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54–717 PDF 2010

S. HRG. 111–269 

MORTGAGE MODIFICATIONS DURING THE 

FORECLOSURE CRISIS 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

AUGUST 20, 2009 

PROVIDENCE, RHODE ISLAND 

Serial No. J–111–42 

Printed for the use of the Committee on the Judiciary 

( 

(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

EDWARD E. KAUFMAN, Delaware 

ARLEN SPECTER, Pennsylvania 

AL FRANKEN, Minnesota 

JEFF SESSIONS, Alabama 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MATT MINER, Republican Chief Counsel 

(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Whitehouse, Sheldon, a U.S. Senator from the State of Rhode Island ............... 1 

WITNESSES 

Bodington, Susan, Deputy Director for Planning, Rhode Island Housing, Providence, Rhode Island ............................................................................................ 10 

Burlingame, Jeffrey, Firefighter, Woonsocket, Rhode Island .............................. 5 

Pollock, David, Homeowner, Cranston, Rhode Island .......................................... 7 

Rao, John, National Consumer Law Center, Boston, Massachusetts ................. 13 

Verdelotti, Joseph, Jr., Licensed Electrician, West Warwick, Rhode Island ...... 3 

SUBMISSIONS FOR THE RECORD 

Bodington, Susan, Deputy Director for Planning, Rhode Island Housing, Providence, Rhode Island, statement ......................................................................... 25 

Burlingame, Jeffrey, Firefighter, Woonsocket, Rhode Island, statement ........... 31 

Pollock, David, Homeowner, Cranston, Rhode Island, statement ....................... 34 

Rao, John, National Consumer Law Center, Boston, Massachusetts, statement ...................................................................................................................... 37 

Verdelotti, Joseph, Jr., Licensed Electrician, West Warwick, Rhode Island, 

statement .............................................................................................................. 61 

(1) 

MORTGAGE MODIFICATIONS DURING THE 

FORECLOSURE CRISIS 

THURSDAY, AUGUST 20, 2009 

U.S. SENATE, COMMITTEE ON THE JUDICIARY, Washington, DC 

The Committee met, Pursuant to notice, at 10 a.m., U.S. Senate, 

Committee on the Judiciary, Rhode Island Housing, Providence, 

Rhode Island, Hon. Sheldon Whitehouse presiding. 

OPENING STATEMENT OF HON. SHELDON WHITEHOUSE, A U.S. 

SENATOR FROM THE STATE OF RHODE ISLAND 

Senator WHITEHOUSE. Well, good morning everyone. This is an 

official field hearing of the U.S. Senate Subcommittee on Administrative Oversight and the Courts of the Senate Judiciary Committee. 

I want to open by thanking Susan and everybody else at Rhode 

Island Housing for hosting us here this morning. Nearly 10 months ago, we enacted a $700 billion bailout package 

to rescue the economy from the subprime mortgage meltdown. This 

hearing will look at whether the foreclosure situation is worsening 

in Rhode Island and what can be done for the millions of families 

in our state and across the Nation who are at risk of losing their 

homes. 

We tried in October to include in the troubled asset relief program measures that would help homeowners on Main Street, in addition to the banks on Wall Street. Unfortunately, these efforts 

proved fruitless. 

As you recall, we included in the bailout legislation a requirement that the Treasury work to modify the mortgages it purchased 

as part of the TARP, but then the administration decided not to 

purchase toxic assets as they had initially proposed. The money instead went directly to banks, and since the Treasury held no mortgage-related assets to modify, Wall Street won and Main Street 

lost. 

Democrats in Congress led by Senator Durbin of Illinois tried unsuccessfully to include in the TARP legislation a provision that 

could have kept millions of families in their homes at zero cost to 

taxpayers. This proposal would have corrected an anomaly in the 

bankruptcy code that prohibits judges from modifying primary residents’ mortgages, the way they can modify every other type of contract from mortgages to vacation homes to car and jewelry and corporate loans. Even though bankruptcy modification would spare 

the community, the terrible cost of foreclosure, the mortgage bankVerDate Nov 24 2008 12:50 Feb 19, 2010 Jkt 054717 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54717.TXT SJUD1 PsN: CMORC
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ing industry invented hundreds of millions of dollars to lobby 

against its reform and has so far been able to prevent its passage. 

As subprime mortgage teaser periods began to expire last year, 

and with the credit market dried up so folks could not refinance, 

millions of homeowners faced higher monthly payments that they 

could not afford. 

In the final quarter of 2008, there were over 200,000 residential 

foreclosures. These homeowners faced this foreclosure wave with 

minimal assistance from their government. 

The new administration has tried to address the foreclosure crisis. Through the Treasury’s Making Home Affordable programs, 

President Obama encouraged loan services to start modifying mortgages. While these programs so far have kept 230,000 families in 

their homes through trial modifications, it is becoming increasingly 

clear that Congress must do more to address what is a worsening 

crisis. 

As you will hear from one of the witnesses today, there is evidence that the worst of the foreclosure crises is not behind us. Just 

as the wave of foreclosures from subprime mortgages begins to subside, a new wave of potential foreclosures tied to rate resets on 

other mortgage instruments is lurking just around the corner. 

The Center for Responsible Lending estimates 9 million families 

may lose their homes to foreclosure from 2009, this year, through 

2012. At their current rates, the Treasury’s voluntary programs 

will only assist 2 million or fewer families during that period. 

It is clear to me that Congress must do more to help struggling 

homeowners and specifically that we need to take another serious 

look at the Durbin proposal to allow bankruptcy judges to modify 

the terms of mortgages on principal residences the way they can 

on every other loan. 

If we fail to break the vicious cycle of foreclosures, falling home 

values and declining tax revenues, we may end up mired in recession for years to come. 

Before concluding my opening remarks, I want to acknowledge 

the hard work of my senior senator, Jack Reed in preserving and 

creating affordable housing in Rhode Island and across the country. 

It is a privilege for me as a new senator to work alongside such 

a champion of accessible housing and fair mortgage practices. 

I look forward to hearing the views of today’s panel on this proposal and others. Joseph Verdelotti, Jr. of West Warwick will share 

his experience struggling with two mortgages during a period of 

rising costs and falling home prices. 

Mr. Verdelotti, a licensed electrician, and his wife April, a hospital worker, have been unable to obtain mortgage modifications 

and may soon be forced to leave their home. I would add that he 

gave extremely powerful testimony in Washington recently and we 

are privileged to have him come down to Washington to share his 

views. 

Jeffrey Burlingame and his wife Rachel purchased their home in 

Woonsocket in 2006 and have also struggled to keep up with payments. Mr. Burlingame, a firefighter, will discuss his difficulties in 

obtaining more reasonable mortgage terms from his loan servicer. 

I can’t see Jeffrey without thinking of his mother, Barbara, who 

was a great leader in the state and a great friend to many of us. 

3 

David Pollock of Cranston is a homeowner who also invests in 

rental properties. Mr. Pollock has a Bachelors Degree in Business 

Administration from the University of Massachusetts at Amherst 

and an MBA from Boston University. Mr. Pollock has already received a foreclosure notice on his residence and is working hard to 

save it. 

Susan Bodington is Deputy Director for Programs at Rhode Island Housing. Ms. Bodington joined Rhode Island Housing in 1991 

and has served as Director of Housing Policy. She holds a BA in 

Economics from Smith College. 

Finally, John Rao of Newport is an attorney with the National 

Consumer Law Center in Boston who focuses on consumer credit 

and bankruptcy issues. The National Consumer Law Center performs research and trains attorneys who serve low income consumers. 

Mr. Rao was appointed by Chief Justice Roberts to serve on the 

Federal Judicial Conference Advisory Committee on Bankruptcy 

Rules. Mr. Rao earned his degrees from Boston University and the 

University of California Hastings College of Law. 

So without further ado, why don’t we begin with Mr. Verdelotti, 

and why don’t you proceed. Thank you very much again for being 

here and sharing your experience with us. 

STATEMENT OF JOSEPH VERDELOTTI, LICENSED 

ELECTRICIAN, WEST WARWICK, RHODE ISLAND 

Mr. VERDELOTTI. Chairman Whitehouse, thank you for the opportunity to testify here today. This is the second time this summer 

that you have invited me to tell my story before the Senate Judiciary Committee. I am grateful for your attention to my case. 

My name is Joe Verdelotti, Jr., and I am a licensed electrician 

from West Warwick, Rhode Island. My wife, April, works at the 

Rajoines Medical Center in Providence, Rhode Island. We have 

been married for nine and a half years and have known each other 

for nearly 20 years. 

We have one daughter, Brooke, who is nine and two sons. 

Lorenzo who is six, and Gianna just celebrated his first birthday 

a few months ago. 

Needless to say, we have quite an active household. On January 

26, 2006, we purchased an 1,100 square foot home in West Warwick, Rhode Island for $225,000. Since we like many other homeowners did not have savings for a down payment, we took out two 

mortgages. The first mortgage which covered 80 percent of the purchase price is an adjustable rate mortgage that is currently at 6.5 

percent, but will adjust in the fifth year. 

The second mortgage which covered the other 20 percent of the 

purchase price has a fixed interest of 9.25 percent. Both mortgages 

were originally through Aurora Loan Services, but Citimortgage 

subsequently purchased the second mortgage. 

At the time we purchased our home, I was a fourth year electrician’s apprentice making $18 an hour. The construction industry 

was booming and times were good in Rhode Island. The good times 

did not last, however. Not long after we purchased our home, the 

recession began and work became scarce. 

4 

My company has had to lay off workers and make cutbacks just 

to stay afloat. As of today, we still have a wage freeze in effect and 

hour health care premiums have increased. 

In addition, we just learned that we will lose the Columbus Day 

holiday and will not be paid for days at the end of December unless 

we use our vacation time. 

My wife too has felt the effects of the recession at work and is 

also under a pay freeze. Despite our income freeze, the cost of living has not slowed and we are feeling the squeeze. 

Our utility bills such as electric and water have increased, as 

have our property taxes, and we may see further increases in the 

future. Our budget is stretched as tight as we can get it. 

Like many of our neighbors, our home is under water. It is just 

not worth what we paid for it at the height of the housing bubble 

in 2006. We received a glimmer of hope last fall when the HUD for 

Homeowners Program took effect, but that proved to be a disappointment. The day the program started, my wife called the 

number listed on HUD’s website and spent hours waiting and talking to someone at the debt service about our situation. 

In the end, their only advice to her was to consider a roommate, 

get a part-time job, contacted the United Way to locate food banks 

in our area, reduce spending and contact Legal Aid for a consultation with a bankruptcy attorney. The person on the phone even recommended we consider walking away and letting the bank foreclose. 

We called for help in saving our home and we were told to consider food banks and foreclosure. 

I later contacted Aurora Loan Service directly and spoke with a 

customer service agent to see if they would be willing to work with 

us under the Help for Homeowners Program. 

After giving the necessary information to the agent over the 

phone, I was met with another disappointment blow. The agent informed me that we did not make enough money for them to help 

us and that we should consider a short sale. 

Next we decided to apply for a financial hardship package 

through Citimortgage. On February 26th, 2009 we sent 

Citimortgage the necessary documents through certified mail. The 

documents were received on March 2nd. On March 20th, my wife 

contacted Citimortgage at approximately 1 p.m. to try and find out 

the status of our hardship application. But all she got was the run 

around. 

Each person she spoke to said she had the wrong department 

and that they would transfer her to the right one. But this never 

happened. This went on until I came home from work and I took 

over. Each person was clearly reading from the same talking 

points. We always had the wrong department and they would 

transfer us to the correct department. 

After listening to elevator music on hold for over an hour, I too 

gave up. We had been on the phone with Citimortgage for over 5 

hours and accomplished nothing. 

On April 8, 2009, my wife contacted Citimortgage again and after 

several attempts to get a straight answer, she was informed that 

our case was closed since they never received our packet. She inVerDate Nov 24 2008 12:50 Feb 19, 2010 Jkt 054717 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54717.TXT SJUD1 PsN: CMORC
5 

formed them that it was sent on February 26th and that we had 

delivery confirmation that they received it on March 2nd. 

After hearing this, they changed their story to it must have gotten lost and that we would need to resubmit the application. This 

was quite unsettling to hear, because the package contained all of 

our personal and financial information. 

Since we have two mortgages, we also sent a hardship package 

to our first lien holder, Aurora Loan Service. In a letter dated 

March 11, 2009, just 2 days after receiving the package, Aurora denied our request. 

In May I once again requested a mortgage modification from 

Citimortgage. This time we were rejected because according to 

them, we made sufficient income to support our current mortgage 

payment. They also suggested that we consider a short sale. 

Citimortgage apparently believes that we make enough to cover 

our mortgage but that we should consider a short sale. This seems 

pretty contradictory to me. 

Now, even though we are current on our financial obligations, we 

are hardly living comfortably. We have had to make even more adjustments in order to make ends meet, and it gets increasingly difficult. 

We are not sure how much longer we can survive like this. My 

health care premiums rose at the same time the Make Work Pay 

tax credit took effect. So now I take home $2 less a week than I 

used to. 

How can my family and others help stimulate the economy if 

Congress doesn’t do something fast to help curb this foreclosure 

problem? All we are asking for is a little help, a little consideration 

and a little professionalism on the part of our mortgage holders. 

If we are able to negotiate a more manageable payment plan to 

keep our home, it becomes a win/win solution for everyone. We 

keep our home, the banks avoid the cost of foreclosure and the 

community avoids a hit to property values and tax collections. 

Senator, please do something to help struggling homeowners like 

my wife and I. Thank you again for the opportunity to tell my 

story. 

Chairman WHITEHOUSE. Thank you, Mr. Verdelotti. I appreciate 

it very, very much. 

Mr. Burlingame. 

STATEMENT OF JEFFREY BURLINGAME, FIREFIGHTER, 

WOONSOCKET, RHODE ISLAND 

Mr. BURLINGAME. Senator. Good morning, Senator Whitehouse 

and thank you for the opportunity to be here today. My wife wanted to join us but she was unable to attend due to work. She works 

as a freelance technician for a TV station in Boston. 

My wife and I bought our home on May 24, 2006 for $319,000. 

The house was appraised at approximately $350,000. We believe 

this was around the peak of the real estate bubble. 

Since we did not have money for a down payment, we took out 

two mortgages, a so-called 80/20, the 80 percent mortgage carried 

a 7 percent fixed interest rate for 3 years. After June 1st, 2009 that 

interest rate could change once per calendar year with a minimum 

rate of 7 percent and a maximum rate of 13 percent. 

6 

The 20 percent mortgage was a 9.25 percent fixed rate with a 

balloon payment. This means that the entire remaining balance 

would be due on June 1st, 2036. 

According to the city of Woonsocket’s tax reevaluation, our home 

is worth $247,100. This means we have lost nearly 30 percent of 

our home’s value in 3 years. 

On March 31, 2008, my wife and 30 of her colleagues were given 

layoff notices from their employer, the Boston TV station. Two 

months later she began working as a freelance broadcast technician at another Boston television station. While we had hopes she 

might be able to get hired full time somewhere, the television market nationwide suffered major job losses and cutbacks. This has 

made her chances of securing a full-time job in her field virtually 

impossible. 

Fortunately, my career is secure. I’m a firefighter with the city 

of Woonsocket. I will complete my 12th year of service on February 

23rd, 2010. 

On September 25th, 2008, my wife and I were able to refinance 

our 80/20 mortgage with Wells Fargo into one 6 percent fixed rate 

30-year mortgage. In October of 2008, my wife experienced a lack 

of hours at her freelance job. She was forced to collect unemployment while working only 1 to 2 days per week. Our take home pay 

dropped by about $300 per week. 

On December 11, 2008, we suffered another financial blow. My 

wife seriously injured her wrist while riding on a shuttle bus. Her 

only choices were to either live with the pain for the rest of her 

life or undergo a partial or possibly full wrist fusion. We decided 

to go with the surgery which she had on March 12, 2009. 

Due to the nature of her job, my wife was unable to work for 2.5 

months. During that period we lost close to $10,000 in pay. On 

April 17, 2009, we requested a loan modification with Wells Fargo. 

We hired an attorney to help us through this process. 

On April 23, 2009, we submitted our financial information and 

all necessary paperwork. On May 11th, 2009, we received a letter 

from Wells Fargo stating that our account was in review. 

One week later my wife logged onto Wells Fargo’s website to submit our June mortgage payment as she has done several times 

prior. She quickly realized that our online privileges were suspended. She called Wells Fargo and stressed to them her concerns 

about not being notified in the change of our online status. After 

all, we were still getting email notifications of new statements to 

view, but we were now blocked from viewing them. We were never 

notified of this change. They didn’t send us anything. 

Wells Fargo issued a verbal apology and told her to mail the 

check to them. Against her better judgment, she sent the payment 

that day via the U.S. mail without certification or return receipt. 

She called Wells Fargo on June 1st and she was told there was no 

record of her payment and to call the post office. 

My wife told them she was going to call every day until she had 

confirmation that a payment was received. They told her that 

wasn’t necessary, to call at most once a week. They told her we had 

until the 15th of June to submit the payment or a late fee would 

be assessed. 

7 

On June 8th, we decided to put a stop payment on the check and 

to pay the bill over the phone. On June 16th, Wells Fargo attempted to cash our canceled check. According to our records, we 

would have been 1 day late. Fortunately we paid by phone. 

For the July and August payments, we sent our mortgage check 

via certified mail. Even though it took several days for Wells Fargo 

to clear the check, at least we had proof and peace of mind that 

it was there. 

While our account was in review, we received mail correspondence and phone calls from Wells Fargo asking us for more information. We received approximately four phone calls on different days 

of the week asking us for more information. Each and every time 

we told the person who was calling us that we had retained a lawyer and all questions and requests for additional information 

should go through that office. 

Each and every person said they were unaware we had a lawyer, 

but none of them asked for our lawyer’s contact information. They 

repeated their request for information, and when we refused to 

speak with them, they hung up. 

On July 4, 2009, our loan modification from Wells Fargo was denied. They cited this request would be outside of your investor 

guidelines. Our lawyer’s office told us Wells Fargo said we had an 

$800 a month deficit in income which is why we were denied, and 

we didn’t qualify for the next step. On July 14th we resubmitted 

our request since my wife’s hours at work increased. Since then, 

our lawyer contacted Wells Fargo and questioned them about how 

they generated our financial information and the accuracy of it. 

Our lawyer discovered that they were looking at an old credit report, ignoring our financial worksheet and said we had a second 

mortgage and we owed almost $2,000 a month on car payments. 

We do not have a second mortgage and our car payments total well 

under $2,000 a month. As of today, our file is still under review. 

My wife and I are working hard to retain our home. It seems to 

us that Wells Fargo would rather foreclose upon our house than 

follow the law and renegotiate our mortgage terms. 

In closing, we can only hope that President Obama’s Making 

Homes Affordable Act is followed by all lenders as it was intended 

to be. My wife and I thank you for the opportunity to tell our story 

here today. We urge you to consider bankruptcy reform among 

other ways to make sure loan companies work to keep people in 

their homes. Thank you, Senator Whitehouse and God bless America. 

Chairman WHITEHOUSE. Thank you, Mr. Burlingame. 

Mr. Pollock. 

STATEMENT OF DAVID POLLOCK, HOMEOWNER 

Mr. POLLOCK. Chairman Whitehouse, thank you for inviting me 

to testify this morning. I am here to present my personal experience attempting to get a loan modification on my home mortgage 

service by Wells Fargo. 

In 2008, I had a dramatic decline in earned income from real estate commissions as a real estate broker and the misfortune of 

owning real estate investments that were under water. 

8 

Although I have extensive real estate finance experience, navigating the Wells Fargo process was extremely time consuming and 

continuously full of conflicting and incorrect information. 

Since 2002, I have been in my own business to purchase, renovate and sell multi-family real estate in the Providence area and 

have also worked as a real estate sales person. 

In 2005, I purchased two multi-family buildings in Cranston. The 

mortgages on both buildings are serviced by Wells Fargo. Fannie 

Mae is the investor. In 2007, I sold my then residence in Lexington, Massachusetts and moved into a unit in one of the Cranston properties located on Armington Street. 

In December, 2008, my Armington Wells Fargo mortgage payment of $3,500 had become unaffordable. With a high 7 percent interest rate that had been established when the property was nonowner occupied and the property value having declined by 50 percent, I thought the bank would modify the loan. 

With excellent credit and being current on all debts, I contacted 

Wells Fargo with the goal of avoiding any bankruptcy. I submitted 

detailed financial statements with a hardship letter. Wells Fargo 

arranged a moratorium on the loan with no payments required 

until May. 

I had the understanding that at the end of the moratorium, my 

interest rate could be lowered, the loan term could be extended, 

and principle could be written down to market value. 

During those months, I never received a call from Wells Fargo, 

nor had any account executive working with me to determine an 

acceptable plan. The few times that I did call from February 

through April, I was told my loan was under review for modification. 

Since I did not have an answer at the end of the moratorium, the 

Loss Mitigation Department told me to resubmit all information to 

start the process again. I called and spoke to a Wells Fargo Loss 

Mitigation representative who told me that the package had been 

received and was submitted for review. 

I was told that I needed to call every week to find out the status. 

I called almost twice a week through June and was told every time 

that my application was under review and there was nothing more 

that I could do than continue to call every week and ask about the 

status. 

It was very frustrating to not know what changes I should make 

that could change my finances such as selling a property for a loss 

or getting a salary job to be able to meet qualifications for one of 

the loan modifications. 

On June 4th, I received a foreclosure letter from Harmon Law 

Offices on my Armington loan. I called both the Harmon office and 

Wells Fargo. Wells Fargo told me that the foreclosure process will 

continue while my loan is being reviewed for modification. I was 

told that if I paid the outstanding balance owed of over $17,000, 

they would cancel the foreclosure sale. 

That was not possible for me since I did not have that much 

cash. I later became aware that all the information I submitted on 

May 1st was actually never looked at or entered into the Wells 

Fargo computer system. 

9 

Now, 6 months after this process began, I had little time to make 

more dramatic changes to my financial situation. Nobody told me 

back in January that I needed to meet certain financial criteria for 

a loan modification. 

Since June, I have spent huge amounts of time every couple of 

days calling Wells Fargo. Every time I speak with a new person 

and ultimately get different information. I received conflicting information numerous times. I spoke with people in the foreclosure, 

short sale, loss mitigation and customer service departments. In all 

cases, I could not get one person who was in charge of my account. 

I could only speak with representatives who would make notes and 

read something from a computer screen. 

On July 9th, a supervisor in Loss Mitigation was the first person 

I ever talked with that seemed helpful. I found out that I had been 

rejected from the review program a week earlier, even though no 

one ever called to tell me or inform me the times that I did call. 

I found out that I was rejected because I made too much money. 

All my rental income was mistakenly counted twice. She once 

again corrected errors that had been entered into my financial 

statements and once again requested that I be reviewed for a loan 

modification. 

Two hours later, a negotiator called me for the first time ever. 

She did not have the information for the loan on my residence, but 

rather the loan on the other investment property. She said I didn’t 

qualify for any programs because my income was too high. I once 

again told her to correct the financial information. They too had 

counted all my rental income twice. 

Then she put me in a program to pay half of my mortgage payment for 6 months with the goal of a lower interest rate and term 

extension. I implored her to be in charge of my Armington loan, but 

the best she could do was to email the Armington negotiator to call 

me. 

Two weeks later I spoke with another supervisor who needed to 

correct the same income information on my financial statement. I 

now learned that there were two separate computer systems that 

did not share information. 

If you were under review, they entered information into one system, and if you were not under current review, your information 

went to another software program. 

Three days before the foreclosure scheduled on Friday, August 

14, just a few days ago, the sale was postponed. On Friday morning, Fannie Mae called to tell me that they approved a loan modification based on 31 percent debt to income in order to lower my 

interest rate to 5 percent in the new payment starting in November. 

Later when I called Wells Fargo, I was told that a payment 

agreement was being sent out for me to make my current payment 

of $3,500 a month for 3 months. 

After the 3 months, I would need to submit new financials for a 

loan modification to be reviewed. The Wells Fargo customer service 

representative did not know anything about the information that 

Fannie Mae had told me just that morning. 

Since the Fannie Mae modification was solely based on my income and expenses, I asked Wells Fargo to tell me what was in 

10 

their system. I could not understand how they had come up with 

a surplus of almost $650 when a couple of weeks before I had a 

monthly loss of almost $1,000. 

After I did a detailed review, I discovered that the Wells Fargo 

numbers did not include any cost for the investment property mortgage payment which Wells Fargo also services. 

At the moment, I do not think that the Fannie Mae modification 

with a decrease in my mortgage payment by $600 is affordable. 

With an outstanding balance on my Armington loan close to 

$430,000 and a market value near $200,000, I need to consider all 

alternatives. 

If my loan servicer won’t agree to write down the loan closer to 

the market value, I might have to do a short sale, move out and 

the new owner can happily afford to live in my home with only a 

$200,000 mortgage. 

Like thousands of homeowners in Rhode Island, I continue to be 

penalized for having bought property at the peak of the housing 

bubble. Senator, please help us stay in our homes. 

Chairman WHITEHOUSE. Thank you, Mr. Pollock. 

Ms. Bodington. 

STATEMENT OF SUSAN BODINGTON, DEPUTY DIRECTOR FOR 

PLANNING, RHODE ISLAND HOUSING 

Ms. BODINGTON. Thank you. On behalf of Rhode Island Housing 

and our partners, we’d like to thank you, Senator Whitehouse, for 

the opportunity to present this testimony. 

I’d like to provide a synopsis of the impact of the foreclosure crises in Rhode Island, the impact it has on Rhode Islanders. My goal 

is to outline what we are doing and what can be done to help those 

at risk of losing their homes during this confluence of financial, 

housing and unemployment crisis which has been called the Perfect 

Storm. 

Rhode Island ranks 10th in the Nation for foreclosures and the 

numbers continue to climb as lenders act on a backlog of recent defaults. In addition, the unemployment rate in Rhode Island is over 

12 percent. It is much higher than the national average and is continuing to go up. It has been projected to reach 13 percent and it 

is also projected that it might take another 5 years for that unemployment rate to go back down to normal rates. 

Third, there is a decline in property values as a result of this 

housing crisis which has exacerbated the situation for many homeowners. In several Providence neighborhoods, we’ve seen depreciation by as much as 60 percent of the appraised value and depreciation in urban communities surrounding Providence on an average 

of 35 percent. So these three factors are severely impacting the 

housing market in Rhode Island. 

The past 6 months have been particularly difficult for Rhode Islanders from a housing perspective. Foreclosure initiations increased by almost 44 percent during the first 6 months of 2009 

compared with 2008. That’s an estimated 5,600 plus Rhode Islanders who received notification that foreclosure proceedings were initiated on their homes. We know that over 1,000 Rhode Islanders 

actually lost their homes to foreclosure in the first 6 months of 

2009 alone. 

11 

More than 7 percent of Rhode Island mortgage holders are severely delinquent according to the most recent data that is from 

the Mortgage Banker’s Association. It is noteworthy to see that 

Rhode Island Housing’s mortgage delinquency rate using the same 

statistics is only at 1.96 percent. There is a significant difference 

there which is attributed to conservative lending practices that 

we’ve always practiced, a mission based strategy to help Rhode Islanders make safe and informed decisions to buy and keep a safe 

and healthy home that meets their needs. 

While the rate of homeowners losing their homes is indeed very 

troubling, we also need to be aware that that is only part of the 

story. For every homeowner that loses their home, there are a 

number of other families who had been renting in these multi-family properties who have also lost their homes, some of them multiple times, and have had to move. 

Up until very recently, these renters received no advanced notification at all, as is done for homeowners. We’d like to thank Congress for legislation that was recently passed that at least allows 

and requires that tenants have at least 90 day notice before they 

are asked to move. The problem will still exist. We still have many 

tenants having to move out of their property. 

Finding a new affordable home to rent is not easy after a foreclosure or for those tenants. Although we are seeing a dramatic decline in values in some areas, it is still difficult. When you compare 

wages in Rhode Island to housing prices, we are second only to Hawaii in the size of that gap. It is very difficult for renters and for 

former homeowners to be able to afford rents. 

In addition, during the first 6 months of 2009, 41 percent of the 

sales in Rhode Island were for distressed properties, either foreclosures or short sales. When you take those out of the mix and 

look at the actual price of homes sold that were not distressed 

sales, the average price was still at $235,000 throughout the state, 

and that is not affordable to most Rhode Islanders. 

What are we doing to help? Rhode Island Housing’s Help Center 

is assisting more Rhode Islanders than ever since opening our 

doors in 2007. We have assisted more than 5,000 Rhode Islanders, 

3,226 in the past 12 months alone. 

We have a whole team of counselors who are experienced lenders 

and mortgage servicers and they are dedicating their time to helping any Rhode Islander who comes to our door. 

On average they are spending 8 to 10 hours working with each 

client. Each one has their financial situation assessed to help them 

understand their options and to develop a plan of action. Each situation is unique. 

Our counselors help homeowners through foreclosures, whenever 

possible to avoid foreclosures or to look at their options if that’s not 

possible. 

Many times we are helping homeowners and renters recover 

from the loss of a home and looking for other housing opportunities 

and linking them up with services in the community. 

To date, the Help Center has had outcomes for 1,900 customers 

who have completed going through counseling, and there are a 

whole variety of outcomes that are possible. Anything from mitigaVerDate Nov 24 2008 12:50 Feb 19, 2010 Jkt 054717 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54717.TXT SJUD1 PsN: CMORC
12 

tion to bringing their mortgage current to refinancing. As I said, 

every situation is unique and it has its own solution. 

We currently have 808 client files that are being reviewed for 

workout with service and 125 modification plans that have been 

processed through the Home Affordable Modification Program, 

HAMP, and are currently in a 3-month trial period. 

Due to the high volume in that program since last winter, the 

largest lenders that we’re dealing with have very slow response 

time and have continued delays in communication and in responding to our counselors. Even where they appear to really be trying 

to work with our lenders, it is still taking 60 to 120 days to get 

a response and work out any kind of modification. 

Although the program was introduced in March, we are just beginning to see some modification plans being approved. We are 

hopeful that that is a sign that approval of those will accelerate, 

but we are still seeing a lot of problems in communicating with financial institutions. It is a very long process, it is very frustrating 

for homeowners and our staff is very experienced in working with 

servicers, but it is still a long process. 

More than ever it is important for homeowners to contact a 

HUD-approved counseling center like Rhode Island Housing within 

the state for assistance, whether they are looking for a modification 

or looking for help with their mortgage. 

We have a couple of examples. I will give you just one. It was 

a single woman struggling to pay her adjustable rate mortgage that 

came to our help center. She was ten payments behind. She negotiated with her lender who had offered her a fixed rate loan at 10.6 

percent plus $5,000 down payment to modify her loan and it would 

have increased her payments by $400 a month. Clearly she already 

couldn’t pay the mortgage that she had. 

Having come to our Help Center, we were able to negotiate with 

the servicer and after 3 months of negotiating, we were able to get 

her a fixed rate of 7.5 percent and we were able to extend her payments and reduce her monthly payment from what she currently 

was trying, struggling to pay by $450. So those negotiations although they are long and they are complicated, they have been successful in many cases. 

What more can we do? Despite our tireless efforts and the efforts 

of our partner agencies in the community, there remains much 

work to be done to recover from the ongoing foreclosure crisis. 

It is more crucial than ever that the Federal Government continue to fund housing counseling services in the community which 

have played a vital role in helping Rhode Islanders keep their 

home or find alternatives. 

In addition, we need to seek out new opportunities to provide gap 

funding for homeowners who can’t make their mortgage payments 

but need additional support to qualify for a loan modification. 

As we work to keep Rhode Islanders in their homes, we need access to a wide variety of mortgage restructuring options, providing 

flexibility to increase loan terms to 40 years, provide short-term interest only payment periods for FHA insured loans would give us 

more tools with which to work. 

As we continue to focus on recovery from the crisis, our ability 

to work collaboratively and cooperatively with banks, mortgage 

13 

lenders and servicers in modifying loans in a manner that truly 

helps homeowners address the situation while we still protect the 

interest of the lenders is critical. 

As I mentioned earlier, the current workout process is very arduous. It takes months when working with lenders. In short, it simply 

does not work in the majority of cases and cannot work for the volume that’s in the pipeline. 

One solution to address the process delays would be for Congress 

to implement reasonable modification plan time limits for authorization and assignment to a negotiator and a maximum of 60 days 

to complete approval of a modification. 

Bankruptcy reform could provide the incentive or pressure to expedite workouts and collaborate more effectively, but it should be 

structured in a way that does not penalize responsible lenders who 

have made fair loans that were in the best interest of the customers when the loan was made and who have worked with their 

customers compassionately to keep them in their homes. 

While some lenders, especially locally based financial institutions 

are working diligently and efficiently with borrowers to modify 

loans and keep families in their homes, our Help Center’s experience with some large national lending institutions has been for less 

productive. 

Significant delays in communication and slow processing times 

can result in a negative outcome for the homeowner along with additional hardship and stress for the homeowner and the entire family. 

We appreciate your commitment, Senator, to this issue and we 

thank you for giving us the opportunity to share our experiences 

with you and we look forward to continuing to work with you to 

address this crisis. 

Senator WHITEHOUSE. Thank you very much. Finally 

Mr. Rao. 

STATEMENT OF JOHN RAO, NATIONAL CONSUMER LAW 

CENTER, BOSTON, MASSACHUSETTS 

Mr. RAO. Senator Whitehouse, thank you for holding this hearing 

and for inviting me to testify about the voluntary loan modification 

programs and the potential role for bankruptcy courts in solving 

foreclosure crisis. 

Senator WHITEHOUSE. Just one technical matter. As you know, 

your full statement will be entered into the record of the proceeding. I understand you’ll make a shorter statement than the full 

statement you provided. 

Mr. RAO. We are now 3 years into the foreclosure crisis, and 

sadly there have been no signs of improvement. The statistics are 

grim and Ms. Bodington has told us about what is happening in 

Rhode Island. Nationally approximately 300,000 homes are going 

into foreclosure every month. 

The first quarter of this year we saw that there were 2 million 

homes in the foreclosure process and an incredible 25 percent of 

subprime mortgages are seriously delinquent. 

All of these statistics are record breaking and suggest that we 

are facing the greatest foreclosure crisis since the great depression. 

14 

Senator Whitehouse mentioned that the projections are for there 

to be 9 million foreclosures in the next 4 years. This may well underestimate the problem as recent reports indicate that there may 

even be greater problems or a new wave of foreclosures that will 

take place concerning what are called Alt A mortgages. 

These are mortgages that were generally given to buyers with 

higher credit scores than subprime borrowers but were made with 

nontraditional underwriting standards. Often they were just stated 

income loans. 

One rating agency, Standard—last month downgraded the ratings for the mortgage backed securities for these Alt A mortgages 

that were made in 2005 to 2007 based on the higher unemployment 

rates and the continuing problems in the housing market. So I 

think that is going to be a serious problem that we are absolutely 

going to need to deal with. 

The administration’s HAMP program, the loan modification program, has attempted to overcome problems with the earlier voluntary programs. While it may be still too early to judge the success of hamp, so far the results have not been impressive. 

In fairness to the administration, there is only so much that a 

voluntary program can do to overcome some of the structural barriers that prevent services from modifying loans. 

The first HAMP progress report is now in. During the first 4 

months, again, as Senator Whitehouse mentioned, approximately 

230,000 trial modifications have been made. This is a small part 

of, again, as I mentioned, the number of foreclosures that are going 

into, homes that are going into foreclosure every month. 

But what is probably more of concern is that there are some 

mortgage servicers who are just not even putting a dent into the 

number of homeowners eligible for HAMP. Bank of America, Wells 

Fargo, Aquin and Wachovia, while they have an estimated according to the Treasury figures, 1.2 million homeowners who are 60 

days delinquent who would be eligible for the modification program, they have only extended modifications or trial modifications 

to 2 to 4 percent of that eligible group. 

There is another servicer with 37,000 potential homes that are 

about to be in foreclosure who has made no modifications at all. 

The Treasury, the major problems with the HAMP program are as 

follows. Large numbers of homeowners have been told that they 

are not eligible for HAMP or are being steered by the services to 

non-HAMP, non-Treasury approved modifications. 

For example, 37 percent of Chase’s recent trial modifications 

were not HAMP modifications because they claimed that the borrowers were not eligible for the Treasury program. This raises 

many questions. Why are so many homeowners being turned down 

for the Treasury HAMP modification? How many other borrowers 

have applied and were completely denied modifications? And what 

are the terms of these non-HAMP modifications that a large number of homeowners are getting. 

This leads to the next problem which is the lack of accountability. Like the witnesses have said today, homeowners are not 

told whether they were processed for HAMP modification or some 

other modification. They are not even given confirmation that their 

15 

application is complete. In many cases they are not even given an 

answer at all. 

If they get an answer, they are not told the reasons why they 

were denied a HAMP modification. The HAMP program itself does 

not require servicers to give this essential information. 

Homeowners have encountered many bureaucratic problems, 

again, like the witnesses have said today. Homeowners files are 

routinely lost or shuffled between departments in the servicers operation. Homeowners and housing counselors report waits of 

months to hear back for review of a trial modification. 

A recent story in the Providence Journal reported that a homeowner had submitted 99 pages of documents to support her application for a modification and 4 months later still has not heard back 

as to whether she has been approved. 

Another major problem is with the problem of negative equity 

and the fact that these modifications do not have principle reduction. It is not required under the HAMP program and it is not happening. 

The recent banking regulatory agencies reports for the first quarter show that of the Fannie and Freddie mortgages that were modified as well as private securitized mortgages, none of them involve 

principle reduction. The only principle reduction occurred in some 

of the loans that are called portfolio loans that some of the smaller 

banks hold themselves. Even that was minuscule, only at about 5 

percent. 

Negative equity, as Ms. Bodington has said, is a big issue in 

Rhode Island. There are so many homeowners who owe more on 

their mortgage than the property is worth. The statistics are that 

it is likely that nationally that likely that 48 percent of homeowners who have negative equity before the housing market begins 

to improve sometime as projected in 2011. 

The problem of course with negative equity is there are things 

happening all of our lives, we lose a job, we need to relocate and 

you need to sell a property, sell your home. If there is negative equity, you just can’t do that. You are locked, you are basically 

trapped in your house. 

More seriously, homeowners have no leverage to obtain a HAMP 

modification. Servicers are not even required to stop foreclosure 

proceedings as what happened with Mr. Pollock. They continue to 

process the foreclosures as they are handling the modifications and 

that increases foreclosure expenses, it can add thousands of dollars 

to the amount that the homeowner needs if they actually modify. 

What is really lacking in the system is not a carrot. What is lacking is a stick. That leads to my final points, Senator Whitehouse, 

which is to discuss very briefly some of the advantages of having 

a bankruptcy option available to amend the bankruptcy code. 

Unlike other enforcement mechanisms that the Department of 

Treasury or Congress might consider that would be subject, they 

will be subject to legal challenges and costly government administrative costs, bankruptcy court ordered modifications have been 

tested to withstand constitutional and administrative challenge. 

There is already a court system in place that would oversee these 

modifications without the use of taxpayer dollars. It would also provide homeowners with a legal right to a modification even if the 

16 

servicer claims that their securitization documents don’t allow 

modifications. 

As mentioned, HAMP’s greatest weakness is ensuring sustainable modifications, and that is probably because it doesn’t involve 

principle reductions. The availability of the cram—right in bankruptcy in Chapter 13 which is to reduce the mortgage holder’s 

claim to the value in the property. It is not to do it lower than that, 

but to reduce it to the true value of the property. 

That will encourage services to do principle reductions outside of 

bankruptcy. That is certainly the case when Congress quite a few 

years ago allowed this cram down right for family farmers, for 

those who had farms. Many farm banks began to voluntarily reduce the principle on modifications without the farmer even needing to go to bankruptcy court. So that’s a good example of how once 

it is in place, the voluntary efforts will improve. 

Cram down would allow homeowners in foreclosure to repay 

their mortgages under fair and reasonable terms and to fully protect the mortgage holder, and again they would receive adequate 

protection. 

Finally, a loan modification in Chapter 13 is provided for assistance for families who for one of many possible reasons are just not 

able to obtain a HAMP or other modifications. By being closely tied 

to HAMP as was proposed in the Senate bill and the bill that has 

been considered in both the House and the Senate in the past, it 

would allow servicers, it would really get servicers to work with 

homeowners and to make prompt decisions on their modification 

requests. 

Just finally, it also deals with the fact that homeowners, many 

of the homeowners who are facing foreclosure have other debt that 

they are dealing with, maybe credit card debt and so forth, and the 

modification programs currently the Treasury program simply says 

if you have all this other debt, go to credit counseling, but doesn’t 

have a way to address it. 

At least for the homeowners who are in the worst financial situation, a Chapter 13 bankruptcy would allow them to deal with their 

mortgage plus dealing with their other debts. That would be likely 

to prevent these modifications from re-defaulting. 

So many good reasons why we ought to consider a bankruptcy 

option. Thank you, Senator Whitehouse, for giving us this opportunity to testify today. 

Senator WHITEHOUSE. Thank you very much. I want to turn to 

our personal witnesses first, but I don’t want to leave your testimony without taking the opportunity to emphasize a point that you 

made at the end. I just want to make sure that you confirm it. 

You have heard from these three gentlemen who lived through 

nightmares of bureaucracy and you heard Ms. Bodington describe 

the process is arduous and long and frustrating and a real ordeal 

for folks. 

You indicated that if we were to pass the amendment that would 

allow a primary residence mortgage to have a principle reduced in 

bankruptcy the way every other loan can be, that there could be 

benefit to customers without ever needing to go near a bankruptcy 

court. 

17 

I want to just reemphasize that point with you because I think 

that is one of the key reasons we are trying to do this. We are not 

trying to drive Americans into bankruptcy to get this benefit. We 

are trying to send a market signal so that the nonsense that these 

servicers are engaged in stops and the only thing that will make 

them stop as you said is less carrot and little bit more stick. If they 

know that somebody can go to a bankruptcy court and get the relief 

that they need the way they can for any other kind of mortgage, 

the way the banks themselves can if they get in financial trouble 

and need their loan restructured, that it can work for the whole industry and the people like Mr. Verdelotti and Mr. Burlingame and 

Mr. Pollock could all be beneficiaries of this without ever having 

to go near bankruptcy court. 

Mr. RAO. It’s absolutely the case in my years, many years of 

when I had previously been a litigating attorney and was working 

at Legal Services. 

When you are ever trying to negotiate something, when the other 

side knows that there are options available which may be worse for 

them, it makes them come to the table to negotiate it. It always 

has that effect. 

Right now homeowners don’t have that ability to say to the bank, 

well, if you won’t modify this, if you won’t be serious in your negotiations with me, there is another option which I can take. That 

was, again, this has been born out in truth with the example of the 

farmers who were able, the Chapter 12 was modified, amended to 

allow them to modify their mortgages. Once that change happened, 

many more voluntary modifications which involved principle reduction occurred. 

Senator WHITEHOUSE. Mr. Verdelotti, you have heard what Mr. 

Rao just said. You have had your own experience. 

Based on, as I recall from your testimony, you and your wife basically on a tag team basis handing each other the phone as you 

had to cope with the three kids and your jobs and all that sort of 

stuff, you were on the phone for a single longer than 5-hour segment just on one occasion. 

They claimed that you had not mailed in your package until you 

were able to show them a receipt showing that yes in fact you had 

mailed it in. Not only that, they had received it and at that point 

they had changed their story to say oh, well the package was evidently lost then. 

There was a 2-day turnaround. Everything else had taken forever, but there is a 2-day turnaround between when they get one 

package and when you get a denial. 

Based on all of that, how seriously do you think the institution 

that you are dealing with took negotiating with you, how much leverage did you feel you had in those negotiations? 

Mr. VERDELOTTI. None. I didn’t have any leverage or anything of 

that nature. I didn’t get any sympathy from them. Aurora turned 

around my denial in 2 days. Citimortgage, it took forever. It actually went to the Executive Unit and that didn’t take much longer. 

It took maybe a week for them to actually tell me that I make too 

much money for them to help me, and Aurora tells me the exact 

opposite which we make not enough. 

18 

Senator WHITEHOUSE. And they’re looking at the exact same information? 

Mr. VERDELOTTI. Correct. 

Senator WHITEHOUSE. Mr. Burlingame, you had a couple of observations that I wanted to highlight. One that you thought you 

had to send them your materials by certified mail in order for proof 

and peace of mind. That’s not a sign of a very trusting relationship 

with your servicer, is that correct? 

Mr. BURLINGAME. That is correct. 

Senator WHITEHOUSE. I mean, do you feel that they were being 

cooperative and helpful on the other end of this? How would you 

describe the experience you had with your servicer in terms of how 

they treated you and whether you felt that they were friend or 

enemy? 

Mr. BURLINGAME. When my wife and I started this process, we 

obviously ran into some difficulties quickly. I remember saying to 

my wife, I said Rachel, I said, there is no way you are going to tell 

me that a big company like Wells Fargo, somebody is sitting in a 

room somewhere holding—saying we got them. 

I honestly can’t say that I believe that anymore. I truly believe 

that there was some intentions on their part, for lack of a better 

term, play games with us. They had our check, they knew they had 

our check. They chose not to apply it. 

Senator WHITEHOUSE. Now, let me go back to your testimony. 

You said on May 11th you received a letter from Wells Fargo stating that your account was in review and then 1 week later, Rachel 

logged onto Wells Fargo’s Web site and then you said she sent the 

payment that day via U.S. mail. That is several paragraphs later. 

That refers back to the 1 week after May 11th. So you are talking about having mailed the check in the week of May 18th, correct? 

Mr. BURLINGAME. Correct. My wife handles a lot of this. 

Senator WHITEHOUSE. But she would have mailed it, what your 

testimony refers to is she would have mailed it approximately in 

the week of May 18th. 

Mr. BURLINGAME. Correct. 

Senator WHITEHOUSE. And then they said they didn’t get it, and 

it is due the 15th of June. So if they cash it on the 16th, you are 

technically in default. 

Mr. BURLINGAME. It is due June 1st. They give you that 15-day 

period. 

Senator WHITEHOUSE. Grace period. 

Mr. BURLINGAME. A grace period. 

Senator WHITEHOUSE. So you know that, you know two things. 

You mailed it the week of the 18th. 

Mr. BURLINGAME. Right. 

Senator WHITEHOUSE. They said that they didn’t have it, but 

they sure as hell cashed it on June 16th, that 1 day that put you 

outside of the grace period. 

Mr. BURLINGAME. Right. 

Senator WHITEHOUSE. Or at least tried to if you hadn’t stopped 

payment on it. 

19 

Mr. BURLINGAME. Right. Fortunately she was right on the ball 

with this. We put a stop payment on the check and we paid by 

phone. 

Senator WHITEHOUSE. Between this and between the magically 

missing file that Mr. Verdelotti sent in, it begins, there begins to 

emerge a whiff of gamesmanship and manipulation through all of 

this. What would your feeling be? You are the ones who experienced it firsthand. 

Mr. VERDELOTTI. Yes. It seems like they are doing this, you 

know, to make things harder. I mean, if we are having a hard time 

doing this, what is everybody else doing? Everybody is going 

through the same problems right now. 

We need that step. We need something to make them move along 

most definitely. This seems intentional. 

Senator WHITEHOUSE. And why would it make sense, John, why 

would it make sense for a servicer to want to discourage participation in the process with all these different games and I assume 

that what happens at that point is if you give up, you mail in the 

keys, you go to foreclosure and, you know, that is the outcome that 

they force you toward. 

Whose interest is it, in whose interest is it to have the property 

go to foreclosure? 

Mr. RAO. Well, Senator Whitehouse, it’s a great question and I 

don’t know what the real answer is. It doesn’t really make any logical sense for this to be happening, but there are so many different 

ways in which servicers have financial incentives that are counter 

to what homeowners and especially modifications are that—— 

Senator WHITEHOUSE. So the servicer might be looking at financial outcomes for the servicer that are better if the homeowner goes 

into foreclosure than they are if they continue to work with the 

homeowner and put them back onto a salvageable footing? 

Mr. RAO. There certainly seems to be that. I mean, they are recovering all of their costs, you know, interestingly from the investors of the mortgagees if it goes to foreclosure. They do recover 

those. 

The cost of processing these modifications, the Treasury program 

for the first time does give them some money, but it’s not clear that 

they see that as being enough of an incentive. And there are admittedly a lot of administrative costs that the Department of Treasury 

has imposed upon them. 

Quite frankly, I think they may see this as it is just better to 

have the house go to foreclosure and we’ll get our costs back and 

it might hurt this investor, but at least we are OK. We are not 

going to get reimbursed for our cost to make sure that the modifications are processed properly. 

Senator WHITEHOUSE. Mr. Pollock, you are an obviously experienced investor in the real estate market and a professional in this 

field. Your experience doesn’t seem to have been any better. 

No account executive was ever assigned to work with your account as I understand it until very, very late when finally somebody in Loss Mitigation appeared willing to take a little bit of responsibility. 

At one point you were advised that you had to resubmit all the 

information and start the process all over again even though preVerDate Nov 24 2008 12:50 Feb 19, 2010 Jkt 054717 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54717.TXT SJUD1 PsN: CMORC
20 

sumably they already had all the information and you found it extremely time consuming and continuously full of conflicting or incorrect information. 

Ultimately you discovered that all the information you had submitted was actually never looked at or entered into the Wells Fargo 

computer system. Again, how would you categorize the manner in 

which you were treated by the servicer through this process? 

Mr. POLLOCK. I think it’s extremely unfair and it is possibly because of two reasons. One, I guess I could imagine somebody is 

massively disorganized because when I was in the banking industry, everybody had their own clients. So if I had just one asset 

manager who was in charge of my account, then that person would 

make sure they had all the information on me. 

In the Wells Fargo procedure, it is as extreme opposite as you 

can get because you could never speak to this person who is actually in charge of your account. 

Senator WHITEHOUSE. Ms. Bodington, you make a very interesting point in your testimony. You say that the current workout 

process is very arduous and takes months. You say that it simply 

does not work in the majority of cases. Then you say something 

more interesting. You say that it cannot work for the volume of 

cases in the pipeline. 

So something is going to have to change if this is going to be effective, correct? 

Ms. BODINGTON. Yes. I think it is a guess on our part, but I 

think we are seeing, I think our counselors have the same frustration with the amount of time it takes, getting responses, getting to 

talk to someone who actually has responsibility for a loan and can 

take some action. 

But some of that problem I think with the larger banks, we’re 

making an assumption that some of it is confusion based on there 

is so much in the pipeline, there are so many loans nationally that 

need to be modified that even a very large institution even with the 

best intentions we are seeing conflicts between departments having 

different information as you’ve heard from some of the homeowners. 

I think our staffers are seeing all of the same problems with the 

system. We are getting modifications through. We are seeing homeowners with modifications that we think that they can afford and 

they will be able to keep their home, but it’s a very, very difficult 

process. 

Senator WHITEHOUSE. And that’s even with your experienced 

staff here at Rhode Island Housing assisting them. This is not 

them out on their own accomplishing this. This is with your expert 

assistance. 

Ms. BODINGTON. Yes. 

Senator WHITEHOUSE. And even then it is long and frustrating 

and arduous. 

Ms. BODINGTON. Yes. Any homeowner on their own trying to 

work their way through the system, it would be very difficult without some help from an experienced counselor, and even then it’s a 

very difficult process. 

Senator WHITEHOUSE. So for Mr. Burlingame to have turned to 

the advice of a lawyer makes perfect sense in terms of the, assumVerDate Nov 24 2008 12:50 Feb 19, 2010 Jkt 054717 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54717.TXT SJUD1 PsN: CMORC
21 

ing the lawyer has some expertise in this area in terms of it not 

be just him and his wife trying to sort it out against the bank. 

Ms. BODINGTON. Yes. I think homeowners really do need help 

with it, and there are a number of counseling agencies in Rhode 

Island where homeowners can get that kind of help and they can 

actually get it for free. 

Fortunately there is some good funding coming out of Washington through Neighbor Works for counselors in the community. 

But this is a very complicated process and homeowners really do 

need help with it. 

Senator WHITEHOUSE. And without your help, in the example 

that you gave, the so-called help that the servicer offered would actually have increased the woman’s mortgage payment by nearly 

$400 a month. 

Ms. BODINGTON. That’s correct. 

Senator WHITEHOUSE. That’s a very interesting kind of help 

when a person is struggling with a mortgage payment, isn’t it? 

Ms. BODINGTON. Yes. But fortunately there was a solution for 

that woman there. A number of, I think each case needs to be individualized and take a look at what they can actually afford. I don’t 

know whether the financial institutions have adequate staffing to 

take the time to really look at that or not. 

In that particular instance, fortunately we were able to offer an 

alternative plan that did work. 

Senator WHITEHOUSE. You did note in your testimony another 

point that I’d like to emphasize, you have perceived a distinct difference between the local banks and the big national banks in 

terms of the quality of the interaction between your clients and 

customers and them. 

Do you think that is just a question of sort of local community 

sentiment? Or does it also relate to the portfolio issue that Mr. Rao 

referred to that if they actually have held the mortgage, they are 

in a better position to consider reducing its principle and adjusting 

its terms than if they are a servicer for a bunch of investors all 

over the world who they don’t even know who have bought that 

mortgage up in strips? 

Ms. BODINGTON. Yes, I think that’s an important distinction. I 

think its local financial institutions that service some of their own 

loans, and Rhode Island Housing, we service all of our own loans, 

who are able to meet with our customers and work out modifications. 

So part of it is volume and part of it is just having that local 

presence and being responsive to residents when they do need help. 

Senator WHITEHOUSE. And that’s why you have less than 1/3 of 

the delinquency rate of statewide. 

Ms. BODINGTON. Yes, correct. 

Senator WHITEHOUSE. It is a point worth making in this hearing 

and in our community that to the extent local banks are involved 

and to the extent that loans have been held by those banks in the 

portfolios, you see a far, far, far smaller problem and the kind of 

mistreatment that Mr. Verdelotti, Mr. Burlingame and Mr. Pollock 

have been treated to appears to be associated with and was in each 

of their cases associated with national banks that don’t have that 

local touch. 

22 

Ms. BODINGTON. I think the local smaller institutions have much 

lower foreclosure rates, have far fewer issues, and when they do 

have issues, they are better equipped to be able to work with homeowners and keep them in their homes. 

Senator WHITEHOUSE. Mr. Rao, let’s try to put ourselves for a 

moment in the shoes of the servicer and assume that they are in 

some way trying to do the right thing here. All evidence at this 

hearing to the contrary. 

But if they are servicers and somebody’s mortgage has been 

turned around and resold and has been carved up into all these 

strips that we’ve read about and then each of those strips have 

been sold to investors in different funds all over the country and 

all over the world, if you are the servicer and you are on the phone 

and you have got Mr. Verdelotti or Mr. Burlingame or their 

spouses on the phone, you have got two parties to the equation 

there who in theory could work it out except that somebody actually owns that mortgage. 

What happens when that group can never be assembled and the 

servicer can never get a decision out of the investors? Does that affect this problem? 

Mr. RAO. Yes, it absolutely does affect the problem. The services 

do have some general guidelines that are provided in the agreements which set up these trusts, and they vary from trust to trust. 

Generally they are given some guidelines with regard to some 

minor modifications. But certainly when it comes to things like the 

modifications that many homeowners need, and especially involving the possibility of principle reduction, they are reluctant to do 

anything like that without getting authority from investors. 

The problem is that there is no one to turn to. The way these 

were structured for a lot of the tax reasons and so forth is that 

they are supposed to be passively administered. There is not supposed to be the trust, the actual owners of the mortgage aren’t really supposed to have involvement with the day to day activities of 

these loans. 

Senator WHITEHOUSE. It was never really set up to be that way. 

Mr. RAO. It’s a system that is set up not to deal with the problem 

that we are facing today. 

Just one other minor point. The other big issue is that we are 

now asking these mortgage servicers, these are the companies that 

were generally hired to collect payments and so forth to, as part 

of this modification process, to effectively underwrite these modifications. 

They are asking for all this income documentation and stuff. 

They never did that before. What is even more ironic is that when 

many of these loans were made, the originating lenders never 

asked for any of this information. So they are actually asking for 

more information now to modify a mortgage than they did when 

they originally made the loans. 

Senator WHITEHOUSE. I hear a lot of knowledgeable laughter 

from the audience on that point. Rather wry laughter it sounds 

like. 

23 

That is what you are referring to in your testimony. You talk 

about the dynamic that leads servicers to refuse even loan modifications that would be in the investor’s best interest. 

Mr. RAO. That’s right. 

Senator WHITEHOUSE. Well, I think I will call this hearing to a 

conclusion. I want to thank all of the witnesses for their testimony 

and for their expertise and for their commitment. 

I particularly want to thank Mr. Verdelotti, Mr. Burlingame and 

Mr. Pollock for sharing their stories. It really makes it real when 

people like you are willing to come in and walk us through what 

you have been through. 

As Ms. Bodington said, these are tough times in Rhode Island 

and a lot of families are struggling. There are a lot of those late 

night conversations when the kids are in bed and mom and dad 

have to sit around the kitchen table and figure out if they can 

make it another month. 

That’s a lot of stress, and losing a home is about as stressful as 

you can get. Particularly if it’s a home with children in it. So for 

this industry to add into that equation what every single person, 

both you from your personal experience and you both from your 

more general expertise have described as a true nightmare of bureaucracy, that’s a lot to add into it as a very already difficult mix. 

As a lawyer and somebody who has seen workouts in various 

forms, in the business community people don’t treat each other this 

way. If you really need to get into the court, and I see some heads 

nodding. If you really need to get into the court to get it done, then 

you have a judge and ultimately the decision gets made and there 

is no more nonsense and everybody knows about it. 

That is one of the benefits that judges provide. They provide a 

decision and it is over and the long ordeal is finished. People who 

aren’t present and don’t want to show up for a voluntary negotiation, it doesn’t matter. If they don’t show up, they lose. You force 

the process. There is some real value to that. Knowing that that 

is coming, businesses make deals and they negotiate their way 

through and they get out. 

When these banks were in trouble, they were eager to renegotiate all of their loans. So it seems to me that this would be fair 

to look further at this. 

I take Ms. Bodington’s statement that we have to be careful in 

looking at the principle reduction aspect of the bankruptcy loan 

modification to not target, for instance, the small local banks who 

are in fact granting these modifications, who are in fact working 

with people who did in fact make responsible loans in the first instance. Organizations like yours whose default rate shows that you 

made responsible loans from the get go and that the statewide rate 

is multiple times higher than yours, the delinquency rate. But it 

confirms for me the importance of trying to fight our way forward 

for this. 

Leaving it to bureaucracy and leaving it to the unsupervised private sector simply doesn’t seem to be making the difference. 

So you have all been very patient. If anybody has any final closing words, I’d be happy to entertain them. But if not, we’ll consider 

24 

this hearing of the subcommittee adjourned with my gratitude to 

you for your testimony and my assurance that it will be in a meeting when we get back to Washington and pursue this issue. 

Clearly if, as Mr. Rao has suggested, there is a second wave of 

foreclosures coming, it will continue to be an important issue. As 

Ms. Bodington has suggested, we are still in our wave of foreclosures here, so this is not something that is just in the past. We 

really need to cope with this and I thank you for your help to us. 

The hearing is adjourned. 

[Whereupon, at 11:18 a.m. the hearing was adjourned.] 

[Submissions for the record follow.] 

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