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EFFECTS OF THE SUBPRIME MORTGAGE

CRISIS IN NEW YORK CITY AND EFFORTS

TO HELP STRUGGLING HOMEOWNERS

FIELD HEARING

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

FEBRUARY 11, 2008

Printed for the use of the Committee on Financial Services

Serial No. 110–89

(

(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 

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 

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 

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 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

CAROLYN B. MALONEY, New York, Chairwoman

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

LUIS V. GUTIERREZ, Illinois 

DENNIS MOORE, Kansas 

4PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

AL GREEN, Texas 

WM. LACY CLAY, Missouri 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JUDY BIGGERT, Illinois 

TOM PRICE, Georgia 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

STEVEN C. LATOURETTE, Ohio 

WALTER B. JONES, JR., North Carolina 

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 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada 

(V)

C O N T E N T S 

Page 

Hearing held on: 

February 11, 2008 ............................................................................................ 1

Appendix: 

February 11, 2008 ............................................................................................ 31

WITNESSES 

MONDAY, FEBRUARY 11, 2008

Azia, Jane, Director, Non-Depository Institutions and Consumer Protection, 

New York State Banking Department ............................................................... 9

Dilan, Hon. Erik Martin, Chairman, Housing and Building Committee, New 

York City Council ................................................................................................. 7

Gerecke, Sarah, Chief Executive Officer, Neighborhood Housing Services of 

New York City ...................................................................................................... 13

Quinn, Kieran P., Chairman, Mortgage Bankers Association, on behalf of 

the HOPE NOW Alliance .................................................................................... 11

Zinner, Josh, Co-Director, Neighborhood Economic Development Advocacy 

Project ................................................................................................................... 14

APPENDIX 

Prepared statements: 

Engel, Hon. Eliot L. .......................................................................................... 32

Azia, Jane .......................................................................................................... 34

Dilan, Hon. Erik Martin .................................................................................. 47

Gerecke, Sarah .................................................................................................. 55

Quinn, Kieran P. .............................................................................................. 70

Zinner, Josh ...................................................................................................... 82

(1)

EFFECTS OF THE SUBPRIME MORTGAGE 

CRISIS IN NEW YORK CITY AND EFFORTS 

TO HELP STRUGGLING HOMEOWNERS 

Monday, February 11, 2008

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 11 a.m., in the 

City Council Chamber, New York City Hall, New York, New York, 

Hon. Carolyn B. Maloney [chairwoman of the subcommittee] presiding. 

Members present: Representative Maloney. 

Also present: Representatives Velazquez and Meeks. 

Chairwoman MALONEY. I am Congresswoman Carolyn Maloney, 

and I’d like to call this hearing to order, this Federal hearing, and 

recognize the Speaker of the great City of New York, Speaker 

Christine Quinn. 

She has graciously allowed us to use this chamber today, along 

with the entire Council, and they have been doing tremendous 

work on this challenge. Thank you, Christine. 

Speaker QUINN. Thank you. I’d like to say that we have the nice 

chairs for you and Chairwoman Velazquez, but the truth is that 

Scott Stringer is giving his State of the Borough speech later. Seriously, though, I want to thank you both very much for holding this 

hearing here and for having us be a part of it. 

I mentioned before we had a hearing not dissimilar from this 

that Congresswoman Maloney requested on the issue of TRIA, a 

very important insurance issue related to the City. And not long 

after the hearing, the legislation was passed in exactly the way the 

City of New York needed it to be passed. I raised that example because I think it shows the difference that the City and our congressional leaders can make, working together. I just want to thank 

Chairwoman Maloney and Chairwoman Velazquez again for being 

so receptive to the needs of this City, and for demonstrating that 

by being with us in our chambers and having our housing chair 

participate in today’s hearing. 

So, I really just wanted to take a moment to thank you both so 

much for your tremendous commitment to the City, and to thank 

you for working on an issue that is critically important to so many 

of the neighborhoods we all represent. You know, it’s terrible to 

have to talk to somebody who is at risk of losing their home and 

2

not know what to say to them. We have tried to bring resources 

to this issue on the Council level, but ultimately we’ll only be successful if the City, and the State, and the Federal Government are 

working together. And I know with your—both of your leadership, 

the response of the Federal Government will be expanded tremendously, because you both will really bring the urgency that this 

issue needs to Washington. 

So I want to thank you both so much. I am excited at the idea 

of staying and grilling our housing chair, but I’m going to leave 

that to our two Congress people. And thank you, both, very, very 

much. 

Thank you, Chairperson Dilan, as well. 

Chairwoman MALONEY. Thank you so much, Christine, for your 

leadership, and for allowing us to be here today. Thank you. I hope 

we have the same success that we had with the TRIA bill, which 

was enacted and signed into law and is now helping commerce go 

forward in New York City and around the country. 

This hearing is entitled, ‘‘The Effects of the Subprime Mortgage 

Crisis in New York City and Efforts to Help Struggling Homeowners.’’ This is a hearing of the Subcommittee on Financial Institutions and Consumer Credit, which I chair. 

Without objection, I’d like to invite any Members of Congress 

here today or those who were not able to come to put their statements in the record. Hearing no objection, I welcome their statements. And, without objection, I will now recognize myself for 5 

minutes. 

We are at a critical juncture in the subprime mortgage crisis. All 

of the data we have seen clearly demonstrates the severity of the 

problem. We have seen the perfect storm of stagnant wages, rising 

mortgage payments, and decreased home values, which have all led 

to a tsunami of foreclosures here in New York and across the country. 

A look at the performance on subprime adjustable rate mortgages in New York City reveals a really startling picture. Of the 

almost 26,000 adjustable rate mortgages examined, the Federal Reserve Bank of New York reported in November that only 57 percent 

were current, 12 percent were more than 60 days delinquent, and 

19 percent were in foreclosure. Couple this with the reports from 

the Mortgage Bankers Association that places foreclosures at an all 

time high nationwide, and estimates from the Center for Responsible Lending, that say we will see at least 2.2 million Americans 

with subprime loans lose their homes, it is very easy to see that 

we have a crisis on our hands. And this crisis is not just confined 

to the holders of these mortgages, but affects the community as a 

whole. 

These foreclosures can have devastating effects on families, communities, and financial institutions. Consumers forced into foreclosure can lose many thousands of dollars in equity on top of substantial fees imposed prior to and during the foreclosure process. 

Communities are negatively affected as foreclosures drive down 

home prices overall, diminishing homeowners’ equity in entire 

neighborhoods. 

Costs also accrue to local governments in the form of lost tax revenue and direct expenses for securing policing and disposing of 

3

abandoned properties. And, financial institutions and holders of 

mortgage securities suffer losses if loans do not perform, particularly in the environment of flat or declining housing prices. 

I think that one report that came out last week, from Freddie 

Mac, in one of their surveys it showed that over half of those who 

were delinquent in their subprime loans—57 percent—did not even 

know that there was help there, or that they could go for help. And 

that is one of the reasons that we’re holding this hearing here in 

New York City. We want to hear from the City and the State as 

to what they are doing to help translate the programs and policies 

that we have on the Federal level. We just passed a funding, $180 

million, for counseling to go to neighborhood groups. And I know 

of at least five neighborhood groups here in New York City that are 

applying for that funding. But we need to really take the City and 

State and have them take the initiative to work with the individuals in their communities. 

My colleague, Nydia Velazquez, has already sponsored forums in 

her community. And the Governor and the Banking Superintendent, along with the New York State Senate, have started Operation Protect Your Home. They will be having day-long seminars 

around the State and in New York City to literally work with the 

lenders, the servicers—and my colleague, welcome—here in New 

York City and to help them in their home. The first will be in the 

Bronx, on Saturday, February 23rd. 

We are welcomed by my good friend and colleague, Congressman 

Meeks. 

We are focusing today on what we can do to help people stay in 

their homes, but I do want to mention what we have done on the 

Federal level. Last year, working together with Congressman 

Meeks, Congresswoman Velazquez, and Chairman Barney Frank, 

we passed H.R. 3915, the Mortgage Reform and Anti-Predatory 

Lending Act. This has passed the House, but regrettably, it has not 

passed the Senate. This comprehensive legislation will create a licensing system for residential mortgage loan originators and establish a minimum standard for underwriting, so that loans are not 

given to people who cannot afford to pay for them, a very fundamental change. It will also have limited liability to the secondary 

market securitizers, to build more discipline into that market. 

We also passed legislation to reform and modernize the Federal 

Housing Authority and government-sponsored enterprises—Freddie 

Mac and Fannie Mae. This legislation will enhance the safety and 

soundness of these institutions, and with the FHA, provide a safe 

haven for subprime borrowers in desperate need of refinancing. It 

will give them extra tools to help people stay in their homes. 

And we have pushed and succeeded in getting a change in the 

FASB rules—the Financial Accounting Standards Board—to clarify 

that its Standard Rule 140 allows for the modification of a loan 

when there is a reasonable idea that there will be a default. Otherwise, before we got it changed, they could only become involved 

after the default. 

So, we are taking steps to help people stay in their homes. We 

have eliminated the tax on debt forgiveness, sparing families the 

double whammy of paying taxes on the lost value of their homes. 

And we are working now to eliminate the cruel anomaly under 

4

Chapter 13 of the Bankruptcy Code which allows judges to modify 

mortgages on a borrower’s vacation home or investment property, 

but not the home they actually live in. This change, again, will give 

us more tools to help people stay in their homes. 

Beyond the work of Congress, industry and advocacy groups have 

formed important partnerships, such as the HOPE NOW Alliance, 

and they are working, and we’ll be hearing more about that. And, 

just last week, we passed an economic stimulus plan that included 

raising the cap on the loan limit amounts of Fannie Mae and 

Freddie Mac. This will help high cost housing areas such as New 

York City. 

And, the State of New York has formed a $100 million mortgage 

rescue fund in addition to their Operation Protect Your Home. 

They are coming forward with comprehensive legislation also to 

help people stay in their homes. 

That is why we are here and we will keep on working. I have 

a lot more to say, but I’m going to put it into the record, because 

I’d like to hear from my good friend and colleague, Nydia Velazquez, chairwoman of the Committee on Small Business, who has 

led many efforts here in the City to help people stay in their 

homes. 

Ms. VELAZQUEZ. I am the only Member from the New York delegation who sits on the Housing Subcommittee. 

Good morning, Chairwoman Maloney, and thank you for holding 

this hearing today on such an important issue for New Yorkers. 

Right now, New York City is at a crossroads with the current 

housing crisis threatening the pursuit of the American dream. 

Homeownership in New York City, in spite of slight growth recently, still lags behind the national average and that of other 

major cities. Also disappointing is that while Blacks and Hispanics 

make up a large portion of the population and contribute significantly to our local economy, they experience lower tenure rates 

than other groups. There is no question that it is paramount to 

identify the driving causes of these disparities in order to find constructive solutions to our crisis today. 

I held a roundtable on mortgage foreclosure in my district 3 

weeks ago, and some of the financial services institutions were saying, ‘‘Well, we are not at fault. It is not our fault. It is those mortgage brokers.’’ Financial institutions have to ask themselves why 

it is that there is a perception in minority communities that they 

cannot walk into any bank to get a loan to purchase a home, and 

therefore, they are driven to go to unscrupulous lenders? 

So, when we look at HMDA reports on data as to fair lending 

practices and we see that there is a disparity in terms of the mortgage loans that people get across the board in New York City compared to the lack of such loans in minority communities, we need 

to ask what is wrong and if there is any legislative fix that needs 

to take place in order to make sure that fair lending practices are 

the norm and not the exception when it comes to minority communities. Hispanic and Black New Yorkers are 3 to 4 times more likely to have a loan issued by a subprime lender than non-minorities. 

At 19.8 percent, New York has one of the highest subprime lending 

rates in the country. In 2007, the average subprime outstanding 

5

loan balance in New York City was nearly twice the national average. 

Not only is this an issue in minority populations, but 

compounding the negative effects of subprime lending is the concentration of outstanding loans in particular neighborhoods. Last 

year, in at least 10 communities across the City, more than 34 percent of all loans were subprime. These places include Jamaica, 

Brownsville, Ocean Hill, Queens Village, my district—Bushwick, 

and East New York, Sunset Park, and Red Hook. It should come 

as no surprise to find that those areas are experiencing high rates 

of default and foreclosure. Clearly, certain populations and areas 

within our State are targets of faulty lending practices. 

Although most of us know that this is not a simple problem that 

a quick fix will solve, foreclosures crush a family’s dream for economic stability and success. If large numbers of families are only 

achieving homeownership for a short period of time, our policies 

are misguided. All those who want to enter the ranks of homeowners should not only have a fair opportunity to do so, but also 

the ability to remain there. 

And so I take this opportunity once again to thank Chairwoman 

Carolyn Maloney for being here to listen to the recommendations 

not only that the State and the City Government can provide to us, 

but those who are on the ground, facing the pain and the struggle 

that so many hard-working families are suffering, today, in New 

York City, in our Nation, the most powerful, richest country in the 

world, robbing these families of their dreams. That’s shameful, and 

we need to act. Thank you. 

Chairwoman MALONEY. Thank you, so much, Nydia, for speaking 

so eloquently on the American dream and the assault that it is 

under. 

We are very fortunate to be joined by my good friend and colleague on the Financial Services Committee, Gregory Meeks, from 

the great Borough of Queens. 

Mr. MEEKS. Thank you, Madam Chairwoman, and I want to 

thank you for holding this timely hearing on this issue, which is 

particularly alarming to my constituents and deeply concerning for 

millions of Americans across this Nation. 

I mean, it is very timely, and I just want to compliment you on 

all of the work that you do on this committee. I am having the opportunity to watch you operate, and I just wish that everyone in 

New York would tune in sometimes when you’re doing your hearings, on C–SPAN, and see what a great job that you are doing and 

how focused you are, particularly on this issue. 

And likewise, I want to thank my colleague, Nydia Velazquez, 

who makes us all proud. I mean, I couldn’t agree more with her 

statements. She is chairing the Small Business Committee, as well 

as, you know, working on the Housing Subcommittee of this great 

committee. And, I always just want to take the time to take my 

hats off to both of you strong, strong, strong advocates here in New 

York. 

The 6th Congressional District has been one of the hardest hit 

communities in New York with the crisis in subprime mortgage 

lending. In the next 2 years, it is estimated that 91,000 families 

across the State will be at risk of foreclosures. In the New York 

6

Metropolitan Area alone, an estimated 53,000 families will see 

their mortgages reset to onerous rates. 

The foreclosure rate in my district is up 90 percent over last 

year. This is predicted to continue as subprime adjustable rate 

mortgages from 1 to 3 years continue to reset to their higher level. 

These are, indeed, astronomical figures. 

But, when I see the faces of constituents who are confronting financial ruin because they can no longer sustain the payments on 

their homes, I see something much more jarring than numbers. I 

see the American dream that Nydia Velazquez was talking about 

slipping away from them, and the pain that comes with that loss. 

It isn’t just an individual pain. The entire community becomes at 

risk in the form of lost tax revenue, at the cost of securing abandoned properties, and preventing blight. Everyone suffers. 

My constituents, and indeed all New Yorkers, will experience 

some relief with the mortgage provisions of the economic stimulus 

package. But long term, much more is needed. 

Raising the maximum size of mortgages that Fannie Mae and 

Freddie Mac can purchase in markets as a security from $417,000 

to as high as $729,000 is critical to the expensive States like New 

York. 

However, our challenge today is to determine what else can we 

do to stop this hemorrhaging before our communities fall too deep 

into an economic downturn, the likes of which our Nation has not 

seen since the Great Depression. 

The subprime loan numbers in southeastern Queens are staggering. As of October, in the Jamaica and Hollis section of Queens, 

part of my district, there are over 609 foreclosure filings for twoto four-family properties in 2007. That’s up from 223 in all of 2004. 

And a New York University study from 2005 reveals that for the 

Jamaica/Hollis community, the proportion of subprime loans for 

homes purchased has surged to 51.8 percent, ranked number two 

in New York City, almost 6 times the rate it was in 2003, when 

it was only 9.3 percent. 

Sadly, African Americans and Hispanics are disproportionately 

represented in the subprime market. The racial disparity between 

whites and minorities actually increases as incomes rise. So, this 

is not just on a poor level. But, as incomes rise we see the greater 

disparity. 

In trying to attain the American dream of becoming a homeowner, many minorities have fallen prey to high interest rates, balloon payments, and excessive fees and other predatory lending 

practices. What is most disturbing about this reality is the fact that 

a majority of subprime borrowers would have qualified for conventional prime rate loans. 

According to a Wall Street Journal study, 55 percent of subprime 

borrowers had credit scores that made them eligible for a conventional prime loan in 2005. By the end of last year, that percentage 

was up to 61 percent. 

Now, those who could have had prime loans are struggling to 

stay afloat and, because of predatory practices, they have lost the 

financial upper hand. Today, I’m especially focused on exploring 

what we can do to better serve this group of individuals. 

7

I commend my colleagues on this committee, who are working 

very hard with Chairman Barney Frank and Subcommittee Chairwoman Carolyn Maloney, for passing the Mortgage Reform and 

Anti-Predatory Lending Act of 2007. The bill includes language 

that prevents a lender from underwriting a loan if the borrower’s 

income does not support the monthly payment at every interest 

rate during the life of the loan. The legislation also sets forth minimum repayment standards for residential mortgage loans and requires creditors to determine, based on verified and documented information, that a consumer has a reasonable ability to repay the 

loan according to its terms and all applicable taxes, insurance, and 

assessments. 

While passing this bill is and was an important first step, it is 

simply not enough. We have to continue to educate individuals 

about how to avoid foreclosures and provide financial counseling 

services for those who are in danger of losing their homes. The 

housing crisis and the economic descent that comes with it demands that all stakeholders come together to help struggling homeowners. The business community needs to work with clergy and 

neighborhood organizations to highlight the crisis and offer assistance to people who need help. 

We also must make sure that we begin to give financial education to individuals in our schools so that our young people and 

our seniors and our families will know and understand and become 

financially literate. It is something that we must do. 

Again, I want to thank our chairwoman for holding this hearing, 

and I look forward to hearing from the panelists, to find out how 

we can work together to ensure that this crisis is remedied. I know 

that the State and the City look forward to working with you and 

the private industry, because if we’re going to solve this issue, all 

of us have to come to the table; because the truth of the matter 

is all of us have something to lose. 

Thank you, Madam Chairwoman. 

Chairwoman MALONEY. Thank you so much, Congressman 

Meeks, for your work on this issue and so many others. 

The City Council has many committees that are challenged with 

subprime lending and have jurisdiction over it. Speaking for the 

City Council today will be Erik Dilan, chairman of the Housing and 

Building Committee. I had the honor of serving with his father on 

the City Council. 

I must point out that we have a 5-minute rule in Congress, and 

we will be enforcing it. Everyone’s testimony can be put in the 

record, but we would like to give you 5 minutes to summarize your 

testimony, and at the end of everyone’s presentation, there will be 

questions. 

Thank you. 

STATEMENT OF THE HONORABLE ERIK MARTIN DILAN, 

CHAIRMAN, HOUSING AND BUILDING COMMITTEE, NEW 

YORK CITY COUNCIL 

Mr. DILAN. Thank you, Madam Chairwoman. And I certainly understand, as the chair of the committee that probably holds the 

record for the longest hearings, so I hope to be shorter than the 5-

minute rule. 

8

Good morning. My name is Erik Martin Dilan, and I am the 

chairman of the City Council’s Committee on Housing and Buildings, and I would like at this time to thank the committee, Congresswoman Maloney, Congresswoman Velazquez, and Congressman Meeks, as well as the full committee chairman, Chairman 

Barney Frank, for convening this hearing and allowing me to testify today. 

In November, the Committee on Housing and Buildings held a 

joint hearing with the Council’s Consumer Affairs Committee, 

chaired by Council Member Leroy Comrie, entitled, ‘‘The City, 

State, and Federal Response to Subprime Lending and the Mortgage Foreclosure Crisis.’’ Now briefly, some of the recommendations made at the hearing from community members on the Federal level were very simple: To enact laws that will further regulate the banking industry, in order to prevent predatory loans and 

deceptive practices. 

Someone very simply stated during that testimony that had their 

mortgage broker been their stock broker, they would have gone to 

jail for a very, very long time. So we know this is something that 

the Federal Government can regulate, because they are financial 

markets, even though we’re talking about homes. 

We would also like the Federal Government to support restructuring of loans to clearly reflect what homeowners can afford. We’d 

also like to see the prohibiting of lending without the borrower’s 

ability to repay—common sense; to restrict loan flipping; to mandate homeowner education and counseling for anyone entering into 

legitimate subprime loans, specifically seniors, because we have 

seen many seniors refinance their homes, many of them having full 

equity, and they have lost that upon refinancing; conduct anonymous testing of practices of brokers, realtors, attorneys, and lenders that are originating the lion’s share of bad loans. And, this includes to fine, prosecute, and shut down the one-stop shops engaging in unscrupulous and illegal practices, perpetuating foreclosure 

rescue scams. 

We’d like to see a strengthened regulation against investors profiting from the bundling and purchase of predatory loans that are 

stripping owners of their wealth. These are some of the things that 

you mentioned in your opening. 

And then, in addition, we would like to see Federal legislation 

empower States’ attorneys general. We see that many of the banks 

are hiding behind Federal laws, not giving the States’ attorneys 

general the ability to prosecute fraud. 

And then, in the event that foreclosure can’t be prevented by any 

Federal, State, or City regulation, we’d like to see the ability for 

banks—and I know my Congresswoman is very familiar with this, 

because she started a similar program in my district—we’d like to 

see the banks be able to receive CRA tax credit to banks that do 

give foreclosed homes, to have to re-sell the foreclosed homes to returning veterans. How that gets structured, I don’t know, but I 

know it is a program that has worked well in my district because 

of Congresswoman Velazquez’s leadership. 

You mentioned in your opening, Madam Chairwoman, but the 

City Council agrees that there should be an increase in the cap on 

9

FHA loans. The current caps do very little to capture the high cost 

loans that have been originated here in New York City. 

And finally, the legislation, again, should better protect seniors 

who have already seen a substantial loss of equity in their homes. 

Now, just to add, and it’s not part of my testimony, but I believe 

it’s important enough to add in, I had a meeting with my local assembly member this past Friday, Assemblyman Darryl Towns, who 

chairs the Banking Committee on the State level. And part of his 

legislative package will include a code of conduct for appraisers. I 

think many appraisers have not been discussed on any level, and 

some appraisers wrongfully over-appraise the values of some of the 

homes that are not really real. So we’d like to, at least on the State 

level, we know they’re going to strive to do that. We’d like to see 

that on the Federal level, as well. 

Just recently here in the City, a colleague of mine, Council Member Lew Fidler, had come up with the initiative—oh, I broke my 

promise. 

Chairwoman MALONEY. Let’s hear that initiative, and then we 

have to call time. 

Mr. DILAN. Okay, and I’ll call time. 

The initiative was called the ‘‘Center for New York City,’’ that 

has been now a Council and administration initiative. This will 

provide major funding for the not-for-profits that will help the general public get out of bad loans. 

So, with that, I have a lot of statistical data that is in my testimony. I’m sure that the information you have is probably much 

better, but I’d like to submit that for the record, and I thank you 

for your time. 

[The prepared statement of Mr. Dilan can be found on page 47 

of the appendix.] 

Chairwoman MALONEY. I want to thank you for your testimony, 

for being here today, and for your hard work. 

We will now hear from Jane Azia, director of non-depository institutions and consumer protection for the New York State Banking 

Department. Thank you, Jane, and thank you, superintendent, for 

all of the work and really creative initiatives that you have taken. 

And your new initiative, I think, is just absolutely terrific, Operation Protect Your Home, to have hands-on help. Thank you for 

being here. 

STATEMENT OF JANE AZIA, DIRECTOR, NON-DEPOSITORY INSTITUTIONS AND CONSUMER PROTECTION, NEW YORK 

STATE BANKING DEPARTMENT 

Ms. AZIA. Thank you, Madam Chairwoman, and the committee 

for the opportunity testify today. 

New York State is hit hard by the mortgage crisis. New York 

City is especially hard hit, with 52 percent of foreclosure filings in 

New York City, and 40 percent of those in Brooklyn and Queens. 

And, as Congressman Meeks pointed out, there is a disproportionate impact on those minority communities. For every one borrower in a non-minority community who has a subprime loan, 

there are two in minority communities. So, this is a severe problem. 

10

I would like to focus on some of the State initiatives that we 

have been undertaking. This is a priority for the Governor and for 

the Banking Department. Soon after taking office, Governor 

Spitzer created the HALT Task Force, to halt abusive lending 

transactions. We have had several summits through the State to 

bring together community groups, borrowers, government officials, 

and industry to discuss issues affecting different geographic areas 

and solutions. 

One of the areas that we have focused most on are loan modifications. It’s important to put borrowers in places with affordable 

loans that they can sustain over the long term. And we have been 

very active on two fronts: 

First, we have been working with a group of State attorneys general and banking departments, particularly the North Carolina 

Banking Department and the Conference of State Bank Supervisors. We have met with loan servicers, over 90 percent of the industry, and got commitments from them that they were committed 

to long-term modifications where borrowers have the ability and 

desire to pay. 

Yet, we requested the data to support these claims. And just last 

week, we issued a report of our findings, looking at the month of 

October. And, this report had some very interesting results. The 

key findings were: 

The good news. Servicers are increasing their level of loan modification and home retention efforts, but these efforts fall far short 

of the need. At the end of October, 45 percent of loss mitigation efforts in process were directed to loan modifications. This is in contrast to mortgages closed in October, where only 9 percent were 

loan modifications. 

The bad news is that payment resets on hybrid adjustable rate 

mortgages are not a driving force in foreclosures. A significant percentage of subprime adjustable rate loans are delinquent before 

they ever experience payment shock. This reflects weak underwriting or origination fraud. Thirty-two percent of subprime ARMs 

and Alt-A loans scheduled to reset in 2008 and 2009 are already 

delinquent by more than 30 days; 20 percent of loans that are 

scheduled to reset in the third quarter of 2009 are already delinquent. 

Another key finding is that 7 out of 10 seriously delinquent borrowers are not currently on track for any loss mitigation option. 

And finally, the refinance option, which had saved borrowers in 

the past, has nearly evaporated. 

The State Working Group intends to put out monthly reports 

showing how we perceive going forward. But one unfortunate fact 

is that of the major loan servicers, only 13 contributed data to the 

report. The remaining national banks did not do so. And, we wrote 

to the Comptroller of the Currency, and his response was that to 

do so would provide inconsistent data. Well, we don’t believe that 

is the case, and we urge action to encourage cooperation by the national banks and the Federal regulators. The forms that we used 

were developed in collaboration with Federal regulators, lenders, 

and servicers. These forms are short, they’re not burdensome, and 

we believe that it is important to get full information out to the 

public. 

11

Our other initiative with respect to loan modifications is at the 

grassroots local level. We have teamed up with State officials and 

State legislators, housing counselors, and community groups and 

lenders to schedule forums here in New York City that will take 

place February 23rd and 24th and the following weekend, March 

1st and 2nd, to bring borrowers together with loan servicers to 

hopefully work out modifications where possible. 

The State is also looking at legislative proposals, many of which 

contain ideas similar to what was in the Assembly’s bill, and that 

would require protections for both all borrowers, as well as those 

who are in high cost loans. 

I also think there’s a greater role that the Federal Government 

could play in this area. As I mentioned, we were disappointed with 

the OCC’s response to our request for data, and we feel that this 

should not be a turf issue. There are also legislative reforms that 

are needed, both with respect to Bankruptcy Code, tax relief, and 

affordable housing. 

Chairwoman MALONEY. Your time is up. Can you summarize 

briefly? Are you finished? 

Ms. AZIA. I am finished. 

Chairwoman MALONEY. Okay, great. Thank you so much. 

Ms. AZIA. Thank you. 

[The prepared statement of Ms. Azia can be found on page 34 of 

the appendix.] 

Chairwoman MALONEY. We now have Mr. Kieran P. Quinn, 

chairman of the Mortgage Bankers Association, and he is speaking 

on behalf of the HOPE NOW Alliance. 

Thank you for being here. 

STATEMENT OF KIERAN P. QUINN, CHAIRMAN, MORTGAGE 

BANKERS ASSOCIATION, ON BEHALF OF THE HOPE NOW ALLIANCE 

Mr. QUINN. Thank you. Thank you for the opportunity to appear 

before you on behalf of the Mortgage Bankers Association and the 

HOPE NOW Alliance to discuss both the mortgage market and how 

we are helping homeowners. 

HOPE NOW is a broad-based collaboration between counselors, 

lenders, investors, and trade associations, and is achieving real results in helping people avoid foreclosure. Our task is two-fold: 

We want to increase the number of delinquent borrowers who respond to our efforts to contact them and create a streamlined system to help borrowers in differing circumstances. The most significant barrier we face in helping consumers in an historic and persistent reluctance of struggling borrowers to reply to or contact 

their servicer for help. With every passing week without contact 

from a delinquent borrower, fewer options are available to a homeowner. 

We understand it is human nature to want to avoid the conversation with a lender, especially if you are behind on your payments. 

That is why we are working on innovative ways of reaching out to 

people, three of which I’d like to talk about this morning. 

First, servicers began a monthly direct mail outreach campaign 

to at-risk borrowers. This direct mail effort on the HOPE NOW letterhead—not on ours—is in addition to the thousands of letters and 

12

telephone contacts made by individual servicers to their own customers. Over the last 3 months alone we sent out over half-a-million letters to at-risk homeowners who had not contacted their 

servicers. This third party contact has already increased borrower 

response rates. 

The second tool we are using is the Homeowner’s HOPE Hotline—888–995–HOPE. This hotline directly connects homeowners 

with trained counselors. This counseling is free and it is offered in 

English and in Spanish. 

Counselors have direct access to servicers through single points 

of entry specially designed for this effort, and to help advise the 

consumer and act as his advocate as he goes through this process. 

Third, we have undertaken a media campaign to promote the 

hotline. For example, HOPE NOW has created a series of Public 

Service Announcements with very effective and moving messages 

illustrating the real world impact a foreclosure can have on a family, and urging borrowers to call 888–995–HOPE, especially if they 

find themselves in trouble. 

Public officials can help us spread the word. Thirty-eight mayors 

recently worked with the MBA to produce Public Service Announcements promoting the hotline. Hearings such as this are perfect to help us increase the awareness of the hotline and encourage 

more people to call. 

All of these methods are having results. The hotline received 

over a quarter of a million calls in 2007, and this volume is increasing. In December alone, there were over 90,000 calls, producing over 15,000 counseling sessions. In New York, almost 4,000 

New York homeowners were counseled through the hotline last 

year. My written testimony goes into much greater detail, detailing 

these results. 

The second challenge we have is to ensure that we have the tools 

available to help borrowers in the most effective way possible. We 

have worked with the American Securitization Forum to create a 

framework that allows servicers to modify the securitized loans you 

were talking about this morning. The focus of the effort has been 

to identify different categories of subprime hybrid ARM borrowers 

who can benefit from work out solutions catered to their situation. 

The key is to find solutions which help borrowers but do not violate 

existing agreements with investors who now own the securities 

containing these loans. 

The ASF framework covers securitized subprime adjustable rate 

mortgages—the 2/28s and the 3/27s. The framework provides solutions for homeowners who qualify for one of three different types 

of help: Refinancing, modification, or other loss mitigation efforts. 

Now, I’m a native New Yorker who grew up up in Stuyvesant 

Town, so I have some more things to say about New York, where 

loan modifications and repayments plans are continuing to increase. Generally speaking, we are experiencing fewer loan problems and delinquencies than the national average. Nevertheless, 

there are a significant number of homeowners who need assistance. 

For example, in November, we counseled 495 New Yorkers. It 

grew in December to 654. And last month, we helped 785 New 

Yorkers with counseling. 

13

Loan modifications in New York by HOPE NOW servicers increased 138 percent between the first and fourth quarters of 2007, 

and repayment plans increased 27 percent during that timeframe. 

We believe the upward trend in counseling, the key aspect, loan 

modifications, and repayment plans will continue, and homeowners 

will receive the help they need. 

It is my number one priority, and the number one priority of the 

member companies of the Mortgage Bankers Association to help 

people stay out of foreclosure and stay in their home. Thank you. 

[The prepared statement of Mr. Quinn can be found on page 70 

of the appendix.] 

Chairwoman MALONEY. Thank you. We will now hear from 

Sarah Gerecke, the chief executive officer of the Neighborhood 

Housing Services of New York City. She is on the front line working with the pain and suffering of homeowners who are losing their 

homes. She has been hard working at the neighborhood level, and 

we want to hear what is happening. Thank you for being here. 

STATEMENT OF SARAH GERECKE, CHIEF EXECUTIVE OFFICER, NEIGHBORHOOD HOUSING SERVICES OF NEW YORK 

CITY 

Ms. GERECKE. Thank you for having me. And, I want to thank 

all of the representatives here for their hard work and successful 

efforts in bringing attention and, I know, solutions to this problem. 

My name is Sarah Gerecke, and I am the CEO of Neighborhood 

Housing Services of New York City. Last year, we had 2,000 families come to us for help in paying their mortgage and preventing 

foreclosure. 

The mortgage crisis is causing great damage to families and to 

neighborhoods in New York City. The damage to families I don’t 

think is fully understood. 

The families who walk in have begun abusing their charge cards, 

often as Congressman Meeks said, when their credit was good to 

begin with, but they find they can’t keep up with the loan. They 

have taken on two and three jobs. A lot of times they’re leaving 

their children unsupervised. 

And, if they do lose the home, there is nowhere for them to go 

in New York City, where our rental vacancy rate is still around 3 

percent and where landlords, frankly, look for satisfactory credit 

and don’t want to see a bankruptcy or foreclosure in order to rent 

an alternative apartment. 

But, the collateral damage to neighborhoods is awful, too. Most 

homes here, as you know, are two- to four-family homes, and the 

rental families are evicted if the mortgage is foreclosed. 

Rescue scams are rampant. There are blocks in Bedford 

Stuyvesant, in South Ozone Park, and in Williamsbridge, where 

more than half of the homes on a single block have unsustainable 

loans. 

You see signs of deferred maintenance on blocks that used to be 

spotless, blocks where NHS has worked for decades to bring them 

back from the horrors of the 1970’s. We’re seeing graffiti now, 

abandonment, foreclosures. 

14

If you are the neighbor with a prime loan, not only is your home 

devalued, but you wonder why you remain. You wonder if your 

children are safe going past the vacant house down the street. 

Investors are buying properties and speculators are very active, 

filling single-family homes illegally with 10 or more single adults 

who rent rooms or beds. This happened down the street from me. 

Infill construction sites are abandoned. Commercial businesses are 

closing shop. 

The convergence of these New York City conditions has a major 

dampening effect on the entire economy. I know Congresswoman 

Velazquez mentioned the Joint Economic Committee’s data. 

I think the report released by the New York Conference of Mayors is even worse, estimating that the New York City Metropolitan 

area faces $10 billion in 2008 in losses relating to the mortgage crisis. That’s the worst of any city it studied. 

Your hearing today will bring recognition and resources, I hope, 

to stabilize neighborhoods. Federal tools are invaluable. And, first 

and foremost, I want to thank each of you for your support for the 

Neighborhood Reinvestment Corporation appropriation, doing business as NeighborWorks America. NHS received support for counseling, and we’ve just applied for additional counseling resources 

that you appropriated and were passed in December for $180 million total. 

Chairwoman MALONEY. Well, we hope you will be successful in 

that, and we’ll certainly support it. 

But right now, your time is up. Could you summarize, please? 

Ms. GERECKE. Sure. I’m sorry. 

We urge additional support for capacity building for counselors, 

greater consumer protection, and flexible Federal funding for innovative programs that can help us. 

Thank you. 

[The prepared statement of Ms. Gerecke can be found on page 55 

of the appendix.] 

Chairwoman MALONEY. Thank you, so much. 

And now, we will hear from Josh Zinner, who is the co-director 

of the Neighborhood Economic Development Advocacy Project, also 

working at the neighborhood level, helping people stay in their 

homes. Thank you for your hard work and for being here today. 

STATEMENT OF JOSH ZINNER, CO-DIRECTOR, NEIGHBORHOOD ECONOMIC DEVELOPMENT ADVOCACY PROJECT 

Mr. ZINNER. Thank you, Madam Chairwoman. And thank you, 

Congresswoman Velazquez and Congressman Meeks, for—particularly for your testimony. I had come here to testify in part about 

the situation on the ground in New York City, and I think you 

have all done such an eloquent job of describing the scope of the 

problem that, given the time, I’ll jump right into some of the possible solutions. 

I do want to mention a couple of points. One is that I can’t overstate enough the responsibility that the secondary market, and particularly Wall Street investment banks, have for this fiasco. The 

securitization of subprime mortgages has provided easy liquidity to 

the subprime market and for abusive lenders who are doing loans 

that were unaffordable, that didn’t have benefit to borrowers. It 

15

was so profitable to make unsustainable loans that the investment 

banks were actually marketing products such as ‘‘no doc’’ loans and 

piggyback loans, payment option, adjustable rate mortgages that 

were not sustainable and not advantageous to borrowers that mortgage lenders were actively and aggressively pushing on borrowers 

at the neighborhood level, which created huge profits on Wall 

Street. 

There was no incentive at any level to make sustainable, responsible loans. Mortgage brokers were getting big fees for inducing 

borrowers into loans based on misrepresentation. And lenders were 

selling their loans into the secondary market regardless of their viability, and everybody was making a killing. So, it is time now to 

create some accountability in the secondary market and to change 

the incentives. 

The Federal regulators and especially the Federal Reserve was 

asleep at the wheel, I think with a blind faith in the markets as 

a corrective. But of course, because the incentives were perverse, 

the market did not correct itself, creating this crisis. 

As far as the mortgage servicers go, I think that loan modifications are obviously a key to helping borrowers out of foreclosure. 

And, there has been plenty of testimony about the scope of the foreclosure problem. Millions are facing foreclosure. But, there have 

been no signs that voluntary actions alone by servicers are going 

to solve the problem. 

So, while I laud any initiatives by the industry to modify loans, 

and I hope that helps to solve the problem, I want to stress that 

it cannot alone solve the problem. And, I want to state that the 

Bush-Paulson plan, which really at most is only going to help 3 

percent of borrowers at risk of foreclosure, is not nearly the answer. 

So, I call on Congress to really push the industry to find a way 

to change the incentives so that servicers are offering loan modifications that are not only better for homeowners but better for investors. 

I’m going to run through, because I know I’m running out of 

time, some of the policy recommendations that we have. And again, 

if there are questions more about neighborhood impacts or the civil 

rights implications here, I’m happy to answer them. 

We strongly support House Bill 3609 to change the Bankruptcy 

Code. It goes without saying this is a sensible, simple, straightforward emergency fix that would save more than 600,000 homes. 

So, I think I speak for the advocacy community as a whole in New 

York State, or for many people, that this is sort of a no-brainer fix 

that will save homes. 

We also favor a very strong preventative bill and we do laud 

House Bill 3915, but we call on the Congress to pass a bill that is 

more in line with the bill that Senator Dodd has introduced in the 

Senate, which does have stronger protections in several areas, including stronger prohibitions to prevent steering of borrowers into 

higher cost loans on the basis of race, has a wider scope of protection of ability to pay provisions, and in particular, widens assignee 

liability, which is critical—absolutely critical—for holding Wall 

Street accountable for the loans that they buy and for changing the 

incentives in this system. 

16

Finally, I want to emphasize, as my time is running out, that remediation—you know, the bankruptcy fix is critical, but remediation efforts are needed on the Federal level and on the State level 

to fill gaps. I mean, this is absolutely critical to halt the bleeding 

from the foreclosure crisis. 

There is a big problem, in that there is not a secondary market 

for loans that come out of rescue programs, for borrowers who are 

more than 60 days delinquent. New York and Massachusetts have 

started loan funds that are promising, but that are hamstrung because the requirements are less than 60 days delinquent in order 

for the loans to be made—I’ll close. 

Chairwoman MALONEY. You’ll have to sum it up. 

Mr. ZINNER. I’ll sum it up. 

And this needs to be fixed. You know, the bottom line is that borrowers come in later in the process, and so these programs have 

been able to close on very few refinance loans. 

So, we welcome the FHA reform, but I do call on Congress to expand FHA reform to look for ways to create some flexibility in the 

secondary market so that FHA temporarily can guarantee loans 

that come out of special programs that are refinance loans that are 

for borrowers who are more than 60 days delinquent, and this is 

critical. 

And finally, we call on Congress to expand funding—we laud 

Congress for expanding funding for loan counseling, but also funding needs to be expanded for legal services programs around the 

country that represent borrowers who are in foreclosure. This is 

critical, again. 

Chairwoman MALONEY. Those are all good points. 

Mr. ZINNER. Thank you very much. 

[The prepared statement of Mr. Zinner can be found on page 82 

of the appendix.] 

Chairwoman MALONEY. We can recognize you later, but we have 

to stick to the 5-minute rule. 

I’m going to ask one brief question, and then recognize my colleagues. 

In response to the testimony from the Superintendent of Banks’ 

office, Ms. Azia, you said that the data collected by the States show 

that the reset is not the only gateway to subprime loan foreclosure, 

and many subprime borrowers, the States found, are delinquent before the reset. We were under the impression that when you hit the 

reset, that’s when the foreclosure happens. So, this is extremely interesting. 

And, what are your conclusions from this data? Are we in for an 

increased rate of foreclosure? Because a lot of the estimates were 

based on the resets that are coming up this year and next year. 

But, you’re saying it was before they even get to the reset they’re 

foreclosing— 

Ms. AZIA. Yes. 

Chairwoman MALONEY. —so it looks far worse than the predictions that we have heard. 

So, if you could, just elaborate, please. 

Ms. AZIA. Well, what we’re saying is that resets are only part of 

the problem and are only part of the solution, and that long-term 

modifications based on resets are missing huge chunks of the popuVerDate 0ct 09 2002 16:52 Apr 03, 2008 Jkt 041180 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\41180.TXT TERRIE
17

lation, that over 30 percent of loans that are not even reset are already delinquent, and that these people need to be addressed. Otherwise, we will continue to have real problems. 

Chairwoman MALONEY. Thank you. Congresswoman Velazquez is 

now recognized for 5 minutes. 

Ms. VELAZQUEZ. Thank you, Chairwoman Maloney. 

I would like to address my first question to Ms. Azia and Mr. 

Quinn, and also Sarah, if you could come respond. 

What can we do to incentivize services to engage in mass modification of loans that could save thousands of New Yorkers from 

losing their homes? 

Ms. AZIA. Well, I mean, services already have at the top levels 

the commitments to modify loans. I think, you know, they have expressed that quite clearly. But, it’s not clear that they have the 

staff and the capacity themselves to engage in the full modifications. 

And while at some levels we hear that their agreements with the 

investor community have been relaxed, other occasions we hear 

that those are still impediments. So, those issues need to be addressed. 

Ms. VELAZQUEZ. Mr. Quinn. 

Mr. QUINN. May I give the phone number one more time? It is 

888–995–HOPE. 

We cover, in the HOPE NOW Alliance, 90 percent of the 

servicers who service the subprime adjustable loans. They are 

there, at the ready. We have increased the number of people just 

answering the calls from roughly 64 to almost 400, over the course 

of 2007. 

The NeighborWorks organization has 240 locations around the 

country. The increased funds for counseling that Congress recently 

passed are enabling us to expand that network. 

And the beauty of a counselor is that he then becomes not just 

a counselor for the homeowner, but he is also the homeowners’ advocate before the servicer. He has the hotline. He has the way to 

go. 

Ms. VELAZQUEZ. Okay. But so, in that statement that you’re providing us, are you saying that modification of at-risk loans is taking place among the Mortgage Bankers Association. 

Mr. QUINN. As a trade association, we represent many members. 

Ms. VELAZQUEZ. Sure. 

Mr. QUINN. Our evidence, covering over 33 million loans that our 

servicers take care of, modified 230,000 loans in the third quarter 

alone. And, this was 2 months before the Paulson-Bush plan was 

announced. 

And, with that publicity and all, we made every major newspaper 

in this country. The word has gotten out that homeowners should 

call their servicer. 

Ms. VELAZQUEZ. Okay. Let me take this opportunity and ask you 

how expensive it has been for your members to provide the counseling, to do the outreach, and to have the staff to deal with borrowers who are at risk of losing their homes. 

Mr. QUINN. It’s expensive for our organizations, but it’s free for 

the homeowners and— 

Ms. VELAZQUEZ. I understand. 

18

Mr. QUINN. —and each servicer is being asked to write a check 

as they go along. 

Ms. VELAZQUEZ. So, do you think that housing counseling should 

be a part of any legislation, in terms of being mandatory? Or for—

or to have opt-out provisions. 

Mr. QUINN. Illinois passed the mandatory counseling, and I think 

the State revolted against it. We have tried, and we spent a lot of 

money last year, to improve our home loan learning center. In the 

late fall, we had a million hits a month for people trying to get 

more education before they went for a home. 

The literacy programs that Congressman Meeks talked about, we 

desperately need to upgrade that, all across the country. I don’t 

like mandatory counseling, personally. 

Ms. VELAZQUEZ. I know that. I know. I am the one who has an 

amendment advocating for it, but you also mention the fact that 

borrowers are not, for whatever reason, reaching out to housing 

counseling providers or to those banks where they are—that are 

the originators, because they are embarrassed, because they are 

postponing it, for whatever reason. 

So, if a borrower is delinquent the first month or second month, 

why is it so bad for the industry to have a mandatory provision 

that will get the lender to notify a housing counseling provider to 

contact that borrower? 

Mr. QUINN. Well, we have sent the notices out to the borrowers. 

They need to take some initiative to call the counselor to prepare 

their financial information. It is the most critical tool we— 

Ms. VELAZQUEZ. I know that I’m not going— 

Mr. QUINN. —need to help them— 

Ms. VELAZQUEZ. —to convince you. Let’s go with— 

Chairwoman MALONEY. We have one more minute. 

Ms. VELAZQUEZ. —with Mr. Zinner. 

Chairwoman MALONEY. One more minute. 

Ms. VELAZQUEZ. Yes, okay. 

Mr. ZINNER. If I could just speak for a minute on your question 

of how to change the incentives with servicers to promote more 

loan modifications? I have a lot to say on this topic, but let me be 

brief and say one thing. I think one of the problems even taking 

the servicers at face value that they do want to do more loan modifications, and I think that there is a need to change the culture of 

the mortgage servicers in that area. 

But, you know, because of the way these loans have been 

securitized and, you know, they’ve been sold off in slices to different grades of investors, you know, there are ‘‘A’’ investors who 

get paid first out of the trust, and then there are slices at the bottom that only get paid when the investors above get paid first. 

So, you know, the investor—the servicers say that they fear legal 

liability from investors if they engage in too many loan modifications. You know, part of the problem is that modifications might 

be good for investors with the lower slices, but whereas foreclosure 

is better for the investors with the top slicers. The legal obligation 

of the servicer is to act in the best interests of the investors, as a 

whole. 

So, I think it would be very helpful if there was guidance received from the top, possibly from the SEC. But, if there were FedVerDate 0ct 09 2002 16:52 Apr 03, 2008 Jkt 041180 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\41180.TXT TERRIE
19

eral guidance that sort of could assure mortgage servicers that if 

they’re engaging in modifications that are in the best interests of 

the—to maximize the return to the trust as a whole that they don’t 

have to fear liability from certain slices of investors. I think this 

is critical. 

Ms. VELAZQUEZ. Thank you. 

Chairwoman MALONEY. Thank you. I’ll make one comment and 

I have a brief question, and then recognize my colleague Gregory 

Meeks. 

I want to respond to one of the comments of Mr. Zinner, where 

he said that we need to negotiate and help people stay in their 

homes, but what do we do for the people who have already lost 

their homes? They need help right now, and what are we doing 

now? 

One suggestion that I have heard recently is a revival of the 

Homeowners Loan Corporation. This agency was created during 

the Depression to manage defaulting mortgages in that crisis. I’d 

like to hear what your thoughts are about this. 

By the way, at the Joint Economic Committee, we have heard 

some testimony from some economists who believe that the amount 

of people who will lose their homes during this crisis will be even 

greater than those who lost their homes during the Great Depression. And, the Homeowners Loan Corporation bought defaulting 

mortgages during the Depression for the Government, with backed 

bonds at lower rates. 

And does the fact that the subprime mortgages are securitized 

now make the efforts of the Homeowners Loan Corporation more 

difficult than it was in the 1930’s, to help in this situation? 

Any ideas of any of the panelists on this? 

Ms. GERECKE. I’ll make one comment. I’m certainly not an expert 

on that proposal. But, I do want to say that the problem of families 

who have faced foreclosure already, and one of the limitations of 

the voluntary act, is that there is no ability to be geographically 

targeted with the solution. So, if you have a particular block where 

you have homeowners facing different levels of problem, it’s very 

difficult to sit back and wait to receive the call and see which ones 

fit into which buckets. 

So, to that extent, a centralized coordinated solution, I think, 

would stop the secondary and tertiary economic spillovers that are 

happening right now, and harm that’s being done to the broader 

community. 

Mr. QUINN. Our fear is that in just the time it will take to put 

all this in place, we can be modifying 230,000 loans a quarter or 

more. 

We lose $30,000 to $50,000 at a minimum every time we foreclose on a home. We have every incentive to modify the loan. We 

just want the people to get in touch with us. 

Mr. ZINNER. Yes, I would say again—excuse me. Again, we 

strongly support any efforts by the industry to improve the rate of 

modifications, but it can’t be a replacement for effective Federal action. 

And we do strongly support the initiatives to create a Federal 

fund. I think Representative Baca and Senator Dodd are both talking about such an initiative. As Ms. Gerecke said, there is a potenVerDate 0ct 09 2002 16:52 Apr 03, 2008 Jkt 041180 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\41180.TXT TERRIE
20

tial problem in that it doesn’t give you necessarily the ability to respond on the local level. It would be sort of a top-down approach, 

because only borrowers whose mortgages were sold into this fund 

would get assistance. 

So, while we strongly support this as a very appropriate, effective, and strong Federal response, there is also a need at local levels to have complementary programs. And, this is where it’s critical, as I stated in my testimony, to have more flexibility possibly 

in FHA to enable those local programs, those State programs, to be 

effective. 

Chairwoman MALONEY. We have passed an FHA reform bill that 

is flexible, if we could get it through the Senate. So, that’s one of 

our goals. 

And, I’d like now to recognize my colleague and good friend Gregory Meeks for 5 minutes. 

Mr. MEEKS. Thank you, Madam Chairwoman. And, in my 5 minutes, just first I should have said when I opened up, is a strong 

thank you to Erik Dilan for the work that he’s doing. We’re in your 

house. It’s good being in your house at the City Council and working with my friend and colleague that you mentioned in your statement, Leroy Comrie, doing a job focused on this. 

I also, Mr. Zinner, want to say thank you to your organization. 

Sarah Ludwig, who works very closely with my office, helping my 

constituents who fall into problems, and referring her to people, 

your agency is doing a great job, and I want to make sure you say 

hello to Sarah for me, and we thank you for what you do. 

I also want the record to be clear that we still believe that owning a home is the greatest thing that one can do. And we understand that the subprime market is a—you know, we don’t want to 

throw the whole market out. We want to get rid of those predatory 

lenders, those that take advantage of individuals. Because some 

people, without subprime, would not be able to be in a house, period. 

However, we want to make sure that steering is over, and all of 

these illegal and predatory practices don’t begin—you know, don’t 

continue. 

And so the first thing that, in listening here, I was wondering 

if, in fact, Mr. Zinner, and you and Mr. Quinn, or your respective 

organizations, is there any direct communication? When someone 

comes to you, do you have any experience with that, referring to 

HOPE and back and forth, to try to see if there’s some synergy 

there in this market or other markets? 

Mr. ZINNER. Let me just say that NEDAP does not take direct 

referrals from borrowers. However, I can speak of prior to working 

at NEDAP, I ran the foreclosure prevention project at South Brooklyn Legal Services, and we had thousands of calls coming in from 

borrowers who were targeted for subprime abuses. 

And, you know, I want to say historically, and I think I can 

speak for many, many advocates, that historically it has been very, 

very difficult for borrowers and advocates to work with servicers. 

That’s not to say that we are not very hopeful that those bridges 

can be opened up, and HOPE NOW is a positive development. 

We do have a concern, you know, since we are speaking of HOPE 

NOW, we do think that there’s a need to train the counselors in 

21

the HOPE NOW Alliance, the counselors who are working with the 

Alliance to screen loans for illegalities, because borrowers go 

straight into loss mitigation without a look at whether their loans 

have illegalities that might create defenses to foreclosure. And, 

when they do sign those modification agreements, they waive those 

defenses. 

So, with that caveat and saying that there is a need to be more 

careful in the screening of these loans, we welcome opening up any 

bridges. Historically, advocates and homeowners have had a lot of 

difficulty dealing with mortgage servicers, and it has been a negative experience, but we welcome a change in that. 

Mr. QUINN. The HOPE NOW Alliance is an alliance of trade associations and neighborhood associations, so we welcome all the 

help we can get in this important endeavor. 

Mr. MEEKS. But, I should hope— 

Ms. GERECKE. I just want to add, because we do refer to and 

from the hotline a lot, and we’ve had experience with it, both in 

improving the levels of service on both sides. On the plus side, we 

find the hotline counselors very helpful in conducting triage and 

providing basic advice. They do refer back to us if people need more 

assistance. 

The work with the servicers, I will say, is uneven. Some, we’ve 

seen incredible changes over the recent periods of time. Often 

though, within the same organization, you can get very different 

responses from person to person. 

On Friday I was told by my director that he had personally 

placed a call to the nonprofit contact for the servicer about a customer, and had left five messages over the course of a week that 

had never been returned. So, I think that they are also facing capacity and volume issues that we all have to work through. 

But very often, the answer, especially for the early payment delinquent that Jane was talking about, the answer is we cannot help 

you with that now. Many of the modifications are just forbearances 

on the interest that may be collected later, rather than a full loss 

mitigation. 

Mr. MEEKS. Let me just throw two questions out there real 

quick, before that buzzer goes off. 

One is I am concerned when you have someone who has been 

wronged, and clearly, we can identify a group of individuals who 

have been wronged, as I stated in my testimony. Those individuals 

who were steered into a subprime, when they could have had a 

prime rate, those individuals who had great credit, who were paying their mortgage until the rates went up. They clearly were 

wronged. 

I was wondering if there’s any focus that the industry, or whether we in Government, that we can do at the City and the State 

level, or counseling can do, that can focus on making sure that 

those individuals, that they’re restored their credit ratings or something of that nature. 

Because the statement is actually correct. Once their credit is 

gone, they probably can’t buy another home again in their lifetime, 

which is affecting a generation of people. And, it is difficult for 

them even to rent a decent place when they were wronged. 

22

So, is there any focus on helping those who clearly were wronged 

in this matter? 

And secondly, I think Mr. Quinn indicated that individuals, you 

know, it’s hard to get people to come. And, that’s correct. And, 

we’ve appropriated millions of dollars for foreclosure prevention 

counselors. 

And, I was wondering if, in fact—in fact, there was a study by 

Fannie Mae that showed the reason why some people go to 

subprime lenders in the first place is because they are afraid to be 

told ‘‘no’’ by others. So, surely, when they’re foreclosed. 

What other efforts—what else can we do— 

Chairwoman MALONEY. The gentleman’s time is up, and we welcome any responses to his questions. 

Mr. QUINN. It absolutely starts with education. We have to get 

people better prepared when they go for a loan. I was blessed when 

my father worked in a bank, and I knew there was only one route 

for me to go. But, with the change in our population coming forward over the next 10 to 15 years, we have to have all our programs in multiple languages, and we have to get it down into the 

cities. The awareness that hearings like this help to create helps 

us immensely to get people more concerned. 

But I want to get back to your point about the modification process or workout process. These processes will leave people with the 

best credit record coming out of this situation. If people go into 

bankruptcy, it is a 7-year blight on their record. And, we encourage 

people to exhaust every remedy available to them through the 

counselors, through the HOPE NOW Alliance, before you enter into 

any kind of bankruptcy action. It’s going to make the cost of financing for all homeowners go up, and we’re not sure it’s really going 

to help people that they couldn’t already be helped through the 

HOPE NOW Alliance. 

Chairwoman MALONEY. Any responses? 

Mr. DILAN. Yes, if I may, I would just like to re-emphasize some 

of the points that I made during my testimony. I think it’s critical 

that practices such as one-stop shopping be eliminated, where you 

get your broker, your attorney, and everyone that’s basically providing the bank with the client. I think it should be prohibited that 

they’re all in league with each other. I think that the end user 

should be required to have their own attorney and a broker that’s 

separate and apart from the bank. 

And I think that practices such as yield spread premiums and 

other fees that serve no benefit to the homeowner should be eliminated. It’s essentially a kickback for the mortgage broker for steering that loan to said bank. 

And again, I would say that this committee, in an unrelated matter, should also study the impact on veterans who have their loans 

reset while they are overseas fighting wars, because they could be 

doing a service for this country and lose their home when they 

come back. 

Chairwoman MALONEY. I’d like to ask Council Member Dilan 

how is the Council working with the State on Operation Protect 

Your Home or other initiatives? Obviously, one of the problems 

we’re hearing is that people don’t know where to go to get help, 

23

and certainly the City Council is the organization, the elected body 

closest to the people. 

How are you working with the State Senators and the Banking 

Department to let people know about Operation Protect Your 

Home? 

Mr. DILAN. We’re just beginning. I met last Friday with, as I 

mentioned, Assembly Member Towns, who is the chair of the Banking Committee, to come forward with a strategy. I know that Senator Malcolm Smith has made this an issue for all of his members 

in the Senate. I’ve worked with Senator Jeff Klein in terms of getting some of the banks to come into communities and restructure 

loans, as well as conversations with the HUD Regional Director, 

Sean Moss, in terms of coming out to the community and letting 

neighborhoods know what the Federal packages are and what the 

Federal advantages are. 

You know, clearly there’s still more work for us to do. I will be 

submitting legislation to the Council that, as I said in the press 

conference earlier, that will potentially restrict the City from publishing online people’s deeds, via the Registrar’s Office. Right now, 

that’s available to anyone in the world with no proof that you are 

the actual homeowner. Those are some of the things that we could 

do at least to prevent fraud. 

And then, as a budget item, I’d like to at least ask my colleagues 

to consider funding specific units for property frauds in the five 

DA’s offices. 

Chairwoman MALONEY. Well, I want to thank you for your initiatives. And, I’d like to ask Mr. Quinn, we hear a great deal about 

the public/private efforts, and workouts, and certainly applaud your 

efforts. But the numbers that we’re hearing from the State Superintendent’s Office and others is that they’re not happening, that all 

of these initiatives are taking place, yet the connection and the 

workouts are not happening. 

And what more are you doing with HOPE NOW to offer more 

borrowers help? And, do you think it would be helpful if we kept 

statistics on actual success? If servicers are being told to reach out, 

just numbers reported back on how many have reached out, how 

many have negotiated a workout? 

Because, the numbers we’re seeing are really horrific. Everybody 

says they’re helping, yet when we survey the homeowners, the individuals who are losing their homes, they say that they weren’t 

aware, that no one is helping them, and there is not the reach out. 

And, I’d like to add to it, and have the other panelists add to the 

really startling report that came out from Freddie Mac last week, 

that 57 percent of the borrowers who are paying late still don’t 

know that their lenders might offer alternatives—57 percent. And, 

I’m wondering if that is the same situation in New York City. Do 

you think that half of New York City residents facing foreclosures 

still have absolutely no idea that there are workout options? 

And again, the idea of having some oversight on what is happening. Not only are you reaching out, how many people have you 

reached out to? How many workouts are in the process now to help 

people stay in their homes? Because we are seeing a disconnect between what everyone says they’re doing and what is actually happening to people in helping them stay in their homes. 

24

Mr. Quinn? 

Mr. QUINN. Part of the responsibility of the HOPE NOW Alliance 

is to report actual phone calls received on a monthly basis. 

Chairwoman MALONEY. On a monthly basis. That’s great. So, 

that’s part of the plan. 

Mr. QUINN. And, that all took off late November/early December. 

So, you’re going to see December— 

Chairwoman MALONEY. Great. So then, there’s oversight on it. 

And my question, do you believe that half of New Yorkers are not 

aware that there are workout options? To our panelists—Jane and 

others? 

Ms. GERECKE. Yes, I absolutely do believe it. I—we see all the 

time that there is a lack of awareness of what the benefits of calling a servicer can be, and we view our job to help connect the borrower to the servicers. 

Again, going back to the issue of early payment defaults, though, 

when a borrower was told that the loan would be affordable and 

then found out that the one percent teaser rate was only good for 

the first month, and the bill comes in at $500 or $700 higher the 

following month, asking for help from the servicer can be a very 

difficult experience. And, in many cases where they have been in 

contact from the servicer’s collection department, there is a reluctance to believe that now, with a counselor, we can get you into a 

loss mitigation department, we can try to do other things. 

But there isn’t a lot of help for people. And I think the ones that 

are in the deepest, or the ones who faced predatory or improper 

practices to begin with are really very reluctant or have the negative experience, unfortunately. 

Chairwoman MALONEY. What else can Congress do to help with 

the awareness program? We have allocated $180 million. They are 

going to start processing that next week. They are taking applications. We certainly urge the neighborhood groups to apply, and we 

certainly want to help you. 

But, what else can Congress do to help with the awareness program? I’ll ask Jane Azia. 

Ms. AZIA. I think individual congressional offices can get information out to their constituents about programs. And in particular, 

in New York City, the foreclosure forums that are taking place at 

the end of February and the beginning of March. So, I think that’s 

one very important thing. 

But, there’s lots of material out there. It’s just getting it to the 

borrowers. 

Chairwoman MALONEY. Thank you. My time is up. Chairwoman 

Velazquez. 

Ms. VELAZQUEZ. Thank you. Mr. Quinn, you say that education 

is paramount, and I agree with you 100 percent. There is no doubt 

that an educated borrower will make a wiser financial decision. 

With the sharp increase in financial sophistication, what is the 

industry doing to enhance transparency for borrowers? 

Mr. QUINN. We supported the licensing provision in the recent 

House bill that required education, both up-front and on an ongoing basis for everyone who is involved in the loan origination business. We have to get our originators and our servicers on the same 

page about how these loans work. 

25

We focus too much, I think, on getting people into a home. This 

is the American dream that everyone is chasing, and we have to 

focus on keeping people in their home. So, explaining the loan programs. We actually would welcome RESPA reform. We think the 

stack of documents that a homeowner faces should go from this to 

about this. And, that would eliminate a lot of the confusion and potential hiding of documents. 

Ms. VELAZQUEZ. So, you’re telling me that when HUD comes out 

with the next RESPA regs, that you are doing to design a grassroots mobilization from mortgage brokers to get members to oppose 

it. 

Mr. QUINN. We will support simplification of the mortgage process in as many ways as we possibly can, Congresswoman. 

Ms. VELAZQUEZ. Okay. Again, what can we do to restore confidence and bring transparency to the secondary market? 

In the roundtable that I held 3 weeks ago, specifically the president of the Federal Home Loan Bank of New York said that some 

institutions had withdrawn from the secondary market unless they 

were purchasing securities issued by Freddie Mac and Fannie Mae. 

Mr. QUINN. You’ve done the first two things that were excellent—the modernization of the FHA. If you go back to 2000, roughly, FHA had 13 percent of the market, and subprime was about 2 

percent. If you go to 2006, those numbers were exactly the opposite. 

The first-time home buyer, the person who needed the 93, the 95, 

the 97 percent loan, lost his access to FHA. The modernization of 

FHA, which you passed, was the critical first step. 

Empowering Fannie Mae and Freddie Mac through higher loan 

limits helps California, New York, Massachusetts, Chicago, and so 

many more places in this country. That was the critical second 

step. And the money you spent for homeownership counseling was 

also critical. 

Ms. VELAZQUEZ. Yes, and the issue of transparency. 

Mr. ZINNER. Yes, I mean, well, just going back into your question 

about restoring stability, confidence towards the secondary market. 

I think the number one thing that’s going to do that is strong preventative legislation, you know, such as the Frank bill in the 

House. And, you know—and, as I stated, I think there are some 

improvements in— 

Ms. VELAZQUEZ. Senator Dodd. 

Mr. ZINNER. —in the Dodd bill. But, what this is going to do, you 

know, I think this is the single most important thing, because the 

secondary market will then know that loans that are sold are viable loans. And, this will restore stability and integrity to the process, and there will be a secondary market that is confident that 

what they’re buying is legitimate, and investors will respond accordingly. I think this is critical. 

Ms. VELAZQUEZ. Okay. Thank you, very much. 

Ms. AZIA. And, if I could just add that New York is considering 

various reforms, needed reforms with respect to lending, and it has 

already implemented some things, like the required registration of 

mortgage loan originators, not just the firms, but the actual employees who will be required to be registered, and the background 

check, and comply with ongoing education requirements. Because, 

26

it’s not just the borrower who needs to be educated, it’s the people 

in the industry who are making these loans. 

But, there needs to be comparable Federal legislation at a national level, setting national minimum standards, so that New 

York is not just in the forefront, so that there is a level playing 

field for the whole country of these kind of preventative measures. 

Chairwoman MALONEY. Thank you. Congressman Meeks. 

Mr. MEEKS. Thank you, Madam Chairwoman, and I will be 

quick. 

I think that Mr. Zinner and Mr. Quinn hit on part of what I 

wanted my last questions to be. And that is, you know, what—it 

only takes a few bad apples to taint the whole bunch. And, until 

we get rid of those bad apples, then this whole thing is going to 

be a problem. 

And, the ways that those—the banks and the larger mortgagors 

are at fault, in my estimation, is that you buy the whole package 

without knowing that they’re good loans, you know, and that there 

was more attention paid to the quality of the loan than looking at 

the buyers—the mortgagees. Then, you would know that this is a 

bad loan and that would, to some degree, I believe, begin to stop 

some of what’s the practice that’s going on. 

And, I couldn’t agree with you more, with the work that Nydia 

has done in strengthening the FHA is absolutely critical, because 

my parents wouldn’t have had a home if it wasn’t for FHA and Veterans—VA loans. That’s tremendously important. 

But, the real question I have is just Mr. Zinner’s recommendation. He made two recommendations, and I ask Mr. Quinn what do 

you think about it? Changing the Bankruptcy Law? He said that 

was number one, changing the Bankruptcy Law. 

I think we all agree about that we need remediation with reference to—it’s critical, remediation is critical. But, what about 

that? What’s your opinion on changing the Bankruptcy Law? 

Mr. QUINN. I’m not in favor of changing the Bankruptcy Law, for 

a couple of reasons. I believe—and I said a minute ago—if you exhaust all the remedies available through HOPE NOW Alliance, I 

believe you will be able to effect the modification work out repayment plan on your loan, not by going through bankruptcy. The 

bankruptcy will not only cause a blight on your credit record for 

years to come, while a modification won’t, it will also raise the rate 

for all borrowers. I don’t know the exact percentage that are in 

bankruptcy, whether it is 1, 2, or 3 percent. You’re going to be raising the rate for the other 97 percent. 

It is something that is critical to our business. The reason that 

mortgages trade at the tightest spreads of any financial instrument 

is because you do have the sanctity of the mortgage document. It 

is a secured document. You control the duration risk. 

If you all of a sudden make it an unsecured loan, available for 

a cram down, you are going to raise the borrowing cost for all 

Americans. I believe that the modifications, through the HOPE 

NOW Alliance, will continue to solve this problem. 

Mr. ZINNER. I just want to state in response to that, you know, 

again, I think we would certainly support the notion that if a borrower can get an affordable modification from his or her servicer, 

that that’s the number one option, that makes sense. 

27

But I think we’ve seen, again and again, and the statistics bear 

it out, that we can’t rely on voluntary loan modifications from 

servicers as a solution. So, what’s critical about the bankruptcy fix, 

you know, this is an emergency fix, and it would be available to 

borrowers to have exhausted all of their remedies. 

And, the critical thing to state is that, in the House compromise 

bill, it’s only from already existing mortgages. It’s not going to affect the mortgage markets, because it’s not going to affect mortgages that are being originated and then sold. It’s an emergency 

fix that’s narrowly tailored to mortgages that are already out there 

and that already exist. And it’s a critical backstop if voluntary 

modification efforts fail. 

Mr. QUINN. To go back to the point you raised a minute ago, the 

number of people who stop making payments long before the reset 

date? Our evidence, and this is over a 38-year study that we track 

on delinquencies, is that in roughly 70 percent of the cases, the 

reason someone loses their home is because they lost their job, had 

a major illness, or they went through a change in their marital situation. 

There will be a number of these defaults that are beyond the 

remedies available to a homeowner. And we think that the HOPE 

NOW Alliance will solve those people that are in their homes, with 

an income, that can stay in their home. 

Mr. ZINNER. But— 

Mr. QUINN. It will—it will distract— 

Mr. ZINNER. But you— 

Mr. QUINN. —and it will add to the cost of other mortgages. 

You’ve changed the nature of the instrument forever. 

Ms. VELAZQUEZ. Will you yield? 

Chairwoman MALONEY. Yes, absolutely. 

Ms. VELAZQUEZ. Thank you. But we are not assessing here 30 

years of numbers. We are assessing here what is happening to New 

York and families across the country in the last 2 to 3 years. 

Mr. QUINN. But, you will affect the next 30 years for future 

homeowners. 

Ms. VELAZQUEZ. I guess you need a strong message to know that 

we are serious, and that we’re going to hold people accountable. 

Chairwoman MALONEY. Well, as my colleagues know, legislation 

that Mr. Zinner commented about has passed out of the Judiciary 

Committee and is scheduled to go to the Floor of Congress for a 

vote. I predict that it will pass, because of the basic fairness argument of the need to keep people in their homes. But, why in the 

world would you allow them to renegotiate on their secondary 

home, their 5th home, their 10th home, but not their primary home 

that can keep many families in their homes. 

I would—Speaker Quinn has indicated she needs her room back, 

and we’re so pleased to have had time. But, I would like to end 

with one question. 

And that is, what are other creative ways we can keep people in 

their homes? Any new initiatives that we have not already talked 

about? 

I would like to mention one that came into my office. Although 

it would not affect a large group of people, it would affect some, 

and that is the idea that employers should be given incentives—

28

whether it’s a tax break or any other type of incentive—to keep 

their employees in their homes. They have flexibilities in their 

budgets to allow for this crisis situation, to help them stay in their 

homes. That is one idea that a constituent wrote in to me, that I 

think is a good one, and deserves to be explored. 

And so, I ask our panelists to respond to that particular idea, 

and any other idea that you can think of that would help us keep 

people in their homes. Obviously, we have ideas going forward to 

reform the system. But right now, we have a crisis in New York 

and across the country. 

And oftentimes legislators ask me, what is happening in New 

York? What is New York doing to help people stay in their homes? 

I congratulate the initiative from the Banking Department, but 

what other ideas do we have, that we can take back to Congress? 

Thank you all for your excellent work throughout your lives, and 

for being here today. Thank you. 

Yes? 

Ms. AZIA. One idea that we are—that is being proposed at the 

State level are sort of modifications of the foreclosure procedures. 

Last year, we enacted a law that required a separate notice to go 

out at the time of foreclosure, on a separate colored piece of paper, 

that advised the borrower of the importance of the situation and 

to contact a housing counselor. 

We have gotten so many responses to that, but it’s kind of late 

in the process, because the foreclosure action has already commenced. So, being considered at the State level are modifications 

where a lender would be required to send a notice prior to foreclosure commencing, advising the borrower of the situation, that 

it’s a good idea to see a housing counselor, and staying the foreclosure for a set period of time—say 30 days—in which the borrower and the lender or servicer can discuss possible solutions to 

the situation. 

So, that’s one idea at the State level. 

Mr. QUINN. We’ve encouraged the Congress to allow more States 

to expand their tax exempt bond financing. There are several 

States that have much higher incidents of delinquencies and foreclosures—Ohio, Michigan, the places where we’ve had job losses. 

You’re going to see more of it in California. That would be a very 

effective localized tool to expand relief. 

Ms. GERECKE. I want to mention, too, one is the Center for New 

York City Neighborhoods here, that Council Member Dilan and 

Speaker Quinn have launched. I think it’s going to show tremendous innovation. I think it’s very exciting and a different way of 

creating a network. 

The second is we’re trying to work through how to intervene in 

the pre-foreclosure stage, trying to avoid some of these—the investors coming in and buying these homes. And so, we’re looking at 

ideas like a nonprofit real estate brokerage and other innovations 

that we think could really matter in the process. We’re talking to 

some servicers about that. 

But it’s very hard with how we’re stretched right now to develop 

the capacity to actually plan for a program innovation at this time, 

to be honest with you. 

29

Mr. ZINNER. I think it’s critical to be available to offer support 

to creative State initiatives. And again, I mentioned this in my testimony, but I want to reiterate. 

You know, there are many States that are trying to set up refinance programs for people at risk of foreclosure. And, if successful, 

these programs could help an enormous number of borrowers and 

prevent them from losing their homes—borrowers who are in 

unaffordable mortgages but would have the ability to pay if they 

were in a fairly priced loan. 

And, for the Federal Government to step up and help to create 

a secondary market for these loans, so that these loan programs 

can flourish, I think, would be a huge contribution and would help 

State initiatives that look to keep borrowers in their homes. 

Chairwoman MALONEY. Well, thank you so much. Mr. Dilan, 

Council Member, you have the last word. And, thank you for having us here in your City Council. 

Mr. DILAN. Oh, thank you, and welcome back to the place where 

you launched your career. 

I would just say that, right now, I don’t have anything. But, I 

guess I would—I guess, in my future work, reserve the right to 

share our findings with your committee and my local Representative, Congresswoman Velazquez. 

We intend to do more work on this issue, as well as you, and I 

think the best thing for us is just further communication on the 

topic. But, we’re also mindful, as a City Council, that we can move 

slightly quicker than Washington but with not the same amount of 

effectiveness. 

But, just keeping that in mind, we recognize that we want fairness for all New Yorkers who get a mortgage, but we also understand that we’re the banking capital of the world, and we wouldn’t 

want to do anything that would cause more layoffs in the banking 

industry, because that would certainly diminish our tax base here 

in the City, being as most of these jobs are from here. 

So we have to move quickly and strongly, but also carefully and 

collaboratively. 

Chairwoman MALONEY. Okay. Thank you, so much. I thank all 

of the panelists. 

I’d like to note that some members were not able to be here. 

They are in Washington, so the record will remain open for 30 days 

for members to submit additional questions to the witnesses and to 

place their responses in the record. 

I thank everyone. The hearing is adjourned. 

[Whereupon, at 12:55 p.m., the hearing was adjourned.] 

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A P P E N D I X

February 11, 2008

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