U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

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

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

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

44–987 PDF 2008

S. HRG. 110–594 

POLICING LENDERS AND PROTECTING HOMEOWNERS: IS MISCONDUCT IN BANKRUPTCY 

FUELING THE FORECLOSURE CRISIS? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT 

AND THE COURTS 

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

MAY 6, 2008 

Serial No. J–110–90 

Printed for the use of the Committee on the Judiciary 

( 

(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

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 

ARLEN SPECTER, Pennsylvania 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

STEPHANIE A. MIDDLETON, Republican Staff Director 

NICHOLAS A. ROSSI, Republican Chief Counsel 

SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT AND THE COURTS

CHARLES E. SCHUMER, New York, Chairman 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

SHELDON WHITEHOUSE, Rhode Island 

JEFF SESSIONS, Alabama 

CHARLES E. GRASSLEY, Iowa 

LINDSEY O. GRAHAM, South Carolina 

PREET BHARARA, Chief Counsel 

BRADLEY HAYES, Republican Chief Counsel 

(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Feingold, Hon. Russell D., a U.S. Senator from the State of Wisconsin, prepared statement ................................................................................................... 108 

Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa, prepared 

statement .............................................................................................................. 110 

Schumer, Hon. Charles E., a U.S. Senator from the State of New York ............ 1 

prepared statement .......................................................................................... 164 

Sessions, Hon. Jeff, a U.S. Senator from the State of Alabama .......................... 4 

WITNESSES 

Atchley, Robin, Ballground, Georgia ...................................................................... 10 

Bailey, Steve, Senior Managing Director, Loan Administration, Countrywide 

Financial Corporation, Simi Valley, California ................................................. 5 

Miller, Debra, Standing Chapter 13 Trustee, Northern District of Indiana, 

South Bend, Indiana ............................................................................................ 7 

Porter, Katherine M., Associate Professor, University of Iowa College of Law, 

Iowa City, Iowa .................................................................................................... 8 

White, Clifford J., III, Director, Executive Office for United States Trustees .... 37 

QUESTIONS AND ANSWERS 

Responses of Steve Bailey to questions submitted by Senators Schumer and 

Durbin ................................................................................................................... 38 

Responses of Debra Miller to questions submitted by Senators Schumer, 

Durbin and Sessions ............................................................................................ 46 

Responses of Katherine Porter to questions submitted by Senators Schumer, 

Durbin and Sessions ............................................................................................ 62 

Responses of Clifford J. White III to questions submitted by Senators Schumer, Durbin and Sessions ................................................................................... 75 

SUBMISSIONS FOR THE RECORD 

Atchley, Robin, Ballground, Georgia, statement ................................................... 86 

Atlanta Journal-Constitution, article ..................................................................... 90 

Bailey, Steve, Senior Managing Director, Loan Administration, Countrywide 

Financial Corporation, Simi Valley, California, statement .............................. 95 

Miller, Debra, Standing Chapter 13 Trustee, Northern District of Indiana, 

South Bend, Indiana, statement ......................................................................... 116 

New York Times: 

September 30, 2007, article ............................................................................. 125 

November 6, 2007, article ................................................................................ 132 

November 25, 2007, article .............................................................................. 136 

January 8, 2008, article ................................................................................... 139 

March 30, 2008, article .................................................................................... 142 

April 20, 2008, article ....................................................................................... 148 

Porter, Katherine M., Associate Professor, University of Iowa College of Law, 

Iowa City, Iowa, statement and attachment ...................................................... 151 

White, Clifford J., III, Director, Executive Office for United States Trustees, 

statement .............................................................................................................. 168 

(1) 

POLICING LENDERS AND PROTECTING HOMEOWNERS: IS MISCONDUCT IN BANKRUPTCY 

FUELING THE FORECLOSURE CRISIS? 

TUESDAY, MAY 6, 2008 

U.S. SENATE, SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT AND THE

COURTS, COMMITTEE ON THE JUDICIARY, Washington, D.C. 

The Subcommittee met, pursuant to notice, at 2:09 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Charles E. Schumer, 

Chairman of the Subcommittee, presiding. 

Present: Senators Schumer, Feingold, Whitehouse, and Sessions. 

OPENING STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. 

SENATOR FROM THE STATE OF NEW YORK 

Chairman SCHUMER. The hearing will come to order. 

Over the past year, we have heard much about the questionable 

lending practices that have harmed homeowners, roiled Wall 

Street, and stalled the economy, especially the ways that greedy 

lenders preyed on borrowers with subprime loans that many did 

not understand and could not afford. 

What is far less known is the way that unscrupulous mortgage 

lenders and servicers have mistreated some of those same borrowers a second time when they are down and out and at their 

most vulnerable—in bankruptcy. There is a disturbing pattern of 

piling on that we need to get to the bottom of. 

So today I want to pull back the curtain on a hidden corner of 

the mortgage crisis. As bankruptcies swell and defaults rise and 

revenue streams dry up, I feel a vulture mentality is developing in 

some quarters, and that vulture mentality threatens to turn the 

dream of homeownership into an even worse nightmare than it has 

been for many already. 

For instance, a homeowner is down on her luck and is forced to 

file for bankruptcy. She successfully completes a repayment plan to 

keep her home through Chapter 13 protection. There has been on 

foreclosure because she has rationally tried to keep her home 

through a Chapter 13 workout. That is what Chapter 13 is all 

about. But then she receives word that she owes more money on 

her mortgage than on the day she filed for bankruptcy, or she has 

to fight off foreclosure even though she has been making payments 

like clockwork. 

How does this happen? How are these companies able to prey on 

homeowners with such impunity? As Professor Porter, who is a witVerDate Aug 31 2005 09:35 Nov 25, 2008 Jkt 045477 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\44987.TXT SJUD1 PsN: CMORC
2 

ness here today, has meticulously documented, they do it through 

a maze of dubious and undocumented fees. All too often these 

charges are inflated, duplicative, or made up. Just as often they are 

undocumented, undisclosed, or just plain awful. They include late 

fees, demand fees, overnight delivery fees, fax fees, payoff statement fees, property inspection fees, and legal service fees. This is 

death by a thousand fees. 

And the companies know that the hapless homeowner is too poor, 

too unsophisticated, or too overwhelmed to challenge often blatantly fraudulent demands for payment. Lest anyone think we are 

exaggerating the problem, consider the record. 

As Judge Joel B. Rosenthal has noted, an increasing number of 

lenders ‘‘in their rush to foreclosure, haphazardly fail to comply 

with even the most basic legal requirements of the bankruptcy system.’’ 

The catalogue of alleged misconduct is too long to list in full detail here. But companies have repeatedly sought to foreclose on 

homes where owners were current in their payments, sought attorneys’ fees in bankruptcy court for motions that they have lost, and 

failed to keep even the most basic records to justify their claims in 

bankruptcy court. 

Consider some of the stories that are, unfortunately, becoming 

routine in this lesser known corner of the subprime crisis. In the 

case of Sharon Diane Hill in Pittsburgh, Countrywide has admitted 

fabricating documents to wring dubious payments from a homeowner in bankruptcy. Judge Thomas P. Agresti had this to say 

about Countrywide’s alleged fabrication of letters: ‘‘These letters 

are a smoking gun that something is not right in the state of Denmark.’’ It is a mixed metaphor, admittedly, but it makes the point. 

In the case of Robin and John Atchley, Countrywide twice wrongly tried to foreclose on their home when they were actually current 

on their payments. In that case, the regional trustee for the Atlanta area wrote in a brief that, ‘‘Countrywide’s failure to ensure 

the accuracy of its pleadings and accounts in the Atchley case is 

not an isolated incident.’’ 

Indeed, Countrywide today says problems exist in only a small 

number, maybe 1 percent of their cases. That would be if it is 1 

percent of their cases, which is what they claim, it would be about 

650 of the 65,000 cases Countrywide has in bankruptcy. But even 

a cursory look at court records seems to tell a different story, a dramatically different story. In just one judicial district alone, the 

Western District of Pennsylvania, the trustee is so concerned, he 

is looking at 300 cases involving trouble with Countrywide. If there 

are 300 potential cases in Pittsburgh, it is hard to believe there are 

only 650 nationwide. So given that fact alone, the 1-percent number seems dubious, to say the least. 

But, of course, the questionable behavior is by no means limited 

to Countrywide. Unfortunately, it seems dubious practices span the 

loan servicing industry. Consider the case of Jacqueline Nozick in 

Massachusetts who desperately tried to save her home by diligently 

paying off her debts over 5 years in Chapter 13. But Ameriquest, 

the company servicing her loan, botched receipt of her payments so 

badly, they ruined her credit and made it impossible for her to refinance. Said Mrs. Nozick of how she was treated, ‘‘I felt like someVerDate Aug 31 2005 09:35 Nov 25, 2008 Jkt 045477 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\44987.TXT SJUD1 PsN: CMORC
3 

body hit me in the stomach and, you know, sucker punched me. I 

became tremendously depressed, and really since then I haven’t 

been able to get my feet under me.’’ The court agreed with that assessment and sanctioned Ameriquest to the tune of $500,000 in punitive damages and $250,000 for emotional distress. 

In the case of Pearl Maxwell, an 83-year-old Massachusetts 

woman with limited education, Fairbanks Capital Corporation took 

advantage of her by repeatedly demanding payments from her that 

she did not owe. The bankruptcy court lambasted the company’s 

conduct, calling it ‘‘egregious and inexcusable.’’ 

In another case in the Northern District of Texas, a company 

filed a proof of claim that it was owed more than $1 million when 

the principal balance on the note was only $60,000. 

The list goes on and on, and the bad behavior is not even limited 

to mortgage companies. Law firms, unscrupulous law firms, have 

also gotten into the act. For instance, one Federal bankruptcy 

judge has criticized what he called ‘‘a corrosive assembly line culture of practicing law.’’ And another bankruptcy judge had this to 

say: ‘‘Above all else, what kind of culture condones its lawyers’ 

lying to the court and then retreating to the office hoping that the 

court will forget about the whole matter.’’ 

We invited a law firm to testify about its practices, but it refused, claiming overbroadly that the attorney-client privilege prevented its appearance. 

Well, I hope today we can begin to get to the bottom of this practice of piling on. To be sure, there is some good news. The United 

States Trustee Program has launched a series of investigations into 

these practices, as we will hear about today. Judges are finally 

starting to hold the firms accountable, and now Congress will indeed play its part. My message to unscrupulous lenders and 

servicers should be heard loud and clear. Congress will no longer 

countenance this vulture mentality. We will not stand for the continued abuse of homeowners who have worked hard and played by 

the rules of bankruptcy, only to have their homes and credit ratings and livelihoods threatened by misconduct at the hand of 

greedy corporations who made poor bets in the first place. 

Given the record, I think the burden has shifted to these mortgage companies to demonstrate that their bad practices do not form 

an intentional pattern or a deliberate business strategy. There are 

too many horror stories, too many investigations, too many sanctions imposed for us to simply take the word of a company spokesman that ‘‘mistakes were made’’ and they were few in number. We 

need a thorough and public accounting of industry practices. 

And let me make a point about Countrywide here. I have always 

wondered why Bank of America, a fine institution with a good reputation, was willing to purchase Countrywide given its recent history. And I understand that there has been encouragement by the 

financial regulators to make this transaction happen. These latest 

revelations should make Bank of America think even harder about 

how they want to proceed with the deal. If it turns out that the 

purchase price for Countrywide was based in part on profits from 

thee bad practices, Bank of America should demand a lower price 

because these practices will not—will not—be allowed to continue. 

4 

As we go forward, we will look closely at any and all solutions 

to these problems. Do we need better deterrence, stiffer penalties, 

more robust disclosures? We will consider any and all such options, 

and I look forward to hearing from our witnesses. 

[The prepared statement of Senator Schumer appears as a submission for the record.] 

I now recognize Senator Sessions for an opening statement. 

STATEMENT OF HON. JEFF SESSIONS, A U.S. SENATOR FROM 

THE STATE OF ALABAMA 

Senator SESSIONS. Thank you, Senator Schumer. 

The bankruptcy court is a Federal court. We created the legislative framework under which those courts operate, and I think we 

have a responsibility as the United States Congress to examine 

how it is working, to identify problems and fix those problems, and 

I think your hearing today gives us an opportunity to, like you 

said, go into some of these areas that a lot of people are not aware 

of but that are very important. If you are yourself a victim of a 

false claim or an unjustified motion for relief from stay and we do 

not—I mean, it is not enough to say ‘‘I am sorry’’ once you get 

caught. Something needs to be done about it. 

I guess my question would be, as we go forward—and I look forward to hearing from our panels—is: What are we doing to discipline those who violate these standards if we have a substantial 

amount of it? The law requires that they file the requisite documents as a part of the proof of claim. If that is routinely not being 

done, why isn’t, first, the lawyer for the grantor, the person—the 

debtor, why shouldn’t they complain first? Second, why aren’t the 

trustees being more aggressive in filing? Why are not the bankruptcy judges lacking people who do that? And if they do that consistently and set a clear standard of behavior for the attorneys that 

appear before them in court, officers of the court, I think we will 

have a lot less of this. And to the extent to which this is an ongoing 

and widespread problem, I believe a lot of it can be fixed by leadership from the judge to the trustee to the lawyers who are supposed 

to be representing the interests of the poor person. 

Thank you. I look forward to hearing from our witnesses. 

Chairman SCHUMER. Great. Thank you, Senator Sessions, and 

thank you for your settlement. 

We are now going to undergo the formality of swearing all the 

witnesses in, so will you please rise, each of you, and raise your 

right hand? Do you affirm that the testimony you are about to give 

before the Committee will be the truth, the whole truth, and nothing but the truth, so help you God? 

Mr. BAILEY. I do. 

Ms. MILLER. I do. 

Ms. PORTER. I do. 

Ms. ATCHLEY. I do. 

Mr. WHITE. I do. 

Chairman SCHUMER. Thank you. You may be seated. We have 

four witnesses here, and I would like to introduce each one, and 

then we will hear from each of them. 

Steve Bailey is a Senior Managing Director for Loan Administration at Countrywide Financial Corporation. In that capacity, Mr. 

5 

Bailey is responsible for overseeing Countrywide’s loan servicing 

operations. 

Debra Miller is a Standing Chapter 13 Trustee for the Northern 

District of Indiana, serving Federal courts in Fort Wayne and 

South Bend. She is Treasurer of the National Association of Chapter 13 Trustees, and earlier in her career she was a special agent 

for the United States Secret Service in Cleveland, where she specialized in credit card and white-collar fraud. 

Associate Professor Katherine M. Porter teaches bankruptcy, 

commercial, and consumer law at the University of Iowa. Her current research examines mortgage claims and consumer bankruptcies. Professor Porter, I note that Senator Grassley, who is 

very proud of his Iowa Hawkeyes, is tied up at the conference on 

the farm bill now, but wanted to be here to greet you and introduce 

you personally. He may be able to do that later. He sends his regards. 

And, finally, Mrs. Robin Atchley is a letter carrier from 

Ballground, Georgia. She will speak with us today about some of 

the issues she faced with her bankruptcy in 2005. 

The entire statements of each witness will be read into the 

record. Mr. Bailey, you may proceed. 

STATEMENT OF STEVE BAILEY, SENIOR MANAGING DIRECTOR, LOAN ADMINISTRATION, COUNTRYWIDE FINANCIAL 

CORPORATION, SIMI VALLEY, CALIFORNIA 

Mr. BAILEY. Thank you, Chairman Schumer and Ranking Member Sessions, for the opportunity to speak with you today regarding 

bankruptcy servicing and foreclosures. Countrywide is committed 

to helping our borrowers avoid foreclosure whenever they have a 

reasonable source of income and a desire to remain in the property. 

The goal of a Chapter 13 bankruptcy is to provide borrowers with 

a fresh start and an opportunity to retain their most valued asset— 

their home. A successful Chapter 13 plan is in everyone’s interest— 

the borrower, the investor, and the mortgage servicers. Countrywide has always strived to accurately report and reflect the 

amounts due from borrowers so they can complete their bankruptcy 

plans and avoid foreclosure altogether. 

Today, I will focus on recent enhancements we have made to our 

bankruptcy processing and discuss the new initiatives that focus on 

three objectives: transparency, accuracy, and integrity. 

Before I discuss these initiatives, I would like to highlight some 

of the challenges servicers face in the bankruptcy process. Most 

borrowers who file for Chapter 13 bankruptcy are hoping to establish a repayment plan that allows them to repay their pre-petition 

debts and avoid foreclosure. Once in a plan, borrowers are also required to stay current on their post-petition mortgage obligations. 

Unfortunately, there are times when borrowers fall behind and 

make partial payments. The uneven flow of payments causes 

servicers to incur further fees and costs. 

For example, when a borrower falls substantially behind, the 

servicer retains an attorney to file a motion for relief from bankruptcy stay. We strive to be flexible and extend opportunities to 

borrowers to bring their payments current. At the same time, howVerDate Aug 31 2005 09:35 Nov 25, 2008 Jkt 045477 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\44987.TXT SJUD1 PsN: CMORC
6 

ever, the servicer has a duty to honor its contractual obligations to 

the mortgage holder or the investor. 

Bankruptcy servicing is further complicated by widely disparate 

rules that vary significantly across many bankruptcy jurisdictions. 

As a result, it is by necessity a human process in which mistakes 

are sometimes made. We strive to minimize these errors, and a 

number of internal reviews indicates that Countrywide has an 

error rate of less than 1 percent from mistakes that adversely impact the borrower. In addition, our policies and practices are designed to avoid incurring fees in accounts that are in bankruptcy. 

For example, Countrywide does not charge late fees on post-petition delinquencies. We also do not collect pre- payment penalties 

for loans that pay off while in bankruptcy. In general, Countrywide 

does not initiate motions for relief from stay until the debtors are 

45 to 60 days past the due date on their post-petition plan. 

Countrywide is committed to further reducing the potential for 

individual employee errors, however, and we have implemented a 

number of changes to improve this process. To increase the transparency of charges to the borrower, we provide allowable notices 

and escrow account analyses to keep borrowers accurately informed 

of their payment status. To improve accuracy, we created a validation team to review each proof of claim, each motion for relief of 

stay, and other documents to be filed in the bankruptcy court. This 

team also provides an audit of each loan after the bankruptcy case 

is over. 

Finally, to ensure the integrity of our bankruptcy servicing, we 

announced today a three-point plan to validate our processes and 

assure continuous improvement. 

First, we will retain a qualified independent auditor to review a 

statistically significant sample of randomly selected loans in bankruptcy going back 3 years. The examination will focus on the accuracy of our bankruptcy accounting for pre- and post-petition payments. It will also review the accuracy and pleadings filed in the 

bankruptcy matters. If the audit identifies mistakes, affected borrowers will be compensated or their accounts adjusted. Once completed, we will work with the auditor to determine whether additional enhancements are necessary to improve our processes. 

Second, we will establish the Bankruptcy Ombudsman Office to 

provide a means for borrowers to initiate a high-level review of 

their bankruptcy servicing records if they believe that they have 

been improperly charged or adversely affected by processing errors. 

The Ombudsman Office will research individual matters and will 

make appropriate refunds or account adjustments caused by errors 

on our part. 

Third, we have reviewed the National Association of Chapter 13 

Trustees’ current best practices, and we agree completely in principle. We are only averse to a few practices that might be legally 

or contractually impermissible or that would increase costs to customers. In fact, just recently, in talking with Ms. Miller here, I believe that that will be easier to achieve than even initially assumed, that some of these things have already been worked out. 

As you may know, we are in discussions also with the U.S. Trustee’s Office regarding a resolution to a number of specific bankVerDate Aug 31 2005 09:35 Nov 25, 2008 Jkt 045477 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\44987.TXT SJUD1 PsN: CMORC
7 

ruptcy cases. Those discussions are ongoing, and we hope that this 

three-point plan will help us to move even closer to a resolution. 

Thank you. 

[The prepared statement of Mr. Bailey appears as a submission 

for the record.] 

Chairman SCHUMER. Ms. Miller. Trustee Miller. 

STATEMENT OF DEBRA MILLER, STANDING CHAPTER 13 

TRUSTEE, NORTHERN DISTRICT OF INDIANA, SOUTH BEND, 

INDIANA 

Ms. MILLER. Thank you, Senator Schumer and Senator Sessions, 

for the ability to come and speak to you today. 

Chapter 13 Trustees have a unique role in the bankruptcy process. We act as mediators and arbiters, and we make sure that everybody plays fair and by the rules to maintain the systemic integrity of the bankruptcy system. Because of this, the trustees have 

been aware of the systemic problems and abuses of the mortgage 

servicers for years. In fact, about 4 years ago, my court actually directed our office to personally contact each servicer before the end 

of the bankruptcy to ensure that the debtor was contractually current, that there were no outstanding fees, costs, or negative escrows that could harm them after the discharge. 

One example that I wanted to bring was we have a case that I 

actually administer, and the gentleman is a trucker. For various 

reasons, he became behind on his mortgage payments and was facing foreclosure. He chose to file a Chapter 13 bankruptcy to save 

his house for him, his wife, and his two children and to reorganize 

his debts. For 5 years, he made every payment on time to my office, and we in turn paid the mortgage company every time, on 

time, each month. We cured his mortgage arrearage. We caught up 

what he was behind, and we paid 100 cents on the dollar to every 

unsecured creditor. 

Imagine the surprise of my office when we contacted the mortgage servicer last year and the servicer claimed that this debtor 

was now $3,900 behind on his mortgage payment. And I just want 

to note that that was three times more than he was behind when 

he actually filed the bankruptcy. 

When we contacted the servicer, we provided our payment 

records. We found mis-posted payments. We found fees, costs, and 

charges that had been added to his account. And when we tried to 

resolve it and brought this matter before the judge, the mortgage 

servicer actually alleged in court that we as trustees had no ability 

to challenge their actions in the bankruptcy court and the court 

had no jurisdiction over them. 

Because of these types of continuing issues, groups of trustees, 

servicers, and servicer attorneys met in 2003, and we continue to 

meet today. Through that group and the collaboration, we have 

begun to open the lines of communication and draft goals as to how 

mortgages should actually be serviced while they are in a Chapter 

13. 

I wanted to note that the servicer frustration that came loud and 

clear to us as trustees was that they felt that they were unable to 

comply with the myriad of different rules and cases in the bankruptcy courts, and they wanted to find a national solution to that 

8 

issue so that they could do the same thing in Indiana as they could 

in Alabama and they could in California. 

Through the work of the group, we actually drafted best practices 

as to how those mortgages should be serviced. They have been 

drafted. They have been revised. They have been shared by the 

judges and also with the debtors’ attorneys. And I should note that 

the people on our committee include large servicers, small 

servicers, prime servicers that actually service prime loans and 

subprime loans. And it also includes their attorneys and the judges 

in the advisory capacity. 

But, unfortunately, these best practices are voluntary, and the 

servicers have been slow to adopt the best practices. These goals 

and best practices have been in place for 2 years, and I can tell you 

that not a single servicer at this time is complying with the best 

practices. I do know that there are two servicers who are currently—they advise me that they are in the process of putting them 

in place. 

Congress and this Subcommittee have the ability to solve this 

problem, and we believe that the best practices are actually the solution to solve that problem. This would require enacting legislation to require the mortgage companies to file notices of payment 

changes, of fees and costs, and it would require enacting legislation 

clearly giving the bankruptcy court the authority to review these 

post-petition costs and fees for reasonableness. It would require an 

amendment to the Real Estate Settlement Procedures Act to make 

sure that the debtor, debtor’s attorney, and trustee were given the 

information on escrow changes, and it would also require in that 

same act to make clear that the servicer could provide the annual 

statement to the debtor without violating the automatic stay. 

Last, we believe that the GSEs, Fannie Mae and Freddie Mac, 

in their regulations should require the servicers that actually service the Freddie and Fannie loans to only be servicers that actually 

comply with the best practices. I believe that enacting this legislation and the best practices will solve the issue, and we would be 

pleased to work with this Subcommittee to draft the appropriate 

legislation to make this happen. 

In closing, I really appreciate that the Subcommittee is looking 

into this issue. We will need to get this resolved for the debtors, 

and I would be pleased to answer any questions that you or the 

members of the Subcommittee might have. 

[The prepared statement of Ms. Miller appears as a submission 

for the record.] 

Chairman SCHUMER. Thank you, Trustee Miller. 

Professor Porter? 

STATEMENT OF KATHERINE M. PORTER, ASSOCIATE PROFESSOR, THE UNIVERSITY OF IOWA COLLEGE OF LAW, IOWA 

CITY, IOWA 

Ms. PORTER. Chairman Schumer, Ranking Member Sessions, and 

members of the Committee, I am deeply grateful for your interest 

in addressing the serious problems with mortgage servicing that affect millions of struggling homeowners and harm the integrity of 

the banking system. Mortgage servicers lack sufficient incentives to 

obey the law and to charge consumers only what is owed. Indeed, 

9 

servicers have a financial incentive to impose additional fees on 

consumers or to bloat the costs of services to build in profit for 

themselves. Poor mortgage servicing can maximize servicers’ profits even as it harms homeowners and investors. 

Any homebuyer can be a victim of abusive mortgage servicing. 

The problems are not limited to families in bankruptcy, but they 

worsen in bankruptcy. While bankruptcy is supposed to offer families one last chance to save their homes, the reality is that bankruptcy gives mortgage servicers new opportunities to engage in 

abuse. 

With Tara Twomey, I did a study that examined the court 

records that mortgage companies filed in over 1,700 Chapter 13 

bankruptcy cases. The purpose of a proof of claim in bankruptcy is 

to establish the amount of a debt. Debtors must pay these claims 

or lose their homes. Unambiguous Federal law requires creditors to 

disclose information accurately. The law requires three pieces of 

documentation: a promissory note, a recorded mortgage, and an 

itemization of any interest and fees. Without documentation, parties cannot verify that the debt is correctly and legally calculated. 

Yet mortgage servicers fail to comply with these basic requirements more than half of the time. A majority of claims—53 percent—lacked one or more of the required attachments as shown in 

this graph. Poor mortgage servicing in bankruptcy is not limited to 

one or two companies; it is the industry norm. This widespread 

noncompliance undermines the bankruptcy system. At worst, creditors’ failure to provide documentation can manipulate the bankruptcy system to overpay on these debts. By obscuring the information needed to determine the legality of charges, servicers thwart 

effective review of their practices. Their blatant disregard for bankruptcy’s clear rules effectively shifts the burden to debtors, trustees, or courts to engage in costly litigation to verify the purported 

debt. In a majority of bankruptcy cases, servicers flaunt their duty 

to disclose. 

I also measured how frequently servicers attempt to collect fees 

or costs without identifying such charges. I found that 43 percent 

of mortgage claims either made reference to fees that did not fit 

into a category or they offered an aggregate sum of many charges. 

Some amounts were labeled ‘‘other’’ and some had no description 

at all. I found dozens and dozens of fees that appeared to be impermissible or should have been challenged. Some of these fees are 

shown in this table. 

On their face, these fees are vulnerable to challenge because they 

may not be permitted under the terms of the note, applicable law, 

or the Bankruptcy Code. Yet none of these fees were objected to by 

any party. Debtors were forced to pay these amounts or lose their 

homes. In the rare instances when bankruptcy courts have scrutinized creditors’ practices, they have found evidence of misbehavior. 

For example, Wells Fargo recently was faulted for charging for 

property inspections, allegedly conducted in Jefferson Parish, New 

Orleans, while that area was under an evacuation order and was 

closed to everyone but emergency personnel. 

Many creditors request payment in their proofs of claim of thousands of dollars more than debtors thought they owed. In the average instance, when mortgage creditors tried to collect more than 

10 

the debtor expected, as shown by the red line, the average discrepancy was over $6,000. For struggling families in bankruptcy, this 

is a formidable amount. Faced with these debts, many families lose 

their homes to foreclosure despite having filed for bankruptcy. 

This is an example of a typical claim that we saw in our study. 

I would like to highlight a few things. The debtor in this instance 

was 8 months behind. This is a VA loan serviced by a servicer the 

VA selected. The debtor was charged property inspections of $511. 

That is over $70 a month in property inspections. The $389 held 

in suspense, the debtor scraped up that money, sent it into the 

servicer, and the servicer did not apply it. Instead it held that 

money bearing interest for itself while the debtor’s account continued to accrue interest. 

The current bankruptcy process is malfunctioning, and the industry has had ample warning about its problems. In the face of attacks by the U.S. Trustee in courts, mortgage servicers have refused to improve. This past year has shown that no other entity— 

neither debtors, nor their attorneys, nor panel trustees, nor the 

U.S. Trustee, nor the bankruptcy courts—is willing or able to address the assault. Systematic reform is needed to protect all homeowners—inside and outside of bankruptcy—from illegal behavior. 

[The prepared statement of Ms. Porter appears as a submission 

for the record.] 

Chairman SCHUMER. Thank you, Professor Porter. 

And now, Ms. Atchley. 

STATEMENT OF ROBIN ATCHLEY, BALLGROUND, GEORGIA 

Ms. ATCHLEY. My name is Robin Atchley. I am honored to testify 

before the Subcommittee about my family’s struggle to save our 

house from foreclosure in the bankruptcy court. My husband, John, 

and my children, Kally, Payden, Alec, and Morgan, are with me 

here today. Our lawyer, Howard D. Rothbloom, is seated behind 

me. 

I work as a letter carrier for the U.S. Postal Service. John works 

as a lineman for the power company. 

In 2004, our family moved from a single-wide mobile home into 

our own brand new house that we bought in Waleska, Georgia. We 

put down $22,000 on the house, and we financed the rest. 

One year later, our mortgage was refinanced by American Freedom Mortgage to put up a fence and to finish the basement so that 

our children would each have their own bedrooms. We did most of 

the work ourselves. We were notified to make payments to a company called ‘‘Countrywide.’’ 

For some time, we were able to keep up with our payments to 

Countrywide. But when my sister passed away unexpectedly, I 

needed time to grieve. So I took unplanned and unpaid leave from 

my job. 

Then we struggled to pay our bills. We didn’t have much debt, 

but we did fall behind on our mortgage payments. 

Our attorney explained to us that in Georgia, a mortgage company can foreclose in just over a month without going to court. So, 

in October 2005, we sought refuge in the bankruptcy court. We had 

hoped that bankruptcy would allow us time to pay our debts and 

keep our house. 

11 

When we filed for bankruptcy, we were about $5,000, or three 

mortgage payments, behind. The $5,000 was to be paid in monthly 

installments through the bankruptcy court, and the current due 

mortgage payments were paid monthly directly by us. 

Our bankruptcy case was a tug of war with Countrywide over 

our house. Sometimes our mortgage payments were late. But Countrywide, through its lawyers, McCalla Raymer, was too quick to 

pull the trigger. Legal papers became weapons. 

In February of 2006, Countrywide filed a motion for relief from 

the automatic stay asking the bankruptcy judge for permission to 

foreclose on our house when we were current on our mortgage payments. Both times, not until our lawyer gave McCalla Raymer 

proof that the payments had been made, did Countrywide withdraw its motions. It was unforgiving. It seemed that we had no 

room for error. And each time that it sought permission to foreclose, there was confusion: no person with Countrywide or with 

McCalla Raymer could ever give us clear information on what they 

claimed that we owed and why we owed it. It was as if all they 

wanted to do was take our house. 

We had hoped that bankruptcy would give us a fair chance to 

save our house. But that was a false hope. It seems as if Countrywide used the bankruptcy court to gain even more opportunities to 

take advantage of our predicament and to profit from our struggle. 

Nonetheless, with our lawyer’s help, we won the battles. 

Eventually, however, John and I just tired of the war. And it 

took a toll on our whole family. Our son, Payden, even insisted that 

we use his lunch money to help pay the mortgage payments. 

We did the best that we could. Our lawyer did the best that he 

could. Together, we did the best that anyone could. 

Our house was our family’s first house. It was our dream home. 

John and I had hoped to raise our children there and live there for 

the rest of our lives. But, regretfully, John and I decided that it 

would be best to sell it. The monthly bankruptcy payments, the 

monthly mortgages, and the whole bankruptcy process were drowning us. We knew that selling the house would enable us to get our 

heads above water. 

In May of 2007, Countrywide sent a Payoff Demand Statement 

showing that the total amount owed on our loan was $199,000. The 

proof of claim Countrywide filed in our case in December 2005, 

however, showed that we owed $185,000—$14,100 less than the 

payoff amount demanded by Countrywide—and that is without giving us credit for post-petition mortgage and bankruptcy court payments sent to Countrywide. Yes, we were behind on our payments 

on the day that we sold our house, but we don’t know why the payoff amount was so high. The payoff statement included $2,550 in 

unexplained fees. 

We sold the house in the middle of May and paid the amount 

that Countrywide said that we owed. In fact, we had to pay money 

out of our pockets at the sale to get out of the house. That just 

didn’t seem right. And, according to our lawyer, Countrywide continued to take money from us through the bankruptcy court even 

after it was paid in full from the sale. That didn’t seem right either. They didn’t stop until after our lawyer objected. 

12 

The saddest day was the day that we told our children to pack 

everything in their bedrooms. With suitcases in hand, my husband, 

our four children, and I stuffed the car with our belongings and 

moved in with my parents until we could save enough money to 

rent. 

We are not bad people. We work hard. We try to follow the rules. 

John and I are trying to raise our children to be good and decent. 

We are probably just a typical American family. 

Our house is gone. There is nothing that anyone can do to 

change that. Now our home is a house that we rent from someone 

else. And our son doesn’t have to worry about his lunch money anymore. 

We hope our story will help others. Thank you. 

[The prepared statement of Ms. Atchley appears as a submission 

for the record.] 

Chairman SCHUMER. Thank you, Ms. Atchley. I want to thank all 

the witnesses, particularly you, Ms. Atchley. I know it is not easy 

to come and talk about it, but it will help others. 

Ms. ATCHLEY. I hope so. 

Chairman SCHUMER. I want to assure you of that, so you are 

doing a good deed for others, and I would like your children to 

know just that about you. 

Ms. ATCHLEY. Thank you. 

Chairman SCHUMER. We have a vote. I think we have about 4 

minutes left. So I think we will take a brief recess. There are three 

votes, so we will try to resume at about 3:15. As soon as we begin 

the third vote, I will vote quickly, Jeff will, and we will come right 

back and begin questions. 

The hearing is temporarily recessed for a half-hour. 

[Recess 2:46 p.m. to 3:20 p.m.] 

Chairman SCHUMER. The hearing will come to order. I am sure 

Senator Sessions will be here shortly, but we do want to move 

along. So we will try to do 7-minute rounds for questioning, and 

then we will come back. My questions first are to Mr. Bailey. 

Now, Mr. Bailey, in a news release last fall, Countrywide stated 

that, ‘‘Our No. 1 priority is to help borrowers stay in their homes.’’ 

And you said, ‘‘At the end of the day, foreclosure avoidance is the 

theme we are going after.’’ You have also said that, ‘‘Foreclosure is 

always and absolutely the last resort.’’ And today, you repeated 

similar comments in your testimony. 

Now, I just want to test that commitment. First—and please answer as succinctly as you can, because we have limited time. Isn’t 

it true Countrywide holds only a fraction of the loans it services on 

its books? 

Mr. BAILEY. Yes, that is true. 

Chairman SCHUMER. What is the percentage? 

Mr. BAILEY. It is about one in eight. 

Chairman SCHUMER. OK, so that would be about 12 percent. And 

so if you are not holding a particular home loan on your books, that 

means you will not have to take any writedown in the event of 

foreclosure on the home. Isn’t that correct? 

Mr. BAILEY. That is not necessarily true. Some of the structures 

of deals that we have have a loss position, even if the loan is not 

on our books. 

13 

Chairman SCHUMER. And how many are those? Small number, 

right? 

Mr. BAILEY. No. Several hundred thousand. 

Chairman SCHUMER. What percentage is that? 

Mr. BAILEY. That is probably another 10 percent. 

Chairman SCHUMER. OK. So still, three-quarters are not in that 

situation. OK. And so for the vast majority of loans you service 

then, I think it is fair to say the bulk of the adverse financial impact from foreclosure is borne not by Countrywide but by the ultimate investor, at least on three-quarters of those. 

Mr. BAILEY. It won’t be exactly that math because the loans, especially the couple hundred thousand, have a much higher risk. 

Chairman SCHUMER. I am not trying to get an exact number 

here. 

Mr. BAILEY. OK. 

Chairman SCHUMER. It is the concept, and I don’t think we dispute that. 

Mr. BAILEY. There is significant risk outside of Countrywide’s 

book, yes. 

Chairman SCHUMER. OK. Now, let’s assume that, as you predict, 

the housing market, as you predict, as most analysts have, the 

housing market continues to slide, and you believe you are servicing many loans that have a high likelihood of default—the Option 

ARM that you have originated in areas that are experiencing steep 

home depreciation, like California. 

In those circumstances, isn’t it true that Countrywide’s business 

model is to offset the servicing losses from defaults and foreclosures 

by levying a host of ancillary fees on the borrower before there is 

nothing left for a borrower to give? 

Mr. BAILEY. That is a good question. I hope to get a little bit of 

time to respond to this, because I hope to bring some clarity to this, 

because it is a question that continues to come up in form or another. 

Chairman SCHUMER. OK. 

Mr. BAILEY. The idea that if we sell a loan to investors, so 

Freddie or Fannie or HUD is insuring it, if we don’t have the ultimate credit loss risk, if that is removed, then the idea that levying 

fees that aren’t necessary or taking income through a subsidiary 

will then give us an incentive to want to foreclose where foreclosure might not be necessary, is a question that continues to 

come up. So just—I will try to keep— 

Chairman SCHUMER. Or that other fees, if you raise other fees 

on the route to foreclosure or after foreclosure, they will mitigate— 

you know, they will make you more profitable. Same thing. 

Mr. BAILEY. Same general question. So a couple of points. 

The first one is the most primary way that we make money in 

the servicing model—put aside the idea that you have a loan on 

your books. This would be for loans that are not on your books. The 

primary way you make money is if a borrower is making payments. 

So the service fee that you collect is what you withhold from what 

you would pass through to an investor. If you did not collect a payment— 

Chairman SCHUMER. Sir, we are limited in time. That is before 

any foreclosure, correct? 

14 

Mr. BAILEY. But it—the main motive is to keep that loan on the 

books and keep the customer paying. That is how you get the bulk 

of your payments. 

A second way you make money is money that you hold, whether 

it is in escrow money waiting to disburse in the future or principal 

and interest you are holding prior to advancing it to an investor, 

you make money on float. You don’t make any float if a payment 

didn’t come in. So, again, these— 

Chairman SCHUMER. But you can make money from fees extra 

fees. Let me read to you a few things here, OK? 

Mr. BAILEY. If I could— 

Chairman SCHUMER. I just want to get these out, and then you 

can answer. 

Mr. BAILEY. OK. 

Chairman SCHUMER. Because, again, I want to—in your third 

quarter earnings presentation, you report that Countrywide’s net 

loan servicing income more than doubled from $517 million from 

the second quarter to $1 billion in the third quarter. A huge increase in the fees for loan servicing. And then, let me read you 

this—this is Mr. Sambol, your President. In the report he says, 

‘‘Now, we are frequently asked what the impact of our servicing 

costs and earnings will be from increased delinquencies and loss 

mitigation efforts and what happens to costs. And what we point 

out is, as I now will, that increased operating expenses in times 

like this tend to be fully offset by increases in ancillary income in 

our servicing operation, greater fee income from items like late 

charges, and, importantly, from in-source vendor functions that 

represent part of our diversification strategy, countercyclical diversification strategy, such as our businesses involved in foreclosure 

trustee and default title services and property inspection services.’’ 

What your President, Mr. Sambol, is saying is by charging people 

like Mrs. Atchley who are already in Chapter 13 or in foreclosure 

extra fees, you are going to make up for the losses you made in 

making bad mortgages. That is just what he is saying here, is he 

not? 

Mr. BAILEY. OK, so— 

Chairman SCHUMER. Can you answer that? Isn’t that what Mr. 

Sambol is saying? 

Mr. BAILEY. I can answer that question. It takes a little bit of 

time, if you will give me— 

Chairman SCHUMER. OK. 

Mr. BAILEY. First, again, in order for any of that income to come 

in an annuity that is going forward—let’s take this late charge income—it would need to come from a borrower who made a payment. Late charges is overwhelmingly—of those items that he referred to, is overwhelmingly the biggest fee income that you get. 

Most of that comes from people who miss one payment, maybe two; 

they pay a late charge, and they are back on course. That is the 

overwhelmingly largest fee income that is there. 

Second, this idea of these subsidiaries that are involved somehow 

on the periphery, involved in foreclosures that pursue, first, those 

actions are required in order to proceed with a foreclosure. They 

are directed. You have to hire an attorney. You have to go through 

the process in court in order to enforce the contract. Those fees are 

15 

going to be collected by someone, whether it was a Countrywide 

subsidiary—but— 

Chairman SCHUMER. That is not—Mr. Bailey, in all due respect, 

to say someone is going to collect these fees does not answer the 

question whether it is in Countrywide’s interest when they are losing money on the basic mortgage— 

Mr. BAILEY. I will get to that— 

Chairman SCHUMER.—in part because the person couldn’t pay, to 

then pile on and charge the Mrs. Atchleys of the world—and there 

are hundreds of thousands of them—extra fees. Your President 

says that is how you keep your profit model. Fee income increased 

greatly. So you are telling me that someone is going to have to collect these fees; if it is not you, it is someone else. That doesn’t answer the question. 

Mr. BAILEY. I will get to this. I know it is frustrating to go 

through the details, but if I can get to the detail, I hope— 

Chairman SCHUMER. But if you can answer my question. 

Mr. BAILEY. I will answer the question. The point I am making 

about somebody is going to be paid a fee is if a foreclosure process—which, by the way, isn’t the fees that were charged to the 

Atchleys, which I would love to talk about that in a minute. The 

foreclosure fees that are charged are set by State and investor 

allowables. We do not set the fees for these allowables. Investors 

do. As— 

Chairman SCHUMER. Excuse me. Do you agree with that, Professor Porter or Ms. Miller? There are many fees that they set on 

their own and add on their own. Isn’t that right? 

Ms. PORTER. Some fees are set by the investors. Late fees, for example, are usually in the mortgage contract. Things like demand 

fees, fax fees—those are all in the discretion of the servicers. 

Chairman SCHUMER. Exactly. 

Mr. BAILEY. No, we are talking about foreclosure fees that are 

part of the subsidiaries. 

Chairman SCHUMER. No, no, no. We are talking about all these 

extra fees, the kind of piling on that we object to, to make up for 

losses elsewhere. 

Ms. Miller, is Professor Porter right, Trustee Miller? 

Ms. MILLER. Yes, Your Honor. In fact, there was a new case that 

came out in the last couple of weeks in which the servicer actually 

admitted to the court that the BPOs, the broker price opinions, 

were actually sent out by a computer instead of by someone within 

a servicer, and so the BPOs would go out and continue to accrue 

to the account with no one actually being aware that they were 

going on the account. 

Chairman SCHUMER. And those are in the discretion of Countrywide or with other— 

Mr. BAILEY. So let me go to this issue of profitability and foreclosure. 

Chairman SCHUMER. Yes, that is what I asked. 

Mr. BAILEY. We have made a decision in order to put this to bed 

on foreclosures, whether it is a default title or whether it is a foreclosure processing, we made a decision to waive all of the attorneyrelated foreclosure fees for anybody who is trying to reinstate their 

loan out of foreclosure. So, actually, us holding those subsidiaries 

16 

will be in a customer’s best interest because it is the only place 

they are going to go where we can demonstrate we would much 

rather work this out, we would much rather that you would come 

current. We are going to forego— 

Chairman SCHUMER. When does that take effect? 

Mr. BAILEY. That already has been put in place this month. 

Chairman SCHUMER. This month, so until this month, all the 

things you say you shouldn’t do, you could have done, and in some 

cases did do. 

Mr. BAILEY. Again, the fees are defendable by market, by legal 

proceedings, they are defendable. We are trying to go an extra mile 

and kill any belief that we would rather take income in a subsidiary for a foreclosure. We would much rather have the borrower 

remain in their home, have no fee, continue the loan, keep them 

in their home. We are company that is about homeownership. That 

is what we were founded on. That is what we are trying to be in 

the marketplace. 

Chairman SCHUMER. Many of your practices—no-doc loans, 

charging people more than they could ever afford—call that into 

question. But we will get to that in a second round. My time is up. 

I would just say this: that any business model that says we are 

going to make up for lost income in the regular mortgage process 

by extra fees and fees relating to foreclosure and default title services and property inspection in my judgment is not a company that 

wants to keep people in their homes. 

Senator Sessions? 

Senator SESSIONS. Thank you, Senator Schumer. 

I would just like to run by the overall perspective here to me, 

where we are and what the problems are. Mr. Bailey, some of your 

cases, the In Re: partially I think was really appalling errors on behalf of your lawyers, and they filed information without assuring 

it is correct. 

Do you—well, it is hardly worth asking. I am sure you say that 

it was not your policy to do that, but it has been occurring, and 

Professor Porter has indicated far too often and far too many cases. 

And some of this has been pointed out in Professor Porter’s study 

that proper documents are not being filed with the proof of claim. 

Now, Ms. Atchley, you were happy—I picked up from you conversation you were pleased that your attorney stood up for you and 

battled this thing successfully, ultimately, for you, were you not? 

I sort of felt that way. 

Ms. ATCHLEY. Yes. 

Senator SESSIONS. Ms. Miller, you are a bankruptcy trustee. Isn’t 

the first responsibility, the first line of defense for a debtor in 

bankruptcy court the lawyer they hired to protect them and give 

them a fair day in court? 

Ms. MILLER. Yes, Your Honor—yes, sir, it is. 

Senator SESSIONS. I can tell you practice law a lot when you say 

that. 

[Laughter.] 

Chairman SCHUMER. Senator Sessions was—I was never a ‘‘Your 

Honor.’’ I believe you— 

Senator SESSIONS. No. I was a would-be Your Honor. 

17 

Chairman SCHUMER. He is a would-be Your Honor. I am a neverbe Your Honor. 

Senator SESSIONS. Yes, that is true. Both of us are in that category, I am afraid. 

So that is the first responsibility. Now, my impression is—and 

this came up during the bankruptcy bill legislation, and we put 

some requirements on the lawyers for the debtors to certify what 

they filed would be correct. And we put some requirements on the 

lawyers for the creditors to be correct in what they filed. The debtors’ attorneys all were nervous. Oh, they did not like this. ‘‘You 

mean we have got to actually certify what we filed is correct?’’ Because the truth is some of them handle hundreds and hundreds of 

claims per year, do they not? And their paralegals and assistants 

do all of this work, and they are unlikely to know much of what 

is in the file, too often. Would you confirm that as a reality of life? 

Ms. MILLER. I think that there are some very large filers who 

that actually is the case. Actually, in our district, most of the attorneys are smaller filers, so I think they do a better job of knowing 

what is in their case and looking at their proof of claims. But it 

is an issue that we are dealing with. 

Senator SESSIONS. And, of course, you file and you get your fee, 

and eventually the case goes away, and whether your client sometimes—exactly how well the client comes out gets lost in the process, I am afraid, because it is such a mass production deal for a 

lot of lawyers. 

Now, why would not a lawyer for a debtor not object if the note 

or the proper proof of debt is not attached to the proof of claim? 

Ms. MILLER. Personally, I believe that they should be. I do 

know— 

Senator SESSIONS. I mean, they have the authority, do they not, 

to object? And what would a court do if a lawyer for the debtor 

said, wait a minute, the law says you have to have the proof of the 

documents, certified documents to prove the debt, and they haven’t 

done so? What would a bankruptcy judge do under that circumstance? 

Ms. MILLER. I know that in our jurisdiction we object to those 

proof of claims. We actually require the servicer to come in and 

prove that they are entitled to that right of payment. If they do not 

prove that they are entitled to that right of payment, the claim is 

actually denied. 

Senator SESSIONS. The entire claim? 

Ms. MILLER. The entire claim. 

Senator SESSIONS. But let me ask you, say we object, is it the 

bankruptcy trustee that is objecting or the attorney for the debtor 

objecting? 

Ms. MILLER. I think depending on the different jurisdictions—in 

some jurisdictions the trustees object; in some the duty has been 

shifted to the debtor’s counsel. It is one of those local rule differences between the different courts. 

Senator SESSIONS. Well, so does a debtor’s attorney not have a 

responsibility to make sure that the proof of claim is legitimate? 

Has that been shifted to the bankruptcy trustee? 

Ms. MILLER. I believe they always have that duty, sir. 

18 

Senator SESSIONS. And then what role does a bankruptcy trustee—what role do they play in evaluating these claims and proof of 

claims and motion for relief of stay? What do you do and what is 

your responsibility? 

Ms. MILLER. We do a number of different things. We don’t know 

exactly how far behind the debtor is, so we are not going to be able 

to determine whether or not the five or six payments, or whatever, 

in the arrearage and the proof of claim is correct. But we do review 

the proof of claim to see if there are outrageous inspection fees, 

origination fees, things like corporate advances, which means that 

they are not telling us what they spent the money on. 

We also object if the mortgage is not attached, and sometimes 

the mortgage that is attached is in a different name. It is a different person. 

Senator SESSIONS. Now, what happens if a creditor files a petition and you notice they have not filed the correct documents, and 

you call it to the attention of a judge by an objection? Does a judge 

ever sanction the attorneys for all this wasted time and effort because they did not file the document properly to begin with? 

Ms. MILLER. Actually, Your Honor, my court has a very proactive 

stance on that, and my judge actually sent the U.S. Marshals out 

to one of the law firms in California to bring the senior partner to 

court to explain their actions in filing the— 

Senator SESSIONS. Now, that gets attention, right? 

Ms. MILLER. Yes, it did, Your Honor. 

Senator SESSIONS. Probably sent a message throughout the entire bankruptcy bar in your district when the senior partner from 

Los Angeles is called to answer why his people filed improperly. 

Ms. MILLER. It not only made our bar; it made pretty much the 

national bar. 

Senator SESSIONS. So it seems to me that it is difficult for us to 

complain about these things—well, let me back up. I believe, my 

observation is, in the law and almost anything else, people will do 

what you are allowed to do. If you are playing football and they let 

you hold, the people are going to hold. If they are throwing the flag 

when you hold, they don’t hold. If you are going to allow lawyers 

and practitioners not to do their job and not to issue sanctions, 

then you are not controlling the game. You are not in charge of the 

game. 

I think ultimately it is the judge, but aggressive trustees and aggressive lawyers are critical to the integrity of the entire system. 

Would you not agree? 

Ms. MILLER. I agree, sir. 

Senator SESSIONS. Well, you as a trustee—I know my time is up, 

but you as a trustee are in the pit. You are down there dealing 

with these cases, and I know you have a feel for it, and I thank 

you for giving us that perspective. 

Ms. MILLER. Thank you. 

Chairman SCHUMER. Thank you. 

Senator Whitehouse? 

Senator WHITEHOUSE. Thank you, Mr. Chairman, and thank you 

for calling this hearing. I think this is extremely instructive, and 

it is really a tragedy to see people like Ms. Atchley falling into 

what looks like a mill, basically, and with very little way to find 

19 

their own way out in an area where everybody else is an expert but 

you are the one who has the home. And so I appreciate that you 

have come in, and I appreciate that so many people are here to 

help us understand this a little bit better. 

It sounds like there is not only an abuse of the collections process, but widespread abuse of lawyering standards. Why is it that 

courts are not pushing back harder at all of this? You have given 

some instances where they have rattled some cages and called senior partners and so forth. But the recurring nature of this is really 

pretty astounding. I know Professor Porter has recommended some 

rules changes, but let me see if I can find the—you used a very 

good phrase: ‘‘unreliable mortgage servicing is pervasive...current 

provisions are not sufficiently strong to generate compliance.’’ And 

if people—I just don’t get why there isn’t a harder smack being delivered by courts to these practitioners. 

First of all, if you could define why it is happening. I suspect it 

is just a question of scale, and it is sort of mill production and people like Ms. Atchley get caught up in it, and they are filing just 

dozens of these things, and it is a sort of automatic process and 

they do not really care. They are just bombing the court with papers. But that would strike me—I have been around judges quite 

a lot, and that would strike me as really no excuse to most of the 

judges I have seen. In fact, it would be an aggravating factor in 

terms of trying to bring a little bit of order and discipline and integrity to the proceedings that they are overseeing. 

Ms. PORTER. I do think we are starting to see judges take action. 

Senator Schumer gave some examples of some of the court opinions 

we have started to see. But I want to emphasize that this is, as 

Mr. Sessions noted, a high-volume system, and the scale and scope 

of the servicing operations make even the largest bankruptcy attorney look like a solo practitioner. So we have gigantic servicing operations. They employ national law firms. Those national law firms 

then in turn employ local law firms. And the mistakes and the 

overcharges just get passed down the line. Nobody bothers to stop 

and check. 

I do think—you know, judges tell me—I have given this talk to 

a lot of groups, including judges. They say, ‘‘We hammer at the 

local attorney in front of us, and the local attorney tells us, ‘We try 

to get information from our national counsel or from the servicer, 

and they do not give it to us. We don’t know the answer to your 

question.’’’ And that leads to these orders to fly in executives from 

across the country. 

The problem with taking a judge-by-judge, court-by-court approach, as Mr. Sessions was suggesting, is the rules already put 

the burden on the creditor to attach this documentation. That rule 

has existed since at least 1978, and the reason the rule is there, 

why the burden is on the creditors, is because they are the party 

with the information. By not attaching notes in 42 percent of their 

claims, Countrywide shifts that expense onto the debtors, onto the 

trustees, and onto the bankruptcy courts, and ultimately onto the 

system. And that is an abuse of the rules as they are currently 

written, in my view. 

Mr. BAILEY. She has no evidence that we have 42 percent errors 

in this. You haven’t checked us or audited us. 

20 

Ms. PORTER. It is in my— 

Mr. BAILEY. We are submitting to this audit specifically to deal 

with this kind of general statement about it moves from the industry to—Countrywide has a 42—that is absolutely false. 

Ms. PORTER. What I said, to be clear, was that in my—I will be 

clearer. In my study, there were 100 claims filed by Countrywide. 

There was no note attached to 42 of those claims. That means the 

note was missing in violation of Bankruptcy Rule 3001(c) in 42 percent of the claims. I consider that to be an error that harms a borrower. 

Mr. BAILEY. How many of those cases, I wonder, would there 

have been an actual fee that was inappropriate or was objected to 

by either the debtor’s attorney or by the judge or where there was 

any kind of sanctions or any problem issued with that? One of the 

problems we face—and I really hope— 

Senator WHITEHOUSE. Let me just interrupt you for one second, 

Mr. Bailey, since you have jumped into this discussion. 

Mr. BAILEY. Yes. 

Senator WHITEHOUSE. Why is it that it is appropriate that there 

should—forget the fees and other things to the side. Why is it appropriate that your company should on those 58 occasions fail to 

comply with the bankruptcy? 

Ms. PORTER. It was 42 they didn’t— 

Mr. BAILEY. It is the other way. 

Ms. PORTER. In 42 they didn’t comply. 

Senator WHITEHOUSE. In 42 they didn’t comply so they— 

Ms. PORTER. They complied in 58; they did not comply in 42. 

Mr. BAILEY. It is the other way. This is— 

Senator WHITEHOUSE. Why is it that in 42 they didn’t do it? 

Mr. BAILEY. Sorry. 

Senator WHITEHOUSE. I mean, just stop right there with that one 

question. 

Mr. BAILEY. My answer will be that— 

Senator WHITEHOUSE. Why in 42 percent, in those 42 cases, 

didn’t you just follow the rules? 

Mr. BAILEY. Well, these rules that she is referencing aren’t necessarily the way that a local judge or jurisdiction would want their 

process to proceed. So it is as simple as these rules are not consistently enforced. They are not consistently—if you reach a judge in 

a particular jurisdiction— 

Senator WHITEHOUSE. Well, they are certainly consistently enforced if you file floods of these things and judges don’t bother to 

enforce them. But it is still the rule. 

Mr. BAILEY. Well, but what a particular—in today’s environment, 

what a particular judge in a particular jurisdiction wants to see, 

whether it is in the proof of claim and what is attached to it, how 

you might itemize the different fees, what kind of evidence of those 

fees you want to submit, is set by that judge. 

Senator WHITEHOUSE. But how about Mrs. Atchley? Isn’t she entitled to something in this? Isn’t the rule there for her benefit so 

she knows what is being talked about? It is not just the judge. That 

is why it is the rule. 

Mr. BAILEY. I don’t think the Atchleys’ proof of claim was 

brought into question here. 

21 

Senator WHITEHOUSE. No, but somebody in her position. It is not 

just between you and the judge. There is somebody whose home is 

involved here, right? 

Mr. BAILEY. Right. What I will say— 

Senator WHITEHOUSE. And they are entitled to notice pursuant 

to the rule, and I don’t know why we are even having a discussion 

about compliance with the rule. Why is it suddenly optional to comply with the rule? 

Mr. BAILEY. It is not optional to comply with the rule. The issue 

would be what is the rule and how is it defined by these local 

groups. As I said a few minutes ago, we are passionately interested 

in this idea that we would have best practices, clarification of what 

is required across the board. If in every case every judge wants all 

these things, that is what we will do. We will attach. If every fee 

needs to be itemized, that is exactly what we will do. And we are 

committed to that. We want the playing field to be defined and 

clarified and not have this variation. And even the fees that are 

charged, let them be uniform, let them be set, let there not be any 

variation between those things. And even further, can we establish 

better interaction between the debtor and the servicer? And that is 

in these best practices where there is some specific language and 

notices that you can send out to customers so they are not wandering blindly knowing whether or not a payment was received or 

if a fee was charged, so there is an interaction that can be increased between these parties, even if it deals with going through 

the trustee. Today there is not enough communication. 

If Mrs. Atchley’s presence here serves one thing, it is can we 

please deal with the interaction between servicers and customers. 

When we are under the cloak of bankruptcy and we are not allowed 

to have this dialog with the customer—I think she made an extremely good point. It underscores the tragedy of that situation. 

She admitted to there being a few payments that were late and felt 

that the trigger was pulled too quickly in these motions for relief, 

because, yes, they might have been a little bit late, but they wanted to pay and they were trying to pay. We can’t have a conversation with her about that to see is the payment on the way. Was 

there just a little 1-month problem? We are stuck between a rock 

and a hard place. An investor is going to come down on you if you 

do not file that motion for relief within a certain period of time. 

And an inability to contract the customer to see if there is something going on that could be improved—even all these loan modifications that we can do now, I can’t have a conversation with the 

customer about the ability maybe to rework their mortgage. 

If we can get that dealt with—I know you can’t change the whole 

process, but if we can get that dealt with so you can have some 

kind—if it is through the attorney, if it is through just letters that 

you can send, it can help to prevent a future tragedy where somebody wants to pay and is caught just being a little bit late for some 

interruption. And if we can get that kind of change, we are 100 

percent for that. 

Senator WHITEHOUSE. My time expired some time ago, and I appreciate the Chairman’s indulgence. 

Chairman SCHUMER. No problem. We are going to have a second 

round if you wish to stay. 

22 

Senator Feingold? 

Senator FEINGOLD. Thank you, Mr. Chairman. Thank you for 

holding the hearing. This is a very important topic which has an 

impact on millions of Americans. While Wisconsin has not been as 

hard hit as other regions of the country by the subprime mortgage 

crisis, foreclosures are on the rise in the State, and more and more 

I hear concerns back home about the effects of the rising number 

of foreclosures on our communities. I have heard from local government officials who are concerned about holding lenders accountable 

for maintaining abandoned homes and ensuring the abandoned 

homes do not fall into disrepair. I have heard from housing advocates concerned about borrowers who may have been misled into 

taking out a subprime loan and now face the prospect of losing 

their homes. And I have heard from dedicated lawyers and counselors who are trying to provide counseling and other services in 

order to help individuals and families through these tough times. 

Helping families avoid foreclosure should be a top priority of Congress. 

For some families, bankruptcy provides an entirely legitimate 

way to prevent foreclosure. This is exactly the purpose of Chapter 

13—let people pay their past due debts over several years under 

the supervision of the court and the trustee so they can stay in 

their homes. When foreclosure is avoided, everyone wins—lenders 

get paid, families aren’t uprooted, property values are protected, 

and communities are strengthened. Of course, if Congress continues to refuse to give bankruptcy courts the power to modify the 

terms of subprime mortgages, even going into bankruptcy will not 

help some families. But it can still work in some circumstances. 

That is why it is so shocking and disheartening to learn of the 

abuses of the bankruptcy process by mortgage servicers. At the 

very point when families are trying to straighten out their affairs 

and do the right thing by their creditors, including those who hold 

their mortgages, they are being taken advantage of and pushed 

again to the brink of foreclosure. These abuses, or even mistakes— 

if that is what they are, are inexcusable. We know that some businesses will provide from these tough economic times. That is probably unavoidable. But to cheat and steal from hard-working people 

who are down on their luck and are trying to do the right thing 

is just unacceptable. 

I am also concerned that we are beginning to learn that the practices of these companies may not be limited to bankruptcy cases. 

Millions upon millions of Americans have mortgages. They are told 

how much they owe, and they pay it. Month after month after 

month. They assume that the calculations of the mortgage servicing companies are correct and that their payments are properly 

credited. Very few people, of course, have the ability to analyze the 

amounts listed on their payment coupons or their annual statements and figure out if they are accurate. And if they start having 

trouble with their payments, most people can’t determine whether 

the fees and charges they are assessed are legitimate. 

So I commend the U.S. Trustee and the Chapter 13 trustees for 

putting more effort into scrutinizing these cases and the claims of 

these servicing companies, and I applaud the bankruptcy judges 

who have used their power to sanction companies and law firms 

23 

that engage in improper practices. The Department of Housing and 

Urban Development needs to do more to address these issues. But 

I think it is also pretty clear that changes in the law are needed 

as well to help the trustees and judges recognize and stop these 

tactics and to provide the kind of sanctions that are needed to 

deter them. I am prepared to work with you, Mr. Chairman on legislation, and I hope the Judiciary Committee will take the recommendations that come out of this hearing very seriously. 

Professor Porter, I assume you are familiar with the Best Practices document that the Chapter 13 trustees developed working 

with the mortgage servicers. Do you have any reaction to this? 

Does it go far enough to address the problem? 

Ms. PORTER. I think the Best Practices are very, very good, and 

if they were ever to be adopted, that would do a lot to address at 

least some of these issues. My concern, which Ms. Miller addressed 

in her testimony, is these practices have existed for almost 2 years 

now, and at this time no servicer has fully implemented them. 

There is a voluntary procedure that Ms. Miller led to get them on 

board. They have been coming to committee meetings for 4 and 5 

years now. And in the meantime, we have seen hundreds of thousands of families at risk of being overcharged as those years have 

elapsed. 

So I would encourage the Bankruptcy Rules Committee to adopt 

the model form that the Best Practices Committee has developed 

and to put it into the background rules so that it is incorporated 

into the rules, and then those rules actually need to be enforced so 

that we do not get excuses from servicers that the reason they 

don’t follow the rules is because the rules are not consistently enforced. It is a rule for a reason. The fact that you don’t get caught 

doesn’t change the fact that you didn’t follow the rule. 

But, generally, I approve of all of those practices, and I hope the 

Rules Committee will make some of them mandatory. 

Senator FEINGOLD. Thank you, Professor. 

Ms. Miller, I would be interested in your assessment of the legislative proposals and other suggestions contained in Professor Porter’s testimony since some involve the powers and duties of the 

Chapter 13 trustees. Do you think her suggestions make sense? 

Ms. MILLER. Yes, Your Honor, and—yes, sir. In fact, one of the 

things that Ms. Porter brings up is the trustees need to—we are 

actually working on teaching trustees, teaching the courts, teaching 

the U.S. Trustee about the mortgage servicer abuses and the systems. In fact, this summer, we are doing a full-day-long presentation for trustees and for debtors’ attorneys, teaching them how to 

analyze the escrow statements, teaching them how to analyze the 

proof of claim so that if there are issues, they will have the forms 

and the tools in order to begin the litigation themselves. I think 

that that will really help the process. We will have more trustees, 

more debtors’ attorneys on board. And I think that it speaks to Professor Porter’s words. 

Senator FEINGOLD. Thank you. 

Mr. Bailey, I understand that you have had conversations with 

Ms. Miller about the Best Practices and now think it may be easier 

to comply. Ms. Miller testified, of course, that the Best Practices 

24 

are now two years old, so one would hope that you would move a 

little more quickly. 

How long do you think it will take for Countrywide to come into 

compliance with the Best Practices? And will you inform the Committee once you have done that, or let us know, let’s say, within 

sixty days why you have not yet adopted the Best Practices? 

Mr. BAILEY. You have my commitment—unless there is some 

piece that I was not aware of based on my conversation with Ms. 

Miller, there was just a couple of little pieces that were still problematic. But we will be the first to fully adopt it and will do that— 

Senator FEINGOLD. How long will that take? 

Mr. BAILEY. We will do it in a month. 

Senator FEINGOLD. OK. 

Mr. BAILEY. And, specifically, one of the things that was encouraging, one of the things we were troubled by was it seemed like a 

lot of the steps required filing different motions or different notifications with the court, and we were concerned—ironically, we were 

concerned with costs that that might pile onto the process that ultimately gets borne by customers. And we were preferring rather 

just to send direct notifications. You have heard me say a lot. I 

hope to have more clarity and freedom to send notifications so that 

customers can know what the statuses are and improved state. But 

I think they have done a lot of great work. She informed me on 

making it so that they are finding a way that you could submit 

those without having to engage an attorney, even submit those, you 

know, in a more data base manner, which I think is terrific. Also, 

there was a key on converting simple interest loans over the fixedrate loans just because it was in bankruptcy, which we would not 

be contractually able to do, but they have taken that off the Best 

Practices list. 

So we are ready to go, will be the first one in. 

Senator FEINGOLD. OK. Thank you, Mr. Chairman. 

Chairman SCHUMER. Thank you. We are going to do a second 

round, and I would just say, Mr. Bailey, I have followed Countrywide for a while, and you are always adopting good practices after 

you are exposed. I would like to see some—I would like to see 

Countrywide take a step before there is a negative article, a negative statement in a newspaper or on TV, and say you are going to 

do something to move this process forward. 

But what I want to talk to you now about is your—and, by the 

way, my view, given the statements of Mr. Sambol and given the 

model that Countrywide seems to be using, once you adopt these 

Best Practices, if you actually abide by them—and I think it is good 

that you do—your profitability is going to go down because a huge 

percentage of your income and an increasing percentage is from 

many of these fees. And my guess is a good percentage of these fees 

won’t be allowed under the Best Practices. 

But let’s go to your internal review. You have indicated that 

Countrywide has completed a number of internal reviews that indicate an error rate of less than 1 percent for mistakes that adversely impact a borrower. I must say, given the track record, it 

is hard to believe the error rate is so low. I wouldn’t give you credit 

for it based simply on say-so. 

25 

So the first question I have is: How many—and you used the 

word plural. How many internal reviews were conducted? 

Mr. BAILEY. Just maybe to address your broader concern—and I 

will answer that question in just a second. We expect, whether it 

is your own concerns based on your perspective from the comments 

you made a minute ago, or others, we expect that—we don’t expect 

somebody to say, hey, so they did an internal review, that is great, 

then there is nothing to worry about. That is why the announcement today about we are going to hire a certified third party, let 

those results drive either—if it is worse than what we said, let that 

be known. If it is as we said, let that be known. But even if the 

error rate is what we said from this third party and they uncover 

further Best Practices—like one of the big Best Practices we have 

adopted—and I am not aware anybody else has—is how much review we are doing after we have given information to an attorney 

before they are going to submit it with the court. We did not used 

to do that. We relied on the attorney. We have changed that. We 

believe that should have a big impact on errors going forward. 

If that is not enough and this review reveals that there are further things we should do, we are going to be committed to doing 

those further things. We do not want to be associated with errors 

or unnecessary fees at all. 

Chairman SCHUMER. OK. So let’s go to these questions. How 

many internal reviews were conducted, since you used the word 

plural? 

Mr. BAILEY. There has been ongoing reviews for the last couple 

of months— 

Chairman SCHUMER. Mr. Bailey, I am going to ask you to answer 

my question. How many? 

Mr. BAILEY. Are you talking about types of reviews or accounts? 

Chairman SCHUMER. Well, I said ‘‘internal reviews.’’ I will get to 

accounts in a minute. How many reviews? You used the word plural. Most people would say, ‘‘We did an internal review.’’ You are 

saying, ‘‘We did internal reviews.’’ 

Mr. BAILEY. Sure. There have been at least three. 

Chairman SCHUMER. Three. OK. Who conducted them? 

Mr. BAILEY. Various groups within the company. 

Chairman SCHUMER. OK. That doesn’t really answer my— 

Mr. BAILEY. Well, it wasn’t— 

Chairman SCHUMER. Various employees of the company. 

Mr. BAILEY. Yes. 

Chairman SCHUMER. From the auditing division? 

Mr. BAILEY. One of them. 

Chairman SCHUMER. One. And what were the other two? 

Mr. BAILEY. From people within the—people that report to me. 

Chairman SCHUMER. OK. When were they conducted and completed? 

Mr. BAILEY. Over the last couple of months. 

Chairman SCHUMER. And why did you announce them today? 

Why did you announce the three-point plan today if they were finished—a while ago? Were they finished a while ago? 

Mr. BAILEY. Not all of them were finished. Some of them were 

done recently. 

26 

Chairman SCHUMER. OK. Any outside counsel, auditors, or experts involved, or was it totally internal? 

Mr. BAILEY. Internal so far, but, again, that is why we are— 

Chairman SCHUMER. I know what you said today. I am asking 

about the previous review because that is what you trumpeted. 

Why didn’t you engage anyone from the outside here? 

Mr. BAILEY. It is just a matter of time. It would be the next logical step that we would go to. 

Chairman SCHUMER. And why did these reviews only start a few 

months ago? 

Mr. BAILEY. Again, this is part of adopting the new practices, of 

having further reviews of these— 

Chairman SCHUMER. So would you say, sir, given everything you 

have said, that say 6 months ago, given all the changes you have 

made as of today, and you are proud of those, would you say that 

6 months ago you weren’t doing the right thing here? 

Mr. BAILEY. No, I wouldn’t go that far, because— 

Chairman SCHUMER. So why— 

Mr. BAILEY.—these reviews— 

Chairman SCHUMER. Wait, wait. Let me just ask— 

Mr. BAILEY.—didn’t only just deal with recent transactions. They 

dealt with transactions— 

Chairman SCHUMER. So I am asking, on the previous transactions—here you are, you are adopting new rules, you did your 

own review a few months ago. Today you are announcing an outside review. I think any good company practice would have had an 

outside review from the get-go. And, again, each one you seem to 

have to be pushed and prodded and moved along to take little steps 

in the right direction. 

Can you give me the reasoning why—can you tell me, do you 

think a year ago Countrywide was doing everything perfectly right? 

Or, in retrospect, were there things that they could have done better? 

Mr. BAILEY. I think the error rates were low. I think that the 

error rates we are quoting would be pretty close to what they were 

a year ago. We were doing lots of reviews a year ago. We are doing 

more reviews, again, trying to get the— 

Chairman SCHUMER. I didn’t ask that. I said overall. You are 

now adopting Best Practices. Does that mean your practices 

weren’t good 6 months ago? 

Mr. BAILEY. No, I don’t think that is true. 

Chairman SCHUMER. They were good? 

Mr. BAILEY. I think they were good 6 months ago. 

Chairman SCHUMER. OK. Let me ask you this: Were there samples used, or did you go over all the data in these last three reviews you did? 

Mr. BAILEY. Two different types. Some of them do the whole population of recent filings. Other ones did samples. 

Chairman SCHUMER. OK. And what does it mean, ‘‘mistakes 

were made’’? In other words, if a fee was supposed to be charged— 

and I might think and Ms. Miller might think and Professor Porter 

might think and Ms. Atchley might think that those fees were 

over—shouldn’t have been imposed at all or were much too high. 

27 

But if the fee charged was the fee proposed, I take it that wasn’t 

considered one of the 1 percent. That wasn’t a mistake. 

Mr. BAILEY. It would be a mistake to charge a fee that was either 

illegal or over an investor allowable. 

Chairman SCHUMER. I didn’t say ‘‘illegal.’’ I said a fee that we 

think shouldn’t have been offered—in other words, how do you define ‘‘mistake’’? You just said everything they did a year ago was 

just fine. So the only type of mistake is it said they were supposed 

to charge them $20 and they charged them $200. That would be 

a mistake. But if the actual $20 was charged, that would not be 

a mistake, right? 

Mr. BAILEY. If it was a legitimate and appropriate fee, that is 

right. 

Chairman SCHUMER. Right. And your version of what is a legitimate and appropriate fee is changing. The company’s version is 

changing by the very basis that you are adopting these Best Practices today and it will change your practice of what you did previously. 

Mr. BAILEY. Not the view of an error wouldn’t change. The effort 

to try to prevent an error. 

Chairman SCHUMER. So, in other words, these Best Practices 

were being followed all along? 

Mr. BAILEY. No, that is not what I said. 

Chairman SCHUMER. Well, I don’t quite get what you are saying, 

sir. I am asking you—first you tell me everything was fine a year 

ago. Then you are telling me that you are adapting Best Practices 

today. Then you are telling me what you did a year ago does not 

meet those Best Practices. Are the Best Practices an improvement? 

Mr. BAILEY. I think they will be an improvement in the whole 

industry, yes. 

Chairman SCHUMER. I didn’t ask that. I said for Countrywide. 

Mr. BAILEY. Yes, I think they will be— 

Chairman SCHUMER. So you have improved on what you are 

doing, but everything was fine a year ago. 

Mr. BAILEY. Well, I think any error that resulted in unnecessary 

fees— 

Chairman SCHUMER. We are not talking about errors. There is 

a difference. You, very cleverly I think, defined this as ‘‘mistake.’’ 

‘‘Mistake’’ is a flexible word. ‘‘Mistake’’ usually means there was a 

numerical error or something like that. I would say charging someone in bankruptcy an extra fee for, say, xeroxing, I would say that 

is wrong. But you wouldn’t qualify that as a mistake, right? 

Mr. BAILEY. We don’t have any fees—I know you didn’t mean— 

Chairman SCHUMER. I understand. If you did. What is a fee that 

you did charge? What is a fee that you charged Ms. Atchley? 

Mr. BAILEY. A fee to process a motion for relief. 

Chairman SCHUMER. OK. Do you think that is still correct to do? 

Mr. BAILEY. Yes. 

Chairman SCHUMER. So you don’t think that is a mistake. Does 

that conform with Best Practices, Professor Porter? 

Ms. PORTER. It would be appropriate to charge a fee for a motion 

provided that the fee actually represented the honest amount that 

Countrywide was charged by the attorney, not a flat fee that was 

negotiated with fee-sharing or— 

28 

Chairman SCHUMER. In the past, did you charge a flat fee, ever? 

Mr. BAILEY. We charge what the attorneys bill us. 

Chairman SCHUMER. No, that is not—she said that is not appropriate. 

Ms. PORTER. Most servicers, not just Countrywide, almost all 

servicers use flat-fee arrangements for things like motions for relief 

from stay. 

Mr. BAILEY. This is a great example of—what we would like to 

see is a central group establish what is the right fee for a motion 

for relief. Everybody charge the same thing. We would love that. 

Ms. PORTER. The right fee is what it costs the attorney in time 

and money to file the motion. 

Chairman SCHUMER. Did you in the past always charge what it 

cost the attorney? Or did you add something on so Countrywide 

made some money? 

Mr. BAILEY. No, never. 

Chairman SCHUMER. Never. 

Mr. BAILEY. There is no add-ons so Countrywide can make 

money on these fees—on a motion for— 

Chairman SCHUMER. OK. So the fee that you charged was only 

the cost— 

Mr. BAILEY. From the attorney. 

Chairman SCHUMER.—of doing it from the attorney. 

Mr. BAILEY. Yes. 

Chairman SCHUMER. OK. And were there ever any kinds of arrangements where the attorney got something back for using—that 

gave you something back for using them? 

Mr. BAILEY. No. 

Chairman SCHUMER. Never, OK. So there is no—the fee never 

benefited Countrywide at all. 

Mr. BAILEY. That is right. 

Chairman SCHUMER. How did you choose the attorney? 

Mr. BAILEY. Well, there are attorneys within the different States, 

and you look to people that have good practice. We keep scorecards 

on these attorneys. If they fail to perform, we will take action 

against them. So it is an evolving process. 

Chairman SCHUMER. Professor Porter and Ms. Miller, from your 

familiarity with some of the things Countrywide did, did they meet 

the Best Practices all the time? Most of the time? 

Ms. MILLER. No, Your Honor. 

Chairman SCHUMER. No. 

Ms. MILLER. No, sir, they didn’t. 

Chairman SCHUMER. They didn’t. And give an example. 

Ms. MILLER. Within the last few months, we had a case where, 

again, we paid the mortgage payment each time. It was Countrywide. We went to verify the mortgage at the end of the bankruptcy 

only to be told that they had not completed the RESPA escrow 

analysis, and they were demanding an additional $3,000 in order 

to have that mortgage be current. 

Chairman SCHUMER. Mr. Bailey, did your company do that? 

Mr. BAILEY. There is no doubt that we have gone through a period of confusion with escrow analysis. We have errors where we 

did not send escrow analysis when we should have. It— 

29 

Chairman SCHUMER. Was that a mistake or was that just something that you routinely did? 

Mr. BAILEY. That is a mistake. 

Chairman SCHUMER. Why is that a mistake? Did somebody in 

Countrywide violate your rules, or that was within the rules of 

Countrywide? 

Mr. BAILEY. Both. 

Chairman SCHUMER. OK. If the former, if it was within the rules, 

it is not a mistake. It is a bad policy. That is not how your audit 

defined ‘‘mistake.’’ You know that. 

Mr. BAILEY. I am not trying to be clever with this. Again, the 

whole idea is I am trying to get an external group to come in and 

audit these practices— 

Chairman SCHUMER. As of today, as of the date of this hearing, 

you announced an external group, right? 

Mr. BAILEY. Yes, but it will go back— 

Chairman SCHUMER. Until then, it was always an internal group, 

right? 

Mr. BAILEY. That review— 

Chairman SCHUMER. With no outside— 

Mr. BAILEY. That review is going to go back 3 years. We are not 

trying to say that whatever was— 

Chairman SCHUMER. Are you going to make that public? 

Mr. BAILEY. Yeah. 

Chairman SCHUMER. And are you going to hire an accredited auditing firm? 

Mr. BAILEY. Yes, and the second part was we are going to have 

an ombudsman, so people can— 

Chairman SCHUMER. By the way, are you— 

Mr. BAILEY.—turn to them to get reimbursed. 

Chairman SCHUMER. Are you willing to make these internal reviews public, these three? 

Mr. BAILEY. You know, I am—I don’t know the answer to that 

question. 

Chairman SCHUMER. Why wouldn’t you? 

Mr. BAILEY. Well, I wouldn’t be the one to decide that. 

Chairman SCHUMER. OK. Could you get us—we will send a letter 

to Mr. Sambol and Mr. Mozilo asking to make them public. Do you 

think they should be made public? 

Mr. BAILEY. I think what is best is to set the rules of the external audit so that everybody can agree— 

Chairman SCHUMER. No, but I didn’t ask you that question. 

Mr. BAILEY. I don’t know the answer to the question. 

Chairman SCHUMER. OK. Let me ask you this: One percent 

would be about 650 mortgages, right? Yet the trustee in Pittsburgh—I mean, in western Pennsylvania alone is looking at 300 

Countrywide cases. 

Mr. BAILEY. It is 293. That is a good question. 

Chairman SCHUMER. Excuse me. 

Mr. BAILEY. No, it is a good question because it all centers 

around the idea of what is an error and what is not an error. They 

are looking at those for a specific reason. We are working with 

them to sort through what is right and what is wrong. They have 

taken an interest in 10 of them. In the review of 293, they have 

30 

sorted down to 10 they want to look at, and we are cooperating 

with them to see if they believe that there were improper actions 

or errors or fees or anything else related to that. So it is not 293. 

Chairman SCHUMER. Ms. Miller and Professor Porter—and this 

is just a general question—does it seem credible to you that in 99 

out of 100 mortgages that Countrywide serviced that they did everything OK? 

Ms. PORTER. No. 

Chairman SCHUMER. No. And why do you as you that, Professor 

Porter? 

Ms. PORTER. Because I have looked at a sample of their claims, 

and I have looked at the way the servicers in general—and Countrywide is representative of the industry. I have looked at their actual filings. I have looked at 1,733 claims filed by mortgage 

servicers, and they do not meet the Best Practices. They contain errors. 

Chairman SCHUMER. So are you sort of surprised when Mr. Bailey says a year ago everything they were doing was just fine? 

Ms. PORTER. I am not surprised, because I already knew that to 

be untrue. 

Chairman SCHUMER. How about you, Trustee Miller? 

Ms. MILLER. Senator Schumer, unfortunately, with the failure of 

Countrywide to analyze their loans in compliance with RESPA, actually I would have to ask, No. 1, that the audits go back through 

every mortgage that is current in a Chapter 13 because if it is just 

once within the last 3 years, those people who are currently going 

to be discharged in the next 2 years are going to be the ones 

most— 

Chairman SCHUMER. Good point. Would you be willing, Mr. Bailey, to have this external audit go back further than 3 years? 

Mr. BAILEY. I think what our approach is is if we find, you know, 

any kind of errors that are beyond what we had said, we would absolutely go back further and include more people. 

Chairman SCHUMER. Well, you are going to find errors by your 

own admission of about 1 percent. So will you be willing to go back 

more than 3 years? 

Mr. BAILEY. We are going to do the initial audit the way that we 

have laid out, and we are going to look at the results. 

Chairman SCHUMER. Mr. Bailey, this is the point I am trying to 

make. You want us to believe it is a new company, and you are 

going forward, and you want to do everything right. But whenever 

you are asked something specific—to make a document public, to 

go back further because there are people still before the trustee 

whose audits go back further than 3 years—you don’t answer. And 

I am sure if there were three or four articles in newspapers or another hearing or two like this, you will come and put out a press 

release saying you are doing it, ‘‘Aren’t we great? ’’ 

That is not what we are looking for here. In my judgment—and 

this is my own judgment—Countrywide is more responsible for the 

mortgage mess and the ensuing problems than almost anybody 

else. There is a lot of blame to go around, but you are way at the 

top of the list. And I have met with Mr. Mozilo and I have studied 

Countrywide. And I was surprised when Bank of America actually 

bought you, knowing what I knew about Countrywide. And I think 

31 

Bank of America is a good company. I am not casting any aspersions on them. And here today, again, you seem to me to be sort 

of trying to do the least possible to ‘‘get away with it,’’ if you know 

what I mean. And I know you will find that a little harsh, but I 

would feel better if you said to me you are a high-up person, you 

are in charge of servicing, we are releasing these internal audits. 

I have no faith—I don’t think anyone would, certainly Ms. Atchley 

wouldn’t have faith in your own internal audit. 

By the way, she wouldn’t feel very good, even if it were 1 percent, if she were the 1 percent. But I doubt she is, because I think 

there are probably many more Mrs. Atchleys than the 1 percent. 

But that is the problem we face here. Why wouldn’t you go back 

further and audit 5 years or 6 years, since those are going to be 

some cases that are coming up now? 

Mr. BAILEY. So the question is why wouldn’t we go back further? 

Chairman SCHUMER. I asked you would you be willing to go— 

this was not my suggestion. It was someone who knows more about 

this than me: Trustee Miller. And I saw Professor Porter shaking 

her head. And so it seems to me to be a reasonable idea. You say 

you want to get to the bottom of it. You say you want to make corrections. They are saying a 3-year audit trail is not good enough. 

And you intend, I guess, to audit every one, right, like Trustee Miller asked, every mortgage? 

Mr. BAILEY. I think the point is to work on the details of that 

audit was something that, you know, was forthcoming. If the issue 

is you think we are hiding something by not going back 5 years, 

we will make it a 5-year audit. It is not—again, we are not— 

Chairman SCHUMER. Is 5 years adequate, Ms. Miller, do you 

think? 

Ms. MILLER. Sir, perhaps any mortgage that is currently in a 

Chapter 13— 

Chairman SCHUMER. How about any mortgage that is current in 

Chapter 13? 

Mr. BAILEY. I don’t think you mean current. Any mortgage— 

Ms. MILLER. Currently in— 

Mr. BAILEY.—that is in the process. 

Ms. MILLER. In Chapter 13. 

Chairman SCHUMER. In process, yes. 

Mr. BAILEY. Again, I think we have to start with a rational sample of that 5-year period and look at the results and see what practices or extrapolations are needed. 

Chairman SCHUMER. And one of the things I am thinking of 

doing is asking the FTC to do a review, because I think that you 

are—I don’t have much faith in your own—I have less faith in your 

own internal audit now after hearing the answers to the questions: 

no one from the outside, you can’t really tell me why or when it 

started, how deep it was, how big the sample was, won’t make it 

public. You can hire an auditor, and the more well known the auditor, the better. I hope it will be a well-known firm that has a reputation for independence and integrity, but we still may need an 

FTC audit. 

And I guess I would certainly suggest to Bank of America that 

they do their own review and they do it soon. 

32 

Let me ask you this: Based on the 1-percent mistake rate—‘‘mistakes’’—and given some of the problems in the past, has anyone 

been fired or disciplined based on the internal reviews? 

Mr. BAILEY. You know, I don’t have the information. 

Chairman SCHUMER. You don’t know of any? 

Mr. BAILEY. I don’t know that. 

Chairman SCHUMER. Wouldn’t you? You are in charge of this department. 

Mr. BAILEY. Not necessarily. If lower-level people would have 

been terminated, I wouldn’t necessarily know that. 

Chairman SCHUMER. OK. And let me ask you this: Will the future audit cover only bankruptcy cases, or will it cover all cases? 

Because there may be people who were being charged these fees, 

the mortgage is already signed, but who are not yet in bankruptcy, 

but who are having trouble. 

Mr. BAILEY. I am not sure I follow that. 

Chairman SCHUMER. The audit, you know, that you said you 

would do, you said you would do them of all cases already in bankruptcy. What about other mortgages that were issued where fees 

may be being charged post-mortgage that the mortgagor was not 

aware of, they may be related to acts of foreclosure, they may be 

related to other issues. Could we get the audit expanded to those 

types of cases? 

Mr. BAILEY. That sounds like an extremely broad audit. I am not 

sure what the focus of it is. 

Chairman SCHUMER. OK. I will write a letter. I will put in my 

letter to Mr. Mozilo and Mr. Sambol that request, and maybe we 

will get an answer to that. 

I have a few more questions, but I will hand it over to Senator 

Sessions for a few minutes because he has been very nice. He said 

I could go as long as I wanted. But before I do, could I just ask 

Professor Porter and then Trustee Miller to comment on Mr. Bailey’s general testimony here, just any comments you might have? 

Ms. PORTER. The first comment I would make is that I will emphasize again to the Committee that I am very pleased that Mr. 

Bailey is going to be making some much needed and long overdue 

improvements. But I am concerned about the millions of families 

whose loans are serviced by Wells Fargo, by Ocwen, by Litton, by 

all the other companies that are not here today, and that is why 

I believe we need to do something systemic. I think Countrywide 

is a good place to start, but I am concerned that without incentives, 

the other servicers will not follow. 

Chairman SCHUMER. Right. And, Professor Porter, we intend to 

do that, either legislatively adopt Best Practices, maybe go beyond 

the Best Practices, but we intend to actually do something that is 

required by all companies, not on a voluntary basis. 

Do you have anything to say, Trustee Miller? 

Ms. MILLER. I also am encouraged by Mr. Bailey saying that he 

will implement the Best Practices within the next month, and we 

will do everything that we can with the Administrative Office and 

the Courts and the U.S. Trustee Program and our organization to 

make sure they have the forms to get that done. 

I appreciate that Mr. Bailey is beginning to look at the loans in 

bankruptcy, but I guess I just want to stress to Mr. Bailey that the 

33 

loans that are going to be most at issue and the debtors that are 

going to be hurt the most are those that are closest to receiving 

their discharge, because without the RESPA analysis, we in the 

bankruptcy system do not have the ability and the time to perhaps 

pay the taxes and insurance that were missed by those prior escrow analyses. And to not do those first and do the current ones, 

I think that actually those older loans need to be done. Those need 

to be disclosed. They need to be sent to the trustee so that we can 

work with the debtors, work with Countrywide to try and resolve 

those, so that the people don’t come out of the bankruptcy and immediately get an order of foreclosure from the court. 

Chairman SCHUMER. What do you think of that, Mr. Bailey? 

Mr. BAILEY. I think that is a very good suggestion. 

Chairman SCHUMER. Good. I appreciate that. 

Ms. Atchley, do you want to say anything here? I know you have 

been listening. But you don’t have to. Only if you want to. 

Ms. ATCHLEY. I don’t think I have anything else to say. 

Chairman SCHUMER. Thank you. 

Senator Sessions? 

Senator SESSIONS. Well, Mr. Bailey, Ms. Atchley is one of those 

that had unfair effects of errors in bankruptcy filings, and I suspect 

there could be more than 1 percent. And you see the pain that it 

has caused her. The time and effort that requires often for a bankruptcy court or bankruptcy trustees to get it straight and work it 

out, and it is—I just think it is an unacceptable thing for lawyers 

to not treat the bankruptcy filings with the seriousness I think 

they deserve. I think that is a big part of it. 

Ms. Miller, the bankruptcy bill contained a new provision—the 

2005 bill—on attorney sanctions. That provision can be applied to 

these attorneys that do not document their proof of claims or don’t 

confirm the information filed as part of the bankruptcy position or 

filed incorrectly. In fact, that act, which strengthened the law, said, 

‘‘The signature of an attorney on a petition, pleading, or written 

motion shall constitute a certification that the attorney has performed a reasonable investigation into the circumstances, determined that the petition is well grounded in fact and warranted by 

existing law to be a good-faith argument.’’ ‘‘Warranted by existing 

law to be a good-faith argument.’’ And then the sanctions that are 

available, a court may award a debtor all reasonable costs, including attorneys’ fees, in contesting the motion filed by a party in interest. But, in addition, the court has an inherent power, does it 

not, to sanction attorneys as options of the court for failure to adhere to high standards. 

So under current law, it seems to me we have got some teeth 

here. Do you feel like that that could be more effectively utilized? 

Ms. MILLER. Senator Sessions, if I am remembering the specific 

code section right, I think it actually references ‘‘petition’’ instead 

of ‘‘claim.’’ And the problem is that that specific code— 

Senator SESSIONS. I believe it says ‘‘petition, pleading, or written 

motion.’’ 

Ms. MILLER. OK. 

Ms. PORTER. Then the question is whether or not a claim is a 

pleading. Certainly, inappropriate, unwarranted, groundless moVerDate Aug 31 2005 09:35 Nov 25, 2008 Jkt 045477 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\44987.TXT SJUD1 PsN: CMORC
34 

tions for relief from stay, which we have seen plenty of, would be 

a pleading, but the— 

Senator SESSIONS. So you think there is some doubt in the minds 

of a bankruptcy judge— 

Ms. PORTER. Absolutely. 

Senator SESSIONS.—that a proof of claim— 

Ms. MILLER. Yes, sir, I do believe that. 

Ms. PORTER. And that later sentence you read, the second sentence, only mentions petition. It does not contain the broader language about pleading, and so I do think there is—that law is not 

being applied currently by bankruptcy courts that I am aware of 

to cover creditors’ claims. 

Senator SESSIONS. So basically then some of the actions would be 

covered. The proof of claim may not be covered, which is a serious 

part of what you found to be an error. Is that right, Professor Porter? 

Ms. PORTER. Yes. 

Senator SESSIONS. So it falls simply them to the inherent power 

of the bankruptcy judge to discipline lawyers who fail to live up to 

the high standard. Do you think clarifying legislation would be 

helpful there? 

Ms. MILLER. Yes, I do, Senator Sessions. The other thing, if I 

could just continue, when we bring litigation against the mortgage 

servicers, there tends to be always an argument as to whether or 

not the trustee has standing to bring such actions and whether or 

not the bankruptcy court has the authority over the servicer to regulate the post-petition costs and fees and regulate their practices. 

And that is regularly brought up, as far as I know, in every litigation that has been brought up. And I think that one of the things, 

if there is going to be some legislation enacted, I really believe that 

we need to ensure that the mortgage servicing industry knows that 

they are subject to the bankruptcy court for the post-petition practices of their mortgages. 

Senator SESSIONS. That is very interesting, and it is something 

I think we should consider, because to me a bankruptcy court depends on the professionalism of the analyst. The truth is these are 

not trials, often no witnesses. Often it is just petitions filed and accepted, and the debt is adjudicated by clerks and judges sign orders 

and lawyers have paralegals that fill out petitions. And so it does 

seem to me that we need to ratchet up the emphasis we give on 

accuracy in these cases. 

Now, it has been said several times that the Best Practices have 

been out for 2 years, but according to your statement, I believe, Ms. 

Miller, in the fall of 2007 the committee members met in face-toface discussion with various members of the judiciary and debtor 

counsel to attempt to finalize Best Practices. When was it, in fact, 

finalized? 

Ms. MILLER. They have just been finalized. The provisions—the 

Best Practices, we actually—the ones that currently stand are the 

ones that have been there since May of 2005. What we have done 

is we have actually taken away some of the Best Practices. There 

was a provision regarding daily simple interest that Mr. Bailey 

talked about where they would convert the loans. There was a 

question about using the flat fees and the Fannie Mae step level 

35 

billing that the debtors’ attorneys had an issue with. But the notice 

provisions, the RESPA requirements to be filed each year, those 

have been in place and have been discussed and part of the Best 

Practices since May of 2005. 

Senator SESSIONS. It seems to me a good Federal bankruptcy 

court to be effective has got to maintain certain standards and 

have clarity in its rules and procedures. But is it not true, Ms. Miller, that there are some that in certain areas of fees and penalties 

and costs, there are disagreements or there is uncertainty in the 

law as to what is appropriate? 

Ms. MILLER. That is exactly right. 

Senator SESSIONS. And to the extent to which that would be 

clarified normally by judicial interpretation and we move on, and 

if a lawyer persists in claiming fees that the court has clearly stated are inappropriate would be an abuse of their process, would it 

not? 

Ms. MILLER. Yes, it would, sir. 

Senator SESSIONS. So I think we need to work on that, although 

you don’t want to intimidate lawyers from filing legitimate claims 

if they have a basis for it. Debtor lawyers sue the banks and the 

credit card companies and claim all kinds of things. Plaintiff lawyers file 10-page complaints alleging nine different allegations of 

misconduct, and maybe only one is good. And they think that is 

perfectly all right. 

But I do think in bankruptcy court, we need as much clarity as 

we can have, and we don’t need having to be litigating day after 

day after day over the same issues. How can we clarify that? You 

and Professor Porter could maybe comment on that. How can we 

clarify that? 

Ms. PORTER. I think that is where there is really a need for congressional action, because I have given my presentation over a 

dozen times—probably closer to two dozen times—in the last 6 

months. I have talked to the bankruptcy judges on several occasions. I have talked to the U.S. Trustee Office. I have talked to the 

panel trustees. I have talked to the debtors’ counsel. I am tired of 

talking. And what I have come to realize is in every group I get 

the same feedback: ‘‘Professor Porter, this is a really serious problem. Thank you for documenting it. Those findings sound like what 

we see in reality.’’ And then comes my favorite question: ‘‘Shouldn’t 

this be somebody else’s problem up and down the line? ’’ So the 

trustees say it—you know, the U.S. Trustee encourages the panel 

trustees; the panel trustees encourage the debtors; the debtors encourage the creditors to get it right the first time; the bankruptcy 

court said they can’t take action, they don’t have jurisdiction. 

So what I am really encouraging this Committee to do is to put 

the procedures into the Bankruptcy Code that Ms. Miller has identified and into the bankruptcy rules and create damages or enforcement provisions that are strong enough that we don’t have 

servicers saying, ‘‘The reason I didn’t comply with that is because 

it wasn’t consistently enforced.’’ 

Chairman SCHUMER. And if my colleague would yield, that is just 

what we intend to do. At least just that. We may do more. 

Senator SESSIONS. But I think we do need to listen to the courts 

and the experience of the litigant, the litigation, and what comes 

36 

realistic and effective. But I absolutely think that if this is going 

to remain confused, the country would benefit by clarity so he can 

be held accountable, or Countrywide can, when it is absolutely 

clear. If there is some split of authority in claiming some fee and 

he has got a court somewhere that says he can claim it, it is hard 

to accuse him of abuse of process for claiming that fee. 

I would note, Ms. Miller, that just looking at the bankruptcy filings, in 2003 there were a total of 1.6 million; in 2007, even with 

an increase, it was 850,000. So I would just suggest that bankruptcy trustees have fewer cases. And we expect you guys to be 

alert, and the judges have got fewer cases, and we need to be giving attention to these matters. 

I thank you for highlighting it, Senator Schumer. This is a Federal court. We have set the basic rules for it. If there are imperfections in the rules we passed or we need to go further, let’s do so. 

But let’s remember, Professor Porter, that—you know, you said 

that it shifts the burden to the creditor, but really when you go to 

court and you are asking to wipe out hundreds of thousands of dollars in debt so you don’t have to pay it, you have got burdens too. 

These are not helpless people. They have got a lawyer, and the 

lawyer is supposed to be filing this and making sure that their clients’ interests are protected, and that they should not allow a claim 

to go forward if they don’t see the note and don’t have proof of the 

debt. 

Ms. PORTER. And I think some clarification of the rules and the 

law will motivate debtors’ attorneys to do their jobs properly. 

Senator SESSIONS. Thank you. 

Chairman SCHUMER. Well, I look forward to working with you, 

Senator Sessions, on that. 

I want to thank our panel. I think they have moved us in a very 

good direction. I want to thank you, Ms. Atchley. You may be in 

part responsible for some laws being adopted that would prevent 

other people from having to go through what you did. And I want 

to thank everybody, and I know, Mr. Bailey, this is not an easy 

hearing for you, so I appreciate your being here as well. 

The panel is dismissed. 

Chairman SCHUMER. We have a second witness, and that is 

Trustee Cliff White. Mr. White, we are running late 

Mr. White, we are running late because of the votes. First, let 

me introduce you. Clifford White III is Director of the Executive 

Office for United States Trustees. He oversees the operation of the 

U.S. Trustee Offices nationwide. He is a former AUST, Assistant 

U.S. Trustee, and Deputy Attorney General with Justice. 

Mr. White, I asked Senator Sessions. Neither of us have questions of you. We have been running late. Your entire statement is 

going to be read into the record. We knew you could not sit on the 

first panel because of the ongoing litigation, so I think I am just 

going to thank you, and we may submit some written questions. 

Senator SESSIONS. Mr. Chairman? 

Chairman SCHUMER. Senator Sessions, go right ahead. 

Senator SESSIONS. I would like to thank Mr. White. The trustee 

does have a serious responsibility and was created for the purpose 

of trying to provide—ensuring integrity in the system. Isn’t that 

right, Mr. White? 

37 

STATEMENT OF CLIFFORD J. WHITE III, DIRECTOR, 

EXECUTIVE OFFICE FOR UNITED STATES TRUSTEES 

Mr. WHITE. Absolutely. 

Senator SESSIONS. And you all have filed, what, 74,000 enforcement claims and have stepped up on this Countrywide matter, and 

I appreciate that. 

Do you think there is any ambiguity—the one question I would 

ask you—about a proof of claim being covered by the sanctions 

amendment that we discussed? 

Mr. WHITE. There are clearly sanctions that can be attached to 

filing an inaccurate proof of claim. Now, much of the information 

you have gotten in the previous panel is very helpful and valid 

with regard to different practices and availability of sanctions and 

so forth. But when you pull it all back, what we are looking at, certainly what the U.S. Trustee is focused on in the litigation that I 

described in the testimony, is when inaccurate information is being 

filed by a creditor, inaccurate information which can be harmful to 

the debtor, it can be harmful to the creditor, and it certainly is 

harmful to the integrity of the system. And we have forcefully argued that we have the authority to bring those cases, and we believe the court has authority to forcefully impose sanctions to remedy those abuses. 

So we think we have had some success. We are continuing despite vigorous challenges made against us by certain mortgage 

servicers. We are going to continue down this road, and we think 

we will continue to have some success. 

[The prepared statement of Mr. White appears as a submission 

for the record.] 

Chairman SCHUMER. Mr. White, you have our backing to do that, 

and I think you are doing a good job there, and we appreciate your 

testimony. 

Mr. WHITE. Thank you very much. 

Chairman SCHUMER. Before I conclude, I would like to do a few 

things: ask unanimous consent to enter into the record a statement 

by Senator Grassley; a hard copy of Professor Porter’s study entitled ‘‘Misbehavior and Mistake in Bankruptcy Mortgage Claims’’; 

hard copies of the slides used during Professor Porter’s testimony; 

and a series of newspaper reports documenting the scope of the 

problem behind today’s hearing. 

With that, I want to thank the entire panel. I want to thank everybody for being here. This is going to start us off on a very serious road. I am also going to leave the record open for 1 week so 

that we can submit written questions of you, Mr. White, or of any 

of our previous panelists. 

Thank you, and I thank Senator Sessions for his interest and, as 

usual, his erudition in matters such as these. 

The hearing is dismissed. 

[Whereupon, at 4:38 p.m., the Subcommittee was adjourned.] 

[Questions and answers and submissions for the record follow.] 

38 


44987.001
39 


44987.002
40 


44987.003
41 


44987.004
42 


44987.005
43 


44987.006
44 


44987.007
45 


44987.008
46 


44987.009
47 


44987.010
48 


44987.011
49 


44987.012
50 


44987.013
51 


44987.014
52 


44987.015
53 


44987.016
54 


44987.017
55 


44987.018
56 


44987.019
57 


44987.020
58 


44987.021
59 


44987.022
60 


44987.023
61 


44987.024
62 


44987.025
63 


44987.026
64 


44987.027
65 


44987.028
66 


44987.029
67 


44987.030
68 


44987.031
69 


44987.032
70 


44987.033
71 


44987.034
72 


44987.035
73 


44987.036
74 


44987.037
75 


44987.038
76 


44987.039
77 


44987.040
78 


44987.041
79 


44987.042
80 


44987.043
81 


44987.044
82 


44987.045
83 


44987.046
84 


44987.047
85 


44987.048
86 


44987.049
87 


44987.050
88 


44987.051
89 


44987.052
90 


44987.053
91 


44987.054
92 


44987.055
93 


44987.056
94 


44987.057
95 


44987.058
96 


44987.059
97 


44987.060
98 


44987.061
99 


44987.062
100 


44987.063
101 


44987.064
102 


44987.065
103 


44987.066
104 


44987.067
105 


44987.068
106 


44987.069
107 


44987.070
108 


44987.071
109 


44987.072
110 


44987.073
111 


44987.074
112 


44987.075
113 


44987.076
114 


44987.077
115 


44987.078
116 


44987.079
117 


44987.080
118 


44987.081
119 


44987.082
120 


44987.083
121 


44987.084
122 


44987.085
123 


44987.086
124 


44987.087
125 


44987.088
126 


44987.089
127 


44987.090
128 


44987.091
129 


44987.092
130 


44987.093
131 


44987.094
132 


44987.095
133 


44987.096
134 


44987.097
135 


44987.098
136 


44987.099
137 


44987.100
138 


44987.101
139 


44987.102
140 


44987.103
141 


44987.104
142 


44987.105
143 


44987.106
144 


44987.107
145 


44987.108
146 


44987.109
147 


44987.110
148 


44987.111
149 


44987.112
150 


44987.113
151 


44987.114
152 


44987.115
153 


44987.116
154 


44987.117
155 


44987.118
156 


44987.119
157 


44987.120
158 


44987.121
159 


44987.122
160 


44987.123
161 


44987.124
162 


44987.125
163 


44987.126
164 


44987.127
165 


44987.128
166 


44987.129
167 


44987.130
168 


44987.131
169 


44987.132
170 


44987.133
171 


44987.134
172 


44987.135
173 


44987.136
174 


44987.137
175 


44987.138
176 


44987.139
177 


44987.140
178 

Æ 


44987.141