anthony ....................................................................................... 188

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Waters, Hon. Maxine: 

Statement of the NAACP ................................................................................. 190

(1)

FORECLOSURE PREVENTION AND 

INTERVENTION: THE IMPORTANCE 

OF LOSS MITIGATION STRATEGIES 

IN KEEPING FAMILIES 

IN THEIR HOMES 

Friday, November 30, 2007, 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HOUSING AND

COMMUNITY OPPORTUNITY, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

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

California Science Center, 700 State Drive, Los Angeles, California, 

Hon. Maxine Waters [chairwoman of the subcommittee] presiding. 

Members present: Representatives Waters and Green. 

Also present: Representatives Napolitano, Richardson, Sanchez, 

and Watson. 

Chairwoman WATERS. This hearing of the Subcommittee on 

Housing and Community Opportunity will come to order. 

Good morning, ladies and gentlemen. I would like to start by 

thanking the California Science Center for once again allowing us 

to use this wonderful space for our subcommittee hearing, as they 

did last year. 

In addition to the hearing, you all should be aware that resources are being made available next door to assist homeowners 

who are in danger of foreclosure. Please stop by if you or somebody 

you know is facing problems making mortgage payments, and the 

good folks from Neighborhood Housing Services and others can 

work with you. 

I would also like to thank Congressman Al Green, from Texas—

one of our most dedicated subcommittee members—for traveling all 

the way from Houston to join us today. 

And, finally, without objection, Representative Grace Napolitano, 

Representative Laura Richardson, and we will soon be joined by 

Representative Linda Sanchez, will all be considered members of 

the subcommittee for this hearing, and their opening statements 

will be made a part of the record. I would like to thank them for 

participating today. They are not members of the subcommittee, 

but they care so much about this issue that they wanted very much 

to be here and they are here. Thank you very, very much. 

Before we hear from our panels, I would like to explain briefly 

why we are having this hearing and what I hope to accomplish 

today. Hopefully, this will help the witnesses focus on their reVerDate 0ct 09 2002 18:38 Feb 21, 2008 Jkt 040433 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\40433.TXT HFIN PsN: TERRIE
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marks and responses to members’ questions. First, with respect to 

the ‘‘why’’ of holding this hearing, it would be arguably derelict of 

this subcommittee not to hold hearings regarding the subprime 

mortgage market and home foreclosure crisis. 

This issue is not only the biggest story in housing, in the whole 

housing world that this subcommittee operates in daily, it is currently the biggest economic story in the Nation, and perhaps the 

world. A field hearing in California is warranted, given that our 

State lies at the epicenter of the foreclosure wave. California’s third 

quarter foreclosure rate of 1 filing for every 88 households ranks 

second highest among all States and reflects a near quadrupling of 

the number reported for the same period last year; 8 of the top 20 

cities in foreclosure filings are in California. 

Clearly, then, there is no better place to gauge the response to 

date by public and private stakeholders than here. And the stakes 

could not be higher. Having watched the turmoil in the mortgage 

markets unfold over the past year, it has struck me that two assessments made at various points by key prognosticators inside 

and outside government have yet to hold true. 

The first such claim is anything along the lines of, ‘‘This foreclosure crisis isn’t as big as we thought it was, and we appear to 

have our arms around the magnitude of the problem.’’ The second 

quote is, ‘‘This problem in the housing finance sector is unlikely to 

have tremendous impact on the rest of the economy and threaten 

growth.’’ Rather, at every step the scope of the crisis has proven 

to be larger than originally anticipated, including by the Department of Treasury and the Federal Reserve. And we have not yet 

reached the crest of the wave, as millions of adjustable rate mortgages are scheduled to reset over the next 12 months. 

Similarly, initial assurances that the problems of the mortgage 

market are unlikely to spill over into the rest of the domestic and 

global economy now seem wildly overoptimistic. Many of the Nation’s largest financial institutions find themselves heavily invested 

in mortgage-backed securities of uncertain and declining value with 

extraordinary ripple effects being felt across the global financial 

markets. 

Former Treasury Secretary Lawrence Summers now puts the 

chances of avoiding recession at less than 50 percent, unless decisive action is taken. I take this warning very seriously, as I witnessed how the S&L crisis of the late 1980’s contributed directly 

to the recession of the early 1990’s, which in turn brought a 20 percent drop in California housing prices during my first 6 years in 

Congress. 

I would note, further, that the financial services industry now 

makes up nearly twice the share of gross domestic product compared to then, meaning an unredressed crisis in that sector is far 

less likely to be segregated from overall economic wellbeing today. 

So the magnitude and urgency of the crisis clearly merits a hearing. 

Let me proceed, then, to my second point, namely what we are 

trying to accomplish with this hearing. As a senior member of the 

Financial Services Committee, I have obviously been involved in 

the committee’s many activities around the subprime crisis spearheaded by a very able chairman from Massachusetts, Chairman 

3

Barney Frank. However, the focus of many of our hearings and legislative activities has been on preventing the next crisis. 

The House recently passed H.R. 3915, the Mortgage Reform and 

Anti-Predatory Lending Act of 2007, which puts in place new Federal standards for loans designed to prevent ongoing abuses in the 

subprime market. While I remain concerned that the preemption 

provisions of this bill may inhibit States from taking on the pioneering enforcement role they assumed in the current crisis, there 

is no question that H.R. 3915 is a significant piece of prospective 

legislation. 

Today, though, I want to focus on the effectiveness of what is 

being done to address this crisis right now. To a large extent, such 

measures by Federal regulators and the major private sector stakeholders have had to take place under existing legal authority, 

though we in Congress have certainly encouraged them to interpret 

the authority so as to take bold rather than timid steps. This has 

included, for example, House passage of my FHA modernization 

bill, H.R. 1852, designed in part to make FHA insurance more 

available to assist currently distressed homeowners. 

Even before Senate and presidential action on this bill, HUD 

heard the signal of congressional intent and created the FHA Secure Program under its current authority to give the FHA a more 

central role in the current crisis. Simply put, the overarching question of the day is, how is it going? In other words, what has been 

the impact on the ground to actual borrowers of the various loss 

mitigation initiatives that we have heard about in Washington? 

This, of course, includes such national initiatives as FHA Secure 

and HOPE NOW Alliance between major mortgage servicers—and 

NeighborWorks—and State efforts like the agreement announced 

by Governor Schwarzenegger a few days ago. I am especially focused on the rate at which distressed borrowers are receiving timely, effective loan modifications from their servicers. 

I have said from the beginning of the crisis that the mortgage 

servicers are the key to any solution. They are literally where the 

rubber hits the road in a system, where a homeowner’s actual 

mortgage may be sitting in third tranche of a security held by an 

investor 6,000 miles away. 

I fully recognize that servicers face constraints on their actions, 

most obviously the pooling and servicing agreements that they 

have with their investors. They are under a fiduciary obligation not 

to just give away the store, and efforts to help a homeowner and 

avoid foreclosure, but not all homeowners are similarly situated in 

terms of the appropriate loss mitigation strategies. 

At the same time, however, I am concerned about reports that 

servicers have not been moving as quickly as they might under 

their current authority. Indeed, I fear we may have lost critical 

time as servicers and the Treasury Department and the Federal 

Reserve have only recently begun to concede that a plodding loanby-loan renegotiating and reunderwriting process simply won’t get 

the job done fast enough to stem this crisis. 

I understand that Secretary Paulson yesterday met with a number of the servicers represented here today to discuss this very 

issue, and I am interested to hear more about that meeting than 

4

may have been reported in the press today. To be clear, I enter this 

hearing with an open mind. 

I hope that servicers will tell me and the members of this subcommittee about any further obstacles to decisive action that this 

subcommittee might help with. And, further, that the reports we 

hear today from consumer groups, regulators, and homeowner witnesses, indicate things are moving in California at an appropriately 

rapid pace. But I would be less than honest if I did not share up 

front my concern that they are not. 

Even more distressing are reports that servicers profit from foreclosure fees far more than I think many of us suspected, adding to 

my eagerness to confirm that their actions underground in California are consistent with their reports to the full committee when 

it comes to engaging in effective loss mitigation strategies. 

Today’s hearing, in turn, informed the subcommittee’s legislative 

work in regard to mortgage servicers and loss mitigation. Indeed, 

during the markup of H.R. 3837, the Escrow, Appraisal, and Mortgage Servicing Improvement Act, Subcommittee Chairman Kanjorski and I agreed to focus on the question of whether some duty 

for servicers to engage in loss mitigation activities is called for and 

given current circumstances. 

With that, I would like to thank all of our elected officials who 

may be in the audience today. I know that Assemblyman Mike 

Davis is with us today. And I know that he is working on this very 

issue and will be having a hearing that is coming up, I believe, on 

December 8th. So we will share that information with our audience 

before we leave here today. 

With that, I would like to recognize Mr. Green, the Congressman 

from Houston, for his opening statement. 

Mr. GREEN. Thank you, Madam Chairwoman. I especially want 

to thank you for convening this most timely hearing, and I would 

like to, if I may, just thank you for what you have been able to do 

in just a few months as Chair of the Housing Subcommittee. In a 

very short period of time, Madam Chairwoman, I am grateful that 

you have taken on some of the pressing issues, including issues of 

2/28s and 3/27s, issues that would allow persons to get fixed financing for 2 years, and then variable financing for 28 years, 3 years 

in the 3/27s and 27 years of variable financing. 

I am mentioning these things because I want you to understand 

that I am appreciative that you have made a difference in the lives 

of people by virtue of being chair of this subcommittee. You have 

truly been the harbinger of help for the helpless and a purveyor of 

power to the powerless. 

And, friends, I think that even in subcommittee hearings like 

this it is appropriate to give an expression of appreciation to a 

Chair who is working tirelessly to make life better for the least, the 

last, the lost, and those who are trying to fulfill the American 

dream. 

So I come today, and I am honored to be here, with an understanding that Dr. Martin Luther King imparted to us. He reminded 

us that life is an inescapable network of mutuality, tied to a single 

garment of destiny. What impacts one directly impacts all indirectly. 

5

And that is why this subprime crisis is one that everyone must 

be concerned with. Those who say, ‘‘Let them suffer. They made 

their beds hard, let them lay, let them lie, let them stay,’’ friends, 

they are mistaken. This problem is not one that will be localized. 

There are many prime homes in areas where subprime loans have 

been made. 

And when the for sale signs are up, the value of property goes 

down. When the value of property goes down, taxes are smaller. 

When property taxes are smaller, schools, roads, and infrastructure 

don’t get the repair that is needed. So you cannot conclude that because I did not get a subprime loan that may go into default that 

I don’t have a problem. This is an American problem, and we all 

must be involved in the solution to the problem, especially the 

Housing Subcommittee and the United States Congress. 

If the President decides that he is going to call together some 

business persons and try to work out a system, a solution, I think 

that is wonderful. If the courts rule appropriately in certain cases, 

the Judiciary Branch of government, I think that is wonderful. But 

I think people expect the Housing Subcommittee to do what we are 

doing today, and that is to hold hearings to try to find out how we 

can be of assistance to homeowners across the length and breadth 

of this country. 

And when we do this, we are interested in not knowing that we 

have some catchy slogan, like ‘‘Hope Now,’’ which is a good one, 

and I don’t want to demean the process, but I understand that people really want help now. HOPE NOW is a great way to impart a 

desire for people to continue, but the people that I talked to, they 

want help now. And they understand that the details are where 

you either are going to have more hope that will lead to help or 

you are going to find that you are stalled in a process that does 

not lend itself to your getting the help that you need. 

Again, this is not something that is isolated to any community 

or any given neighborhood. It is something that is happening 

across the length and breadth of this country. 

I also want to acknowledge and appreciate very much what is 

being said by members of the Administration with reference to 

their desire to be of help, but I do wonder if they are aware that 

we have already passed legislation through this subcommittee to do 

much of what they are saying they want Congress to do. And it 

may be time for people to become truthful and say they want certain aspects of Congress to act that have not acted, because this 

subcommittee has been moving tirelessly to make sure that homeowners will have the opportunity to keep their homes. 

So I look forward to hearing from the witnesses who are here 

today, and I assure you that I will have some questions that I 

think will be of interest to them and to me and to the constituents 

that I serve, given that we have about 2.5 million adjustable mortgages that will adjust by the end of next year, and that is about 

$600 billion. That is going to have a tremendous impact. 

The U.S. Conference of Mayors has indicated that at least 1.4 

million homes will enter into foreclosure next year. That is going 

to have a significant impact. The size of the problem is large, but 

it is one that we can manage. We only have to decide that we are 

willing to work together. This chairwoman has been willing to work 

6

with whomever will work with her, and I join her, and I look forward to hearing from the witnesses today. 

Thank you, Madam Chairwoman, for your time. 

Chairwoman WATERS. Thank you very much. Thank you. 

Next, I would like to recognize one of my colleagues that I work 

very closely with—and we are so lucky to have such a wonderful 

group of elected officials in this overall area—Grace Napolitano 

representing the 38th Congressional District. 

Mrs. NAPOLITANO. Thank you, Madam Chairwoman. I will keep 

my remarks short and brief. But I echo Congressman Green’s sentiments about Chairwoman Waters, because any time I have an 

issue on public service or on fairness and justice, I know I can call 

her and she is sitting right there next to me trying to fight for the 

ones who do not have a voice. 

This is something that affects the economy of the United States. 

It affects the heart of our people. People have a home, they have 

roots, they have the ability to educate their children, they have the 

ability to own businesses. This is economy. This is the future of 

what we have been striving for, and to lose it for many will be catastrophic. 

And we want to ensure that anybody who has an issue can understand that this Chair and this subcommittee has been putting 

forth the propositions, and hopefully they will get out of the Senate 

to be able to address what has been happening throughout the 

United States. And understand that a lot of what is—I have seen 

and heard is that foreign corporations are buying us up. 

We cannot afford to have them do that. Land is ours. It is our 

people. And as you can see, it is a very diverse America that we 

must continue to be able to support in moving forward to protect 

our families and our communities. 

So thank you for allowing me to be part of your hearing. I may 

not be able to stay the whole time, because I have other commitments, but this is a very serious matter for my area also, and I am 

sure for the rest of California and the Nation. And I thank you for 

your leadership and hope my colleagues will consider coming into 

my area some time within the not-too-distant future, because we 

need to spread the word about what is really happening and how 

we can work together to address that. 

So thank you, Madam Chairwoman, and I am very happy to be 

here. 

Chairwoman WATERS. Thank you very much. 

We will be joined shortly by Ms. Sanchez, who is on her way here 

and has been caught up in traffic. But next we are going to hear 

from one of our newer Members of Congress. We are so pleased and 

proud that Laura Richardson has joined us in the Congress of the 

United States of America. She hit the ground running, and she is 

focused on this issue. I think she may have cut short a trip that 

she was involved in to get back here, so that she could be at this 

hearing today. 

Thank you, Congresswoman Laura Richardson. 

I will recognize you for your opening statement. 

Ms. RICHARDSON. Thank you, Chairwoman Waters, for holding 

this very important hearing today. Domestically, I cannot think of 

another topic that is more important to all of the citizens of CaliVerDate 0ct 09 2002 18:38 Feb 21, 2008 Jkt 040433 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\40433.TXT HFIN PsN: TERRIE
7

fornia and the United States when you look at it nationwide than 

the current crisis that is occurring in the housing market. 

It was just less than 5 years ago that lenders across the country 

were recording record sales, and countless Americans were experiencing the joy of becoming new homeowners as they took out 

subprime loans and adjustable rate mortgages to finance their 

dreams. However, as the old saying goes, ‘‘If something is too good 

to be true, it probably is.’’ 

Preying on wide-eyed aspirations of many low-income first-time 

homebuyers, some lenders disregarded industry-wide lending 

standards for an opportunity to take advantage of a booming housing market that saw home prices increase dramatically at the turn 

of this century. With teaser rates that are now set to explode, the 

dream that many families set out to achieve has become, in less 

than 2 years, an absolute nightmare. 

The Center for Responsible Lending estimates that 8.4 million 

neighboring homes in California will experience devaluation because of foreclosures in California. The same study reveals that the 

foreclosures can bring down the values of not only that person’s 

home, but their neighboring area as well. 

As was stated by Representative Green, when you have the decrease in overall property value for a particular neighborhood, that 

reduces the tax base, and the local government then that depends 

upon those dollars is unable to adequately fund for police, firefighting services, garbage pickup, and public schooling. This clearly 

illustrates that this is a community problem that we are all affected by. It is painfully obvious that we cannot sit back and do 

nothing, not when the foreclosure crunch is being felt by more Californians than in any other State in the Nation. 

As I get ready to close, I would like to speak to you a little bit 

about my district. Statistics from the 37th Congressional District, 

which includes Watts, Compton, Long Beach, Carson, and Signal 

Hill, are alarming to say the least. Thirty-six percent of the loans 

originated in my district were subprime loans. One in five of these 

subprime loans will end in foreclosure. 

That means that the 37th Congressional District, of more than 

225,000 surrounding homes, will be affected by the price declines 

as a result of these foreclosures. As a Member of Congress, we recently passed legislation, H.R. 3915, that was recently stated, but 

you need to know on something that I feel quite passionate about 

that if we were to look at this situation related to a disaster, similar to the recent fires or what happened in Katrina, stronger efforts 

probably would have been taken. 

And I am here to say that just because there is not a fire, just 

because there is not a flood, this must be addressed in our community. 

Again, I want to thank Congresswoman Waters. You should all 

know, sometimes when we are involved in local government you 

hear something that a person is a chair of a particular committee, 

and you may not understand the magnitude of that. Congresswoman Waters has had a long history of advocacy regarding many 

issues, but in particular of housing and the work that was done in 

Katrina was something that was needed. We are fortunate that she 

8

happens to represent us here in California, but she is spearheading 

this issue across the Nation. 

I am more than happy to stand with her and the other members 

of this subcommittee as we have this hearing to figure out what 

additional solutions can be brought forward to address this very serious problem. 

Thank you, Chairwoman Waters, for your leadership. 

Chairwoman WATERS. Thank you so very much. 

The other member who will be with us today, working with us 

today, just arrived. And, again, as I said, we are so fortunate here 

in Southern California to have such strong advocates for people, for 

working people, for poor people, and such a representative is Ms. 

Linda Sanchez from the 39th Congressional District. 

Thank you so much for being with us today, and I will recognize 

you for an opening statement. 

Ms. SANCHEZ. Thank you, Madam Chairwoman. 

My apologies for my tardiness, but the traffic and the rain are 

a bad combination in Los Angeles. 

Chairwoman WATERS. Yes. 

Ms. SANCHEZ. I am pleased to be here this morning, and I really 

want to thank Chairwoman Waters for organizing today’s hearing 

and for inviting me to participate in it. Her leadership on this critical issue has been a key part of Congress’ effort to develop solutions for working and middle-class families who find their American dream at risk of becoming a nightmare. 

The subprime mortgage crisis has inflicted severe stress on our 

national financial system and has even triggered concerns in our 

global economy. Falling real estate prices and a reduction in the 

availability of loans are making it more difficult for overstretched 

homeowners to either refinance their way out of trouble or even to 

simply sell their homes. 

In 2006, 1.2 million foreclosures in the United States were recorded. That is almost double the number that existed in 2005. By 

this year’s end, foreclosures could reach the 2 million mark, and 

statistics of this magnitude haven’t been seen in this country since 

the Great Depression. 

The subprime mortgage crisis has hit our economy hard and will 

continue to spiral downward if we don’t address it with swift and 

discernible action. If changes to the mortgage lending system are 

not made, an astounding $400 billion worth of mortgage defaults 

will occur in the United States between now and 2008. 

In my Congressional District alone, where 31 percent of home 

mortgages made in 2005 and 2006 are subprime loans, that means 

that one in every five of those families will likely receive a notice 

of foreclosure. One in every five. Challenges posed by the subprime 

mortgage crisis don’t end with those who lose their homes. 

Even those who are fortunate enough to pay their mortgages on 

time and be able to maintain their homes will be affected. Foreclosures reduce property values of nearby properties and induce 

lenders to tighten credit, making borrowing credit more expensive 

even for those with good credit. 

Approximately 198,000 homes in my district face price declines 

amounting to about $2.4 billion in home equity loss due to the fallout from the foreclosures. So even if you don’t have a subprime 

9

mortgage, don’t think for a second that this crisis isn’t going to affect you. We must all do what we can to help prevent additional 

foreclosures and to ensure that lenders no longer have incentives 

to lend carelessly to subprime borrowers with shaky credit. 

The Emergency Home Ownership and Mortgage Equity Protection Act of 2007, which I introduced in September along with our 

colleague, Brad Miller of North Carolina, is just one of the measures that we are working on in Congress to protect American families during this financially turbulent time. This bill would protect 

homeowners whose situations are so dire that they have no other 

option but to declare bankruptcy. 

This legislation would help at least 600,000 U.S. families and 

homeowners affected by the subprime lending crisis to avoid losing 

their homes as a result of foreclosure. It would allow bankruptcy 

judges to restructure home mortgage debt as they concurrently do 

for mortgages on investment properties, vacation homes, and family farms. 

Currently, the law allows bankruptcy judges to modify mortgages 

for families who are fortunate to own a second home, such as a vacation home or an investment property, but denies judges the ability to do the same for working class families whose only property 

is the home they live in. And that simply doesn’t make sense to me, 

given that most Americans only own one piece of property, and 

that is the home that they live in. 

All homeowners should be treated similarly and have access to 

the full range of financial support and options available, whether 

they have multiple vacation homes or just one cozy cottage. The 

Emergency Home Ownership and Mortgage Equity Protection Act 

provides that relief and simultaneously lessens the pressure on the 

mortgage market and the broader economy. 

With even more subprime loans scheduled to reset at higher interest rates in the next 18 months, mortgage servicers and Congress must act now to prevent the current wave of foreclosures 

from turning into a tsunami of foreclosures. 

I want to thank all of our distinguished witnesses in advance for 

taking the time to be here, and I look forward to their testimony. 

I thank the gentlewoman, and I yield back the remainder of my 

time. 

Chairwoman WATERS. Thank you very much. Thank you. 

Before I introduce our first panel of witnesses, I would like to 

thank all of you who have taken time to come here today, particularly in the rain. I had not expected such a turnout. You do me 

proud. Thank you very much. Give yourselves a big round of applause. 

Ladies and gentlemen, we are expecting the Mayor, Mayor Antonio Villaraigosa, to join us. He has a very tight schedule, and we 

will try and put him on as soon as he comes in the room. 

Now I would like to introduce our witnesses for the first panel: 

the Honorable Anthony Young, city council president pro tempore, 

from San Diego, California; Mr. Joseph Bates, Director, Santa Ana 

Homeownership Center, U.S. Department of Housing and Urban 

Development; Mr. Mike Krimminger, Chairman’s Special Advisor 

for Policy for the Federal Deposit Insurance Corporation; Ms. 

Heather Peters, deputy secretary for business regulation, DepartVerDate 0ct 09 2002 18:38 Feb 21, 2008 Jkt 040433 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\40433.TXT HFIN PsN: TERRIE
10

ment of Business, Transportation, and Housing, State of California; 

Mr. Pastor Herrera, director, Department of Consumer Affairs, Los 

Angeles County; and Mr. Sean Rogan, director, Department of 

Housing and Community Development, City of Oakland, California. 

I would like to thank all of you for appearing before the subcommittee today, and without objection, your written statements 

will be made a part of the record. You will now be recognized for 

a 5-minute summary of your testimony. I will start with the Honorable Anthony Young. Thank you for being here. 

STATEMENT OF THE HONORABLE ANTHONY YOUNG, CITY 

COUNCIL PRESIDENT PRO TEMPORE, SAN DIEGO, CALIFORNIA 

Mr. YOUNG. Thank you, Chairwoman Waters. And before I begin, 

I wanted to let you know how much I appreciate the work that you 

have done. The individuals in San Diego have recognized that, and 

they sent me to tell you thank you for all of your work. I have 

watched all of your careers, and I just want to say thank you for 

all the work that you have done. 

Chairwoman WATERS. Thank you. 

Mr. YOUNG. On behalf of the City of San Diego and the CityCounty Reinvestment Task Force, I would like to thank you again 

for your invitation. We appreciate your interest in a topic which for 

the City of San Diego, the State, and the country is having a profound impact on people’s lives and our economy. The impact is 

being felt by all segments of the population, including our military. 

In the first 9 months of this year, 15,582 homes have received 

notices of default from their lenders in San Diego County alone. 

Forty percent of those end up in foreclosure. Between January of 

2007 and September, foreclosures have increased by 100 percent in 

San Diego County. We project this rate to increase and continue 

unabated for the next 2 years based on the volume of subprime 

loans dumped into the local market. And I say ‘‘dumped’’ onto our 

local market because the majority of those loans have come from 

mortgage brokers who are no longer in business. 

Over 70 firms in San Diego County in our region are either—

have either gone bankrupt or are selling off over the past 2 years. 

We have been victimized by an industry that functions without regulations, with minimal supervisions, that can appear and disappear 

without penalty and without responsibility for the damage that 

they inflict on people’s lives in this economy. It troubles me to 

think that our servicemen and women who are currently fighting 

and putting their lives on the line to protect our country are particularly being preyed upon. 

Historically, in San Diego, crises in the housing market are 

caused by a combination of external or economic factors. In this 

case, the foreclosure epidemic has been caused by unregulated 

funds from new State licensed mortgage lenders, most of whom are 

no longer in business as I said before, home mortgage brokers 

being paid double and triple commissions for subprime and predatory loans targeted to low-income, and particularly ethnic borrowers, lack of State supervision or authority to regulate interest 

rates and loan terms in the absence of supervision over Fannie 

Mae and Freddie Mac and their policies related to securities’ purVerDate 0ct 09 2002 18:38 Feb 21, 2008 Jkt 040433 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\40433.TXT HFIN PsN: TERRIE
11

chase of subprime and predatory home loan products, and lack of 

national regulations related to securities, and leveraged finance obligations for Wall Street investments. 

The City-County Reinvestment Task Force, which I chair, has 

been following this issue for the last 2 years. We have filed comments on pending legislation with Federal bank regulators, the 

Banking and Finance Committee of Congress, the State, and directly to a number of major regulated financial institutions, many 

of them who actually sit on the Reinvestment Task Force that I 

chair. 

Seeing little if any action at any level has resulted in our adoption of local strategies to attempt to manage this serious economic 

problem. For the last year, this task force has held hearings in 

order to define the problem and engage in finding tangible solutions. 

We have created a list of recommendations that were presented 

and adopted by the City Council at the City of San Diego. Some 

of the recommendations and actions were to direct the City and 

county lobbyists to aggressively support Federal and State legislation which provides increased funding of nonprofits for foreclosure 

counseling, that establishes rules and regulations for unregulated 

mortgage companies and brokers, that the Reinvestment Task 

Force will work in partnership with nonprofits and State coalitions 

to negotiate with major lenders for reasonable workout programs 

and loan products for customers. 

And we recommend that the city, county, and State legal authorities develop an enforcement strategy for interdicting, reducing, and 

removing predatory mortgage lending practices in the region, including review of potential security violations. We also requested 

that the city and county establish an ordinance regarding inspection and monitoring of foreclosed properties for code violations and 

ongoing maintenance. 

That the FNMA and the Veterans Administration modify loan 

limits to compensate for the cost of housing in the San Diego market, which I also believe that is an issue here in Los Angeles. We 

encourage the FNMA and the Veterans Administration to develop 

specific foreclosure alternative products, including refinancing and 

engaging in aggressive marketing efforts to our veterans. 

Many of our communities are now sitting with vacant properties—five to six on a block—depressing the local market and inviting blight and criminal behavior to normally pleasant communities. Following the lead of a City just south of us, Chula Vista, 

which has been hit particularly hard, we have an ordinance that 

requires banks to maintain these empty, vacant properties under 

the threat of penalty. We want them off the market before they infect the vitality of communities that have had to struggle for 

years—over the years to become— 

Chairwoman WATERS. I need you to wrap up. 

Mr. YOUNG. I will. 

Chairwoman WATERS. Thank you. 

Mr. YOUNG. Yes, ma’am. Basically, what I would say to this subcommittee—and thank you for the time that you have allotted to 

me—is that this is a national problem, even an international probVerDate 0ct 09 2002 18:38 Feb 21, 2008 Jkt 040433 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\40433.TXT HFIN PsN: TERRIE
12

lem. But I would also say that local agencies really have to be a 

part of this. 

Home counseling, aggressive marketing to individuals, letting 

people know that they do have options, and then one of the things 

I would say to this subcommittee is allow the use of CDBG funds 

that cities already have to be able to—to be used for the home 

counseling that is so important now. 

The last thing I would say, Ms. Waters—and thank you for giving me this extra time—is to also understand that there is going 

to be something happening after this. And there is a tsunami that 

Ms. Richardson talked about that we are in the middle of. But after 

the tsunami, there are some things that we should do, including 

finding opportunities for individuals to get back in their homes. 

Thank you for the opportunity to speak. 

Chairwoman WATERS. Thank you very much. 

Mr. YOUNG. I appreciate it. 

Chairwoman WATERS. Thank you. 

[The prepared statement of Mr. Young can be found on page 188 

of the appendix.] 

Chairwoman WATERS. Ladies and gentlemen, I mentioned that 

we would be joined by Mayor Antonio Villaraigosa. He is now here. 

We thank you for being here, Mr. Mayor. We know how concerned 

you are about this housing crisis that we have, so we will recognize 

you for the next 5 minutes. 

STATEMENT OF THE HONORABLE ANTONIO R. VILLARAIGOSA, 

MAYOR OF LOS ANGELES, CALIFORNIA 

Mayor VILLARAIGOSA. Madam Chairwoman, it is good to be here 

with you. Congressman Green, and Congresswomen Napolitano, 

Sanchez, and Richardson, it is good to be with all of you. Thank 

you for holding this hearing here in the City of Los Angeles. We 

believe that it is important to put a light on the widening crisis of 

home foreclosures here in the City. In the last year, we witnessed 

a dramatic rise in the number of foreclosures; 2007 has been the 

worst year on record here in the City of Los Angeles. 

In the first quarter of 2006, there were 115 foreclosures in the 

City of Los Angeles. By the first quarter of 2007, foreclosures had 

increased 6-fold with 716 families losing title to their homes. Since 

then, we have seen the crisis escalate in its scope and scale. Foreclosures rose to 850 in the second quarter and 1,177 in the quarter 

ending in September. 

Most alarmingly, we see the foreclosure crisis hurting people in 

our most economically vulnerable neighborhoods. In these neighborhoods, as was mentioned a few minutes ago, we are losing dozens of homes a day. The 10 zip codes with the highest foreclosure 

activity, notices of default, foreclosure notices, foreclosure sales, 

were located in either South Los Angeles or the Northeast Valley. 

We also see that the crisis has a distinct face. The vast majority 

are subprime loans. The loans with the highest rates of foreclosure 

have been made to African-American and Latino households. There 

is gathering evidence that the corrosive effects of the foreclosure 

crisis is spreading, and one of the most pernicious side effects of 

widespread foreclosures is the increase in broken windows and 

neighborhood blight caused by abandoned buildings. 

13

Already in Los Angeles, we are seeing an increase in the number 

of abandoned building referrals to the Department of Building and 

Safety and a rise in the number of nuisance building cases referred 

to our Abandoned Building Task Force. The crisis is simply too big 

for half-measures and tinkering at the margins. 

And I do want to take a moment to go off script and acknowledge 

the leadership of Congresswoman Waters on this issue. This is not 

an issue that the Congresswoman first raised during this mortgage 

lending crisis. I remember being with her some 5 or 6—maybe it 

was 7—years ago with ACORN talking about this issue here in 

South Los Angeles, and I want to acknowledge you for that effort 

over the years. 

As you well know, we need a concerted well-organized campaign 

to demand adequate resources to address the misery that has been 

caused to ensure that the needed reforms take place. For this reason, I am calling on fellow California mayors to join me in a coalition to demand State and Federal legislation to bring necessary resources to our communities and to reform lending practices. 

We did not cause this crisis, but we are on the front lines of it. 

Our constituents are the ones who have suffered because those who 

have had the power to stop fraud and predatory lending were 

asleep at the switch. A strong, collective voice is needed to make 

sure this never happens again, and together with my fellow mayors, I intend to raise that voice. 

We also need local lender accountability. For this reason, I will 

shortly convene a meeting of our City’s largest lenders and mortgage servicers and create a program of local lender accountability. 

Lenders and mortgage servicers have signaled their desire to work 

with borrowers, and we believe that many of them are. However, 

we also believe that much can be done and much more should be 

done. 

As the crisis grows, the need for a streamlined, transparent process for loss mitigation will grow even more urgent. We need lenders 

to publicize their loss mitigation programs, and the criteria they 

use to decide how they can help distressed borrowers. We need 

lenders to tell us how they intend to manage foreclosed homes that 

are vacant, so that they do not contribute to urban blight. 

We need lenders to begin a meaningful discussion about creating 

a process to offer foreclosed properties to the City and to nonprofit 

organizations, so that these properties can be converted into community profit and affordable housing. Here in the City of Los Angeles, for 2 years running, and for the first time ever, we fully funded 

our Housing Trust Fund at $100 million, half of that money dedicated to permanent support of housing for the homeless. 

We believe that it is incumbent on these mortgage lenders and 

banks to participate with us in an effort to convert this housing 

into affordable housing. We cannot allow these properties to be 

snapped up by speculators. What we need now is support for the 

foreclosure counseling and legal aid agencies that help home buyers at risk of foreclosure. 

Here in the City of Los Angeles, we have committed $100,000 for 

foreclosure counseling, but as you know much more money is needed to expand these services. Incredibly, at the State level, these 

funds were cut to $2 million for the current fiscal year. An infusion 

14

of Federal funds specifically designated for foreclosure counseling 

and legal assistance would not only help to avert future predatory 

mortgages but also help avert foreclosure of mortgages that are 

currently at risk. 

For this reason, we strongly support the Mortgage Reform and 

Anti-Predatory Lending Act of 2007, and would urge immediate 

Senate passage of your bill. Furthermore, we have to address the 

needs of borrowers who are currently at risk of losing their homes, 

and we have to challenge the banking industry to accept their responsibility to be a part of the solution. 

Here in California, Governor Schwarzenegger is demonstrating 

what is possible. A recent agreement announced between his office, 

Countrywide, GMAC, Litton, and HomeEq should serve as a model 

for the entire Nation to follow. Working in partnership with the 

mortgage industry, the Governor is forging a commonsense solution. We intend to work with him to build on that here in the City 

of Los Angeles. 

Finally, I also want to acknowledge the work of assembly speaker Fabian Nunez and assembly member and chair of the Assembly, 

Committee on Banking and Finance, Ted Lu. The speaker and Mr. 

Lu have put together a much-needed package to address foreclosure prevention measures, banning such things as prepayment 

penalties, no documentation loans as well. Requiring that lenders 

consider the borrower’s ability to repay the loan over the entire period is also crucial to protecting California borrowers. 

I am here today in support of this hearing, and intend to work 

with you, all of you. I have worked on many issues in the past on 

this very, very important issue. 

[The prepared statement of Mayor Villaraigosa can be found on 

page 176 of the appendix.] 

Chairwoman WATERS. Well, Mr. Mayor, I would like to thank 

you so much for taking time from your busy schedule to be here 

today. Clearly, based on your testimony, you certainly know what 

is going on, and some of the proposals that you have just made and 

talked about are extremely important. You are absolutely correct. 

We need to get more money to the cities for counseling. 

We have $200 million that is in conference right now. The President is threatening to veto it. We hope not, because the cities just 

don’t have enough money to allocate toward this counseling and 

educating of our citizens. The Honorable Anthony Young from San 

Diego recommended that we use more CDBG money to do it, but 

you are so limited in your CDBG money, and there is such competition for it until it would put a real strain on the City’s use. 

We need new resources and new money, and we are going to 

fight for it. But we would hope that we get the message out there 

to encourage the President of the United States to sign the legislation that would put $200 million out into the cities very soon. 

I know that your time is limited. We thank you so much for appearing here today, and we look forward to working with you. 

Mayor VILLARAIGOSA. Well, thank you. 

Thank you, Chairwoman Waters. And I want you to know that 

on behalf of the City of Los Angeles, I recognize that though this 

hearing is being held here, if it is necessary for me to be with you 

anywhere, including Washington, D.C., on this issue I certainly am 

15

prepared and willing to join you in this effort to ensure that the 

Federal Government is responsible and assisting in this effort. 

Thank you very much. 

Chairwoman WATERS. Thank you so much, Mr. Mayor. 

Mayor VILLARAIGOSA. Thank you. 

Chairwoman WATERS. Ladies and gentlemen, I mentioned that 

we have such a strong group of Members of Congress in this area, 

and we are very blessed to have been joined by Congresswoman 

Diane Watson who is representing the 33rd Congressional District. 

Thank you very much for joining us today, Congresswoman Watson. 

We are going to move on with our witness panel, and then we 

will return to our members here to ask questions. 

I have something that I must do. There are so many rules of 

Congress when you run these committees. I must say that Representative Diane Watson will also be considered a member of this 

subcommittee for the duration of this hearing. 

Without objection, such is the order. 

We will move now to Mr. Joseph Bates, the Director of the Santa 

Ana Homeownership Center, U.S. Department of Housing and 

Urban Development. 

STATEMENT OF JOSEPH BATES, DIRECTOR, SANTA ANA 

HOMEOWNERSHIP CENTER, U.S. DEPARTMENT OF HOUSING 

AND URBAN DEVELOPMENT 

Mr. BATES. Thank you. Chairwoman Waters and the distinguished members of the subcommittee, thank you for this opportunity to testify today on the efforts made by the U.S. Department 

of Housing and Urban Development in the areas of foreclosure prevention and intervention. I am Joseph Bates, Director of HUD’s 

Santa Ana Homeownership Center. 

The significant effects of foreclosure on our national economy and 

on the world markets brings us here today. Congress and the Administration have for some time been looking at legislative and regulatory options for minimizing foreclosures. At HUD, I can report 

that we are working on both in our efforts to mitigate the adverse 

effects of this market correction on borrowers. 

One of the strongest tools we have to protect both borrowers and 

markets is the Federal Housing Administration, FHA. As you may 

know, HUD helps individuals secure credit by providing mortgage 

insurance through a private sector distribution network that makes 

owning a home more affordable and safe, and, therefore, a reality 

for many borrowers who might otherwise go underserved. 

HUD Secretary Alfonso Jackson has stated in previous testimony 

before Congress that he has firmly believed for some time that 

many of those who ultimately entered the subprime market would 

have been better off with an FHA-insured loan. Many may still be 

eligible to refinance today. 

Although we cannot go back in time to ensure that each borrower 

had made the best decision when obtaining a mortgage, we can 

provide refinancing options to many subprime borrowers, and we 

can do more to help people make better decisions going forward 

through both innovative products and counseling support. 

16

This week HUD released informational video footage containing 

foreclosure prevention tips and information for homeowners who 

are struggling to pay their mortgage. Among other things, the 

video includes a list of 10 tips on how to avoid foreclosure. I suggest that anyone who owns a home or who is in the market to buy 

a home visit HUD’s Web site at www.hud.gov for more information. 

Secretary Jackson has commented that the dramatic rise in single-family foreclosure starts is fueled in great part by the proliferation of subprime loan products, including hybrid ARMs. More than 

2 million subprime ARMs are expected to reset to higher interest 

rates by the end of 2008, and many of those borrowers, unable to 

afford the higher payments, will be forced into foreclosure unless 

the industry takes immediate and aggressive action to provide alternatives. 

In September, FHA announced one such alternative. FHA Secure 

is one of our refinance options designed specifically for conventional 

and subprime borrowers who default on their mortgages solely because they can no longer afford the payments on their ARM loan 

after the interest resets to a higher rate. Through this very new 

program, over 800 FHA lenders are already using FHA Secure to 

rescue delinquent borrowers from the potential loss of their homes. 

Since September, more than 100,000 conventional borrowers have 

applied for FHA Secure refinance loans. 

On October 10th, HUD Secretary Alfonso Jackson and Secretary 

of the Treasury Henry Paulson announced the HOPE NOW Alliance, an unprecedented alliance of the Nation’s largest mortgage 

servicers, housing counselors, and real estate investors, all committed to one common goal—to help as many homeowners as possible avoid foreclosure and retain homeownership. 

One of the goals of the HOPE NOW Alliance was to develop and 

fund a nationwide advertising campaign to encourage delinquent 

borrowers to seek help through the 888–995–HOPE network of 

HUD-approved housing counselors. The 888–995–HOPE line is up 

and running with 122 experienced counselors nationwide. Another 

50 are currently being trained and more are being recruited. 

Throughout this year, HUD staff and senior officials nationwide 

have sponsored and participated in more than 125 homeownership 

retention events including fairs, targeted mailings, and joint task 

forces that reached a combined audience of 25,000. The Santa Ana 

Homeownership Center, in cooperation with the Southern California Congressional Representatives and HUD field offices have 

put together a series of seven town hall foreclosure summits to 

spread the word on foreclosure prevention. 

Participants besides HUD include Fannie Mae and Freddie Mac, 

the Federal Reserve Bank of San Francisco, the IRS, local congressional representatives, and representatives from Wells Fargo and 

Countrywide, both of whom are major local mortgage providers in 

California and participants in the FHA Secure refinance program. 

Attended by over 1,000 participants, these meetings have also 

featured on-the-spot housing counseling with HUD-approved counselors from 1 or more of our 15 Southern California nonprofit agencies employing an estimated 125 certified counselors. In addition to 

these town hall meetings, the Santa Ana Homeownership Center 

17

has attended several banking and Realtor conventions and meetings as part of our outreach effort to help publicize FHA Secure. 

The recent National Association of Realtors Convention in Las 

Vegas was attended by an estimated 5,000 Realtors who lined up 

at the FHA booth to obtain information on the work we do. As you 

can see, the Department has taken several steps to address foreclosures, but there is much work still to be done. 

Thank you for your time this morning, and I look forward to your 

questions. 

[The prepared statement of Mr. Bates can be found on page 99 

of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Next we will hear from Mr. Mike Krimminger, Chairman’s Special Advisor for Policy, Federal Deposit Insurance Corporation. 

STATEMENT OF MICHAEL H. KRIMMINGER, CHAIRMAN’S SPECIAL ADVISOR FOR POLICY, FEDERAL DEPOSIT INSURANCE 

CORPORATION 

Mr. KRIMMINGER. Good morning. 

Chairwoman WATERS. Good morning. 

Mr. KRIMMINGER. Chairwoman Waters, and members of the subcommittee, thank you for the opportunity to testify on behalf of the 

FDIC. As you know, the rising level of foreclosures across America 

is of great concern to FDIC Chairman Sheila Bair. I would like to 

focus my oral remarks this morning on her plan for modifying the 

more troubling of these exotic mortgages known as 2/28 and 3/27 

subprime hybrids, which are forcing many homeowners into default 

and foreclosure. 

As you know, poor lending standards and weak consumer protections are at the root of the problem. After a huge run-up in these 

2- and 3-year adjustable rate loans that began after 2003, they now 

make up more than half of the $1.3 trillion in subprime mortgage 

loans outstanding. 

Now, some 1.5 million or more of these loans will reset by the 

end of 2008, and another 375,000 will reset in 2009. Without a 

doubt, we are just now getting into the thick of the problem. 

California’s exposure to subprime mortgages is especially significant. The large numbers of subprime hybrid ARM loans with approaching resets in California places many thousands, perhaps 

hundreds of thousands, of California borrowers at risk between 

now and December 2008. These borrowers had hoped to refinance 

their homes as prices rose to pay off the loans before reset and 

avoid crippling monthly payments. 

And let me point out one important fact: The lenders and investors also expected these borrowers to refinance the loans. No one 

expected them to pay the reset payments. 

Unfortunately, housing prices now are declining, closing off these 

options for many. California’s subprime mortgage problems also are 

spreading, affecting home builders, suppliers and others, resulting 

in layoffs, lower tax revenues, and higher foreclosure rates. We believe that all of this calls out for creative solutions to keep people 

in their homes by restructuring their loans on a long-term and sustainable basis. 

18

Now, some of the borrowers who have the 2/28 and 3/27 

subprime loans will be able to refinance at better rates. Today, unfortunately, that is probably a fairly small number. Some others 

have been seriously delinquent, even at the starter rate, and even 

if their loans are modified there may be limited prospects for keeping their properties. 

Another group, however, has generally remained current. Chairman Bair’s proposal focuses on this last group. Her proposal is simple and effective, but often misunderstood. It is this: For owner-occupied homes where the borrower is making timely payments, but 

clearly cannot afford the reset payments, we think those loans 

should be converted to fixed rate loans at the starter rate. At a 

minimum, the starter rate should be continued for a long-term sustainable period of 5 years or more. This could keep hundreds of 

thousands of people in their homes and stabilize our mortgage markets. 

Chairman Bair is urging loan servicers to do this in a streamlined way. Renegotiating the terms of the loans, loan-by-loan, as 

some are doing, is costly and time-consuming. A standardized approach is urgently needed. 

We believe there is an emerging consensus among policymakers 

and servicers that this is the best way to start dealing with the 

subprime meltdown. For example, as you noted, Governor 

Schwarzenegger announced last week an agreement with four 

major subprime lenders to work with homeowners unable to afford 

escalating mortgage payments. 

In line with Chairman Bair’s proposal, the servicers agreed to 

maintain the initial lower interest rate for subprime borrowers who 

occupy the homes, have made their payments on time during the 

starter period, and have proved they cannot afford payments at the 

higher reset rates. We support this agreement and believe it will 

spur other servicers to adopt this approach and speed up the pace. 

We also would urge the homeowners who cannot afford their 

mortgages to please contact their lenders or servicers as soon as 

possible to look for a workout solution before the reset date. I underlined that, because I think that is a critical factor in making 

sure that there is a relationship and a conversation between the 

homeowners and their servicers. 

Now, to the critics who say such a large-scale approach is untested and unworkable, we say these and other loan servicers are already doing it successfully. Not only is it feasible, the servicers say 

that it is saving them time and money and keeping people in their 

homes. We think that just about anything beats foreclosure, which, 

as you noted very accurately, runs down neighborhoods and costs 

up to half of the initial loan amount. 

Chairwoman Waters, the FDIC is committed to working with you 

to find solutions to the growing mortgage crisis, not only here in 

California but for all of those subprime borrowers who are living 

the American dream, but in need of better deals so they can continue to do so. 

Thank you very much. 

[The prepared statement of Mr. Krimminger can be found on 

page 125 of the appendix.] 

Chairwoman WATERS. Thank you very much. 

19

Next we will hear from Ms. Heather Peters, deputy secretary for 

business regulation, Department of Business, Transportation, and 

Housing, State of California. 

STATEMENT OF HEATHER PETERS, DEPUTY SECRETARY FOR 

BUSINESS REGULATION, DEPARTMENT OF BUSINESS, 

TRANSPORTATION, AND HOUSING, STATE OF CALIFORNIA 

Ms. PETERS. Good morning, Chairwoman Waters, and members 

of the subcommittee. My name is Heather Peters, and I am the 

deputy secretary for both business regulation and for housing for 

the State of California. I am also the chair of Governor 

Schwarzenegger’s Interdepartmental Task Force on Non-Traditional Mortgages. 

We appreciate the interest of the subcommittee, and the interest 

of the chairwoman in bringing the subcommittee here to California 

to hear this very important testimony today, because by all measures we can agree that California has been disproportionately impacted by the crisis in the housing and mortgage foreclosure arena. 

I commend the subcommittee for putting together such a distinguished panel of witnesses today, and for recognizing the multi-dimensional challenge that we are facing here and realizing that 

there is no silver bullet. To make an impact here, we need the cooperation of Federal, State, and local authorities, we need the cooperation of private lenders, brokers, servicers, and investors, and 

we also need the cooperation of the public, the consumers, and the 

homeowners who are losing their homes and losing the American 

dream. Together we can come up with solutions to this most 

daunting crisis. 

I will skip over the statistics in my testimony, because we can 

all agree that the magnitude of the problem has reached epic proportions. Governor Schwarzenegger is a man of action, not a man 

of words, and he agrees that we need help. Early this year, in January, he appointed me to unify leadership of our various departments in business transportation and housing that have various responsibilities for regulating aspects of the mortgage industry. 

In March of this year, we put together a task force to make sure 

that we were putting our best and our brightest together and getting us on the same page and moving forward. The task force consists of the department heads from our Department of Financial Institutions, which regulates banks and credit unions, the Department of Corporations, which regulates non-depository lenders such 

as Countrywide, the Department of Real Estate, the Department of 

Real Estate Appraisers, the Department of Housing and Community Development, and CAL HFA. 

Very quickly we realized that regulation alone was not going to 

be able to solve this problem, and that there was a huge consumer 

component to this. So we added the leadership from State and consumer services agencies, Secretary Morin, as well as the Director 

of the Department of Consumer Affairs. We have all been working 

together very closely all year on this issue, and the subcommittee 

has asked us to address the factors that contributed to the crisis 

as well as what the State is doing about it. 

There are numerous factors. The first is the lack of affordability 

of housing in California, which has been a problem for us for many 

20

decades. According to the Building Industry Association, only 12.6 

percent of the housing in California is affordable to income earners 

in the median income range; that is versus 42 percent nationwide. 

It has been a massive problem here. 

This year we have passed, and the Governor has signed, AB–929, 

which increases the amount of affordable housing in California by 

raising the total debt the California Housing Finance Agency can 

carry by $2 billion. Additionally, the Housing Community Development Department is working diligently to implement the $2.85 billion housing bond that was passed by the voters in California last 

year, which is estimated to generate over 118,000 new affordable 

housing opportunities and rental opportunities. 

However, we cannot do this alone, and we need your help. The 

Governor has written to the leadership of both the House and the 

Senate, and he has urged increases in both the FHA and the GSE 

loan limits. Currently, the FHA loan limit is $362,790, and the 

GSE loan limit is $417,000. The median cost of a home in California is well over $500,000, reaching toward $600,000. 

Clearly, these programs are not relevant in California anymore. 

Unfortunately, the FHA loan volume in California has dropped 

from 109,000-plus loans to a mere 2,599 loans in the entire State 

of California. Now, that is a decrease, a loss of $13.6 billion in 

funding through FHA. Reform is crucial, and clearly the lack of 

safe, affordable financing through these programs in California has 

been a contributing factor to homeowners being forced to go 

through non-traditional financing. 

Chairwoman WATERS. I need you to wrap it up. 

Ms. PETERS. Additionally, we have passed regulations that are 

some of the strongest in the Nation, assuring that underwriting 

standards make sure that people can afford the loans they are getting into. We have a brand-new disclosure form in five languages 

that illustrates to the consumer very early in the process what the 

worst-case payment could be if all the resets adjust to their worstcase scenario. 

We have made appraisal fraud a crime. We have had the agreement referred to by the FDIC with the lenders that is a nationwide 

leader and is being picked up by the Federal authorities. And we 

work closely with them and applaud their efforts. We applaud the 

chairwoman for her leadership and reform in this area. 

And yesterday the Governor was in Riverside to announce a $1.2 

million public outreach campaign. He will personally be involved in 

PSAs to reach out to homeowners to ask them to call the Hope Hotline, to call their lenders, that there is help available. But, unfortunately, more than half of the people who lose their homes to foreclosure never contacted their lender. 

Chairwoman WATERS. Thank you very much. 

Ms. PETERS. Thank you. 

Chairwoman WATERS. Next, we will hear from Mr. Pastor Herrera, Director, Department of Consumer Affairs, Los Angeles County. 

21

STATEMENT OF PASTOR HERRERA, DIRECTOR, DEPARTMENT 

OF CONSUMER AFFAIRS, LOS ANGELES COUNTY 

Mr. HERRERA. Good morning. I am Pastor Herrera, Jr., the director of the Los Angeles County Department of Consumer Affairs. 

And let me echo my congratulations to you, Congresswoman Waters, for really taking the initiative and leadership in this area. It 

is an issue that is on everyone’s radar screen, whether it is here 

in California, in Washington, north or south of this country, and 

definitely we see that there is no end in sight. 

Here in L.A. County, we know that approximately 5,000 notices 

of default are filed monthly, and that to me is staggering. That indicates that there is definitely a problem here in Los Angeles County, and it is probably reflective not only in California but throughout the country. 

I hope that my comments this morning will assist the subcommittee to develop some additional recommendations, and from 

a Department of Consumer Affairs perspective, an agency that 

deals with consumers day in and day out, a more consumer-friendly business practices, not only in this area but other areas that impact consumers. 

I will summarize my comments today; my written comments 

have been submitted. The Department of Consumer Affairs here in 

Los Angeles County is very unique. It is, of course, supported and 

funded by the Board of Supervisors, and we are very proud of that, 

because unfortunately many, many communities do not have a Department of Consumer Affairs, which is their first point of contact 

when they may be victims of consumer fraud. 

We are very fortunate that we have a unit, a program, that is, 

the Real Estate Fraud and Information Program, which I will get 

into momentarily. But we also have an Identify Theft Unit, a Consumer Fraud Unit, an Elder Fraud Prevention and Education Unit, 

Small Claims Court, and also a Volunteer and Internship Program. 

And we serve over 750,000 consumers a year. 

Our Real Estate Fraud and Information Program does assist consumers and homeowners, particularly in the area of real estate 

fraud and information. It serves and helps them in areas such as 

foreclosure prevention, review and recorded documents, buying a 

home, reviewing refinance loan documents, and assisting first-time 

buyers. The Department also, and this unit in particular, accepts 

complaints for investigations and mediations. We receive complaints against foreclosure consultants, predatory lending, fraudulent recorded deeds, and refinance transactions. 

Last fiscal year, for example, our real estate unit assisted over 

29,000 consumers with real estate fraud issues. Approximately 650 

of those 29,000 of those homeowners needed assistance with a foreclosure problem. That was an increase over last year of 33 percent. 

Last year, the Department handled on a case-by-case basis 100 

homeowners who were facing a foreclosure problem, and our Department was able to stay, delay, or cancel a property from being 

sold in a foreclosure sale. 

The Department’s success rate was approximately 65 of those 

cases. Unfortunately, it was not 100 percent. 

Some of the other things that we do as far as prevention, we 

work very closely with the media, which is a very good outlet. In 

22

fact, 50 percent of our referrals to our Department come from the 

media. We also work with prosecutory agencies when we deal with 

a foreclosure consultant. We deal with legal services, nonprofits, 

and do a very, very good job here in Los Angeles County. We do 

speaking engagements, participate in community forums, and our 

Web site is also very, very definitely in tune with this issue. 

We have information on foreclosure, predatory lending, evictions, 

and we also have an opportunity for consumers to ask questions. 

Interesting enough, the inquiries for real estate-related questions 

have increased by 85 percent. And that represents an increase of 

85 percent; 35 percent were in the area of foreclosures. 

Chairwoman WATERS. Could you wrap up your testimony, Mr. 

Herrera? 

Mr. HERRERA. Very good. Of course, the challenges are funding, 

the challenges are how do we get homeowners to get information 

and seek counseling. And, of course, the other issue is financial institutions. They need to identify a point of contact in their organization, so that we can negotiate and resolve foreclosure type of 

issues. And, of course, we need to reach out to homeowners. 

Very quickly, some of the recommendations, pooling and servicing agreements limit sometimes the servicer’s ability to engage in 

loss mitigation strategies. Other recommendations are in my written testimony. 

Chairwoman WATERS. Thank you, and we will have all of your 

testimony in the record— 

Mr. HERRERA. Thank you very much. 

Chairwoman WATERS. —for review by all of the members. 

[The prepared statement of Mr. Herrera can be found on page 

121 of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Mr. Rogan, director, Department of Housing and Community Development, the City of Oakland, California. 

STATEMENT OF SEAN ROGAN, DIRECTOR, DEPARTMENT OF 

HOUSING AND COMMUNITY DEVELOPMENT, CITY OF OAKLAND, CALIFORNIA 

Mr. ROGAN. Thank you, Madam Chairwoman, and subcommittee 

members. On behalf of Oakland Mayor Ron Dellums and the City 

of Oakland, I am happy to be here today to give testimony and 

speak to some potential solutions as we look forward to solving this 

foreclosure crisis. 

The City of Oakland has been greatly affected by foreclosures 

brought on in large part by the subprime lending practices. Record 

numbers of foreclosures are occurring weekly. Over 345 notices of 

default have been recorded in the month of October alone. East 

Oakland, made up predominantly of people of color and of low income, is currently experiencing a 14.9 percent foreclosure rate. 

Lenders and investors have been unwilling to discuss workout 

options with borrowers. This is greatly impacting families and 

neighborhoods as foreclosure activity continues to grow. And additional consequence includes lenders foreclosing on rental properties 

and locking out tenants in good rent standing and with legitimate 

rental agreements. 

23

Immediate action is needed to curb the number of foreclosures 

and assist families who were given loans with terms that they either did not understand or did not qualify for. Actions that the City 

of Oakland would like to see implemented include the following: 

Extend time notices of default from 90 days to 150 days; extend 

time period for notice of trustee sales from 30 days to 60 days to 

allow more time for counseling and workouts; provide additional 

funding for counseling agencies to help work with borrowers facing 

foreclosures; and work with lenders and investors on rate and 

terms of mortgages, so that borrowers in good standing with pending interest rate hikes can continue mortgage payments at lower 

rates for up to 3 years. 

Additionally, future legislation should be written so that qualifying borrowers should be based on documented income and at a 

highest adjusted rate during the loan term, provide clear disclosure 

of any balloon payments or interest rate adjustments, and 

strengthen anti-predatory lending legislation. Interestingly enough, 

Oakland at one time had adopted anti-predatory lending legislation, which was then overturned by the State. And we certainly 

question where we would be today if some of that legislation had 

in fact been implemented. 

Additionally, lenders and investors need to partner—and this has 

certainly been echoed throughout this testimony this morning—but 

the lenders and investors, in particular the Wall Street investors, 

need to partner with the local, State, and Federal Government to 

set guidelines and regulations so that borrowers and lenders and 

servicers know how to accomplish the workouts. 

And then, finally, as I was driving here this morning in the wonderful L.A. traffic, and I was speaking with a colleague of mine, he 

brought up an issue which really hasn’t been discussed today, and 

I think it is important for the Members of Congress here today to 

hear. 

You know, an impact that affects these borrowers who have been 

foreclosed on is depending on the difference between what the bank 

collects and what their mortgage is, they end up with an IRS price 

tag in some instances $30-, $50-, to $100,000 that then gets stated 

as income. I certainly believe that with the folks here today that 

is an additional point that should be taken under consideration. 

Again, I thank you for your time today, and I am happy to answer any questions you may have. 

Chairwoman WATERS. Thank you. 

I would like to thank all of our panelists for being here today, 

and we are going to start with our question period where our members will each be afforded 5 minutes to ask questions. 

I will begin. I would like to focus first on Mr. Mike Krimminger’s 

recommendation, because I like what I hear. I don’t know what 

took place in a meeting I think that was held yesterday on this 

very subject, but I am very, very interested in the idea that instead 

of trying to solve this problem one loan at a time that we can come 

up with a policy that would allow the servicers to automatically extend the reset period. Is that what you said? 

Mr. KRIMMINGER. Yes. What Chairman Bair has recommended is 

to extend the starter rate period. Her preference was clearly, if the 

borrower can make—has been making payments at the starter 

24

rate, but cannot make the payments at the reset rate, extend the 

starter rate, for the life of the loan preferably, but certainly for a 

long-term period. 

Chairwoman WATERS. For the life of the loan? 

Mr. KRIMMINGER. Certainly for a long-term sustainable period 

that will give the borrower an opportunity to do the normal refinancing. Five-plus years might be an appropriate period to do that. 

Chairwoman WATERS. That is very significant. That is very significant, because the folks who got in the ARMs and the adjustable 

rate mortgages received teaser rates, and those teaser rates were 

something they could afford. But then, when they reset and they 

quadruple, then they certainly cannot afford, and particularly if 

you are on a fixed income. 

Or even if you are working a regular job, your cost of living increases just don’t increase that fast, and you are certainly going to 

lose that house. But if this is a recommendation that the reset be 

extended for a long period of time, or for the life of the loan, I really do think that is an absolute viable way by which to save these 

homes from foreclosure. 

I would like to say to Mr. Young, I appreciate your recommendation on CDBG. CDBG is those funds that we give to our local governments to help out in so many ways with poor people and working people and programs. And we are working hard to extend it. 

I heard your recommendation about the use of CDBG to be of assistance in counseling and education, and we will certainly take 

that into consideration. 

Mr. YOUNG. Madam Chairwoman? 

Chairwoman WATERS. Yes. 

Mr. YOUNG. If I may, and the reason why I recommended CDBG 

initially, because at this point in time local agencies, local municipalities, that is really their only funding that they have at their 

disposal right now. And that is what we are doing at the City of 

San Diego, but we certainly do appreciate the opportunity to get 

additional monies to do that home financing. 

Chairwoman WATERS. Well, we know that we have $200 million 

in conference that we are trying to get, but let us find out from our 

representative here, from Governor Schwarzenegger’s efforts, she 

mentioned that there would be some funding perhaps, about $1.2 

million, that would be used to help in this situation. Where does 

that money come from? When will it be in process? And who will 

have access to it? 

Ms. PETERS. Great question. Thank you for asking. There are actually two sources of funding coming out of the State currently. 

Several months ago—I believe it was back in September, speaking 

of CDBG—our Housing Community Development Department 

issued a notice that $1.16 million in CDBG money that is flowing 

through the State, not directly from the Federal Government, 

would be made available for consumer counseling. 

Additionally, we put out an advisory quite along the lines that 

the councilman has already suggested, that some of the areas that 

receive funding directly from the Federal Government may likewise 

be able to reallocate some of the funds they have on hand. And our 

Department is happy to work with any local governments on how 

we can maximize the access to that. 

25

The second source of funding that I mentioned in my testimony 

was just announced yesterday by Governor Schwarzenegger. This 

is a $1.2 million campaign that is a public awareness campaign to 

get homeowners to call for help. And people are absolutely terrified. 

We have heard horror stories of homeowners who believe that they 

can be arrested for failing to pay their mortgage. 

Chairwoman WATERS. So basically this is for public service announcements, for advertising. 

Ms. PETERS. Right. And that is coming from our existing budgets 

within my departments at BT&H, and we are putting together a 

proposal today— 

Chairwoman WATERS. That is great. 

Ms. PETERS. —to expedite availability. 

Chairwoman WATERS. While we are talking about that, could you 

explain to us the agreements that the Governor made to Countrywide, for example? 

Ms. PETERS. Yes. 

Chairwoman WATERS. What is it he asked them to do, and what 

have they agreed to do? 

Ms. PETERS. Thank you for asking. The Governor announced 

with—an agreement with four of the major loan servicers—Countrywide, GMAC, HomeEq, and Litton Loan Servicing—which together nationwide represent 25 percent of the subprime loans. 

They have agreed to reach out proactively to borrowers well before 

the loans reset. 

We are talking several months, maybe 6 months before the loans 

reset, to let them know that the reset is coming. They have agreed 

to streamline the process by which they determine whether the 

borrowers can afford that reset payment as the chairwoman mentioned, and, if they are unable to afford it, to fix the initial rate 

for a sustainable period of time. 

Now, there is more discussion to be— 

Chairwoman WATERS. So basically— 

Ms. PETERS. —had on the details of this. 

Chairwoman WATERS. —basically what you are saying is early 

notice the reset is coming, and after you do that notice the homeowner will have an opportunity to get a workout and try and do 

a rearrangement of that loan. And did these four major subprime 

lenders agree that they would be involved in the kind of proposal 

that we just heard that would have to extend the low rate that 

they got in with? 

Ms. PETERS. Yes. 

Chairwoman WATERS. Will they— 

Ms. PETERS. That is exactly what they have already agreed to. 

Chairwoman WATERS. Is this in writing somewhere? 

Ms. PETERS. It is on the Department of Corporations’ Web site, 

which is— 

Chairwoman WATERS. Okay. Good. 

Ms. PETERS. —corp.ca.gov. 

Chairwoman WATERS. Thank you. 

Ms. PETERS. Additionally— 

Chairwoman WATERS. Thank you very much. 

Ms. PETERS. —there is an important element to that, which is accountability, because we hear a lot from consumer servicers, conVerDate 0ct 09 2002 18:38 Feb 21, 2008 Jkt 040433 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\40433.TXT HFIN PsN: TERRIE
26

sumer counselors, that they talk the talk, but they are not walking 

the walk. The Department of Corporations will be releasing within 

this coming month the results of a survey of the lenders that quantifies exactly how many of these workouts they are doing, so that 

we can follow up. And if consumers are not receiving the help that 

the lenders have agreed to do, we want to hear about it, and we 

want them to call us. 

Chairwoman WATERS. That is exactly what we are going to do, 

and we thank you for that. 

And, FHA, since in the bill that I introduced—and we got 

passed—we were very concerned about being able to use FHA to 

refinance. We are very proud about that possibility. Now, what is 

this Hope program that you are talking about? And what does it 

do? 

Mr. BATES. Well, the HOPE NOW Alliance is a grouping of the 

large lenders, Freddie and Fannie, four of the national intermediary counseling agencies, and others, to kind of develop a measured and appropriate response to the subprime problems. And 

the— 

Chairwoman WATERS. I want to know specifically, because we 

want Fannie and Freddie really involved in this solution, but I 

have not heard anything specific about what they are going to do. 

Mr. YOUNG. Well, the first thing is, of course, they have the hotline, and they have the housing counseling agencies in place. 

Chairwoman WATERS. So they have a hotline and people can call 

and say, ‘‘I am in trouble.’’ And then, what are they going to do? 

Mr. YOUNG. And then, they are working on trying to establish a 

standard for workouts or loss mitigation measures that would be 

taken in response to people’s difficulties. 

Chairwoman WATERS. Did you hear Mr. Krimminger’s proposal? 

Mr. YOUNG. Yes, I did. 

Chairwoman WATERS. Can they adopt that? 

Mr. YOUNG. I don’t know whether they can adopt that. 

Chairwoman WATERS. They can dispute that. 

Mr. YOUNG. But I would be happy to get with the Chair on that. 

Chairwoman WATERS. Would you get a copy of that proposal, 

since we are all here and working together? We have FHA, we 

have FDIC. You are talking to some of the same subprime lenders. 

Everybody should get on one track on this. There is no reason why 

we should have a Hope program that is talking about convening 

and getting them together. 

But, rather, you know, we should all do—and it should be substantial. We talk about a sustainable period of time. I like the idea 

of just converting that into a permanent long-term, 30-year, 40-

year loan so that we can make sure we can afford it. So you all 

get together. We will be following up with you to see if we can get 

everybody on the same track. 

Thank you all very much. This panel is dismissed. 

Excuse me. Before you go, you are not dismissed. 

We have questions from the other members. We have several 

other panels that we are going to do, but our members get a chance 

to ask you all questions today. 

Let us start with Mr. Green. 

27

Mr. GREEN. Thank you, Madam Chairwoman. As is usually the 

case, when the Chair finishes, there is not much left to be said. 

But I do want to make a couple of comments and make a couple 

of inquiries. Mr. Krimminger, I greatly appreciate your comments, 

but I do want to just remind you that, when you indicated no one 

expected the buyers to pay the adjusted rates, some of these lenders did. And let me explain why. 

Many of them had prepayment penalties that coincided with the 

teaser rate, which means that you are either going to pay a lot of 

money to avoid the adjusted rate or you are going to end up paying—with a prepayment penalty or you are going to pay the adjusted rate. Now, look, I appreciate what you have said. I just want 

to point that out—that not all of them were acting with the same 

amount of good faith as many of them were. 

Yes, sir. 

Mr. KRIMMINGER. I would just say that we have certainly noted 

that there are prepayment penalties on some of the adjustable rate 

mortgages. In fact, many of the 2/28s and 3/27s do have prepayment penalties. 

Chairwoman WATERS. Please talk right into the microphone. 

This is very important. This is about prepayment penalties. 

Mr. GREEN. And speak quickly, please, because my time is running. 

Mr. KRIMMINGER. I will be very brief. We have certainly noted 

that many of the 3/27 and 2/28 mortgages have prepayment penalties. 

Chairwoman WATERS. Can you hear him in the back? Okay. 

Bring it closer, and don’t be shy. Speak up. 

Mr. KRIMMINGER. We have noted that many of the 2/28 and 3/

27 mortgages do have prepayment penalties. Most expire just before the reset period, but we have certainly been very critical of 

some loans that do have prepayment penalties that extend out 

until just before the reset date. 

Mr. GREEN. Let me intercede quickly and say this. When you 

said ‘‘just before,’’ define ‘‘just before,’’ because usually that is about 

a month or two before, which doesn’t give the person enough 

time—the buyer who is acting in good faith—to secure the kind of 

loan in the environment that we have now that will protect the 

buyer. 

Mr. KRIMMINGER. And we fully agree with you. 

Mr. GREEN. Okay. 

Mr. KRIMMINGER. We think that is far too short of a period of 

time. Chairman Bair has advocated that if you are going to have 

a prepayment penalty at all—and we would prefer not in the 

subprime market—then it certainly should expire 180 days before. 

Mr. GREEN. Okay. Now, after we go through the 3/27s, the 2/28s, 

the prepayment penalties, the no-doc loans, the yield spread premium—yield spread premium, for those who don’t know, that is the 

kickback that the originator gets for getting a person to take a loan 

that is higher in interest rate than they qualified for. Now, some 

people may not know this, but that kickback is legitimate, but we 

are working on that. The Chair is going to help us with that. 

But once you go through all of these things and steering into 

higher interest rates than people deserve, what it boils down to is 

28

people were qualified for teaser rates, and they were not qualified 

for the adjusted rates. And if that is the cause of the problem, and 

we have now about $600 billion at risk, we are talking about millions, possibly $2.5 million adjustable mortgages that are going to 

reset by the end of 2008. 

I don’t see how we can possibly manage the problem on a caseby-case basis. It really defies logic to think that we can do this on 

a case-by-case basis. It does. So now, if it defies logic to do it on 

a case-by-case basis, we have to find a way to transform Hope Now 

into Help Now. Really, that is what we have to do. 

And, Mr. Bates, no disrespect to you, I think you have articulated what is happening quite clearly. But what has to happen is 

what the chairwoman has suggested. We have to find a way for the 

lenders to acquire something called enlightened self-interest. Enlightened self-interest. And sometimes people have to be pushed to 

that point. On other occasions, they can acquire it by some sort of 

revelation. 

But, clearly, enlightened self-interest would dictate that they not 

let these properties go into foreclosure, and that a teaser rate is 

much better than no rate at all. And that is what we have—you 

have to take that message back, if you would, to the folk who can 

help us out and make a distinction between Hope Now and Help 

Now, or Help is on the Way because we are at a point now where 

help has to arrive. 

And, Madam Chairwoman, I thank you for allowing me the time, 

and I will yield back, given that we have so many members. 

Chairwoman WATERS. Thank you very much. 

Congresswoman Grace Napolitano? 

Ms. NAPOLITANO. Thank you, Madam Chairwoman, and I sit 

here with great interest. Since I don’t sit on the subcommittee, a 

lot of it just goes over my head in terms of terminology, but let me 

tell you the result is the same. What I hear is a lot of talk about 

things we need to do, things we are going to be doing, but what 

is being done? 

Because this is not just something that happened yesterday, it 

has been happening for several years, and yet we are still not at 

a place, as you say, that we can turn around and say to our constituency, ‘‘Okay. Here is where you can go. Call my office, call the 

City Council, call’’—have you engaged the media, anybody? Have 

you talked to being able to have them be the purveyors of information to get people to know where the heck they have to go for assistance? 

You talk about CDBG. Does that need any legislative approval 

to be able to channel those funds? Or can it be done without having 

to go through the process of legislative approval? Then, we have 

Mr. Bates, and, again, you talk about tips, you talk about a Web 

site. Who the heck knows where to go? What if they don’t have a 

computer? What about if they—you know, you talk about HOPE 

NOW, and I will submit some questions for the record, Madam 

Chairwoman, because I— 

Chairwoman WATERS. Yes. 

Ms. NAPOLITANO. —my time is short, and I have a lot of things 

I want to get out. 

29

The HOPE NOW, how many people are aware? You said that 

there were the tips. The Chair has not seen them, I have not seen 

them. At least we should be able to have this Financial Services 

Subcommittee know where it is, so we can impart that to our constituency, so they know where to go and how to access those services. 

But lo and behold, and I know you have a constraint funding 

issue, but please use what you have at hand—the media, the net, 

the public access channels, the Council of Governments, the COGs, 

all of those need to be partners in getting the word out to the constituents, because if we lose, they lose. If the subcommittee loses, 

the COGs lose. So unless we work together, all of it in tandem, 

then we are all just spinning our wheels separately. 

Financial servicers—have they been informed of some of those 

programs you are talking about? Because the Chair here says, ‘‘I 

didn’t know that.’’ So somehow there is a disconnect within our 

own agencies to Members of Congress in the subcommittee. That 

is another one. 

Credit unions—what role can they play? Because they have at 

the local level a very strong sense of community, and they will help 

their own. But are we allowed—again, do we have to go through 

legislative approval to allow them to be able to help their local 

folks? 

I don’t know. I am running out of breath here. 

Have all of you brought the financial institutions together and 

asked, ‘‘When are you starting? Where are you starting? And how 

can we channel our folks, so they can get help through you?’’ I 

mean, we talk great, and, I am sorry, the wheels of government 

move very slowly. But we need to move faster than that, and be 

able to put things on the table now, yesterday, not tomorrow, not 

next month, not next week, but now. That is something that is just 

missing in what I hear. 

Everybody has great ideas, and certainly since I don’t sit on the 

subcommittee, I am grateful to be able to find out a lot. My area 

is devastated. I have three of my members working in real estate. 

I hear it from them, and I hear in my office people calling in and, 

‘‘Where do I go from here? What can I do to save my home?’’ 

But have we made an intense effort to be able to tell people, 

‘‘Don’t wait until your date is set before you go for help?’’ I have 

heard it in Washington, I have heard it in our circles, but I don’t 

hear the people—how many of you—just give me a show, how 

many of you knew that? Anybody who is out there, how many of 

you actually knew that you could call your financial institution and 

ask for help prior to your reset date? 

There you go. They don’t answer the phone. So how do we get 

the people who need to have the information ahead of the game? 

The lack of knowledge of where to go, institutions unwilling or 

unable to institute these expansion of the mortgage. Many are—

about 5 or 6 years ago I held a predatory lending forum, and I was 

very concerned because in some areas there is that—was that practice very prevalent, and it was taking advantage of people who 

didn’t know any better. So we brought it out, and we started putting it into the general area to allow people to vent. 

30

And I asked one of the lenders, ‘‘Why don’t you go to a 30-year 

mortgage?’’ He said, ‘‘Oh, no, there is no difference between a 20- 

or 25- to 30-year mortgage.’’ I replied, ‘‘I beg your pardon, because 

that amount of money can help send somebody to school, to college. 

That amount of money can help somebody be able to move forward 

in education, and purchase, or a business,’’ whatever. But they 

didn’t want to do it. 

So have we changed that mindset of the lending institutions to 

expand those mortgages so people cannot lose their home, and then 

we don’t have that impact at the local level of buildings that are 

going to the dogs. 

Chairwoman WATERS. Thank you. 

Ms. NAPOLITANO. Thank you very much, and I would like to submit questions for the record, Madam Chairwoman. 

Chairwoman WATERS. Thank you very much. 

Congresswoman Richardson, for questions? 

Ms. RICHARDSON. Yes, thank you, Madam Chairwoman. 

Ms. Peters, you spoke pretty boldly of saying our Governor is a 

man of action. Well, I am not too impressed with the movies and 

the machine guns and all of that, so I hope that some of what is 

being said today will in fact be translated to action. 

We heard Mr. Rogan here from the City of Oakland give some 

specific request, and I was wondering if you could take to our Governor, the man of action, asking him to do two of these points, and 

they were quite simple. Number one, to extend the time notices of 

default from 90 days to 150 days, and the second request was to 

extend the time period for notice of trustee sales from 30 to 60 days 

to allow for more time for counseling and workouts. 

So as our Governor is negotiating these private side agreements—and I could give you a whole dissertation on what I think 

about some of the private side agreements that have been done in 

the past—but as he formulates these with the lending institutions, 

if you could request that these two items be included as well. 

Ms. PETERS. I will take that back to him, yes. 

Ms. RICHARDSON. Thank you. 

My second comment is for Mr. Bates. I was quite alarmed when 

I read Ms. Peters’ testimony that said that the access to FHA loans 

have decreased to such the amount that she stated. In fact, she 

said that they have dropped from 109,000 to just 2,600, which represents in California a 98 percent decline. Do you know that to be 

true? 

Mr. BATES. With some caveats about the exact numbers, yes, essentially that is true as it pertains to forward mortgages, which is 

what we are talking about here. We do a fairly decent business in 

California on reverse mortgages, which are the home equity conversion mortgages which seniors can use to get equity out of their 

property. But in terms of forward—now we have to adopt the term 

‘‘forward mortgages,’’ the standard mortgages people think of to 

buy a house or to refinance a house, yes, we have had a vast falloff. 

Ms. RICHARDSON. And why is that? 

Mr. BATES. Well, when it began in 2003, when I first started noticing it, I could attribute it almost entirely to the loss of refinance 

business. But then, it just kept going and going and going. And in 

31

conversations with our counterparts, part of it would be, well, FHA 

hasn’t kept up with the market in terms of having flexibility. Some 

of its requirements were dated and not important anymore, and the 

mortgage limit issue. 

And so what happened I think is, as we became less and less a 

part of a lender’s business, there might have been a tipping point 

to where they just didn’t go to the trouble of doing any FHA business, even if there were many borrowers who still could get an 

FHA mortgage, even in California. 

Ms. RICHARDSON. Are there any discussions to change that? 

Mr. BATES. Well, I think Chairwoman Waters has been very assiduous in pursuing FHA modernization, which is a big part of 

what the Administration I think is advancing, and I think is something that would be essential to bringing FHA back as a viable alternative in California, high-cost States like California. 

Ms. RICHARDSON. Well, my request would be that you would take 

the message back that this hearing—we completely support the 

chairwoman of this subcommittee in requesting FHA to take a second look at their role in the marketplace. When you talk about a 

98 percent decline, from the time that I have had an opportunity 

to become a homeowner, clearly when FHA was more involved with 

the average borrower, we didn’t see some of these creative financing and some of these other issues. 

FHA I think took a greater responsibility to ensure that people 

were getting the right loans, and, if problems occurred, were I 

think better prepared to assist those borrowers as well. So clearly 

there has to be a better commitment to get back into this marketplace, because I think that you can assist in bringing the stability 

that our borrowers need. So that would be the message I would like 

to see brought back, that from this hearing the chairwoman has 

our complete support in asking for that change to occur. 

Mr. BATES. Thank you. 

Ms. RICHARDSON. Thank you. I yield back my time. 

Chairwoman WATERS. Thank you very much. Let me just say, if 

I may, for a moment, the whole idea of revitalizing FHA was to get 

it back in the business, Ms. Richardson. And what I really do believe happened is the financial institutions, the loan initiators, with 

the subprime market just forced them out of the market, because 

they came along with all of these exotic products. 

And basically what they said is, ‘‘You can get in with this teaser 

rate.’’ They were not vetting these qualifications to make sure people could afford them. They had no-doc loans, no-documentation 

loans. FHA couldn’t compete with a financial institution or a loan 

initiator that was saying, ‘‘We will give you a loan without documenting your income.’’ They couldn’t compete with these teaser 

rates that would reset within, you know, 6 months or 2 years or 

so. 

So we are revitalizing FHA. We passed that bill out of committee 

off the floor, and I just don’t know what is happening on the Senate 

side. Where is my bill? 

We understand they are working on it. 

I am told that they have hotlined it. It may not be the same 

version. Staff, let us get up to date with what is happening on the 

Senate side with our bill. That is extremely important. 

32

Yes, sir. 

Mr. KRIMMINGER. Chairwoman Waters, I would just like to make 

one note that I would be derelict in not noting. 

Chairwoman WATERS. Yes. 

Mr. KRIMMINGER. For the benefit of the subcommittee, as well as 

members of the public, in responding to Congressman Green’s 

questions about the prepayment penalties, I think one important 

thing to look at in terms of Chairman Bair’s proposal for real modifications on a streamlined basis is that the prepayment penalty 

provision would not apply to the loan modifications. 

It does apply when you are talking about refinancing, but it 

would not apply to the loan modifications because you are not 

doing a prepayment of the loan. So I think that is an important 

thing to keep into consideration. 

Chairwoman WATERS. Oh, very important. 

Mr. KRIMMINGER. I think that is very important for the public to 

know as well, which is, again, I would re-urge, in response to your 

comments as well, Congresswoman, for the people to reach out to 

their servicers. I think that it is critical for them to do that in advance, so that something can be done before the reset, because obviously if they can’t make the payments after reset, there are going 

to be dire consequences to their credit history and to other obligations they may have. 

Chairwoman WATERS. All right. We are going to move on. Our 

constituents would reach out, if they thought it was going to do any 

good. Most people just don’t believe the bank is going to be kind, 

that they are going to do anything for them, and I have not seen 

the same people who are initiating the loans doing the outreach to 

tell them to call. I am watching the ads every day, and I am going 

to ask some of our financial institutions about them. 

They are saying, ‘‘Come on, we want to give you a loan.’’ They 

are saying some of the same things they said that got us in trouble 

before, and I don’t get it. So if they would spend some money advertising that they want people to call, so that before these loans 

reset, then people will feel a lot more comfortable in calling that 

telephone line that never answers. Okay? 

Thank you very much. 

All right. We will move on now to—Ms. Watson, thank you very 

much for being here today, and I know this is an issue you are very 

concerned about. You have 5 minutes for questioning. 

Ms. WATSON. Thank you so very much, and I want to thank the 

chairwoman for calling this hearing. I cannot think of anything we 

could do during this period of time, but all come together—at the 

local level, State level, and Federal level—to look into the fraud 

that has been perpetrated on this Nation through subprime and 

other gimmicks. And I want to say this—mine is more a statement 

than a question because I do have to go on—but I pledge to work 

together with all of those who represent the public to do something 

from the top. 

What we haven’t focused on is that these are gimmicks that come 

out of the financial institutions, and they change all the time. 

Someone sits in the back room and figures out how they can make 

a bigger profit and give back to their shareholders. So what we are 

doing is running after the caboose. We are trying to solve indiVerDate 0ct 09 2002 18:38 Feb 21, 2008 Jkt 040433 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 K:\DOCS\40433.TXT HFIN PsN: TERRIE
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vidual problems. We will never be able to do that. We have a whole 

list—and I am sure the chairwoman has it—of community agencies, that this hearing is to mitigate the loss in L.A. County, California. 

I want to go one step above that and into the Federal Government. I believe that the State ought to hold a conference and set 

up a commission that will look at all of the lending institutions. 

And we need to have some ground rules to prevent these kind of 

products from being perpetrated on those who are seeking the 

American dream. So I would propose that, because if there are a 

million people in this room, a million people have a different problem with how they are going to save their homes. 

And so what we have to do is go higher, and in the Federal Government we need to look at—we have all of these different agencies 

that intend to help homeowners avoid foreclosures. But we can be 

doing this year after year after year. Let us set some standards for 

the State of California, City of Los Angeles, the county included, 

and some Federal standards, that control the kinds of products 

that are offered to those who are seeking to buy property and to 

have their homes for a lifetime if they wish. 

So what I want to do is say to all of you presenters and to this 

panel, and the one that comes up after ours, I would like you to 

come together and look at ways the State of California can set up 

regulations for the kinds of financing of homes that come out of 

their various institutions. 

Then, I am going to ask the chairwoman to call us together 

where we can talk about some Federal guidelines that will cover 

all kinds of financial institutions that do home loans and that introduce products that really are perpetrated to make a profit and 

not necessarily there to keep people in their homes. 

And I want to say this in closing, that the American dream has 

to be supported by those who represent you. And if it is a real 

dream, it will become a reality. And the banks don’t want your 

homes. What are they going to do? They want to sell them off, but 

they certainly are calling in your loans. You can’t pay those increased payments. So we really need to deal with this at the top, 

we need to speak loudly and clearly to the institutions that finance 

these loans and tell them, ‘‘We will not tolerate the fraud that has 

been perpetrated on those seeking to own homes and sustain their 

homes.’’ 

So with that, Madam Chairwoman, thank you so much for letting 

me sit with you these few minutes, and I am ready to join with all 

of us to protect not only our constituents but all people who seek 

the American dream. Thank you so very much. 

Chairwoman WATERS. You are welcome. 

Ms. WATSON. And what I would like to do is submit to you a proposal that we have to assist in the foreclosure. I will put it in writing and give it to you. 

Chairwoman WATERS. Thank you. As you know, Congresswoman, 

we have H.R. 3915— 

Ms. WATSON. Right. 

Chairwoman WATERS. —that was introduced by our chairman 

and passed out of our committee. Did it pass on the floor? It passed 

on the floor. This is the Mortgage Reform and Anti-Predatory 

34

Lending Act of 2007. You did support that. We had good support 

from our side of the aisle on this, and we took a lot of action in 

this bill on the Federal duty of care. And we have another title that 

set minimum standards for all mortgages. We have a signee 

securitizer liability, and on and on and on. 

The biggest fight with this bill was something called preemption, 

and this is always a big fight in Federal Government. Oftentimes, 

we will run into problems like the one that we have now on foreclosures. Some States have tougher laws than the Feds will ever 

have, because when you are dealing with the Feds, you are dealing 

with all of the States and all of the interest groups, all of the entities that are represented in Congress, and they come with different 

ideas. 

So we try to support the States when they have stronger laws, 

but I want you to know this is when the big boys roll out big time. 

They roll out big time with the money, with the lobbyists. Sometimes they hire two, three, four lobbyists to every individual who 

serves on the Financial Services Committee, and they back these 

efforts because what they would like to have are Federal laws that 

are basically minimum standards. 

They would like it to apply to everybody, and we are trying to 

preserve the right of States to be even tougher than the Federal 

Government would ever get. So it is an ongoing struggle and an ongoing fight that we have to engage in. 

Ms. WATSON. Yes. And in response, that is why I would address 

Ms. Peters that you go back and carry the message that California 

always is in the lead. We go above those standards, and I think it 

becomes an obligation for the State to protect its homeowners. And 

so, again, I want to thank you, and we know we are kind of concentrating on Los Angeles, but we are dealing with a problem that is 

so overwhelming it means the loss of the American dream. So I 

commend you for those efforts, and we will work together to have 

better regulations and better laws. 

Chairwoman WATERS. Thank you so very much. 

Ms. PETERS. We have new regulations this year. We actually 

have new regulations this year in California that are some of the 

toughest in the Nation. 

Ms. WATSON. Yes. 

Chairwoman WATERS. Thank you very much. And we were waiting for Ms. Sanchez. I think she had to leave, and so now is the 

proper time to dismiss this panel. 

Thank you all very much for your participation. 

Thank you for responding today, and we anxiously await to see 

the results of Chairman Bair’s recommendations. We think that is 

an answer. 

Okay. With that, let me introduce our next panel as they come 

forward. Let me just say that the Chair notes that some members 

may have additional questions for this panel which they may wish 

to submit in writing. So without objection, the hearing record will 

remain open for 30 days for members to submit written questions 

to these witnesses, and to place their responses in the record. 

Thank you very much. 

Panel number two consists of: Mr. Sandor Samuels, executive 

managing director of Countrywide Financial Corporation; Ms. 

35

Michaela Albon, senior vice president and general counsel, Home 

Loans Division, Washington Mutual; Mr. Brad Blackwell, executive 

vice president, Wells Fargo Home Mortgage; Mr. Tom Deutsch, 

deputy executive director, American Securitization Forum; Ms. 

Anna Thomas, a homeowner in San Pedro, California; Ms. Karen 

Lee, a homeowner in Los Angeles, California; and Mr. Paul Leonard, California office director, Center for Responsible Lending. 

Without objection, your written statements will be made part of 

the record. I will recognize each of you for 5 minutes. We are going 

to try and keep each of you to your 5-minute presentation. We 

would ask you to summarize and submit for the record, so that we 

can move on with all four of our panels today. And we are going 

to ask our members to keep their questions to 5 minutes, so that 

we can complete this in a timely fashion. 

I would like to welcome all of you who are serving on panel two, 

and we will start with Mr. Sandor Samuels, the executive managing director of Countrywide Financial Corporation. 

STATEMENT OF SANDOR SAMUELS, EXECUTIVE MANAGING 

DIRECTOR, COUNTRYWIDE FINANCIAL CORPORATION 

Mr. SAMUELS. Thank you, Chairwoman Waters. In addition to 

my position at Countrywide, I also serve as the chairman of the 

board— 

Chairwoman WATERS. Let me see if I can get a little bit of— 

Mr. SAMUELS. Okay. 

Chairwoman WATERS. —attention for you here. Some people are 

moving out, some people are moving in, and it is creating quite a 

bit of conversation. So if you will just hold your conversation to a 

minimum and quiet down, so that we can hear our panelists, I 

would appreciate it. 

For those of you who are standing back in the doorway on the 

side walls, we do have plenty of seats. Please feel free to occupy 

any of them. 

Thank you. We will start again with you, Mr. Samuels. 

Mr. SAMUELS. Okay. Thank you, Chairwoman Waters. 

Chairwoman WATERS. You are welcome. 

Mr. SAMUELS. In addition to my position at Countrywide, I also 

serve as chairman of the board of Bet Tzedek Legal Services, and 

I am also on the board of the Los Angeles Urban League and the 

Housing Preservation Foundation. 

As you may know, I testified earlier this month before the full 

committee about the recent expansion of our foreclosure prevention 

efforts, a $16 billion home preservation program to assist as many 

as 82,000 Countrywide hybrid ARM customers facing unaffordable 

ARM resets, and about our ground-breaking partnership with the 

Neighborhood Assistance Corporation of America, or NACA, as well 

as with other consumer groups. 

Today I want to update you on our progress with those initiatives 

and provide additional information on our activities here in California. California borrowers represent about 17 percent of our almost 9 million customers. More than 64 percent of our California 

borrowers are located here in Southern California. As the largest 

group in our servicing portfolio, California borrowers will benefit 

36

significantly from our home retention programs and will remain a 

major priority of our outreach efforts. 

Last week we endorsed the home retention principles announced 

by Governor Schwarzenegger. These principles are also consistent 

with those articulated by Treasury Secretary Paulson, FDIC Chairwoman Bair, OTS Director Reich, and other Federal banking regulators, calling for a systematic and scalable approach to home retention that is up to the challenges ahead. 

We believe that we are ready for these challenges and already 

can point to results that show loan modification activity is sharply 

increasing. Although the majority of our efforts will result from direct contact with our customers, nonprofit organizations are also 

critical to our efforts. On a national level, we recently entered into 

a groundbreaking partnership with NACA, as I mentioned. NACA 

has more than 30 offices around the country, including two very effective branches in California, one here in Los Angeles and one up 

north in Oakland. 

In just 5 weeks since the partnership was announced, more than 

177 home save solutions have been completed or are in process. 

The NACA partnership is a model that allows us to leverage the 

unique capabilities of some of the best nonprofit counseling agencies on the ground in many of the communities we serve. Countrywide also is working with the L.A. Neighborhood Housing Services. 

We participate in the Foreclosure Solutions Task Force and support 

home preservation fairs like the one being held here as we speak. 

We are collaborating with Lori Gay and the LANHS to expand 

our relationship and strengthen our ability to help more borrowers 

preserve homeownership and avoid foreclosure throughout the L.A. 

area. I look forward to providing you and the subcommittee with 

additional details on this collaboration in the near future. 

Countrywide also has sponsored homeownership preservation 

seminars in 30 communities around the country, including events 

in Anaheim, Fresno, Oakland, Ventura, and earlier this month in 

support of the ACORN event here in Los Angeles at the St. Vincent 

School. We plan to significantly expand these efforts in 2008. 

Most importantly, Countrywide’s initiatives are producing results 

that help borrowers avoid foreclosure and preserve their homes. 

Congressman Green, we are providing help now. 

Through today, in 2007, Countrywide has helped over 55,000 borrowers stay in their homes through loan modifications, repayment 

plans, and other home retention solutions, and we have about 

100,000 borrowers in some stage of a workout transaction. To give 

you some sense of how our more recent initiatives and partnerships 

are paying off, in October we completed 11,000 home retention 

transactions, workouts where the family stays in the home. 

That is more than twice our previous monthly high. And more 

than 9,000 of these, 82 percent, were loan modifications, meaning 

that they involved a change to a loan’s interest rate, principal balance, or maturity date, or a combination, designed to provide longterm affordable payments. By comparison, about 28 percent of our 

workouts in 2006 involved loan modifications. 

These trends reflect not only the changing nature of the market, 

and the causes of loan defaults, but also the efforts of servicers, investors, and regulators, with substantial help from this subVerDate 0ct 09 2002 18:38 Feb 21, 2008 Jkt 040433 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 K:\DOCS\40433.TXT HFIN PsN: TERRIE
37

committee, to secure the needed clarifications of accounting standards and other barriers to ensure that loan modifications can be 

done whenever they present a better alternative to the mortgage 

holder than a foreclosure. 

In short, unlike what you may have read in the press, loan modifications have become a primary tool for keeping borrowers in their 

homes. I have offered a lot of statistics in my comments, but I also 

want to offer you two assurances. First, we understand that this 

is a human problem, not simply a numbers problem. Second, Countrywide readily acknowledges that these are dynamic times, and we 

fully understand that additional initiatives may be needed as 

events unfold. 

Thank you, Madam Chairwoman, for your leadership and for 

your continuing efforts to help borrowers sustain the dream of 

homeownership. 

[The prepared statement of Mr. Samuels can be found on page 

142 of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Ms. Albon, senior vice president and general counsel for Home 

Loans Division, Washington Mutual. 

STATEMENT OF MICHAELA ALBON, SENIOR VICE PRESIDENT 

AND GENERAL COUNSEL, HOME LOANS DIVISION, WASHINGTON MUTUAL 

Ms. ALBON. Thank you, Madam Chairwoman, and members of 

the subcommittee. My name is Michaela Albon, and I am senior 

vice president and general counsel of the Home Loans Division of 

Washington Mutual. I am pleased to be here today on behalf of 

WaMu to discuss our efforts in helping our borrowers find alternatives to foreclosure and the ways they can overcome financial obstacles to keep their homes. 

Clearly, the housing market is currently experiencing a sharp 

downturn. These events are painful for homeowners, lenders, investors, and our communities alike. This is especially true in markets 

such as California, which are coming off an extended period of 

rapid home price appreciation. Moreover, delinquencies and foreclosures are increasing as fewer borrowers are able to refinance or 

quick sale their way out of financial trouble. 

While California remains a key concern, as you have already 

noted, this is a national issue. Simply put, we view foreclosure as 

a last resort, and we work very hard to keep our customers in their 

homes and keep them as customers. We fully recognize that no 

party wins—in fact, all parties lose—if a lender is forced to foreclose. 

Our firm belief is that early intervention, as has been noted earlier today, combined with expanded options is instrumental to helping our customers avoid foreclosure. To that end, we are applying 

particular emphasis on reaching out to our adjustable rate mortgage customers at least 6 months prior to the first reset date 

through direct mail, dialing campaigns, and state messaging. 

Overall, we have sent almost 5 million pieces of outreach mail 

year-to-date and we will continue to work with our borrowers requesting assistance up until their reset dates and beyond. In April, 

we announced a $2 billion assistance program, which is focused on 

38

helping our subprime customers who are current in their payments 

but who are feeling the effects of this challenging environment. We 

are reaching out to our customers and encouraging them to contact 

us if they are concerned about making their new mortgage payment as a result of a payment adjustment on an adjustable rate 

loan or for other reasons. 

Our offers of assistance include refinancing or modifying their 

mortgage into a fixed rate loan at a discounted interest rate. To 

date, we have refinanced or modified approximately $720 million in 

loans, and we expect this number to increase sharply in the coming 

months. For those borrowers who have already become delinquent 

and are in need of additional assistance, we are offering expanded 

forbearance and loan restructuring plans, including permanent reductions in rate, extended terms, and even partial forgiveness of 

debt. 

To the latter end, WaMu has publicly supported the initiative to 

reduce or eliminate the income tax on forgiven debt. WaMu maximizes the opportunities to meet with our customers by reaching out 

to them via mail, phone, and personally inviting them to attend 

homeownership preservation events, even to the extent of offering 

$100 gift cards if our customers will attend and talk to us about 

their loans. 

These homeownership preservation events are held throughout 

the United States, in the homeowners’ own communities, so borrowers may meet face-to-face with WaMu employees to work out a 

solution to keep them in their homes. WaMu recently participated 

in events held in Anaheim and Ventura, both of which were considered quite successful. 

With regard to the percentage of home loans currently in foreclosure, we do not publicly disclose this information, but we give 

borrowers every consideration as we work to assist them while 

making prudent lending decisions and adhering to investor and 

regulatory requirements. 

Despite the efforts of lenders and servicers to help borrowers 

avoid foreclosure, the industry does face challenges. It has already 

been noted today that the terms and the conditions of applicable 

pooling and servicing agreements, as well as tax law and accounting rules, determine the requirements regarding the loans we service on—to some extent the requirements regarding loans we service 

on behalf of securitizations and third party investors. 

Declining home values, subordination of junior liens, and 

securitized seconds are also impacting our ability to help some customers. Perhaps our biggest challenge, however, is simply reaching 

the borrowers who are most in need. If we can’t reach them directly 

or indirectly, such as through community organizations, we cannot 

help them. 

In addition to WaMu’s own efforts as a lender and servicer, we 

partner with local, regional, and national nonprofits to combine 

raising rates of borrower delinquency and default. We have found 

that these organizations can be very, very effective in reaching customers who may not feel comfortable contacting us directly. 

We are a member of the HOPE NOW Alliance that has been 

mentioned some this morning, and we recently participated in the 

HOPE NOW outreach efforts. And our employees, including myself, 

39

are active participants in all of the working groups, including the 

groups responsible for expanding and funding counseling initiatives 

as well as advancing our ability to do more workouts and loan 

modifications. 

The final area I would like to briefly cover today is our industryleading measures we have taken to help borrowers through the ongoing origination process. In late September, WaMu co-sponsored a 

national conference on consumer education that was held at our 

training center in Seattle. In October, we introduced a requirement 

in our wholesale channel that we hope will soon become industry 

standard practice. 

Chairwoman WATERS. Could you wrap it up for us, please? 

Ms. ALBON. I am sorry? 

Chairwoman WATERS. Could you wrap up your presentation? 

Ms. ALBON. Yes. Basically, we have increased the disclosures 

that must be provided by brokers on loans that they broker to us, 

including more clear disclosure of their compensation. 

[The prepared statement of Ms. Albon can be found on page 94 

of the appendix.] 

Chairwoman WATERS. Thank you very much. 

We have to move on Mr. Blackwell, executive vice president, 

Wells Fargo Home Mortgage. 

STATEMENT OF BRAD BLACKWELL, EXECUTIVE VICE 

PRESIDENT, WELLS FARGO HOME MORTGAGE 

Mr. BLACKWELL. Chairwoman Waters, and members of the subcommittee, thank you for the invitation to testify. I am Brad 

Blackwell, executive vice president of Wells Fargo Home Mortgage’s National Sales Force. 

Chairwoman Waters, we commend your leadership on housing 

issues. Wells Fargo is proud to have spoken at numerous national 

forums of this nature, as we believe collaboration with you and 

other Members of Congress is critical. We, too, are concerned about 

foreclosures, particularly in parts of California where the market 

correction continues to depress housing prices. 

It is important to note that, culturally, Wells Fargo is committed 

to lifetime customer relationships. Our vision is to satisfy all of our 

customers’ financial needs, not just their mortgage needs, and to 

help them achieve financial success. This includes ensuring all customers have access to and can sustain homeownership. 

Working with organizations like Los Angeles Neighborhood 

Housing Services, Operation Hope, the West Angeles Community 

Development Corporation, and the East Los Angeles Community 

Corporation, we have introduced a number of innovations to help 

homeowners, including conducting seminars to help borrowers review loan documents and training local lawyers to give aid to people facing foreclosure. 

In your congressional district alone, Madam Chairwoman, Wells 

Fargo has contributed over $19 million toward low- and moderateincome housing investments. When faced with the tension that can 

naturally exist between doing what is right for the customer and 

generating a profit, responsible lenders do what is right for the customer. 

40

Unlike many in our industry, Wells Fargo chose not to offer negatively amortizing option ARM products. In 2006 alone, these loans 

generated close to 40 percent of the industry’s revenue. We know 

that having fair and responsible lending principles makes a difference. The subprime loans originated by Wells Fargo Home Mortgage have foreclosures half that of those not originated by our company. 

Our principles include focusing on the customer’s ability to 

repay, providing information to make fully informed decisions, 

making only those loans that provide a demonstrable benefit to the 

customer, and doing all we can to keep people in their homes by 

providing experts, tools, and services that help customers manage 

their credit. 

While we believe we have made good decisions that align with 

our responsible lending and servicing practices, like most others we 

did not predict the extreme confluence of market events currently 

affecting customers. So we have stepped up our efforts to find more 

ways to help at-risk customers. 

Wells Fargo has weathered the current subprime crisis well, relative to our competitors, because we respect that what is good for 

consumers and what is good for investors are inextricably linked. 

Selling mortgages into the secondary market makes homeownership possible for millions, including minority and low-income consumers, and we are careful to avoid practices that could limit responsible access to funding. 

To ensure the future health of the housing industry, it is very 

necessary to preserve liquidity and capital from the secondary market. We must find a good balance between upholding investor obligations and meeting consumer needs. 

Since the vast majority of subprime loans we service are held by 

investors, an ongoing industry dialogue organized by the American 

Securitization Forum has helped us develop solutions that take 

into account our secondary market obligations. Over the past few 

weeks, we have been working closely with Treasury Secretary 

Paulson, the Federal banking regulators, and the ASF on more systematic solutions, as you have been discussing earlier, for segments 

of subprime consumers who share similar credit characteristics. 

Now, HOPE NOW, which Wells Fargo was instrumental in creating, is another great example of how industry and government 

have come together in nationwide solutions. This alliance harnesses the strengths of mortgage servicers’ counselors to capital 

markets in the U.S. Government to help consumers get budget 

guidance. 

A critical component—and this was not discussed in the last 

panel—is encouraging customer contact, since it is the biggest obstacle we face in helping customers. HOPE NOW is already beginning to prove that when we come together and mobilize to help consumers we can have great impact. 

To gain further insights on the best ways to help more customers, we analyzed our 2007 subprime ARM servicing portfolio, 

considering the life of the loan and current market trends. About 

3 percent of the 7.9 million real estate-backed loans Wells Fargo 

services are subprime ARMs that have or are expected to reset by 

the end of 2008. 

41

At this time, it appears we can find workable solutions for the 

vast majority, 80 to 88 percent. These customers will pay in full, 

they will refinance, manage the higher loan payment, or benefit 

from a workout solution. We either seek refinancing solutions or 

modify all loans for customers who can afford the modification and 

are willing to manage their mortgage payments. If a repayment or 

modification will not be successful for the customer, we turn to 

foreclosure avoidance options to protect the customer’s credit standing. 

As the Nation’s leading FHA lender, we appreciate Congresswoman Waters spearheading FHA reform in the House, as we believe this will provide yet another conduit for helping customers. 

Six months in advance of a reset, we contact borrowers. 

Chairwoman WATERS. Could you wrap it up for us, please? 

Mr. BLACKWELL. Thank you. I will. And by working—so we make 

sure we contact those borrowers to see what we can do to help 

them with the reset. 

By working together, our industry, government, capital markets, 

consumer groups, and not-for-profit counseling agents can help people stay in their homes, and it takes the effort of all of them. Together, we must get all customers facing difficulty to call their 

servicers or credit counselor, and we must explore refinancing, 

modification, and workout options. We are there for the help of our 

customers. 

Chairwoman WATERS. Thank you very much. 

Mr. BLACKWELL. And we thank you very much for your time. 

[The prepared statement of Mr. Blackwell can be found on page 

103 of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Mr. Deutsch? 

STATEMENT OF TOM DEUTSCH, DEPUTY EXECUTIVE 

DIRECTOR, AMERICAN SECURITIZATION FORUM 

Mr. DEUTSCH. Thank you, Madam Chairwoman. I am honored to 

be here on behalf of the American Securitization Forum, as well as 

the Securities Industry and Financial Markets Association. 

As indicated before, the ASF represents members, over 375 members, including all of the major servicers in the securitization marketplace, all of the major originators, as well as the institutional 

investors, to purchase these mortgage-backed securities as well. 

Our mission and goals can be succinctly summarized as: first, providing good market standards and practices in this area; second, 

advocating on behalf of our members; and, third, providing a good 

education as to how securitization works and the different incentives market participants have. 

Before I address the specifics of the securitization process, and 

some of the many initiatives that we are working on right now, I 

would like to make one fundamental observation about the current 

mortgage market. That is, no one—no one—benefits from foreclosures, not the mortgage servicers, nor pension funds, nor mutual 

funds or hedge funds who ultimately invest in these mortgagebacked securities benefit from foreclosures at all. It is often the 

costliest outcome for both the borrower as well as the investor in 

42

those mortgage-backed securities. And let me just put a placeholder 

in there and come back to that towards the end of my testimony. 

Fundamentally, the process of securitization, though, allows 

originators of consumer and commercial credit to pool hundreds of 

like obligations and securities, which often generates stable and 

predictable cashflows for the investors in those mortgage-backed 

securities as borrowers pay their principal and interest payments. 

Recent developments in the current subprime residential mortgage place has generated a number of significant concerns, and 

have impacted both the borrowers in those mortgage-backed securities as well as all of the securitization market participants. Given 

these market conditions, servicers of the mortgage loans, whether 

they are held in portfolio by the different banks, or whether in 

securitization trust, have redoubled their efforts, as you have just 

heard by all of the testimony from some of the servicers here, to 

help borrowers avoid foreclosure and minimize the losses to the 

securitization investors. 

This is a very key point. The securitization investors are the ones 

who keep capital flowing into this marketplace. Refinancing is the 

number one option for many borrowers in these homes, not everyone, and let me speak to a couple of the general tenets that we 

have been discussing through numerous discussions both with various industry participants as well as the various Federal regulators 

and the Administration. 

For many of those who are coming up on their reset date, and 

they have generally been current in their introductory mortgage 

payments, and have built up some equity in their home, refinancing opportunities continue to exist and to be accessible to borrowers even in the current marketplace. But for some borrowers 

with significantly impaired credit, or little equity in their home, 

these refinancing opportunities may not be available, and this is an 

area where the servicers as well as the industry have taken particular note and focus, especially over the last few months. 

For borrowers who have been able to stay relatively current in 

their introductory rate—again, showing their ability and willingness to pay in that current introductory rate—servicers are and 

will continue to employ the full tool kit of loss mitigation options, 

including, but not limited to, loan modifications to try to help that 

borrower to stay in their home, again coming back to the point. For 

those leaving their home, whether it is through foreclosure or even 

short sales, it is often not the best outcome for anybody in the 

securitization process. 

So let me just talk a little bit about the securitization pooling 

and servicing agreements that have been discussed a little bit 

today and get to some of the recent industry developments. As 

many of you are aware, all of the securitizations are covered by 

pooling and servicing agreements that are effectively the contract, 

if you can think about it, between the servicer and the investor of 

the mortgage-backed securities, various provisions that allow 

servicers to do a wide range and open up the full tool kit of what 

servicers can do. 

Given current market conditions, the American Securitization 

Forum has taken particular note of that. And as far back as June 

of this year, we instituted a statement of principles, recommendaVerDate 0ct 09 2002 18:38 Feb 21, 2008 Jkt 040433 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 K:\DOCS\40433.TXT HFIN PsN: TERRIE
43

tions, and guidelines for the modification of securitized subprime 

residential mortgage. That is attached to my testimony as Exhibit 

A. 

This document concludes that loan modifications—and this was 

back in June—that are in default, for subprime loans that are in 

default or for which default is reasonably foreseeable, an important 

serving tool as part of the full servicing tool kit to often help borrowers avoid foreclosure and remain in their homes. 

I would also like to note that the development of the ASF statement was a first and important step towards industry collaboration 

and coordinated solutions. Since the ASF and SIFMA have also 

been pleased to be involved with the HOPE NOW Alliance that was 

formed on October 9, 2007, under the leadership of Treasury Secretary Paulson and HUD Secretary Jackson, this HOPE NOW coalition again brings all of the counselors, servicers, investors, and 

other mortgage market participants to maximize the outreach to 

borrowers and to help develop industry solutions. 

On that same day, we also released a statement allowing for the 

reimbursement of borrower counseling expenses to be viewed as 

servicing advances, effectively Help Now. That is, that servicers 

can deduct out of securitization trust cashflows many of the expenses that they reimburse for counseling expenses, something we 

spent a great deal of time working with both servicers and investors to develop this. 

Finally, I believe that brings me to the work that we are currently working on now with Federal policymakers, including the 

FIDC, FASB, the Federal Reserve, the Treasury Department, and 

other Federal bank regulators to identify the loss mitigation obstacles and promote best servicer practices throughout the industry. 

Fundamentally, the ASF believes, and is continuing to pursue, 

streamlined methods of segmenting borrowers with various types of 

characteristics including loan-to-value ratios, credit scores, and, 

most importantly, payment history at the introductory rate. We believe that streamlining this approach by doing this very quickly, as 

servicers have been doing and working on over the last few 

months, will achieve very measurable outcomes and ultimately 

help even that many more borrowers stay in their homes. 

We are pursuing these efforts in great earnest, and hope to report out the progress of these efforts in the very near future. 

Madam Chairwoman, and distinguished members of the subcommittee, I thank you for the opportunity to participate in today’s 

hearing. The ASF and SIFMA stand by to assist you. 

[The prepared statement of Mr. Deutsch can be found on page 

108 of the appendix.] 

Chairwoman WATERS. Thank you very much, Mr. Deutsch. 

Now we will hear from some homeowners. First, Ms. Anna 

Thomas, a homeowner from San Pedro, California. Thank you for 

being here. 

STATEMENT OF ANNA THOMAS, HOMEOWNER, SAN PEDRO, CA 

Ms. THOMAS. Thank you. Thank you. It is exactly a year ago that 

I got into a bad loan with Freemont Investment and Loan, almost 

to the day, and they did nothing to help negotiate or modify my 

loan. Over 6 months, I paid them $5,190.35 for my mortgage. I had 

44

help to do that. I had family members in my home, and I was able 

to do it for 6 months. 

And it turned out, towards the sixth month, I realized my family 

members were not there any longer, they had to go back to New 

York, and I could not make those payments. Freemont Investment 

and Loan would do nothing to help me. I heard mentioned today 

that the consumers don’t know where to go, and I didn’t know 

where to go either. 

I got a book, this Consumer Action Handbook. I found the Department of Consumer Affairs, their Real Estate Fraud Unit, a 

lady, Dawnnesha Smith called me right away to see how they could 

help. They got on the phone with Freemont—now, I had been negotiating with them for over 6 months now. They would not take any 

partial payments. They wanted me to sell my home. 

Investigator Gutierrez spoke with them at length on one particular day. She called me at work and said, ‘‘I have been talking 

with them all day. I am sorry, they are not bending. You are going 

to—on the 16th of November, they will file foreclosure notice, and 

you are going to have to move out of your home. And as a matter 

of fact, within 72 hours you would have to vacate your home.’’ 

I was devastated at that news, and I felt the compassion in her 

voice. There was somebody that I was able to call. I don’t know 

what she said to them, but she called me back 15 minutes later 

and said, ‘‘Ms. Thomas, I am on a conference call with Freemont 

Investment and Loan, and this gentleman would like to speak with 

you.’’ So within a 15- to 20-minute period, I went from devastation 

to elation. He told me he would modify my loan at 6 percent. 

Would I be able to pay them a fee of $5,190.35? I said yes, I would. 

I didn’t have it then, 6 months ago. I don’t really have it now 

either, but my friends and relatives got that money together. I sent 

it in to them, my payment now is approximately $3,700. I asked 

if they could put that $5,000 maybe onto the loan, so that I would 

not have to pay that money on the 16th of November, and then go 

back on the 1st of December now with $3,700, but that is another 

hurdle that I will have to make. 

I am here—hopefully other consumers will get in touch with our 

agencies, especially the Consumer Affairs Department and the people who helped me—perhaps they, too, can save their homes. I am 

a survivor of this foreclosure crisis. I am happy to say that at this 

point. Going forward, I have learned a lot of things, and I would 

like to thank you for having this panel and hopefully preventing 

this from happening to other people. 

Thank you. 

Chairwoman WATERS. Well, you are so very welcome, and we 

thank you for being here. 

Ms. Karen Lee, also a homeowner, from Los Angeles. Thank you 

for being here today. 

STATEMENT OF KAREN LEE, HOMEOWNER, LOS ANGELES, CA 

Ms. LEE. Thank you. It is my pleasure to be here and share my 

story. I feel like I am one of the lucky ones, because I was not losing my home at the time I think I had—my health went down, so 

I had to quit work. My husband wasn’t in the greatest health either, and he was on the verge of retiring. 

45

So we discussed what we would do, since we knew we didn’t have 

a lot of money coming in, and we had refinanced before a couple 

of times for our children’s education. So we, therefore, did not even 

consider what would happen to us once we retired or if something 

drastic like my health going down the tubes would affect our lives. 

I had been getting a lot of literature through the mail about reverse financing. I didn’t understand it. There was a seminar that 

we attended, and we still didn’t give it a lot of thought. But then, 

as the time got nearer for my husband to retire, then I started 

thinking, well, gee whiz, I am ill, my house note was $1,300 a 

month, and maybe to some people that is not a lot of money, but 

for us raised in South Central Los Angeles, it was a lot of money. 

So I couldn’t imagine how, if something should happen to him, 

how I could get this money together if I should miss a payment or 

whatever. So we discussed it, and I am very pleased to say that we 

were happy with the decision that we made to go ahead on and do 

something about it before anything happened. So we went on and 

we applied. I have a new that is with the HUD Corporation, and 

he was instrumental in giving us advice and putting us with the 

right people to give us the right understanding, and now we can 

breathe easy and it is a good feeling. 

I appreciate you allowing me to come and share my success 

story. 

[The prepared statement of Ms. Lee can be found on page 141 

of the appendix.] 

Chairwoman WATERS. Well, thank you very much. 

Mr. Paul Leonard,California office director, Center for Responsible Lending. 

STATEMENT OF PAUL LEONARD, CALIFORNIA OFFICE 

DIRECTOR, CENTER FOR RESPONSIBLE LENDING 

Mr. LEONARD. Madam Chairwoman, thank you and the other 

members of the subcommittee for coming out today. I can’t help but 

say the timing of this hearing couldn’t have been better given the 

landscape that we are facing now, the Governor’s intervention, the 

discussions that are happening in Washington around expanding 

the scale of modifications. It is critical. 

I am Paul Leonard, the director of the California office of the 

Center for Responsible Lending. We are a nonprofit, nonpartisan 

policy organization working to eliminate financial abuses in the 

marketplace. We work with a lot of other civil rights, labor, consumer groups. We work closely with the NAACP, and the National 

Council La Raza, at the national level as well as here in the State. 

We are also affiliated with Self-Help, which is a credit union, so 

we are a lender to people who have imperfect credit in North Carolina directly. And through a national lending program, we have 

bought some $5 billion and helped finance more than 41⁄2 million 

homeowners and small businesses. 

I would be remiss if I didn’t reiterate the fact that California 

really is the epicenter of the national foreclosure crisis. Last year 

we put out a report that projected there would be 2.2 million foreclosures as a result of subprime lending that occurred in 1998 and 

2006. We estimated that close to 500,000 of those would be right 

46

here in California, and some 45,000 here in L.A. County specifically. 

As others have mentioned, this is a problem that is disproportionately focused on minority communities and minority borrowers. 

Both African Americans and Latinos are much more likely than 

similarly-situated, similarly credit quality white borrowers to get 

high cost subprime loans and to experience foreclosures. 

You know, not too long ago the problem for homeownership lending used to be redlining, that minority folks couldn’t get a lender 

to say yes to a loan. Unfortunately, the pendulum has swung way 

too far to the other end where the saying in the industry is is that 

if you could fog a mirror, you could get a loan, and the whole issue 

is now not about whether you can get a loan but how much you 

are going to pay for it and what the terms of those loans are. 

And, unfortunately, far too many people got into loans that they 

fundamentally are not going to be able to repay, and that the lenders didn’t evaluate their ability to repay beyond the initial starter 

rate period and didn’t verify their income as to determine their 

ability to repay. 

The costs of this are staggering, not just for the borrowers, for 

whom it is a tragedy for them to lose their homes, but also for the 

neighbors, as several of the members mentioned. We have done 

some analysis. Here in L.A. County, we estimate that 3 million 

homeowners will experience price declines in their homes totalling 

some $31 billion as a result—specifically as a result of foreclosures 

that are happening to their neighbors. 

And as others have mentioned also, the problem is going to get 

worse. We are going to see a spike in subprime ARM borrowers 

who are facing resets for the first time over the next 12 to 18 

months. Unfortunately, for the last 6 to 9 months, we have heard 

a lot of what I call ‘‘happy talk’’ from the lenders, promises of efforts to reach out, staff up their loss mitigation efforts, contact borrowers and offer a full range of loss mitigation tools, including loan 

modifications. Unfortunately, that rhetoric has often been hollow. 

Moody’s did a survey of the largest servicers in the country a 

couple of months ago, and they found that only 1 percent of borrowers at reset were getting modifications. And when we have 

scratched below the surface and looked at the types of modifications that are being provided, often they are of a very short-term 

nature, not the long-term affordability that Chairman Bair is seeking in her approach to loan modifications. 

Now, why isn’t this happening despite the obvious economic appeal and the point that Mr. Deutsch made that nobody really benefits from foreclosures? Well, we think there are a few reasons. One 

is that the financial incentives for the servicers may very well be 

mismatched with the incentives of the investors. There was a recent quote in an Inside Mortgage Finance from a Deutsche Bank 

official who said, ‘‘Just this week, servicers are generally 

disincented to do loan modifications because they don’t get paid for 

them, but they do get paid for foreclosures.’’ 

This official went on to indicate that it costs servicers between 

$750 and $1,000 to complete a loan modification. So we have to dig 

beneath the surface and really get into the guts of these operations 

to understand where the financial incentives are internally, even if 

47

the outcomes of foreclosures are clearly worse off for investors and 

for borrowers. 

There are other issues. Clearly, the servicers haven’t had the capacity to deal with the wave of folks who are facing problems. 

There are potential lawsuits from investors that are tying the 

hands of how many modifications, at least that the lenders suggest 

that they can do. And, finally, there are some complicated incentives with many loans that have second mortgages, which make it 

difficult to offer these loan modifications. 

Well, what is needed to make this work? I think there really are 

three things. First of all, we wholeheartedly endorse the proposal 

put forward by Chairman Bair to essentially identify quickly and 

in a streamlined fashion those borrowers who are not going to be 

able, who are current and occupying their homes, current at the 

time of reset and aren’t going to be able to afford it. And let us 

just, as she said, get on with it, convert these loans to the starter 

rate for the life of the loan. 

I would also point out that we should expand the universe of 

those folks who are affected, because there are many people who 

have already passed their reset date and who have fallen behind 

on their loans but were current before, and they have fallen behind 

on their loans because they couldn’t afford this reset that they have 

already experienced. Those folks, too, should be included in the 

universe that we are looking for for this streamlined, simple modification process. 

The second thing that I think is really, really important is there 

has to be transparency about who is going to qualify for these 

streamlined modifications. I have talked to a lot of housing counselors and borrowers who you have already heard today have trouble finding the right person, have trouble knowing what their clients are eligible for in terms of a loan workout, and so we have to 

make it simpler and easier to understand for borrowers and for the 

lenders alike. 

And perhaps most importantly, we need regular reporting of 

data, because right now—Madam Chairwoman, you know, you 

were intimately involved in the effort to get—expand the Home 

Mortgage Disclosure Act, which has shed a light on and provided 

a real democratization of data around home lending practices. 

We need similar data collection right now for the servicing activities, so that we can know and measure the lenders up to the standards that they have set for themselves, that if they are providing 

the long-term affordable loan modifications that they are talking 

to, they will make this data—readily make this data available for 

you and me and everybody else to see, so that we can know that 

people’s homes aren’t being lost. 

Two final points that I think are important to sort of level the 

playing field to help current borrowers. One is Ms. Sanchez’s proposal for bankruptcy reform. It is a critical, critical component, because right now, as she said, the first home mortgage is the only 

asset that a bankruptcy judge can’t rework the terms of their loan. 

Second home, vacation home, a nice yacht, or an RV, even credit 

card debt, all can be restructured in a bankruptcy process. First 

home mortgages isn’t one of those items. And if we don’t do that—

48

if we do that, we are actually giving the borrowers a whole lot more 

leverage in their ability to negotiate with their lenders today. 

The one final point I want to say is requiring mandatory loss 

mitigation activities on behalf of the lenders, establishing some requirements as are required by FHA today that would require lenders to reach out and document their loss mitigation efforts before 

they came move to foreclosure we think would be a strong Federal 

policy that should be adopted. Thank you very much, and I am 

happy to answer your questions. 

Chairwoman WATERS. Thank you very, very much. 

Thank you very much. 

Again, I would like to thank all of the panelists for their testimony. It was indeed tremendously informative, and we have a few 

questions to raise of our panelists. 

Let me just say to the lending institutions who are here today 

that I know oftentimes you don’t feel comfortable coming to these 

kinds of hearings, and particularly when it is chaired by Maxine 

Waters. You think you are going to get beaten up. 

And we don’t want to do that. We want to make you feel as comfortable as we possibly can, but we have to ask you some tough 

questions. The first question I would like to ask is something you 

alluded to, Ms. Albon. Can each of you tell me how many foreclosures are in your portfolios? Let me start with Countrywide. 

What is the total amount of foreclosures that you are working with 

at Countrywide? How many foreclosures have you had? 

Mr. SAMUELS. Could you start with someone else? Let me just review— 

Chairwoman WATERS. All right. We will start with WaMu. 

Ms. ALBON. Yes. We do not publicly disclose that data, so I— 

Chairwoman WATERS. I am sorry. Would you please give her the 

microphone? 

Ms. ALBON. We do not publicly disclose that data, so I do not 

have it with me today. 

Chairwoman WATERS. All right. I know that you said that. I just 

wanted to get it into the record, because we have to talk about 

what we do about that. 

What about Wells Fargo? 

Mr. BLACKWELL. Wells Fargo’s foreclosures currently represent 

.66 percent of our portfolio. 

Chairwoman WATERS. What is that— 

Mr. BLACKWELL. That was as of the end of the third quarter. 

Chairwoman WATERS. What is that in raw numbers? 

Mr. BLACKWELL. I am sorry. I don’t know that number. 

Chairwoman WATERS. Okay. 

Mr. BLACKWELL. We have— 

Chairwoman WATERS. Okay. 

Mr. BLACKWELL. —roughly 7.9 million loans in our portfolio. 

Chairwoman WATERS. All right. 

Mr. SAMUELS. Ours is .89 percent of our portfolio of almost 9 million. 

Chairwoman WATERS. Almost 9 million? 

Mr. SAMUELS. Yes. 

Chairwoman WATERS. All right. For Wells Fargo, do you have—

do you own other companies that initiate loans for you? Any 

49

other—do you own any other banking or mortgage companies that 

do loan initiation for you? 

Mr. BLACKWELL. Thank you, Chairwoman Waters. I think I understand the question. 

Chairwoman WATERS. Yes. 

Mr. BLACKWELL. Do we own any separate companies, not under 

the— 

Chairwoman WATERS. Yes. 

Mr. BLACKWELL. —Wells Fargo umbrella— 

Chairwoman WATERS. Yes. 

Mr. BLACKWELL. —that originate mortgages? 

Chairwoman WATERS. Yes. 

Mr. BLACKWELL. The answer to that is no. We do originate loans 

under the Wells Fargo Home Mortgage name, and under the Wells 

Fargo Financial name. Both are wholly-owned subsidiaries. Wells 

Fargo Home Mortgage is actually a unit of Wells Fargo, and Wells 

Fargo Financial is a wholly-owned subsidiary. 

Chairwoman WATERS. Are all of your loans initiated by loan officers that work in these entities? 

Mr. BLACKWELL. If you mean are all of our loans originated as 

in the loan officer takes the loan application— 

Chairwoman WATERS. Yes. 

Mr. BLACKWELL. —the answer to that is no. We have—and our 

primary origination source is retail, in which loan officers take the 

loan applications. But we also have a wholesale unit which originates loans through mortgage brokers who can deliver loans to us. 

And we have a correspondent unit that buys loans from mortgage 

bankers, and those three units all do mortgages for Wells Fargo. 

Chairwoman WATERS. What percentage of your loans, your 

subprime loans, are originated by mortgage brokers? 

Mr. BLACKWELL. I am sorry. I don’t have that information. I can 

tell you that more than half of our loans were originated through 

our retail channels, but I do not have the percentage of loans that 

were done through our wholesale channels. 

Chairwoman WATERS. What about you, WaMu? 

Ms. ALBON. We also do business through licensed brokers, and 

a large percentage of our subprime loans that we currently service 

were originated through mortgage brokers, and then some were 

purchased from sellers. 

Chairwoman WATERS. What percentage again? 

Ms. ALBON. I don’t have that number on me, but I can go back 

and get that information. 

Chairwoman WATERS. Can either of you tell me—can you trace 

whether or not your foreclosures are more tied to or related to the 

loans that were initiated by your banking operation or by the operations of the mortgage brokers and the mortgage bankers, others 

that were initiating for you? 

Ms. ALBON. We would internally have that data. 

Chairwoman WATERS. Well, I know you would have it internally, 

but can you tell me? 

Ms. ALBON. I do not have it with me right now. 

Chairwoman WATERS. But is this something that you can publicly disclose? 

Ms. ALBON. I will go back and check on that. 

50

Chairwoman WATERS. Yes, sir. 

Mr. BLACKWELL. I apologize. I don’t have the exact numbers, but 

I do know that the performance of our portfolio originated directly 

by our loan officers is better than that originated by mortgage brokers that delivered in to us. 

Chairwoman WATERS. At any point in time leading up to this crisis, did you know and understand that? 

Mr. BLACKWELL. I do not have the answer to that personally. 

Chairwoman WATERS. Okay. Let me just move on to Mr. 

Deutsch. Mr. Deutsch, did you say what I heard Mr. Leonard say? 

Was it true that you said that the servicers don’t get paid for doing 

the workouts on foreclosures? 

Mr. DEUTSCH. I am sorry. As much as I would like to have the 

resources of Deutsche Bank, I think that is who he was referring 

to, not Tom Deutsch. 

Mr. LEONARD. That is correct. 

Chairwoman WATERS. Oh, okay. 

Mr. LEONARD. It was a Deutsche Bank official that— 

Chairwoman WATERS. Oh, okay. 

Mr. LEONARD. —I was quoting. 

Chairwoman WATERS. All right. I am sorry. 

Mr. LEONARD. Not Mr. Deutsch. 

Chairwoman WATERS. I just saw Deutsch there, and—

Mr. LEONARD. You have seen one Deutsch, you have seen them 

all I think. 

Chairwoman WATERS. That is right. That is right. So but since 

you are an expert in this area, is this a problem? 

Mr. DEUTSCH. Could you repeat the question? 

Chairwoman WATERS. The question is, because you understand 

and know you are the forum, and you have under your umbrella 

all of these servicers, have you heard or have you learned that they 

do not get paid for doing workouts? That it is too costly, it is too 

time-consuming, that it is not—you don’t have any incentives for 

doing these kinds of modifications or workouts. Have you heard 

that said before? 

Mr. DEUTSCH. I have heard that said before, and personally having, for better or for worse, drafted many of these pooling and servicing agreements, quite familiar with many of the provisions that 

are applicable, I guess I would respond I guess with two notes. Is 

that, first, the servicer does have an incentive to continue servicing 

and not foreclose or create some sort of short sale arrangement, because they are continuing to receive a servicing fee for servicing 

that loan ongoing. 

So if they were to—to say that they are not paid to actually do 

a loan modification misses the point that they will continue to receive a servicing fee for servicing that loan going forward. 

Secondly, is that they— 

Chairwoman WATERS. No, no, we understand that. 

Mr. DEUTSCH. Sure. 

Chairwoman WATERS. We understand that if they continue to 

service the loan they are going to get paid. So that is the incentive 

for wanting to service rather than—well, you said it. If you do the 

workout, and it stays on the books, then you do get paid for it. So 

what point were you making, Mr. Leonard? 

51

Mr. LEONARD. I was simply sort of reiterating this comment from 

my friends at Deutsche Bank as opposed to Mr. Deutsch that— 

Chairwoman WATERS. Yes. 

Mr. LEONARD. —that, in fact—that from this person’s perspective 

that the incentives were not necessarily aligned and moving in the 

direction of making sure that the servicers were going to be striving for to deliver modifications rather than foreclosures. And combined with the risk of investor lawsuits and other complications, 

the default may very well still be easier to do—to accept a foreclosure, have the loan off the books, than it is to go through the 

effort of doing a workout. 

Chairwoman WATERS. Mr. Deutsch, are you guys worried about 

liability? Is there something that needs to be done to relieve you 

of that concern of liability based on the contracts that you have 

with the investors? 

Mr. DEUTSCH. Absolutely, liability has been raised as an issue, 

and I would respond with two notes, is that servicers have indicated a concern if they do too few loan modifications that investors 

and mortgage-backed securities could sue them for that, but they 

have also noted—servicers—in the same breath that if they do not 

enough loan modifications that investors could also sue them for 

not doing enough loan modifications, because they haven’t modified 

to an extent that would maximize the net present value of the 

trust. 

Chairwoman WATERS. They could be. Do you know of any 

servicers who have been sued? 

Mr. DEUTSCH. I am not personally aware of lawsuits that have 

been filed. Most of those would be private litigation that I— 

Chairwoman WATERS. But in a forum where you are looking to 

make sure that you strengthen the industry and protect your investors and do the work that they—you would know whether or not 

there was a rash of— 

Mr. DEUTSCH. Certainly, there has been, as far as I am aware, 

no rash of suits as of yet. But I would note that it is—there is always litigation risk. Absolutely. But that is— 

Chairwoman WATERS. In life. 

Mr. DEUTSCH. —life in the capital markets. 

Chairwoman WATERS. Yes. 

Mr. DEUTSCH. Servicers, when they sign up for these agreements, they do have to take those risks, the risks associated with— 

Chairwoman WATERS. Have you made available—maybe my staff 

would know—a copy of these kinds of service agreements that are 

worked out between the investors and the servicers? Have you seen 

these kinds of agreements? 

Mr. LEONARD. My colleagues have reviewed these pooling—a 

sampling of these pooling and servicing agreements, as well as 

many other Wall Street firms that have reviewed them and— 

Mr. DEUTSCH. Ms. Waters, I might note you can go to the sec.gov 

Web site, and within that Web site is a filing of all pooling and 

servicing agreements on publicly-issued securities, so you can look 

at any particular issue through that Web site. 

Chairwoman WATERS. Thank you. And I would instruct my staff 

to do that. We are going to gather those and take a look at them 

and see what you are talking about. 

52

One last thing. You mentioned that in these workouts that we 

are still trying to find, you know, all of these workouts that have 

been done. 

Mr. DEUTSCH. Sure. 

Chairwoman WATERS. But one of the things you look at is whether or not there is impaired credit. 

Mr. DEUTSCH. Correct. 

Chairwoman WATERS. Now, don’t forget these are workouts that 

are being done by people who have already been extended credit. 

Mr. DEUTSCH. Correct. 

Chairwoman WATERS. They got into a teaser loan. 

Mr. DEUTSCH. Correct. 

Chairwoman WATERS. So did the credit become bad after they 

gave them the loan, or when did they have such bad credit that 

they can’t do a workout to remedy the risk that they are now involved in? 

Mr. DEUTSCH. Sure. I might distinct out between credit and payment on their mortgage payment. I think it— 

Chairwoman WATERS. Well, they have been in this for 6 months. 

Mr. DEUTSCH. Okay. 

Chairwoman WATERS. They got a teaser rate. 

Mr. DEUTSCH. Okay. 

Chairwoman WATERS. They are in for 6 months. It is going to 

reset. Are you saying the credit went bad in 6 months? 

Mr. DEUTSCH. No. What we would—what we are proposing, and 

through I think all of the different proposals that you have heard, 

both from Chairman Bair as well as others, is that if they are current in their introductory rate, and their credit hasn’t taken a significant or drastic slide, that they would be eligible for either refinancing when they come up upon their reset, or that upon that 

reset they would receive a loan modification. 

Chairwoman WATERS. So you do support Chairman Bair’s recommendation to freeze the ARMs at the starter rate? 

Mr. DEUTSCH. I think there is a lot of nuances associated with 

that statement. 

Chairwoman WATERS. Well, just the general idea. Do you support 

that? 

Mr. DEUTSCH. As a general idea, the American Securitization 

Forum has come out in our statement in June noting that loan 

modifications are extremely important and should be done on a 

loan-by-loan basis. But let me quality that. By streamlining the 

process of evaluating the borrower characteristics—and there is 

many different metrics that can be done to make that a very efficient and fast process, and I think over the—in the very near future you will see the industry working hand in hand with the Federal regulators— 

Chairwoman WATERS. Well, let me just say that we are way past 

101 Loan Modifications. It is too slow, it is too time-consuming, the 

consumers are not getting the information, we don’t see the kind 

of outreach that we are hearing about today. Chairman Bair has 

a proposal to say, ‘‘Let us do it in a significant way. Let us just 

come up with an agreement that we are going to freeze these 

ARMs at a starter rate.’’ You are telling me you are not prepared 

to say you support that today? 

53

Mr. DEUTSCH. I think one could— 

Chairwoman WATERS. Yes or no. 

Mr. DEUTSCH. One— 

Chairwoman WATERS. I want to be nice. 

Mr. DEUTSCH. I agree. I think the statements that Chairman 

Bair has made have indicated on a specific basis that loan-by-loan 

analysis, even under her proposal, still needs to be done on a loanby-loan basis, but that systematic criteria can be used. I think they 

are the exact same approach, but different nuances in the words 

have made them seem as if they are different approaches. 

Chairwoman WATERS. Well, I would hope that at some point in 

time our subcommittee, and perhaps our entire committee, is going 

to make it very clear where we stand on the idea, and we are not 

going to nuance it. We are going to want some real action. 

I know I have taken a lot of time here, but you are extremely 

important to solving this problem. And I have been wanting for us 

to get to you guys to see what you were doing, what you were initiating. I am concerned about the liability issue, and I am concerned 

about any other obstacles to doing these workouts that would 

freeze these ARMs. 

And so we have a lot of work to do, as I can see, but you could 

be very helpful in helping us to understand how best to do it, and 

supporting a real proposal by which to get it done. 

Now, having said that, I am going to wrap up, so that my colleagues can get their questions in. How many of you in your outreach, not your national town hall meetings, but you know—Countrywide, for example, you hold most of your paper, is that right? 

Mr. SAMUELS. Yes. 

Chairwoman WATERS. So you are doing your own servicing, is 

that right? 

Mr. SAMUELS. Yes, ma’am. 

Chairwoman WATERS. So your people are sending out the notices 

every month? 

Mr. SAMUELS. We are not only sending out notices, but we are 

also calling. 

Chairwoman WATERS. When the notice goes out, for whatever 

reason, on that loan, what is your organized systematic way of 

making sure that everybody is getting an invitation, either notifying them that— 

Mr. SAMUELS. Right. 

Chairwoman WATERS. —the loan is going to reset— 

Mr. SAMUELS. Right. 

Chairwoman WATERS. —or that they are in trouble already and 

come in and they can get a modification consideration? 

Mr. SAMUELS. As I mentioned, we have several notices that go 

out—180 days, 90 days, 45 days—before the reset. And we do several things on the notice. We say, ‘‘If the interest rates at the date 

of the reset are what they are today, this is what your payment 

would be.’’ So somebody could see, compare what their existing 

payment is, to the payment reset. And we say, ‘‘If you have an 

issue with what is going—you know, with this reset, please call us, 

please call the Housing Preservation Foundation, NeighborWorks,’’ 

you know, one of those organizations. 

54

And we also call—we also call these borrowers, because sometimes when an envelope comes, as you know, we get a lot of junk 

mail. When an envelope comes, sometimes people may not pay attention to it. So in order to try to make sure that people are aware 

of the coming reset, we also make phone calls. 

Chairwoman WATERS. You made an arrangement with a nonprofit organization to help you to do what? 

Mr. SAMUELS. Yes. That is—well, we have a number of arrangements, but the one that I think you are referring to is— 

Chairwoman WATERS. NACA? 

Mr. SAMUELS. Yes, the Neighborhood Assistance Corporation of 

America. 

Chairwoman WATERS. What is that arrangement? 

Mr. SAMUELS. The arrangement that we have there is where people come to NACA. What NACA does is they do counseling. 

Chairwoman WATERS. How do they get to NACA? 

Mr. SAMUELS. They get to NACA a variety of ways. they—well, 

we are actually doing some advertising, are going to be doing some 

advertising. 

Chairwoman WATERS. How much money have you put into paid 

ads? 

Mr. SAMUELS. To paid— 

Chairwoman WATERS. On television. You know, the same kind of 

ads where you say, ‘‘Come to Countrywide and get this loan.’’ 

Mr. SAMUELS. Right. 

Chairwoman WATERS. How many of those have you done that 

say, ‘‘Come to Countrywide and get this loan modification?’’ 

Mr. SAMUELS. We haven’t done any of that yet. 

Chairwoman WATERS. Well, that is what I thought. And not only 

have you not done any, but you are still spending money on ads 

to say, ‘‘Come and get this loan,’’ and you are still doing direct 

mailings. And those mailings look like some of the same mailings 

that went out prior to this crisis that has created this problem. I 

don’t get it. 

Mr. SAMUELS. Well, Congresswoman, we are still—we still want 

to make loans to people who can qualify for loans, and we think 

that that is still important. 

Chairwoman WATERS. No. We want you to do that. 

Mr. SAMUELS. Yes. 

Chairwoman WATERS. Except we don’t want you to do it the 

same way that you have done it. It was described here earlier that 

we were at a time and point, in minority communities in particular, where we were redlined. And we worked awfully hard—awfully hard—to open up these doors. 

Now we are being accused of not being appreciative, that we 

opened up the doors and you allowed us to get all of these loans, 

and it is not your fault that we are defaulting. However, everybody 

has to take some blame in this, and certainly the initiators have 

to take some blame in this, because what you did was you extended 

exotic products to people who thought they were able to realize the 

American dream and get a loan. They didn’t understand these exotic loans and these teaser rates and these interest only and these 

no-doc loans. 

55

And what I think I see is you are still advertising and soliciting 

on these exotic products. 

Mr. SAMUELS. No, we are not doing that. That is not—we are not 

doing that anymore, no. 

Chairwoman WATERS. What are you doing in your solicitations 

that is different? 

Mr. SAMUELS. Well, we are not doing—we are not doing 2/28s 

and 3/27s anymore. So these products—our subprime, you know, 

we are—our subprime products have been very, very significantly 

reduced from what they were. But I want to— 

Chairwoman WATERS. Do you have a way that you can document 

how many modifications you have done? 

Mr. SAMUELS. Yes. In fact, I have—I think we have been— 

Chairwoman WATERS. Is it public information? 

Mr. SAMUELS. Yes, absolutely. And we have been very—I think 

of all the lenders, we have been very, very forthcoming in terms of 

how many we have done. And it is in our written testimony, and 

I have also mentioned it in— 

Chairwoman WATERS. So you have made 18 million phone calls. 

Mr. SAMUELS. Yes. 

Chairwoman WATERS. And you have done what with 30,000? Did 

you do workouts? Did you do successful workouts? 

Mr. SAMUELS. We did 50— 

Chairwoman WATERS. Did you talk with 30,000 people? What did 

you do? 

Mr. SAMUELS. We have done—since the beginning of the year, we 

have done 55,000 workouts, meaning people stay in their homes. It 

is not—we do not include— 

Chairwoman WATERS. Does your workout include a modification? 

Mr. SAMUELS. Yes. Of the— 

Chairwoman WATERS. All of these have been— 

Mr. SAMUELS. No, not all of them have been modifications. There 

are other— 

Chairwoman WATERS. So you talked with some people— 

Mr. SAMUELS. But there are other kinds of workouts that are— 

Chairwoman WATERS. Yes, there are. There are a lot of them. 

There are some that result in modifications and some that don’t. 

Mr. SAMUELS. Yes. And in October— 

Chairwoman WATERS. How many modifications have come out of 

this 18 million phone calls? 

Mr. SAMUELS. Well, I will tell you, in October we have done 

11,000 workouts, and 9,000 of those 11,000 were modifications. 

Chairwoman WATERS. Okay. All right. I said I wasn’t going to 

get too tough with you guys, but, you know— 

Mr. SAMUELS. And we are prepared to be very open with the—

you know, our figures as to— 

Chairwoman WATERS. Okay. 

Mr. SAMUELS. —what we are doing in terms of our— 

Chairwoman WATERS. Okay. 

Mr. SAMUELS. —workout transactions. 

Chairwoman WATERS. I do appreciate that. This is such a serious 

problem. 

Mr. SAMUELS. Yes. 

56

Chairwoman WATERS. And so many homeowners are at risk. We 

recognize and appreciate that the industry is in business to make 

money. We don’t deny that, and that is okay. But we cannot be in 

a situation where we find that people have gotten involved over 

these exotic products and these loans, and they are going to lose 

the homes. Everybody tells us it is not in the investor’s best interest. Everybody tells us it is not in the lending institution’s best interest. 

Mr. SAMUELS. That is correct. 

Chairwoman WATERS. Then, why don’t we just fix it. 

Mr. SAMUELS. We are trying. 

Chairwoman WATERS. Why don’t we— 

Mr. SAMUELS. Yes. 

Chairwoman WATERS. —do something that is significant. For example, I bet you, Countrywide, you spend millions of dollars on ads 

on television. Put some of the money into soliciting people to come 

back to you and get these workouts. Think about it. You don’t have 

to answer me, but just think about it. 

With that, let me just move on. I can’t ask another question. 

Congressman Green, they belong to you. 

Mr. GREEN. Thank you, Madam Chairwoman. 

Does everyone agree that there were some lenders who took advantage of borrowers? If you agree that there were some, would 

you raise your hand, please, so that we can have you on record? 

Okay. Some lenders who took advantage of borrowers. 

All right. Now, if you did not raise your hand then, raise your 

hand now. That way we will—so everybody agrees. 

I ask this because when you ask a person to go back to the person that took advantage of you, sometimes it is difficult to negotiate that when you are saying, ‘‘Come back to me, and I am going 

to help you now.’’ Well, maybe you are, and maybe you aren’t, is 

what happens in the minds of many people. 

And I am not saying that you—do not personalize it. I am trying 

to give some notion of why people are not rushing back to the place 

where they perceive that they got into trouble. Why would you run 

back to trouble? People just don’t do that. 

Let us examine a couple of things. Is it better to allow the borrower who can afford the teaser rate, but who cannot afford the adjusted rate, to maintain the loan with a teaser rate? If you think 

it is better to allow the borrower who can afford the teaser rate, 

meaning he or she can continue to pay that rate, but they cannot 

afford to pay the adjusted rate, to let that borrower keep that teaser rate and stay in that home. Is it better to do that? Is that the 

better thing to do? If you think it is, raise your hand, please. 

Okay. Everybody seems to agree. Now, if you think that is the 

better thing to do—and I don’t want to just pick on one person, but 

Mr. Deutsch, why did you have such difficulty with the chairwoman’s question? Because that is in essence what she is asking. 

Why can’t you simply allow borrowers who can afford the teaser 

rate, but cannot afford the adjusted rate, to keep the adjusted rate? 

Mr. DEUTSCH. We absolutely agree with your statement. The 

issue is determining whether or not they can afford the reset rate 

or not, and that is not an easy thing to do. 

57

Mr. GREEN. Can I give you one example of how you can find out 

whether they can afford it? 

Mr. DEUTSCH. Sure. 

Mr. GREEN. They go into foreclosure. That is a pretty good indication. 

Mr. DEUTSCH. Absolutely. 

Mr. GREEN. People don’t want to lose their homes. So at the 

point that they start to go into foreclosure, because what we want 

to do now is get to people before they get there, but clearly when 

they get there that is pretty good evidence that they can’t afford 

it. So why not, at that point, at least suggest that, ‘‘Let me let you 

keep this teaser rate and keep this home.’’ 

Mr. DEUTSCH. I guess the answer is if you don’t do any kind of 

determination whether they can afford it or not, you go back to a 

characterization of a categorical loan modification, that everyone 

would get a loan modification— 

Mr. GREEN. I understand. 

Mr. DEUTSCH. —across the board. 

Mr. GREEN. I understand. But, look, let us assume now that you 

have done your due diligence. After due diligence, are you saying 

then that you would do this? This has— 

Mr. DEUTSCH. Absolutely. 

Mr. GREEN. After due diligence. 

Mr. DEUTSCH. Absolutely. 

Mr. GREEN. Okay. Now, let us examine the statement that no 

one benefits from foreclosures. The real question is, who really 

loses in foreclosures? Because we keep saying no one benefits, and 

that seems to give some air of comfort to certain institutions. But 

the question is, who benefits? 

You are familiar with PMI, correct, sir? 

Mr. DEUTSCH. Correct. 

Mr. GREEN. And you are familiar with MIP. 

Mr. DEUTSCH. MIP mortgage? Oh, correct. 

Mr. GREEN. Okay. Do you agree that MIP and PMI are designed 

to help the lender become whole in the event of a foreclosure? 

Mr. DEUTSCH. I am not sure I could make a firm— 

Mr. GREEN. Wait a minute. Hold on. Let us examine that now. 

Why does one acquire PMI? What is the purpose of it? 

Mr. DEUTSCH. One is to provide additional insurance to— 

Mr. GREEN. And what does that insurance do? 

Mr. DEUTSCH. It guarantees that to a certain extent some of the 

equity associated with that hump. 

Mr. GREEN. And who does it guarantee benefit? 

Mr. DEUTSCH. The guarantee ultimately would benefit the mortgage investor. 

Mr. GREEN. Would that be the lender, the investors? 

Mr. DEUTSCH. The institutional investors. 

Mr. GREEN. Okay. So if they have the benefit of PMI, do you 

agree that they are not going to be the big losers in this process? 

Because that is what PMI does. It helps them to avoid losing 

money. That is what MIP does. So when we continue to say, ‘‘No 

one really benefits,’’ we really are overlooking the fact that there 

are some who are not going to be the big losers. The big losers are 

the borrowers. 

58

The lenders get the benefit of MIP and PMI. The borrowers do 

not. Isn’t that true? 

Mr. DEUTSCH. Well, they do benefit, but they don’t benefit to the 

full extent of the principal amount. 

Mr. GREEN. Well, let us examine that statement. Doesn’t that depend on where you are in the loan process, in your repayment process? 

Mr. DEUTSCH. I think— 

Mr. GREEN. For example, if you didn’t—if you put down 10 percent, and you have a certain amount of equity in the property, 

when the lender forecloses, you get to sell the property, you get the 

benefit of PMI/MIP. So you do get pretty close to being whole in 

terms of your principal when you add those two together, if you 

have some equity in the property. 

Mr. DEUTSCH. I think the definition of ‘‘some equity’’ might be a 

concern there, because PMI oftentimes only covers, say, 10 percent 

of the equity. 

Mr. GREEN. Okay. 

Mr. DEUTSCH. Loss severities oftentimes on a foreclosed home 

will reach 60 percent, 40 percent. 

Mr. GREEN. Okay. All right. Then, let us take it this way. This 

will be my final question in this area, one more thing. Do you agree 

that the borrower walks away with zero while the lender or the investor walks away with something? 

Mr. DEUTSCH. They can walk—the lender does walk away with 

the principal, but it is usually somewhere in the range of, like I 

said, something along the 60 percent of the principal that may 

have extended to that borrower. 

Mr. GREEN. And to some extent, as was indicated by the gentleman—what is your name, sir? I am sorry. I can’t see it. 

Mr. LEONARD. Mr. Leonard. 

Chairwoman WATERS. Mr. Leonard. 

Mr. GREEN. Okay. Mr. Leonard, there are some conflicts in this 

process that will cause one element of the process to conclude that 

it is not to my advantage to foreclose right now, whereas another 

might conclude it is to my advantage to foreclose right now. Is this 

true? 

Mr. DEUTSCH. Again, there are—you would have to provide additional details and color. Again, it is very difficult to make a determination— 

Mr. GREEN. Okay. 

Mr. DEUTSCH. —on all of the different borrowers. 

Mr. GREEN. Let us go to one more real fast. The credit rating 

agencies—do you agree that there may be some conflict of interest 

as it relates to credit rating agencies in that they are paid by—who 

are they paid by? You tell me. 

Mr. DEUTSCH. Credit rating agencies are often paid by the 

issuers of the mortgage-backed securities. 

Mr. GREEN. Okay. And who are they rating? 

Mr. DEUTSCH. They are often rating the issuance of those mortgage-backed securities. 

Mr. GREEN. Is that the same person who is paying them? 

Mr. DEUTSCH. It is. 

59

Mr. GREEN. And is it to their advantage, just to the average person, to give a rating that will be pleasing, if you will, to the person 

who is making the payment or the entity making the payment? 

Mr. DEUTSCH. We don’t believe so. 

Mr. GREEN. You don’t believe so. You don’t believe that the person who is paying you dearly would like to have a favorable report 

from you? 

Mr. DEUTSCH. Absolutely not. And the rationale for that is that 

investors in these mortgage-backed securities—and, remember, the 

American Securitization Forum represents the institutional investors in these mortgage-backed securities. If you rate something 

once, or you rate something twice, or you rate something three 

times, in each of those times those ratings were incorrect. Institutional investors may lose some confidence in those ratings. So if 

you do that over an extended period of time, your word effectively 

is not your bond. 

Mr. GREEN. In fact, that is what has happened. 

Mr. DEUTSCH. There has been. Some of— 

Mr. GREEN. But that is what has happened in this market, because they rated those bundles higher than they should have and 

many of them are now paying a price for that, because their credibility is on the line. That is how we got into this. 

Chairwoman WATERS. Would you please discuss, if you will, this 

moment, the tranches? 

Mr. GREEN. The tranches, yes. 

Chairwoman WATERS. They were securitized, and they were 

placed in these tranches. Some of them were worse than others, 

and the investors took them. Why? 

Mr. DEUTSCH. I am sorry. Took what? 

Chairwoman WATERS. They took the bundle—mortgage-backed 

securities that were placed in tranches. And as I understand it, the 

tranches were good, bad, and not so good mortgages. And the investors took the not so good ones along with the good ones. Is that 

right? 

Mr. DEUTSCH. Absolutely. It is a fundamental premise of mortgage-backed securitizations is that you want to create different 

variations of risk. Over 90 to 95 percent of all mortgage-backed securities are AAA rated. Those are oftentimes the tranches that pension funds or that mutual funds will purchase. But lower-rated 

tranches effectively are tranches that will receive part of the waterfall effectively, is that once the higher ones are paid off, then the 

lower tranches will be paid. 

The reason mortgage-backed securitization works very well is it 

is able to divide up the risk. Pension funds— 

Chairwoman WATERS. In the lower-rated tranches, were the high 

credit risks persons who had impaired credit? 

Mr. DEUTSCH. No. Those tranches are based on the entire pool, 

not on any particular borrower in that pool. 

Mr. GREEN. But if you have a tranche A as opposed to a tranche 

F, and let us assume that A is a better rated tranche— 

Mr. DEUTSCH. Correct. 

Mr. GREEN. —if you have a tranche A as opposed to a tranche 

F, which is more likely to accept foreclosure as a remedy? 

Mr. DEUTSCH. Neither. Neither benefit from foreclosure. 

60

Mr. GREEN. No, no, not benefit. I said accept the foreclosure. 

Mr. DEUTSCH. Which is more likely? 

Mr. GREEN. Yes. 

Mr. DEUTSCH. I think you would have to ask that institutional 

investor. 

Mr. GREEN. But would not the person in tranche A—well, let me 

ask this way. Would the person in tranche A have a greater 

amount of benefit in a foreclosure than a tranche F? 

Mr. DEUTSCH. I think there are different incentives for different 

investors along— 

Mr. GREEN. But let us just talk about money as the incentive. 

Mr. DEUTSCH. Sure. 

Mr. GREEN. The money from a tranche A foreclosure is larger 

than the money from a tranche F. 

Mr. DEUTSCH. No, because all of the funds are pooled into the 

same entire pool. So the tranche A, you could argue, that over the 

extended period of the actual security, which extends anywhere 

from 15 to 30 years, say, depending on the amount, the length of 

the loans that are backing that security, so over those 30 years, the 

net present value of having that mortgagee paying the entire 

amount, over time both class A and class F would benefit from that 

borrower continuing to pay and stay in that home. 

Mr. GREEN. Madam Chairwoman, if I could have just 30 seconds. 

But let us talk about an immediate foreclosure we are talking 

about within this period of time where you have the teaser rate, 

and then you move into the adjusted rate that you cannot pay. 

Mr. DEUTSCH. Right. 

Mr. GREEN. All right. In that period of time, the tranche A holder, does the tranche A holder benefit to a greater extent than the 

tranche F? 

Mr. DEUTSCH. In that period of time? 

Mr. GREEN. Yes. Because that is really what we are talking 

about. That is the period of time we are talking about. 

Mr. DEUTSCH. I think a more appropriate way would say that 

they suffer less loss— 

Mr. GREEN. Okay. They suffer less loss. All right. I will adopt 

your terminology. 

They suffer less loss. Okay. If they suffer less loss than the 

tranche F, do you agree that the person who is holding the tranche 

F, that this person may have some conflict when you are trying to 

decide whether you should do this, and you are talking to your investors. The modifications, as the Chair has indicated, that is when 

you run into these conflicts, because they have different levels of 

interest. Do you agree? 

Mr. DEUTSCH. They have different levels of interest, but I would 

you to the American Securitization Forum statement in June of 

2007, where we specifically addressed this issue. It is that 

servicers, when they service mortgage loans, they are serving for 

the net present value of the entire trust. They are not, and should 

not, be looking to the implications on any individual class within 

that trust. 

Mr. GREEN. No, but the servicers, in doing due diligence, they 

will consult with the investors. Servicers don’t just do this without 

consulting investors. True? 

61

Mr. DEUTSCH. They have their pooling and servicing agreements. 

Mr. GREEN. Well, you just talked about lawsuits a minute ago. 

Mr. DEUTSCH. Sure. 

Mr. GREEN. Now, do you think servicers are doing this without 

consulting investors? 

Mr. DEUTSCH. Absolutely. Servicers do talk to the investors who 

are purchasing those. 

Mr. GREEN. Okay. That is when they get the intelligence that we 

just talked about. 

Mr. DEUTSCH. Sure. But they have a contractual obligation to 

service in the best interest of all of the security holders, not any 

individual tranche. 

Mr. GREEN. The chairwoman has given me the proper terminology: tranche warfare. 

Have you heard of that term? 

Mr. DEUTSCH. I have heard that term used— 

Mr. GREEN. The various tranches in mortgage-backed securities 

resist loan modifications that might disparately affect their particular slice of that security. That is what we have been talking 

about. 

Mr. DEUTSCH. Sure. 

Mr. GREEN. So we have to be careful when we say, ‘‘No one benefits.’’ While that may be true, there are some who benefit a little 

more than others, or some who don’t suffer as much as others. Do 

you agree? 

Mr. DEUTSCH. Well, I think, again—yes, absolutely I agree. 

Mr. GREEN. And that is what is creating a lot of—all I am trying 

to get you to do is help people to understand why it is difficult for 

the foreclosure to take place, for—excuse me, for the modification 

to take place. Do you agree that is a part of the difficulty? 

Mr. DEUTSCH. I think that has been raised, the consideration, 

and that there are some servicers who have expressed that concern. But again, going back to the point I made to Ms. Waters earlier, is that at the end of the day servicers do take litigation risks. 

They are— 

Mr. GREEN. All right. Let me just close with this. If you are familiar with the tranche discussion that we just had, raise your 

hand, if you understand tranches and you are on this panel and 

you understand tranches? Okay. Now, those of you who understand 

tranches, let me ask you, do you agree that these various level of 

tranches do provide difficulty, cause difficulty in trying to modify 

these loans? If you do, raise your hand. 

Yes, sir. 

Mr. BLACKWELL. It is a complicated issue. Is there— 

Mr. GREEN. I understand. 

Mr. BLACKWELL. I barely understand tranches, I will tell you 

that, but it is a complicated issue. What I will say is that it is very 

important for us all in this room to ensure that we preserve not 

only homeownership of those who own homes, but those who will 

in the future. 

Mr. GREEN. Sir, we passed that when we had opening statements, so we are with you there. 

Mr. BLACKWELL. Okay. 

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Mr. GREEN. But no—no disagreement. What we are trying to do 

now is get some intelligence out that we have acquired about what 

is really happening with these investors and how these investors 

are sometimes at odds with each other over what should be done, 

and that is what creates a problem with restructuring some of 

these loans. Do you agree with that? 

Mr. BLACKWELL. What I will say is it is very important that we 

get the investors on the same page with the lenders in the— 

Mr. GREEN. I agree. But to get them on the same page by implication means that they are not on the same page. Do you agree 

with that? 

Mr. BLACKWELL. Yes. 

Mr. GREEN. Okay. That is what we are talking about. They are 

not on the same page. 

Mr. Samuels, do you agree that many of them are not on the 

same page? 

Mr. SAMUELS. Well, no, I agree with what Mr. Deutsch said 

about the fact that as a servicer we have an obligation to try to 

maximize the total return on that security. And so whether you are 

tranche A or tranche F, we are trying to maximize the present—

the net present value of the cashflows on that total security. How 

it gets distributed is a function of the— 

Mr. GREEN. Do you agree that a servicer does not have the authority to dispose of the loan as he—as the servicer sees fit without 

consulting the investor? 

Mr. SAMUELS. It depends on the pooling and servicing agreement. 

Mr. GREEN. Okay. But do you agree that most of those agreements would require the investor have some input? 

Mr. SAMUELS. Some of them do, and some of them give delegated 

authority. 

Mr. GREEN. Let us talk about most. Most lawyers don’t write 

agreements so that the investor does not have some input. Do you 

agree? 

Mr. SAMUELS. Oh, well, I don’t know. I can’t—I don’t know the 

answer to whether most do. 

Mr. GREEN. Okay. 

Mr. SAMUELS. Mr. Deutsch could probably answer that better 

than I can. 

Mr. DEUTSCH. Thank you, Sandy. I am going to remember that. 

Mr. GREEN. All right. Thank you, Madam Chairwoman. 

And, listen, I thank all of you for your kindness in trying to help 

us to get this information out. Thank you very much. 

Chairwoman WATERS. Thank you very much, Mr. Green. 

All right. Ms. Richardson? Before you start your question, let me 

just say that Councilman Bernard Parks, who is very interested in 

this issue, just came in. Thank you very much. 

Mr. Parks, we appreciate your being here. 

Ms. Richardson? 

Ms. RICHARDSON. Yes. Thank you, Madam Chairwoman. 

A couple of questions. Regarding Countrywide and some of the 

questions that were asked, it was stated that you make approximately 18 million phone calls. Of those 18 million calls, 55,000 

63

were workouts, and of that 29,000 were loan modifications. What 

happened to everyone else? 

Mr. SAMUELS. Well, don’t forget that these are calls made to people who are 30 days down, 60 days down, so it is not—you know, 

we make collection calls, and so we remind people that they have, 

you know, payments that are due, and so not all of the calls: (a) 

relate to people who are, you know, in distress; and (b) not all of 

them are answered. And so we oftentimes have to make multiple 

calls before we contact the borrower. 

Ms. RICHARDSON. Well, according to your testimony, you made 18 

million calls, and I think you reached 2.2 million, which is approximately a little more than 10 percent. I wouldn’t call that good. I 

wouldn’t rate that as being good, 10 percent. 

Mr. SAMUELS. Well, I mean, we can only do as well as the person 

on the other end of the line. 

Ms. RICHARDSON. Well, no, that is if you are only relying upon 

phone calls. 

Mr. SAMUELS. Well, no, we are not. 

Ms. RICHARDSON. Or DVDs. 

Mr. SAMUELS. We are not only relying on that. We are also relying on the mail, etc. 

Ms. RICHARDSON. Okay. You are kind enough to actually share 

your information, so I want to make sure that we are not, you 

know, overly on your end. So I would like to hear a little more from 

Ms. Albon and Mr. Blackwell. My concern is—and the chairwoman 

also alluded to this as well—what are you doing beyond the phone 

calls and beyond the mail? 

I have talked to constituents who, when they are in this particular situation, they are not only receiving mail from you, they 

are receiving mail from a hundred other people who are suggesting 

that they consider working with them to resolve their funding problem. So beyond the mail, and beyond the phone calls, what specifically are you doing to help your borrowers? 

Ms. ALBON. Well— 

Ms. RICHARDSON. Besides processing a default. 

Ms. ALBON. We understand. We are very active with HOPE 

NOW, Neighborhood Housing Works, other—even ACORN in some 

areas, trying to work with them to help reach a lot of these customers. We have funded some of—as I believe Countrywide and 

Wells have—funded some of the national advertising of the Hope 

foreclosure prevention effort. And we are finding that to be very 

successful. 

Ms. RICHARDSON. Okay. With all due respect, you know, you 

have talked about HOPE NOW and Neighborhood Services, and on 

and on and on. There are over 10 million people alone in Los Angeles, over 10 million, and so to expect that those three or four organizations that you are referring to—ACORN, and so on—are reaching the millions and millions of people who are out there is just not 

adequate. It is not sufficient. 

So what we are looking for is a greater commitment, an additional commitment, exploring other things, whether it is going to 

a person’s home. These are things that might be a little expensive, 

but as we have all talked about the expenses are bearing upon evVerDate 0ct 09 2002 18:38 Feb 21, 2008 Jkt 040433 PO 00000 Frm 00069 Fmt 6633 Sfmt 6633 K:\DOCS\40433.TXT HFIN PsN: TERRIE
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eryone—you as a provider and also the borrower as well. So are 

you doing visits? 

Ms. ALBON. Yes. 

Ms. RICHARDSON. Have you invested—for example, as the Congresswoman said, it is quite clear that there are specific pockets of 

areas that are having a higher incidence than others. So are you 

doing ads? Just like you are advertising for people to utilize your 

loans, are you doing ads in those particular areas to reach out to 

those particular borrowers and say, ‘‘Hey, if you happen to be reading such and such paper, or on such and such television, or cable,’’ 

or, etc., what other aggressive things are you prepared to do to 

reach out to the borrowers? 

Ms. ALBON. We are actually using—contracting with servicers to 

go out to the borrowers’ homes, knocking at the door, leaving flyers 

if they are not available. We are really using all of those different 

types of efforts. 

Ms. RICHARDSON. So would you say out of your borrowers who 

are in this particular position, 100 percent will receive contact by 

a visit? 

Ms. ALBON. Probably not 100 percent, and we are still having 

trouble reaching more than 50 percent in terms of actually getting 

them to engage with us. 

Ms. RICHARDSON. So if you are only reaching 50 percent, and yet 

you can reach them to get payments, or at least prior to this situation, what other steps do you plan on taking to increase that 

amount? 

Ms. ALBON. That is constantly under consideration, and I can go 

back and get more detail on that. But we are constantly looking at 

new ways to do a better job of reaching our customers. 

Ms. RICHARDSON. Okay. Well, what I heard from this subcommittee, the chairwoman requested that you consider looking at 

some of your advertising dollars that you are spending in terms of 

reaching out for people, that you consider using those advertising 

dollars in more creative ways specific to these communities, not advertising dollars to the world, to the United States, but to these 

specific communities. 

We are also asking that you consider visits, etc., so you explore 

those. There were also a few other recommendations that were 

given that we would like the three of you to consider, and I would 

like to hear the possibility of you accepting them. One would be extending the time notices of defaults from 90 days to 150 days. The 

second would be extend time periods for notice of trustee sales from 

30 days to 60 days. 

And then, something Ms. Thomas mentioned that I have heard 

quite a few constituents talk about, and that is is that there is an 

unwillingness to accept partial payments. So let us say you get on 

the phone with someone, and you begin to talk to them about doing 

a workout or whatever. 

Unless they are prepared to pay the $20,000, and until a final 

workout or loan modification is done, there is an unwillingness to 

accept partial payments. So that would be also a consideration for 

you to review with your appropriate companies— 

Ms. ALBON. Okay. 

65

Ms. RICHARDSON. —of allowing partial payments while you are 

going through this modification period, so that instead of someone 

being $20,000 behind at the end, maybe they are only $10,000 behind. So then we don’t have this instance where they are having 

to spread $20,000 over the next 3 months, which they cannot afford. 

The other point would be, if I understood the gentleman from 

Countrywide, you are not using outside agencies, creditors, to collect, is that correct? 

Mr. SAMUELS. I am sorry. What was that? 

Ms. RICHARDSON. Are you using—are any of you, your three companies, utilizing outside agencies to collect these funds? 

Mr. SAMUELS. No, we have our own—we have our own collection 

groups. 

Ms. RICHARDSON. Mr. Blackwell? 

Mr. BLACKWELL. Yes, the same. We do all our collecting ourselves. 

Ms. ALBON. I will get that information. I am not 100 percent sure 

that in every pocket of the country, it is on staff, but I will check 

on that. 

Ms. RICHARDSON. Okay. So if it is on staff, some of the things 

we are hearing from constituents is that in addition to the amount 

that they are owed, the back payments of their previous months, 

additional fees are also being accumulated that they are being told 

that they have to pay in order to participate in these loan modifications. Does that apply if it is internal within your own organization? 

Mr. BLACKWELL. The only fees that we charge are fees that we 

incur through the process, and so I am not—I guess we would have 

to get into specifics, and I am not sure I am familiar with all of 

them. 

Ms. RICHARDSON. Do you know how much those fees come to on 

average? 

Mr. SAMUELS. No, I don’t. 

Ms. RICHARDSON. Okay. Because— 

Mr. SAMUELS. But they are not loan modification fees. I mean, 

we don’t charge for a loan modification, if that is what you are referring to. I mean, it could be that if someone is going through foreclosure, there are fees that you have to pay to newspapers, you 

know, for advertising or to attorneys in some States, you know, 

things like that. But there is not a fee for a loan—you know, to engage in a loan modification, there is not a fee. 

Ms. RICHARDSON. Okay. So even if a person has defaulted to the 

extent of 5 or 6 months, or whatever, you are not requiring additional fees, is that correct? 

Mr. SAMUELS. As I said, we are not requiring—if we are doing 

a workout with them, yes, that is correct. 

Ms. RICHARDSON. Okay. All right. My last and final question has 

to do with we really are looking for a commitment. Some of the solutions when I heard Mr. Leonard speak, it sounded very similar 

to what I hear in my district, and that is a lot of the solutions that 

you are proposing are just simply other alternatives to pay, whether it is spreading out of 5 months or 6 months, but very few are 

situations of—where I read in some of your testimonies of offering 

66

forgiveness of debt, extending the amount that is owed over a 

longer period of time—for example, more than 6 months. 

So our constituents, oftentimes we are going to need other creative means to be expressed, and I don’t feel to the satisfaction that 

you are exploring all of those to the extent that you could. So I 

would be looking for further action beyond what has happened to 

this date. 

Chairwoman WATERS. Okay. 

Ms. RICHARDSON. And you will get back to the chairwoman about 

the other request? Thank you very much. 

Chairwoman WATERS. Thank you very much. 

This panel is now dismissed. Let me say to the homeowners who 

were here today, thank you for spending the time. I understand 

that you really needed to leave a little bit earlier. I wasn’t aware 

until recently, the last few moments, that you were staying past 

the time that you need to leave in order to go to work. 

I am interested in my staff following up with you, Ms. Thomas, 

even though it appears that you got some help. I am interested in 

the $5,000 fee that you paid, and I don’t know where that came 

from, who it is that—doing a modification or a workout for you. So 

I am going to ask my staff to follow up with you, because I would 

like to see what is being done. 

I thank all of you for being present here today. Mr. Deutsch, we 

are going to spend a lot of time on servicers. We think you can do 

a lot more. So I would hope that your Forum would provide the 

leadership to help us understand how to do a lot more, and I wish 

you would embrace Chairman Bair’s proposal without reservation, 

because it seems to me we could get a lot done that way. But we 

thank you for being here. 

I think we are going to extend an invitation to you to come to 

Congress, perhaps not only in a hearing setting but maybe in a 

caucus setting, where we can delve more into what you do. We are 

going to review service agreements. We are going to understand a 

lot more about them, so that we can get a better feeling of what 

you can and what you cannot do, and this whole liability question. 

But I want you to leave here knowing that I think my colleagues 

will agree with me we are interested in resets with the initial 

amount of the mortgage continuing through the life of that loan. 

We are really interested in that. Okay? 

Thank you all very much. 

Without objection, your written statements will be made a part 

of the record. 

We will now move on to panel number three. Some of our members may have additional questions for this panel, which they may 

wish to submit in writing. So without objection, the hearing record 

will remain open for 30 days for members to submit written questions to these witnesses, and to place their responses in the record. 

Panel three, if you will come forward, I will begin the introductions. Again, your written statements will be made a part of the 

record, and you will be recognized for a 5-minute summary of your 

testimony. 

Mr. William Heedly, homeowner, Carson, California; Ms. Hee 

Suk Cho, homeowner, Camarillo, California; Mr. Ed Smith, Jr., vice 

president, California Association of Mortgage Brokers; Mr. 

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LeFrancis Arnold, vice chair, Affordable Housing Committee, California Association of Realtors; Ms. Yolanda Clark, president-elect, 

Multicultural Real Estate Alliance for Urban Change; Ms. Tara 

Twomey, of counsel, National Consumer Law Center. Is that 

‘‘Twomey?’’ 

Ms. TWOMEY. ‘‘Twomey.’’ 

Chairwoman WATERS. All right. Thank you. Ms. Margaret 

Frisbee, specific district director, NeighborWorks America; and Ms. 

Evalyn Burnie, leader, Los Angeles ACORN. So we have a big 

panel here on this fourth panel. 

We want to thank all of you for coming, and we are going to start 

with Mr. Heedly. Is that the correct pronunciation? He is not here 

yet. Okay. He is here. There he is. How are you doing? 

Mr. HEEDLY. I am doing fine. 

Chairwoman WATERS. We are going to start with you. 

Mr. HEEDLY. Okay. 

Chairwoman WATERS. Thank you very much. Would you pull the 

microphone right up and share your testimony with us? 

STATEMENT OF WILLIAM HEEDLY, HOMEOWNER, CARSON, 

CALIFORNIA 

Mr. HEEDLY. First of all, I would like to thank you, Chairwoman 

Waters, and this subcommittee for inviting me, you know, to tell 

my story. 

Chairwoman WATERS. Yes. 

Mr. HEEDLY. In March of this year, I was put into a loan. I was 

tricked into a loan by a guy that I know who I thought was a Realtor, because he had done two loans for me before. I thought I was 

in a fixed loan, but come to find out, I was in an ARM loan. And 

after we signed the papers and the deal went through, it wasn’t 

like the original deal, because he called me and told me, ‘‘Hey, this 

is not a friendship call. This is a business call. It is time to refinance.’’ I said, ‘‘Well, okay, if we can—if you can get my payments 

down, if you can pay my car off, then we can go, we can go with 

it.’’ Okay. So about 2 weeks down—2 or 3 weeks, he had gave me 

a call and said that he had paid my car off, but he probably 

couldn’t get the loan down—I mean, get the mortgage down, that 

it would probably go up $100 or $200. 

So me and my wife, we talked about it, and we agreed to go 

along with it, because, you know, like we had dealt with him before, and we trusted him. I know him. You know, I know him, and 

I didn’t think he would do something like this. 

Okay. So when the notary came out, he called me and told me 

that he wouldn’t be able to be there for the notary and to just go 

on and sign the papers. Everything is, you know, like how we had 

discussed. Okay. So it was my fault that I signed the papers without him being there. I admit to that. 

But after we got the coupons, you know, the mortgage and 

things, come to find out I have a second—a first and a second. 

Then, I have three choices to pay—the max, minimum, or the—I 

mean, the max, median, or the minimum. All I am able to pay is 

the minimum, which makes my interest goes up. So I went to him 

and I talked with him, and I asked him what could he do, you 

know, so he said, ‘‘Well, let me look at the paperwork.’’ 

68

I said, ‘‘Well, look, man, you know, I am trying to find out what 

the deal is he put me in, and I was in an ARM.’’ And the—I mean, 

the prepayment penalty is $13,000. ‘‘Why don’t you pay the 

$13,000, and then I can get somebody else to refinance.’’ He didn’t 

want to do that. So, you know, I was listening—the way I got some 

help, I was listening to Front Page. 

And they were talking about a meeting that they were having at 

Homeless Church, and I went to the seminar and I don’t—I filed 

a complaint against this guy with the State Department of Real Estate Complaints, and I found out he doesn’t even have a license. 

Operation Hope had called me, and I talked with Anne Marie, and 

she really was trying to help me, and she referred me to Dorothy 

Herrera, and here I am now. 

So, I am not in foreclosure, you know, but I want to try to do 

something about it before I get to foreclosure. And my mortgage is 

double, is upside down, and I feel so hopeless. You know, I need 

some help. 

Chairwoman WATERS. Thank you very much, and I am glad you 

came today. And we will see to it that you get some assistance. 

Mr. HEEDLY. Okay. 

Chairwoman WATERS. And I will move on to our next presenter, 

Mrs. Hee Suk Cho, and she has a translator with her. Thank you. 

STATEMENT OF HEE SUK CHO, HOMEOWNER, CAMARILLO, 

CALIFORNIA, ACCOMPANIED BY JOSHUA BYUNG AN, KOREAN CHURCHES FOR COMMUNITY DEVELOPMENT, SERVING AS A TRANSLATOR 

Mr. AN. Hi. This is Mrs. Cho, and I am going to be her translator. I am from KCCD, and I represent Korean Churches for Community Development, and we work for the Korean community to 

resolve these housing issues. 

As of now, the problem has not been resolved, and she is actually 

considering many options, including bankruptcy. She came to testify as to how she got into this. Back in August of 2005, she purchased a townhouse for $518,000 with a 10 percent downpayment. 

Because of her language barrier, she went to a Korean-speaking licensed broker. 

The agreement was that she would make a total payment of 

$1,500 a month. That loan included no penalty and $100 increments once a year for the next 5 years. Then, the broker told her 

that she could refinance within 2 years. So she was making a 

$1,500 a month mortgage payment. 

She was making payments to WMC Mortgage Company, and 

then in January 2006, a bill came from Countrywide. The bill included four options. First, to make a payment, and one of the options had $1,451 that is going to be added to the principal. So she 

contacted the original—the Korean broker, and then the broker 

told her to just make the option three payment, which now is the 

minimum payment and don’t worry about it. 

So the payment used to be $1,500. Now the minimum payment 

is $2,736, and that is—she didn’t know it at that time, but now she 

knows that it is a negative amortization, and $1,400 is being added 

to principal every month. So she continued to make that minimum 

payment of $2,700 for about a year. Meanwhile, because her payVerDate 0ct 09 2002 18:38 Feb 21, 2008 Jkt 040433 PO 00000 Frm 00074 Fmt 6633 Sfmt 6633 K:\DOCS\40433.TXT HFIN PsN: TERRIE
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ment jumped so high she was having very difficult time making a 

payment, so she looked for different sources to refinance but was 

not able to find anyone to refinance her loan. 

One thing that she found out through, you know, other sources 

is that she has been refinanced, and that included 3 years of prepayment penalty. So she was very confused at the time, so she 

went back to the Countrywide office and confirmed that the loan 

had been refinanced without her knowledge. 

She confirmed that the signature had been forged without her 

knowledge, and she couldn’t really do anything, because of penalties and because of high payments. She looked for help from the 

lawyer, but—and the lawyer told her that it is likely a fraudulent 

case and she could win the case, but she was very reluctant to hire 

a lawyer because of high cost, and the time that it takes for them 

to process and make the case. 

In the midst of all these troubles, there was another loan agency 

that approached her and claimed that if she signed the paperwork 

to give up her rights for the house to them, they would let her live 

in the house with her children and make a rent payment to them. 

She signed it. 

At the time, she thought she was making the right choice, because she wanted to save the house and live in that place with her 

children. But, still, she was very confused and not sure what was 

going on, so she found an ad in the local newspaper about KCCD. 

That is how she came to KCCD and asked for help. 

Through KCCD, she learned that the loan agency that approached her was fraudulent, so she actually canceled that contract 

with them. And we are still now trying to solve the problem. She 

is at a point where she is going to make decisions for bankruptcy 

or foreclosure for anything. 

I would like to say after this hearing, we are going to actually 

go meet with the Countrywide personnel to help her situation, to 

talk about it. And she is really desperate right now. She wants to 

get an answer today. If not, she is going to just go crazy. 

Thank you. 

Chairwoman WATERS. Thank you very much. And let me just say 

to you, Ms. Hee Suk Cho, that we certainly sympathize with you, 

and we are very sorry that you have been placed into this kind of 

a situation. And I wish that the Countrywide representative was 

still here. Are you here? Okay, fine. You have this case? You hear 

what she is saying? We need you to move on this very aggressively 

right away. 

My staff will follow up with you to make sure that we do everything that we can to help this consumer who has obviously been 

defrauded. All right? Thank you very much. 

Mr. AN. Thank you. 

Chairwoman WATERS. Staff, will you follow up with this? Thank 

you. 

Ms. CHO. Thank you. 

Chairwoman WATERS. We have that information. 

All right. We are going to move over to Mr. Ed Smith. And I 

should wait until the time for questions, but I have been hearing 

so much about these options that people are being given. Do you 

want to pay a little? Do you want to pay a lot? Or do you want 

70

to pay the minimum amount? I never heard of that before. So if 

you in your testimony could help us understand that, I would appreciate it very much. 

STATEMENT OF ED SMITH, JR., VICE PRESIDENT, CALIFORNIA 

ASSOCIATION OF MORTGAGE BROKERS 

Mr. SMITH. Absolutely. Thank you so much for giving us the opportunity to speak before this panel and yourself. You have been 

a very good supporter of our organization, and we hope we bring 

value to that relationship. 

Like I said, my name is Ed Smith, and I am the vice president 

of government affairs for the California Association of Mortgage 

Brokers. We represent the top 15 percent of licensed originators in 

California. We have criminal background checks, we have DOJ 

checks, we have pre-education, post-, and continuing education requirements. We are licensed originators in the State of California. 

We represent approximately 4,800 members. 

Today is one of the days that we really are happy to be able to 

bring value to our relationship in the process of explaining and 

working with homeowners such as Mrs. Cho here. From what she 

just articulated, it sounds like she also needs to talk to the California Department of Real Estate, because it sounds like some 

criminal— 

Ms. PETERS. I just gave her my card. 

Mr. SMITH. Okay. Oh, I didn’t know. I didn’t know Heather was 

back there. Because it sounds like some criminal activity has occurred. I wanted to bring just a few statistics to the table before 

I talk about our preserving homeownership initiative, but I also—

and I will also explain to you what that option ARM, negative amortization loan is, if you give me the time. 

At the end of the fiscal year of June of 2007, the California Department of Real Estate initiated 9,103 investigations which resulted in 1,382 licensed denials. Those are individuals who are trying to get in our business but were denied at the point of application. Of those investigations, 507 resulted in license suspensions 

and revocations for individuals in our business who have done 

things such as enumerated here with Ms. Cho. 

So I just want to applaud the California Department of Real Estate, BT&H, Ms. Peters, for being very aggressive in following up 

on these complaints. 

To give you a little bit of background about negative amortizing 

loans, which is—you will hear some of the time called K-option 

ARMs. This is the typical type loan that has been utilized in the 

last couple of years as a financing technique, as a direct result of 

the high cost of homeownership. 

What that negative amortization really means is that there are 

four payment options, which gives an option of the minimal payment which is due on the loan, which in many cases, in all cases, 

is not the minimum amount due just for the interest on that loan 

that month. So each month when an individual makes payment option number one, which is called the negative amortizing payment, 

there is an arrearage. There is a shortfall of interest that is not 

being paid on the balance of the loan. This is being added to the 

71

balance of the loan on a monthly basis. So, effectively, you are losing every month. You are adding on to your principal every month. 

Typically, payment option number two is an interest only payment, which is if you make that payment your balance will remain 

the same, you will not grow, but you will not also do any principal 

reduction. That is the interest only feature of payment option number two. 

Number three is typically a 30-year amortized payment, and the 

number four in certain cases is a 15-year amortized payment. What 

we are seeing here in the last couple of years is this product has 

been a very predominant product used in the marketplace, because 

it got people into homes that they really couldn’t afford. Many of 

those products were utilized with stated income and also using 100 

percent financing with no downpayment, no downpayment whatsoever. 

So when the market came down, values are declining, your balances on your loans are rising, and when those interest rates hit 

a certain percentage that is prescribed in your loan documents, 

usually 115 percent of the original loan balance, that loan recasts 

to a fully amortized payment at whatever the rate is at that time. 

This is what we call payment shock. This is what is killing consumers in this country, and especially in California, because we are 

such a high cost area here. 

This kind of dovetails into the high cost issue. Many of us realize 

that in California you cannot buy a property for under $417,000. 

This is one of the reasons why these products have been so prevalent with interest only, negative amortization, and some of the 

other exotic products that are out in the marketplace. 

We would encourage you to look at raising California and have 

it—raising California’s loan amounts and loan limits to be in a 

high cost area, Southern California as a high cost designated area, 

to put liquidity back into the marketplace so we can have sustainable, long-term loans. This is a critical, critical cog of the wheel to 

this problem. 

If we kind of move into what we are doing, Congressman Green 

mentioned a little earlier, what are we doing about going back and 

reaching back? Many people don’t go back to the same people that 

they had problems with. I am proud to say that our association is 

built of small businesses. We are mortgage brokers who live, work, 

worship, and work with the communities that we live in. 

We create long-term relationships to sustain our businesses, and 

we are actually, through our preserving homeownership program, 

are going right back into those communities that we serve, that we 

did business with, and actually explaining and working and trying 

to come up with workable solutions to keep people in their homes 

as a result of a reset or as a result of a loan product that is no 

longer palatable for that individual for whatever reason it is. 

We are the first organization that are loan originators that actually have created that program. We work with the Department of 

Consumer Affairs. We actually go out and do town hall meetings, 

and we work in those communities where people are losing their 

homes right now. We go back and we deal with these individuals, 

and we don’t run away from them after we do business with them. 

72

This program has been a success throughout the State of California. We have 19 chapters, approximately 4,800 members, we 

have meetings throughout the State on an ongoing basis, and we 

partner with other nonprofit organizations and ourselves and other 

legislators to reach back into those constituents’ neighborhoods and 

work with those legislators to try to bring some type of relief back 

to the communities to keep people in their homes. 

We have heard a whole lot of talk today about the results of the 

inactivity or not being able to have—consumers not being able to 

have regress once they call their loan servicers. I don’t want to beat 

that up. We already know that there is a problem when people 

reach out to their loan servicers. 

I am very proud today to see that the major loan servicers in this 

State are actually reaching back and proactively saying what they 

say they are going to do, and let us wait and see if they are going 

to do it. We are actually doing it. We are experiencing the same 

problems as those consumers do when they reach the telephone. 

[The prepared statement of Mr. Smith can be found on page 157 

of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Mr. LeFrancis Arnold, it is good to see you. 

STATEMENT OF LeFRANCIS ARNOLD, VICE CHAIR, AFFORDABLE HOUSING COMMITTEE, CALIFORNIA ASSOCIATION OF 

REALTORS 

Mr. ARNOLD. It is very nice to be here, and I want to thank you, 

Congresswoman Waters, and members of the Housing and Community Opportunity Subcommittee for inviting me today to speak on 

behalf of the California Association of Realtors on the issue of foreclosure prevention and intervention. 

My name is LeFrancis Arnold, and I am the owner and broker 

of LeFrancis Arnold Consulting, a Lynwood, California, firm specializing in all aspects of real estate, including FHA loans. I have 

been a member of the California Association of Realtors and the 

National Association of Realtors for over 30 years. I have been 

privileged to serve on a number of policy committees at both organizations. 

The California Association of Realtors is the largest State trade 

association in the country, with over 200,000 members. CAR’s 

members are the front line of California’s real estate market and 

have witnessed firsthand the devastating effects that mounting 

foreclosures could have on families and a community. Over the last 

2 years, the California housing market has experienced a significant correction, from a peak level of sales for both 2004 and 2005 

of 625,000 existing home sales have declined to an expected 

350,000 this year. 

At the same time, the rate of foreclosures in the State has gone 

from historic lows to return of the high experienced in the mid1990’s. Personally, I have seen more than a 40 percent decline in 

my business while peers in other parts of the State has experienced 

even greater declines. Many people have asked me, what is the 

cause of this downturn? 

With more than 30 years in the business, I can tell you no one 

single factor is to blame, and, therefore, no one single solution will 

73

help ease the current market downturn. Instead, a broad-based approach must be taken where all players in the real estate industry 

do their part, including Realtors. 

Now, more than ever, Realtors are working to keep families in 

their homes and maintaining strong communities. As a first point 

of contact for home buyers, often it is the Realtors that homeowners turn to for help when in trouble. However, every situation 

is unique, and, unfortunately, foreclosure is sometimes unavoidable. 

As the market began its current downturn in 2006, CAR began 

taking aggressive steps to provide the best tools to our members, 

including large pools of recently licensed Realtors in California who 

have never been through a market like this. Many of these agents 

have never performed a short sale, communicated with lenders on 

behalf of troubled homeowners to work out a loan on a REO, or 

sold a foreclosure property. 

As such, now CAR offers both short sale and foreclosure classes 

to members and non-members. CAR sponsors and applauds Governor Schwarzenegger’s lenders and servicers who have recently 

worked out an agreement for the fast loan modification, subprime 

mortgages as such. Proactive efforts such as these are an example 

of what is needed to stem the tide of foreclosure and ease the current turn down. 

Let me share this with you, in my experience of 30 years, we 

have been through this. We have been through similar situations 

like this when the interest rates went up in the 1980’s. Lenders 

must change their policies so that borrowers are not required to be 

delinquent on their mortgage payment before a troubled loan can 

be worked out. 

Many of my fellow Realtors have described frustration when contacting lenders on behalf of homeowners who realized that they 

would not be able to make their mortgage payment when their 

loans reset. The homeowner must be in delinquency before loan 

workout can be discussed. Additionally, lenders must address the 

current staff shortage in loss mitigation departments which are 

presently overwhelmed. 

For the government’s part, the Senate needs to pass, and the 

President must sign legislation to reform government housing programs intended to keep America’s housing market stable. That includes FHA and GSE reform. Increased FHA and GSE loan limits 

in high cost areas, better homeowner opportunities for the American veterans, mortgage debt cancellation relief, and subprime 

mortgage reform that balances strong consumer protection with the 

need to maintain a flow of capital to the housing market. 

In closing— 

Chairwoman WATERS. Okay. 

Mr. ARNOLD. —I would like to tell the subcommittee a story 

about a family of four who lost their home. This family was working with their agent and their lender’s loss mitigation department 

to get a short sale approved by the investment firm who purchased 

the loan. 

When the short sale was finally approved, it turned out that the 

investment firm’s foreclosure department had also approved the 

foreclosure sale. This is a simple example. They ended up losing 

74

their home. Lack of communication between the Mitigation Department and the Foreclosure Department. These are ongoing problems. That family lost their home. 

These are issues that we have to deal with, and we need to deal 

with them now. I want to thank you, Congresswoman Waters, for 

having this hearing here in Los Angeles, because California at this 

point is the foreclosure capital of the country. 

Thank you. 

Chairwoman WATERS. Thank you very much. 

Now we will hear from Ms. Yolanda Clark, president-elect, Multicultural Real Estate Alliance for Urban Change. 

STATEMENT OF YOLANDA CLARK, PRESIDENT-ELECT, MULTICULTURAL REAL ESTATE ALLIANCE FOR URBAN CHANGE 

Ms. CLARK. Thank you, Chairwoman Waters, and members of 

the Subcommittee on Housing and Community Opportunity for allowing me to testify at this hearing on foreclosure prevention and 

intervention. 

My name is Yolanda Clark, and I am president and broker of 

Golden Path Real Estate and Home Loans. I am also presidentelect of the Multicultural Real Estate Alliance for Urban Change, 

and have been president or vice president of several other organizations. 

There are four points that I wish to convey to this subcommittee 

today. The rippling effects of foreclosure are far more devastating 

than just to the homeowners or the lender; it affects the entire 

community. A large sector of the economy is hurting. Foreclosures 

are affecting both the consumer and the real estate community. 

What problems are perpetuating the situation? And what should be 

done to resolve the problem? 

The foreclosure crisis is not just a borrower and lender problem. 

Closed escrows in California were down 38.9 percent in September, 

and 40.2 percent in October. Brokers and lenders are being forced 

to reduce their staff, overhead, and some are going out of business. 

It has produced a trickle-down effect impacting all real estate affiliate businesses. Escrow, title, appraisals, termite companies, home 

warranty, home inspection, construction workers and developers 

are but a few of these businesses, not to mention the loss of revenue and fees generated to governmental agencies by closed transactions. 

Foreclosures have affected the local market by loss of equity. August to September was both the largest month-to-month percentage 

decline on record and the first year-to-year decline in more than 10 

years. The impact of foreclosure affects all tiers of the property—

of the market, I am sorry—including the high end. Well-qualified 

borrowers were affected by the lack of funds available for jumbo 

loans. 

Problems or obstacles have been encountered in trying to assist 

homeowners in foreclosure prevention, which was discussed earlier 

today. Difficulties in getting a lender on the phone and the loss 

mitigation department, lenders are further devaluating properties 

by cutting appraised values established by certified appraisers. 

I understand that the lenders must protect themselves in this 

market, but they are producing two negative results: One, clients 

75

and neighborhoods are being robbed of hard-earned equity; and, 

two, lenders are cutting appraised values more in lower income and 

minority neighborhoods. 

This affects seniors trying to get reverse mortgages, property 

owners trying to refinance, and the home buyer stability—desirability to purchase in devaluated neighborhoods. In other words, 

who wants to buy a home in a neighborhood that is going to be 

worth less than what you paid for it? Lenders have outsourced loss 

mitigation services as well as other related real estate services to 

foreign countries, further perpetuating job losses and the situation. 

What tools or resources do we need in order to overcome these 

obstacles? Education is one of the most important things that need 

to be accomplished. Education of the public should be provided by 

counselors that are licensed real estate professionals who understand the ramifications of what they are teaching or what they are 

saying to the client, and who are able to give a more complete picture of the total real estate process from understanding the types 

of loans available to foreclosure proceedings to evaluating the property. 

Although there are some really good licensed homebuyer counselors who have never purchased, listed, or sold, the licensed practicing real estate professional has more of a first-hand, in-depth experience and fully understands the mechanics of home-buying. Misinformation can hurt the consumer rather than help them. 

Financial and programmatic resources are needed to provide education and counseling to prevent foreclosure. Incentives are needed 

to assist lenders in working out pre-foreclosure solutions, thereby 

taking a positive, proactive approach to preventing foreclosures. All 

persons originating mortgages should be licensed, not just the companies. All legislation should be binding on all originators, regardless of the governing department. 

Originators for non-licensing entities can simply go to another institution and start the same thing over again. There is no accountability. 

Correct terminology should be used. There is a difference between a notice of default and a foreclosure proceeding, because 

there are sometimes workout programs available and they don’t always result in a foreclosure. 

Public service announcements should be made. Legislation 

should be done as well. Legislation intervention is necessary. 

In conclusion, I just wanted to say that buyers and sellers cycle 

have always been a part of this business, but right now it is more 

crucial than it has been in all of my 20 years of real estate, and 

that is because there are so many simultaneous things—factors affecting the market, not just non-prime loans but unemployment, 

outsourcing. There are a lot of factors that are affecting this. 

Chairwoman WATERS. Thank you very much. 

Ms. CLARK. Thank you very much. I appreciate it. 

Chairwoman WATERS. You are certainly welcome. 

Ms. Twomey? 

76

STATEMENT OF TARA TWOMEY, OF COUNSEL, NATIONAL 

CONSUMER LAW CENTER 

Ms. TWOMEY. Good afternoon, Chairwoman Waters, and members of the subcommittee. Thank you for inviting me to testify. My 

name is Tara Twomey, and I am an attorney, currently of counsel, 

with the National Consumer Law Center, and a lecturer at Stanford Law School. 

Before moving to California about 3 years ago, I was clinical instructor at the Legal Services Center of Harvard Law School where 

my practice focused primarily on foreclosure prevention and predatory lending litigation. I testify here today on behalf of the National 

Consumer Law Center as well as the low-income clients that we assist and represent. 

As you already know, we have a foreclosure crisis in this country 

that is real, it is big, and it is growing. Its magnitude currently 

dwarfs the response from the financial services industry. Loan 

modifications, which are one of several loss mitigation tools, have 

been identified as one of the preferred strategies for addressing the 

rising tide of foreclosures, but in practice they do not appear to be 

happening in any significant numbers. 

The recent measures, which will freeze interest rates for certain 

California homeowners, are a significant step in the right direction. 

However, the length of time for the proposed freeze is unspecified. 

Clearly, the agreement did not contemplate permanent modifications to those loans, and instead we believe is merely a ‘‘kick the 

can’’ approach to solving the foreclosure crisis. To be sure, it will 

provide some immediate relief to some people, but it is not a longterm solution. 

It is well known that creating a long-term solution will require 

overcoming some structural barriers inherent in today’s mortgage 

market. Some of these barriers we have already talked about 

today—constraints in the pooling and servicing agreements, mismatched interest of borrowers, servicers, and holders, and the 

tranche warfare which pits investors against other investors and 

servicers. 

But from the homeowner’s perspective, the first hurdle to loss 

mitigation is getting a live person on the phone—getting a live person on the phone that can provide reliable information and who 

can make a decision about the homeowner’s loan. You have heard 

from the servicers today that contact with the consumer is key. 

Well, that is important, but if borrowers are caught up in a maze 

of voicemail and bounced around from one department to another, 

and receive contradictory information, as was just spoken about a 

few minutes ago, from servicer representatives, that is not helpful 

to borrowers. And borrowers deserve something better. They deserve—loan servicers need to find a way to provide timely, consistent, and competent information to borrowers about their own 

loans. 

Today, I would also like to urge the subcommittee and other 

Members of Congress to look beyond the rate reset problem. While 

rate resets pose a substantial hurdle for many borrowers, there is 

another group of distressed borrowers who has received much less 

attention. These homeowners have not been subject to payment 

77

shocks or adverse life events, but, rather, have been saddled with 

unaffordable loans from the moment the loan was originated. 

These families are defaulting on their mortgages not because of 

the teaser rate, because in these cases the—it is because the teaser 

rate in these loans are 9 or 10 percent, or sometimes even higher, 

the teaser rate. These families are defaulting on their mortgage 

loans because their monthly payments for principal, interest, taxes, 

and insurance exceeds 60 percent of their gross—or even 70 percent of their gross income. 

A successful loan modification strategy for these borrowers will 

take more than temporary or even permanent freezes of their adjustable rates. These homeowners will need interest rate reductions. They will need principal reductions or some combination of 

the two in order to realize the goal of affordable and sustainable 

homeownership. 

NCLC supports an approach that would combine the automatic 

loan modifications for certain classes of loans as well as—in addition to case-by-case measures to reach those for whom automatic 

measures are either insufficient or for those who are not eligible for 

the automatic modifications. 

In addition to requiring servicers to implement reasonable loss 

mitigation measures, it is important to nip in the bud abusive practices in the loan modification process. For some time now, homeowners and consumer advocates have struggled with servicers who 

have no interest in helping families stay in their homes. Rather, 

in the interest of maximizing profits, servicers have engaged in a 

laundry list of bad behavior that has exacerbated foreclosure rates. 

The nature of the loss mitigation process makes the disparities 

in bargaining power between the homeowner and the servicer even 

greater than the disparities in the origination context. This provides fertile ground for abuse. Currently, one of the most pernicious practices is to include a broad waiver of claims provision in 

the loan modification agreement. Upon execution of the agreement, 

the borrower waives all claims that they have, or may ever have, 

related to the loan. 

In a forbearance agreement that I recently reviewed, the waiver 

language also required borrowers to specifically waive their rights 

under California Civil Code Section 1542. That section was enacted 

to protect parties from waiving unknown and unforeseen claims in 

general release provisions. That kind of broad release language is 

simply inappropriate in the context of a loan modification. The 

practice should not be allowed to flourish. 

In conclusion, loan modification is a strategy that can be used to 

limit the devastating consequences of skyrocketing foreclosure 

rates. There are challenges to implementing this strategy at a scale 

commensurate with the foreclosure problem. These challenges are 

significant, but not insurmountable. 

We hope that the subcommittee and Congress will act to make 

sustainable loan modifications a viable option for millions of homeowners who will face foreclosure in the coming years. 

Thank you very much. 

[The prepared statement of Ms. Twomey can be found on page 

165 of the appendix.] 

Chairwoman WATERS. Thank you. 

78

Ms. Margaret Frisbee, Pacific district director, NeighborWorks 

America. 

STATEMENT OF MARGARET FRISBEE, PACIFIC DISTRICT 

DIRECTOR, NEIGHBORWORKS AMERICA 

Ms. FRISBEE. Thank you, Chairwoman Waters, and Congresswoman Richardson. My name is Margaret Frisbee, and I serve as 

district director, Pacific District, for NeighborWorks America. I appreciate the opportunity to appear before you today to talk about 

the efforts we and our partners are making to help stem the tide 

of foreclosures, especially in California, and most particularly L.A. 

By way of background, NeighborWorks America was established 

by Congress in 1978 as the Neighborhood Reinvestment Corporation. The Corporation receives Federal appropriated funding out of 

the Transportation, HUD, and related agencies’ appropriations subcommittee. The Corporation’s board of directors is made up of the 

heads of the Federal financial regulatory agencies and the Secretary of HUD. 

The primary mission of NeighborWorks America is to expand affordable housing opportunities and to strengthen distressed communities across America, working through a national network of 

local, community-based organizations known collectively as the 

NeighborWorks Network. Our network includes about 249 nonprofits serving close to 4,500 communities in all 50 States. They operate in our Nation’s largest cities and in some of its smallest rural 

communities. 

Here in California, there are 18 NeighborWorks organizations, 

including the LANHS, which as we speak is working in the next 

room, along with other partners, providing counseling to people 

who have been coming in all day looking for help with their mortgage problems. I know we are talking about trying to get to a large 

answer, but right now all we have is one-to-one counseling. That 

is the only thing we can do, and it is very time-consuming. 

Local NeighborWorks organizations provide a wide variety of 

services that reflect the needs of their neighborhoods and communities. They have provided homeownership counseling to more than 

500,000 families, assisted nearly 150,000 families of modest means 

to become homeowners, and just in this past year generated about 

$4 billion in direct investment in distressed communities. 

But today I would just like to highlight a few things that we are 

trying to do in response to the precipitous rise in foreclosures. 

NeighborWorks America has a 30-year history of facilitating lending to non-conventional borrowers. From our experience, we know 

that the best defense against mortgage delinquency and foreclosure 

is education and counseling before the borrower begins shopping 

for a home and selecting a mortgage product. 

We also know that homeowners’ odds of success are increased 

even further when they have access to post-purchase counseling 

and homeowner education. We have been closely tracking the loan 

performance of the many low-income families assisted by these organizations over the years, and we can report that they are 10 

times less likely to go into foreclosure than subprime borrowers, 

and even 4 times less likely to go into foreclosure than FHA borrowers. So counseling is the key. 

79

Our commitment to quality homeownership extends far beyond 

our network. We have our NeighborWorks Center for Home Ownership Education and Counseling, and the NeighborWorks Training 

Institute, and we have become the Nation’s largest trainer of housing counseling professionals. 

We saw the problem of foreclosures coming over 4 years ago, not 

just in California but in other parts of the country. With the strong 

support of our Board, we created the NeighborWorks Center for 

Foreclosure Solutions. It is an unprecedented partnership between 

nonprofit financial mortgage and insurance sectors, and you have 

heard that name today—the Hope Hotline. Well, that is the hotline 

that we are now working with with the Homeownership Preservation Foundation. 

We are trying to get the word out about this Hope Hotline, and 

it is—we are working with the Ad Council, and we would like it 

if everybody knew about it, but unfortunately they don’t. The service is available 24/7 to provide callers with high quality, telephonebased assistance in English and in Spanish, but individuals needing more intensive service are then referred out to a 

NeighborWorks organization or another HUD-approved housing 

counseling agency. 

Our basic message through the Hope Hotline is that nothing is 

worse than doing nothing. In addition to the Hope Hotline, many 

of our local NeighborWorks organizations are also counseling delinquent homeowners every day. These organizations have stretched 

their budgets, redeployed staff, and worked hundreds of extra 

hours, all to address the real very threat that pending foreclosure 

is causing in communities across the country. 

We are actively training hundreds of counselors on foreclosure 

intervention at our national training institutes, but now we are trying to bring them out regionally. We have one scheduled here in 

L.A. in January, and we expect to have many more in the coming 

year. We know we have to get more counselors on the ground. 

I am going to skip all of the statistics. We just simply know that 

it is really bad out here, and so what we have are 14 local 

NeighborWorks organizations in California offering aggressive 

homeownership preservation services. Eleven of them are using the 

Hope Hotline. They have generated—17,800 calls have come in 

from California in the past year, making it by far the largest number of calls of anywhere in the country. 

[The prepared statement of Ms. Frisbee can be found on page 113 

of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Ms. FRISBEE. You are welcome. 

Chairwoman WATERS. Next we will have Ms. Evalyn Burnie, 

leader, Los Angeles ACORN. Thank you for being here. 

STATEMENT OF EVALYN BURNIE, LEADER, LOS ANGELES 

ACORN, ACCOMPANIED BY MR. RICHARD CASTRO, 

NEIGHBORWORKS AMERICA 

Ms. BURNIE. Good afternoon, and thank you for this opportunity 

to testify about the importance of effective loss mitigation strategies in keeping families in their homes. 

80

I, Evalyn Burnie, am a member of ACORN. I am a member of 

the California State Chapter, and ACORN stands for Association of 

Community Organizations for Reform Now, the national largest 

grass-roots community organization of low- and moderate-income 

families consisting of 350,000 members organized in 850 neighborhoods, in cities—more than 100 different cities across the United 

States. 

Thirty-seven thousand of these members live in California. I am 

an example of someone who almost got caught up in the current 

wave of foreclosures, in a large part because I was a victim of a 

predatory mortgage broker. But I am here today to discuss what 

ACORN is doing about the current foreclosure crisis. 

Community-based housing counselor agencies, such as our sister 

organization ACORN Housing Corporation, have begun to be more 

aggressively—to more aggressively provide specialized post-purchase assistance to distressed borrowers, including delinquency 

counseling and foreclosure prevention. The effect of the delinquency 

counseling depends on the willingness of the servicer to engage in 

reasonable loss mitigation, often including loan modification that 

typically involves changing a loan from an adjustable rate to a 

fixed rate, or changing other terms to enhance affordability. 

This is essential. This is the first step in keeping families in 

their homes. We believe that some lenders may be willing to announce some major initiatives to assist delinquent borrowers such 

as contacting borrowers several months before their rate adjusts, 

or, more importantly, offering a fixed rate alternative using a good 

affordability standard to modify unaffordable loans. 

We have also held foreclosure prevention workshops, fairs across 

the country, which individual lenders and servicers have agreed to 

attend and worked with at-risk customers and loan—on loan modifications. Here in L.A., hundreds of people have attended these 

workshops and received assistance to avoid. 

In conclusion, ACORN is committed to ensuring that low- to 

moderate-income residents are protected from the dangers of predatory lending. Based on our experience, we would like to make the 

following policy recommendations. One is city, county, and States 

should identify neighbors at great risk from growing numbers of 

foreclosures and the vacant properties that also often result and 

should implement emergency action to help prevent the decline of 

these neighborhoods. 

Congress should pass legislation to protect families against predatory mortgage lending and foreclosure rescue scams. Congress 

should also pass legislation that would reform the Bankruptcy 

Code to allow judges to modify mortgage loans on primary residence for borrowers applying for bankruptcy. 

Last, Congress should approve funding for HUD-certified housing 

counseling organizations such as ACORN Housing Corporation that 

provide foreclosure prevention services to borrowers. And that is 

really important. Lenders, servicers, and investors should aggressively modify unaffordable loans to prevent foreclosures. 

Thank you for giving me this opportunity to testify, and I will 

be happy to answer any questions that you have. 

Chairwoman WATERS. Thank you very much. 

81

Thank you very much. We will take the next few minutes, Ms. 

Richardson and I, and ask a few questions of you. We thank you 

for having been here. 

Some of the recommendations that you made are recommendations that we are pursuing in Congress already—the increase of the 

loan limits for sure, and some other things that you have said to 

us. 

Let me just raise a few questions. First, Mr. Heedly, we need to 

assign someone from our office to get together with you, so we can 

unravel what has taken place and where you are and see what we 

can do to give you some assistance. And we will do that. I hope 

that we have taken that information. 

Let me return—well, also, we have already said that we are 

going to assist you with Countrywide and do everything that we 

can to get you out of what looks like a very complicated and difficult situation, Ms. Hee Suk Cho. 

Mr. Smith, you have heard some of the statements that have 

been made about who initiated some loans, and the mortgage brokers have to take some responsibility in the initiation of some of 

these exotic products. But you have also said that your organization only deals with licensed brokers, that you do not have unlicensed brokers in your organization. Is that correct? 

Mr. SMITH. That is correct. We have approximately 20 members 

who were grandfathered in that were registered and licensed under 

the Department of Corporations, and our executive board of directors, which I am part of, are reviewing that now to determine if 

in fact those members will still be allowed to be a member. They 

are not voting members. 

Chairwoman WATERS. So could you tell me, if you know, how 

many unlicensed brokers do we have in California? 

Mr. SMITH. That is the $64,000 question. There are three regulatory— 

Chairwoman WATERS. Describe them to us. Who are they? 

Mr. SMITH. There are three regulatory regimes within California, 

us being licensed by the Department of Real Estate, the Department of Corporations has lenders that are—the companies are licensed, but the individuals that work there are not licensed. For 

example, Countrywide is licensed by the Department of Corporations. In many instances, individuals that work for these companies 

may have part-time jobs. I am not saying that they are not competent, but they don’t go through the rigorous tests and have the 

fiduciary responsibility that we do as licensed brokers in California. 

There is an interdepartmental task force now that has been created as a result of Senate Bill 385 that is working through the 

process to identify the number of employees that work for these 

companies that are only licensed as companies but not individual 

licensees. 

Chairwoman WATERS. What was the third? Did you— 

Mr. SMITH. And the third one is the Department of Financial Institutions in California, which handles the State-chartered banks 

and credit unions, which I believe there are approximately 127 in 

California. 

Chairwoman WATERS. So you are saying they have unlicensed— 

Mr. SMITH. They are not required to have a license either. 

82

Chairwoman WATERS. Repeat who is not required to have a license again. 

Mr. SMITH. The Department of Financial Institutions, which are 

your State-chartered banks and credit union employees. Those are 

the individuals that sit in front of a customer, do loans, but they 

are not required to have a license such as us under the regime of 

the California Department of Real Estate, in addition to the Department of Corporations, such as your Countrywide. Those are 

your consumer finance lenders. 

Chairwoman WATERS. Do you support legislation that would require all brokers to be licensed? 

Mr. SMITH. We wholeheartedly support that legislation, which is 

in H.R. 3915. We believe, from the California Association of Mortgage Brokers, that every individual who sits in front of a customer 

in this State, and the United States, should have a registration and 

a license and be competent in handling the biggest financial transaction of most people’s lives. 

Chairwoman WATERS. And we agree with that. 

We heard from you some of the actions that you are taking to 

help us deal with this crisis. Do you support Chairman Bair’s recommendation that we continue for the life of the loan the initial 

rate that the consumer, the borrower, was given? 

Mr. SMITH. In concept, I agree. This is personally. This is not 

from the California Association of Mortgage Brokers. We don’t have 

an official position. But personally, as a 24-year veteran of doing 

residential home loans in San Diego County, I believe that creating 

sustainable, long-term products that help create generational 

wealth for families is the way to go. 

Chairwoman WATERS. So basically, what you are saying is that 

the recommendation by Chairman Bair could help solve this problem. 

Mr. SMITH. It could be the first step to creating long-term stability for a family who has the ability and demonstrated willingness to make a payment to be able to count on what they have to 

pay every month to budget for their family. 

Chairwoman WATERS. There is one other aspect of that I would 

like to focus on, and that is this. It was said, I think today by one 

of our presenters here, that some people should have the ability to 

get in this program for this long-term sustained loan, but others 

should not. Why don’t we just do it for everybody? 

Mr. SMITH. I think that everyone should have the opportunity to 

have a home. I think that is the American dream. The reality of 

it is that some individuals are not financially prepared for the responsibility of owning a home. But I disagree with the fundamental 

construct that you don’t have an opportunity to try. 

I think if we legislate product, we are going to lock out people 

and stymie growth and reduce homeownership rates in California 

and the United States. I believe that everyone should have the opportunity to own a home. And given that—with that— 

Chairwoman WATERS. If you got into this loan with a teaser rate, 

and you go for a workout, and say the teaser rate was one that 

would reset in—I guess they reset any time—6 months, a year. Do 

you believe that a person could have damaged their credit so bad, 

even though they have paid the teaser rate, but now they cannot 

83

afford the rate that will reset, that they should be denied a continuation of the teaser rate because somehow their credit has gone 

bad? 

If they can afford the teaser rate, they can pay the teaser rate, 

we are talking about the workout that would allow them to continue to do that, should they be allowed to have that opportunity? 

If they can’t do the teaser rate, then perhaps they should be foreclosed on. But what is it in this 6-month period, or this 1-year period, about their credit that would cause one to say, ‘‘Sorry, you 

can’t maintain the teaser rate’’? 

Mr. SMITH. I have a fundamental disagreement with that construct. Currently, under the FHA and VA rapid refinance or 

streamlined refinance process, there is no credit requirement if you 

can demonstrate that you had successful payments the previous 12 

months. So that is an argument right there that a person may have 

credit problems, but they have demonstrated an ability to make a 

payment and they are awarded a loan. 

Chairwoman WATERS. You heard what was said by the Forum 

here today relative to that, and taking a look at the credit background that may not qualify one to continue with the teaser rate. 

That is something that we want to try and get at based on what 

I have heard here today. 

Mr. SMITH. I think we could get a deeper dive on that. Quite 

frankly, any loan is better than no loan. A teaser rate is better 

than no rate, as the Congressman said earlier. 

Chairwoman WATERS. Yes. All right. 

Mr. SMITH. I firmly agree with that. 

Chairwoman WATERS. Okay. 

Mr. SMITH. And we have that in process already under the VA 

and FHA regime currently. 

Chairwoman WATERS. All right. Thank you very much. 

Ms. Clark, you told us something that I didn’t know. You said 

they are outsourcing loss mitigation activities. To where, offshore? 

And what do they do? What do they do when India calls your 

home? I mean— 

Ms. CLARK. You can’t get them on the phone. 

Chairwoman WATERS. How do they do this? 

Ms. CLARK. They have been doing this for a while. Even title is 

outsourced to foreign countries. That is why you can’t reach a lot 

of the lenders, because they are not available. They are not here. 

Chairwoman WATERS. Okay. I hear what you are saying. So we 

have this outsourcing. But I am a homeowner, and I am about to 

be delinquent, or I have become delinquent, and you have loss mitigation that will help me to understand that I have a problem, and 

some way that I can work this out, so that I can get caught up, 

or what have you. How does this outsource entity from someplace 

else help me to do that? 

Ms. CLARK. That is the problem. When you try to reach these 

people, you can’t. And that is what is perpetuating the situation. 

Chairwoman WATERS. Ms. Twomey? 

Ms. CLARK. But they all— 

Chairwoman WATERS. Go ahead. I am sorry. 

84

Ms. CLARK. But from my understanding, they set up shell companies that are here in the United States, but the actual people who 

are answering the phones are not here. 

Chairwoman WATERS. Okay. 

Ms. CLARK. They are in foreign countries. 

Chairwoman WATERS. Do you know anything about this, Ms. 

Twomey? 

Ms. TWOMEY. Yes. I think what has been represented is accurate. 

As a matter of fact, oftentimes when loans go into default, the servicing rights are transferred to a default servicer, so there is actually another entity that comes into play when loans go in default. 

So, the number of different entities that borrowers have to deal 

with in the process can be fairly overwhelming. 

And as was already mentioned, actually getting a live body on 

the phone is one thing. I think the other thing that happens is 

there are two different departments usually. There is collections, 

and there is loss mitigation, and usually people start at collections. 

And the goal of the collections department is to collect money, 

not to do a loan workout, and so getting—working your way up the 

chain to get to the loss mit department, and then to find someone 

in the loss mit department who can actually make a decision about 

your loan is a real hurdle, I think, for a lot of borrowers. 

Chairwoman WATERS. So let me just ask about a concept that 

may be applicable to what we are talking about here. I can recall 

for years they have created in cities one-stop shops. And these onestop shops were basically for businesses, what is good for business. 

We should have a one-stop shop to keep them from having to run 

all over city government for licensing and this, that, and the other. 

We should be talking about a one-stop shop for this situation of 

doing workouts. 

Ms. TWOMEY. I think that is an excellent idea, and especially if 

there is a third party at the one-stop shop that can help the borrower figure out—one of the things I mentioned was the bargaining 

disparity that we have when you have a distressed homeowner trying to save their home and a servicer that makes all of the decisions. And a third party being involved in that would be helpful in 

helping the borrower to navigate that process. That, of course, requires more funding to be able to do that. 

Chairwoman WATERS. Do you have a contract with any of these 

financial institutions? 

Ms. TWOMEY. No, we don’t do specific— 

Chairwoman WATERS. Mr. Leonard, do you have a contract? 

Mr. LEONARD. No, we do not. 

Chairwoman WATERS. You do, Ms. Frisbee. 

Ms. FRISBEE. We don’t have a contract— 

Chairwoman WATERS. No. 

Ms. FRISBEE. —with financial institutions. We— 

Chairwoman WATERS. Your money is directly from the Federal 

Government to do this kind of work. So the contracts that have 

been worked out with some nonprofits, as was mentioned today, 

does not include any of you in the room today. Did they ask you? 

Does anybody come to you and say, ‘‘We would like to do a contract 

with you’’? No? 

Ms. TWOMEY. Not that I am aware of. 

85

Chairwoman WATERS. ACORN, do you have a contract? 

Ms. BURNIE. I don’t believe so, no. 

Chairwoman WATERS. ACORN may be working on some of them? 

Mr. CASTRO. Richard Castro, NeighborWorks America. 

Chairwoman WATERS. Please state your name and who you represent. 

Mr. CASTRO. NeighborWorks America. 

Chairwoman WATERS. So NeighborWorks has a contract? 

Mr. CASTRO. With one of our organizations. They are all autonomous. NeighborWorks organization in Sacramento is 

NeighborWorks Home Ownership Center Sacramento, and they are 

working on a contract with HomeEq. 

Chairwoman WATERS. Okay. Thank you very much. 

I am going to turn the questioning over to Ms. Richardson. 

Ms. RICHARDSON. Thank you, Madam Chairwoman. 

Mr. Smith. 

Mr. SMITH. I hope you feel better. 

Ms. RICHARDSON. Thank you. Your mortgage brokers that are 

part of your association, have they received information about some 

of the products that are available, modifications, workout scenarios, 

things like that, so if they have people that they have worked with 

to get these loans come to them, do they have this information 

readily available of what some of the options—maybe they could 

recommend that they followup with these various providers? 

Mr. SMITH. Yes, we do. Our advisors—and what—and our Preserving Home Ownership Initiative Program, the individuals are licensed brokers, and they have gone through training. Ms. Mary 

Harmon is our consumer—is our community services chair, who is 

the director of that program. 

Myself and her and several other members of our association 

have been trained by Freddie Mac through the Credit Smart Program, and we are abreast of all of the different loss mitigation 

techniques and programs that are available. So when we sit down 

with a customer, we can effectively advise them in the right direction to go based on current practices and programs that are available. 

Ms. RICHARDSON. Not a specific department, but are all of your 

brokers aware of those options? 

Mr. SMITH. I am sorry. Say that again. 

Ms. RICHARDSON. All of your individual members, are they 

aware? 

Mr. SMITH. I couldn’t say that all of them would, but I can tell 

you that information is readily disseminated on a regular basis 

from our State organization, and that they have access to that information via the web and by telephone from our State organization. 

Ms. RICHARDSON. And with the licensing that takes place, how 

much of it is spent actually talking about foreclosures? 

Mr. SMITH. Well, we say licensing—that is two different regimes. 

I think I misunderstand your question. 

Ms. RICHARDSON. When your members take a test to have a license, of that test component, how much of it would you say covers 

actual foreclosures? 

86

Mr. SMITH. I haven’t renewed my license in the last couple of 

years, but the continuing education requirements by the Department of Consumer Affairs is changing. There is a 40-hour, I believe, consumer protection piece that has different modules, and 

consumer protection is one of the items that this would come 

under. 

Ms. RICHARDSON. Madam Chairwoman, that might be something 

we want to consider. I did something similar with this with the Department of Motor Vehicles. It was looking at the various licensing 

departments and requiring that a larger portion be spent in terms 

of actual counseling and understanding the foreclosure side, what 

the termination options are, etc., that that be a part of the licensing program itself, because they have to increase the amount that 

they provide. 

Mr. Arnold, your real estate agents who are members of the California Real Estate Association, would you—how many of them do 

you think know about specific options that some of these providers 

have? 

Mr. ARNOLD. Well, not a lot of them. In fact, so many of them 

are new licensees, and so CAR has—we are teaching foreclosure 

prevention as well as counseling. We have added two classes to 

that this year because of the fact that so many people are foreclosing. So we have to educate our members. 

And, really, one of the problems that we see is the fact that these 

members have never experienced a market like this. Most of the 

Realtors have come in over the last 5 or 6 years. We have doubled 

the amount of licensees that we have had, and so not—not like myself that has experience in loss mitigation, foreclosures, and short 

sales. 

They don’t know it. But CAR, because we are a trade organization, we want to educate our membership, so we do have—currently have classes and we have had it at—I believe at NAR, we 

had it at our CAR meeting, so we are consistently talking about 

this, so we can educate our membership. 

Ms. RICHARDSON. Okay. Mr. Smith? 

Mr. SMITH. I would like to dovetail off his answer. I have some 

information that may be able to give a little bit more global perspective of it. As of fiscal year June of 2007, there are currently 

537,038 licensees in the State of California; 147,171 are brokers, 

389,867 are sales persons that are licensed persons like myself. Approximately 31,000 of those brokers are engaged in mortgage activities in the State of California. 

Ms. RICHARDSON. Okay. And then, Ms. Clark, Ms. Twomey, Ms. 

Frisbee, and Ms. Burnie, we are fortunate enough—I want to say 

thank you, that some of the earlier panelists actually stayed to 

hear the continuing testimony, so we appreciate that. Do you have 

any suggestions that you could provide to these providers themselves, the financial institutions? And I see the Governor’s office is 

also still here as well. Any suggestions you could give to them of 

how we could better outreach to the direct consumer themselves? 

When I hear things like making 18 million calls and we have 

reached 2.2, that is 10 percent, that is not great. So of the people 

that you are interacting with, what would you recommend that 

they consider in terms of their outreach to increase that number? 

87

Ms. TWOMEY. I am happy to respond, Congresswoman. I think 

one of the problems is that there is this outreach that is going on, 

but, as I said before, when the consumer calls back, they can’t get 

anywhere. And so I am not sure where the disconnect is, but it 

seems to me what we are hearing is, ‘‘I called my servicer, and I 

ended up in voice mail. And I called them,’’ you know, however 

many times, or ‘‘I couldn’t get someone to give me information.’’ 

And so I think the outreach is good if the back end of the piece is 

there, which is when the person actually responds to the outreach 

there is someone there that can answer the questions that the borrower has. 

Ms. RICHARDSON. And how do people know how to reach you, 

your organization? 

Ms. TWOMEY. Our organization works primarily with legal services organizations, government agencies, and private attorneys who 

are representing low-income homeowners. And we have published 

a series of books on consumer issues. 

Ms. RICHARDSON. Anyone else want to respond? 

Ms. FRISBEE. Yes. We just feel that the lenders have to be more 

flexible. They have to really tailor their work to the individual situation. We are finding that people are calling a little bit earlier, but 

usually, you know, they are already 60 days behind and they are 

just told, ‘‘There is nothing we can do.’’ So this has to change. 

Ms. BURNIE. I am happy with the testimony that was brought 

out today, but I just think that we need more funding and more 

ways to bring the information to the community. 

Ms. TWOMEY. I want to add one more thing, which is I think this 

week the OTS recently announced that it was going to offer financial incentives for servicers to do workout arrangements, and that 

would potentially deal with some of the problems that we heard 

earlier about the costs that servicers incur in trying to do workouts, and then sometimes passing those costs along to the borrowers. And so maybe a proposal like that would help incentivize 

servicers to actually contact those borrowers and then do loan 

workouts with them. 

Ms. RICHARDSON. Madam Chairwoman, I just want to say—I 

think this is our last panel, so I wanted to take this opportunity 

to thank you again for having this hearing here. I think there is 

no better place than California to get a sense of what is happening 

in the wave across the United States. We applaud your efforts and 

look forward to working with you to resolve this issue. 

Thank you. 

Chairwoman WATERS. Well, thank you very much. 

I would like to thank all of our members who participated today, 

and, Ms. Richardson, I would like to thank you for staying through 

our last panel here. I would like to thank all of our panelists. I 

would like to thank our citizens who came to learn more about this 

and find out what we can all do collectively. 

I would just like to say to our panelists and to our homeowners 

that I am attempting to approach this in a thoughtful manner. I 

am attempting to try and determine what we can do working with 

the financial institutions and the loan initiators. I must say that 

I am not happy with what I am hearing as of today has been the 

response. 

88

I am not happy with the pace of the response. I am not happy 

with our Federal regulators. And I do not think that you are going 

to see a lot of money coming from the government to encourage 

servicers to do the right thing. 

One of the things I do not wish to do is to get in a running battle 

with the financial institutions, with the servicers, nor do I wish to 

be in the additional position of not only doing my legislative work, 

but doing organizing. The financial institutions, these loan 

initiators better step up to the plate or we are going to put a lot 

of heat from the street on them. 

As I have come to understand about the banking community in 

particular is one thing they don’t want is a crowd outside the door 

demanding anything. But if we have to do that, we are going to 

have to do that. This crisis is overwhelming and scary, and it really 

should not be happening. We all have responsibility in this, and I 

accept my responsibility as a Member of Congress. 

As a Member of Congress, we should demand more of our regulators. They should see this stuff coming down the pipe. There is 

no way that we are spending the amount of money that we are 

spending on all of these agencies that are supposed to be doing 

oversight and auditing, and all of this, and they didn’t know that 

these exotic products had hit the street. 

So the Federal Government, Members of Congress, loan initiators 

at every level, no matter where you are, should have seen this. 

This stuff enriched a lot of people on the front end. A lot of people 

made money, and the investors are sitting back there just waiting 

to rake it all in. And so everybody has to take responsibility on 

this, and we may have to step outside the box to make it happen. 

I thank you for participating. I thank you for all that we have 

learned today from you, and we have some additional legislative 

possibilities here based on the information that we have received. 

Let me just say that I will note that some members may have additional questions for this panel, which they may wish to submit in 

writing. And without objection, the hearing record will remain open 

for 30 days for members to submit written questions to these witnesses, and to place their responses in the record. 

Let me also say that the following organizations and individuals 

have submitted written statements which shall be included in the 

record: the NAACP and our distinguished colleague, Mr. Lantos, 

who was unable to join us today. These statements, without objection, will be made a part of the record. 

I am reminded that we have assistance that is available in the 

next room. Some people who have come today have already sat 

with some of our nonprofit organizations that are taking the information. Ms. Frisbee, you had mentioned that. They are still available as we close down this panel today, and we would encourage 

anybody who is in the audience who would like to have some assistance to please avail yourself of the opportunity that is being offered. 

Also, we would like you to help us get the word out. They can 

call our office. They can call the office of any of our members who 

are participating. We will have information about the nonprofits 

that have some arrangements. Those who don’t have arrangements 

89

that just do this work, we will make that information available to 

everyone. 

I want to thank you, and this hearing is concluded. Thank you 

very much. 

[Whereupon, at 3:25 p.m., the hearing was adjourned.] 

(91)

A P P E N D I X

November 30, 2007

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