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MORTGAGE SERVICING: AN EXAMINATION 

OF THE ROLE OF FEDERAL REGULATORS 

IN SETTLEMENT NEGOTIATIONS AND THE 

FUTURE OF MORTGAGE SERVICING STANDARDS 

JOINT HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL 

INSTITUTIONS AND CONSUMER CREDIT 

AND THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

JULY 7, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–44 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

JAMES B. RENACCI, Ohio, Vice Chairman 

EDWARD R. ROYCE, California 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JEB HENSARLING, Texas 

PATRICK T. MCHENRY, North Carolina 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

CAROLYN B. MALONEY, New York, 

Ranking Member 

LUIS V. GUTIERREZ, Illinois 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

GREGORY W. MEEKS, New York 

STEPHEN F. LYNCH, Massachusetts 

JOHN C. CARNEY, JR., Delaware 

(IV) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

RANDY NEUGEBAUER, Texas, Chairman 

MICHAEL G. FITZPATRICK, Pennsylvania, 

Vice Chairman 

PETER T. KING, New York 

MICHELE BACHMANN, Minnesota 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEPHEN LEE FINCHER, Tennessee 

MICHAEL E. CAPUANO, Massachusetts, 

Ranking Member 

STEPHEN F. LYNCH, Massachusetts 

MAXINE WATERS, California 

JOE BACA, California 

BRAD MILLER, North Carolina 

KEITH ELLISON, Minnesota 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

July 7, 2011 ....................................................................................................... 1 

Appendix: 

July 7, 2011 ....................................................................................................... 71 

WITNESSES 

THURSDAY, JULY 7, 2011 

Calhoun, Michael, President, Center for Responsible Lending (CRL) ................ 54 

Date, Raj, Associate Director for Research, Markets, and Regulations, Consumer Financial Protection Bureau, U.S. Department of the Treasury .......... 16 

Pearce, Mark, Director, Division of Depositor and Consumer Protection, Federal Deposit Insurance Corporation ................................................................... 14 

Stevens, David H., President and CEO, Mortgage Bankers Association (MBA) 52 

Strange, Hon. Luther, Alabama Attorney General ............................................... 18 

Williams, Julie L., First Senior Deputy Comptroller and Chief Counsel, Office 

of the Comptroller of the Currency ..................................................................... 12 

APPENDIX 

Prepared statements: 

Calhoun, Michael .............................................................................................. 72 

Date, Raj ........................................................................................................... 86 

Pearce, Mark ..................................................................................................... 95 

Stevens, David H. ............................................................................................. 106 

Strange, Hon. Luther ....................................................................................... 123 

Williams, Julie L. ............................................................................................. 128 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Capito, Hon. Shelley Moore: 

Written statement of the Board of Governors of the Federal Reserve 

System ........................................................................................................... 146 

Written statement of the National Association of REALTORS® ................. 171 

Neugebauer, Hon. Randy: 

E-mail exchanges and charts ........................................................................... 176 

Hinojosa, Hon. Ruben: 

Supplemental Directive 11–06 dated July 6, 2011, ‘‘Making Home Affordable Program—Updates to Servicer Incentives’’ ........................................ 209 

Calhoun, Michael: 

Written responses to questions submitted by Representative Baca ............ 213 

Date, Raj: 

Written responses to questions submitted by Representative Baca ............ 214 

Written responses to questions submitted by Representative Luetkemeyer ............................................................................................................. 215 

Williams, Julie L.: 

Written responses to questions submitted by Representative Baca ............ 216 

(1) 

MORTGAGE SERVICING: AN EXAMINATION 

OF THE ROLE OF FEDERAL REGULATORS 

IN SETTLEMENT NEGOTIATIONS AND THE 

FUTURE OF MORTGAGE SERVICING 

STANDARDS 

Thursday, July 7, 2011 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, AND SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittees met, pursuant to notice, at 10:03 a.m., in 

room 2128, Rayburn House Office Building, Hon. Shelley Moore 

Capito [chairwoman of the Financial Institutions and Consumer 

Credit Subcommittee] presiding. 

Members present from the Subcommittee on Financial Institutions and Consumer Credit: Representatives Capito, Renacci, 

Royce, Manzullo, Hensarling, McHenry, Pearce, Luetkemeyer, 

Huizenga, Duffy, Grimm, Canseco, Fincher; Maloney, Ackerman, 

Hinojosa, Baca, Miller of North Carolina, Scott, and Carney. 

Members present from the Subcommittee on Oversight and Investigations: Representatives Neugebauer, Fitzpatrick, Posey, 

Hayworth; Capuano, Waters, and Himes. 

Ex officio present: Representatives Bachus and Frank. 

Also present: Representatives Stivers, Schweikert, Garrett; Perlmutter and Green. 

Chairwoman CAPITO. This hearing will come to order. 

I would like to thank my ranking member, Mrs. Maloney, as well 

as the chairman of the Oversight and Investigations Subcommittee, 

Chairman Neugebauer—I am sure he will be here in just a few 

minutes—and his ranking member, Mr. Capuano, for their cooperation in organizing this joint hearing. 

Many Members have expressed a great interest in having a hearing on the topic of mortgage servicing. And it is my hope that today’s hearing will provide a forum for Members to cover a multitude of subjects involving mortgage servicing. 

We were all shocked to hear the news last fall of allegations that 

major mortgage servicers had engaged in robo-signing and falsifying documents in order to expedite foreclosures. 

Last November, the Housing and Community Opportunity Subcommittee held a hearing on deficiencies in the foreclosure process. 

2 

In the months following, Federal regulators have embarked upon 

an effort to assess the damage caused by these irresponsible actions, determine the need for national servicing standards, and if 

appropriate, establish penalties for these institutions. 

Today’s hearing is an opportunity for Members to question regulators that have been at the forefront of these negotiations. As 

these regulators consider remedies for the problems, it is important 

that we first identify who has been harmed by the actions of the 

servicers. 

A survey by the regulators of the 2,800 mortgage foreclosure files 

demonstrated that there were, indeed, weaknesses in the procedures, but failed to show evidence that borrowers had been significantly harmed. 

It is my hope that the consent orders agreed to by the agencies 

and the servicers will provide further clarity about the extent of 

the harm to borrowers, as well as improved systems. 

Some have raised questions about the role of the Consumer Financial Protection Bureau (CFPB) in the ongoing negotiations with 

servicers and the State attorneys general. Our witnesses from 

these respective parties can add further clarity on the role that 

each had played in these negotiations. 

Recent news accounts indicate that a monetary settlement is immanent between major servicers and the State attorneys general. 

I am interested to hear from our witnesses if all State attorneys 

general are active in these negotiations. 

If the settlement is reached, there must be strict oversight as to 

how the money is distributed and what classifies as harm for borrowers. The proposed settlement between these parties will have a 

direct impact on servicing standards going forward. 

Our second panel will provide information about steps that 

servicers have already taken to address deficiencies in their systems, as well as the need for national servicing standards. 

The input of both industry and consumer representatives is critical in this endeavor. A national servicing standard will have an effect on the mortgage market and we must work together to ensure 

that new servicing standards, coupled with the proposed qualified 

residential mortgage standard and other efforts, do not unintentionally impede the recovery of the mortgage market. 

I would like to recognize the ranking minority member of the Financial Institutions Subcommittee, the gentlelady from New York, 

Mrs. Maloney, for the purpose of giving an opening statement. 

Mrs. MALONEY. Thank you, Chairwoman Capito and Chairman 

Neugebauer. And I welcome all of the witnesses today. 

Last fall, reports emerged that mortgage servicers were taking 

shortcuts in processing foreclosure notices and violating the law. 

Specifically, it was reported that servicers were using inadequate 

documentation to foreclose some borrowers. 

And it was revealed that many servicers were engaging in large 

scale foreclosures without personal knowledge of the condition of 

the loan or the borrower’s independent financial circumstances. 

In addition, we now know that lenders forged signatures and improperly notarized documents in the rush to foreclose on homeowners. These allegations led to a 50-State investigation into the 

matter of robo-signing and forged signatures. 

3 

And just in April, the Federal regulators entered into a consent 

decree with the largest servicers requiring them to submit their action plans for foreclosure mitigation. I understand they are due tomorrow or this week. 

This is a step in the right direction for the industry, and most 

importantly for the consumers and our overall economy. But rather 

than holding a hearing about the need for servicing standards and 

about intervention on behalf of the Federal regulators, many of my 

colleagues appear more interested in defending the status quo, and 

suggesting that the States and the Federal regulators stand down. 

I thought that no one disputed that things need to change in the 

servicing industry. Because from where I sit, it is clear that left to 

their own devices, many servicers have engaged in abusive and unfair behavior and have literally violated the law. And they would 

have continued to do that if there had not been exposure. 

Yet, my colleagues are eliminating Federal programs such as 

HAMP, which was very successful in helping people renegotiate 

their loans. But I understand there is a movement that they may 

extend the HAMP program for a period of time. I hope it is true. 

And questioning Federal intervention in the industry, the same industry that got us into the mess to begin with. 

My friends on the other side of the aisle are essentially criticizing the State AGs for investigating these matters, even though 

they are investigating potential violations of State law with respect 

to foreclosure processes and rules. 

I had assumed the party of States’ rights would support their 

right to do this, not say their actions are inappropriate. Are they 

really saying that the servicers shouldn’t be held accountable for 

violating laws of all 50 States and the District of Colombia? 

States such as Illinois, California, Utah, and Connecticut are engaging in independent investigations, separate and apart from the 

settlement negotiations, because they too recognize the need to intervene. 

My colleagues are entitled to question things, but they are certainly not entitled to their own facts. And the servicing issue has 

certainly been a problem in the whole recovery. 

For me, the hearing is not about the role of the CFPB during settlement negotiation. It should be about allegations of abuse in the 

mortgage servicing industry. These abuses are yet one more reason 

why we need the CFPB and why it has assembled a team that will 

work on servicing standards once it opens its door on July 21st. 

For me, this hearing is about making sure that this type of abuse 

never happens again. My time has expired. I look forward to your 

testimony. 

Chairwoman CAPITO. Thank you. 

I would like to recognize the chairman of the Oversight Subcommittee, Mr. Neugebauer, for the purpose of an opening statement. 

Chairman NEUGEBAUER. Yes. Thank you, Chairwoman Capito. 

We are holding this important hearing today to better understand the appropriate role of regulators in addressing the failings 

of some of the Nation’s largest mortgage servicing firms. 

There is no doubt that documentation, internal controls, and 

processing were seriously deficient at some of the Nation’s servVerDate Nov 24 2008 18:24 Mar 30, 2012 Jkt 067939 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\67939.TXT TERRIE
4 

icing firms, and that remedial steps to secure these deficiencies are 

necessary. As a result, the OCC, the Fed, and the OTS entered into 

a consent agreement with the servicers to address many of these 

weaknesses in the mortgage foreclosure process in April of this 

year. 

While I will not comment directly on the regulatory settlement, 

it is worth noting that prudential regulators led investigations of 

the mortgage servicers and to remediate deficiencies seems appropriate. 

Unfortunately, the State attorneys general and political appointees at the Department of the Treasury and the DOJ are pursuing a separate, more far-reaching settlement. Participation of political appointees, especially that of Elizabeth Warren at the CFPB, 

an agency with no regulatory or enforcement authority, raises serious concerns about the settlement process. 

When political appointees involve themselves in enforcement 

matters, that may pressure regulatory agencies to advance a particular agenda. 

The breadth and the terms of the term sheets presented to the 

mortgage servicers, which includes a potential $20 billion settlement—we are hearing that could be a $60 billion settlement—for 

a principal reduction fund, magnifies these concerns that the Administration and some State AGs are attempting to legislate 

through enforcement. 

Speaking more directly, a review of the term sheet brings some 

words to mind including ‘‘coercion’’ and ‘‘extortion.’’ 

Even yesterday, the New York Post reported that the principal 

reduction fund, as I said, could be nearly $60 billion. The settlement proposal requires the resuscitation of policies and programs 

that have not worked or that Congress has explicitly rejected. For 

example, the proposed term sheet seeks to revive HAMP, a failed 

Administration initiative that requires principal write-downs, a 

policy rejected both in the House and the Senate. 

All of this would be funded by the mortgage servicers, with the 

tab in the tens of billions of dollars. 

While restitution for victims specifically harmed by misconduct is 

completely appropriate, there is no evidence that borrowers have 

been significantly harmed by the servicers’ actions. In fact, the 

interagency review conducted by the Fed and the OCC found that 

in all of the 2,800 mortgage files that were examined, the borrowers were seriously delinquent and the servicer had the legal authority to foreclose. 

It would be interesting to hear from some of the witnesses as to 

why a large scale principal write-down fund would be appropriate 

punishment, especially since there is no evidence that servicer malfeasance caused financial hardship to victims. 

Thank you, Chairwoman Capito, for this hearing. 

Chairwoman CAPITO. Thank you. 

I would like to recognize the ranking member of the full committee, Mr. Frank, for 3 minutes. 

Mr. FRANK. First, let us be clear why we are so concerned about 

this, because there are two reasons. The first is a consideration of 

fairness for individuals. My colleague has just said that there is no 

5 

evidence that anyone was harmed by the failure of the servicers to 

follow the law. 

Usually, we hold people to a standard of following the law without a burden of proof on us to show specific harm in specific cases. 

In fact, the servicers as a group are quite culpable here. 

First, many of them were engaged in making loans that shouldn’t 

have been made. And then they compounded that by being inadequately staffed to deal with the problems that arose. I have seen 

few things done as incompetently as the role of the mortgage 

servicers. And to exonerate them and say, ‘‘no harm, no foul,’’ I 

think is inappropriate. 

I also was surprised to hear my colleague be so critical of political appointees. For Members who are elected to office and run 

every 2 years to talk about ‘‘political’’ as if that was something bad 

seems to me quite inconsistent with our mandate. 

The notion that political appointees are somehow not to be treated as serious policymakers is not only inaccurate; that is called ‘‘democracy.’’ I would say, and this hearing will, of course, make it 

clear, if people really believe that things should be handled totally 

non-politically, they should not ask that 535 politicians make the 

decisions, which is us. 

I would also say I was surprised to hear this criticism of the 

State attorneys general. I shouldn’t say I was surprised, because it 

has been a constant theme in this committee, where there has unfortunately been a party difference on respect for the role of the 

States. It is a kind of a total reversal. 

Conservatives used to talk about States’ rights, but there has 

been a consistent move on the part of many on the other side to 

diminish and minimize the role of the State. Finally, let’s be very 

clear again that we are doing this not just because of individuals, 

but the mortgage problem, the combination—and a lot of people 

were responsible. A lot of people were guilty. 

At this point, though, a failure to respond more appropriately is 

causing great harm economically. And one of the things we need 

to do to improve the rate of recovery—we are in a recovery, but it 

is much too slow—is to deal with this problem of the rate of foreclosures. 

So I very much look forward to this testimony. But I would reject 

the notion that somehow it is inappropriate for policymakers, people who have elections and are appointed by people who are elected, including the State attorneys general and high ranking Federal 

officials, to be involved. 

And finally, this continued effort to demonize Elizabeth Warren 

because she has advised people—not ordered anybody, not insisted—of what to do—is, I think, bizarre. 

Chairwoman CAPITO. Thank you. 

I would like to recognize the chairman of the full committee, Mr. 

Bachus, for 2 minutes. 

Chairman BACHUS. Thank you, Chairwoman Capito. I have listened to my colleagues on both sides. And there is actually some 

agreement and some consensus, despite what you may have heard. 

We all recognize that there have been shortcomings, shortcuts, and 

shoddy paperwork by some of the mortgage servicing companies. 

6 

In fact, Chairman Neugebauer mentioned that the OCC and the 

Federal Reserve acted to correct these in April. And I think all 

members of this committee supported that. 

Our concern is not the concern that Ranking Member Frank expressed. Our concerns have been the same for the last 2 or 3 years. 

And one of those concerns is that the government’s efforts in the 

housing markets have actually—in many cases, they have had 

mixed results. So let us just say that to be kind, they have been 

expensive, but they have often been counterproductive. 

The HAMP program is a good example, where billions of dollars 

have been spent to try to prevent foreclosures. The target was 4 

million foreclosures. And I think it has come in at about a half a 

million. And of those, many of them have gone back into foreclosure. 

I do think on both sides of the aisle, we agree that we need to 

work through this backlog of foreclosures. And that is good for all 

of us. The housing market needs to see a proper level. 

In fact, here is what Chairman Bernanke said before our committee about 6 months ago: ‘‘I would like to see further efforts to 

modify loans where appropriate, and where not appropriate.’’ And 

that is what we are talking about, ‘‘where not appropriate.’’ Many 

times, it is not appropriate. 

That is what we worry about with this settlement. People in 

houses who aren’t paying their mortgages, and yet the mortgage 

companies are not only being stopped from foreclosing on it, but 

these people continue to be in their homes and not pay their mortgages. 

And we don’t think it is appropriate for people who are not paying their mortgages or who can’t pay their mortgages to receive all 

the focus. We believe, and I think the American people believe, that 

their neighbors who are paying their mortgage—the vast amount 

of Americans who are paying their mortgage or have not gotten 

into these mortgages. 

And we have advocated fairness for these people. Let me close by 

saying Chairman Bernanke, and I agree with him, he says that, 

‘‘We need to speed the process of foreclosure and the disposition of 

foreclosed homes in order to clear the housing market and have a 

recovery.’’ 

That is what we have advocated all along, fairness for those 

Americans who are paying their mortgage and fairness for those 

Americans who are attempting to make their mortgage payments, 

not all the focus and all the money being spent on those who aren’t 

paying their mortgage payments. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

The Minority is going to continue to reserve their time. 

Mr. FRANK. May I have 1 minute? 

Chairwoman CAPITO. The ranking member is recognized for 1 

minute. 

Mr. FRANK. First of all, we agree that some mortgages should 

have to be paid. I have never been supportive of this in every case. 

But there are some very worthy cases, including those who are 

unemployed. And I heard last night and it was mentioned today in 

USA Today—I guess Secretary Donovan is now having a hearing 

7 

on it—the Administration is extending, for people who are entitled 

to do this and are able to deal with it, the foreclosure moratorium 

for the unemployed and for those in the HAMP program to 12 

months. 

Some of us have been asking for an extension. There has been 

a 3-month moratorium. 

They are in the process of announcing right now that the moratorium will be extended 12 months. And to take the point of the 

chairman, that is not for everybody. That will be for some. It would 

certainly not make sense if there was no chance of people repaying, 

where you are talking about the unemployed. 

But many of us have felt that the 3 months where other criteria 

were met, where people were appropriately given that kind of forbearance, was not nearly enough time. And I think the 12-month 

extension will help very much. 

Chairman BACHUS. Madam Chairwoman, can I have 1 minute 

just to respond? And I want to agree with the ranking member. 

I do want to say this: there is some good news out there for all 

of us. One in 20 American families wants to buy a home today. And 

they have good credit. Our concern is that those families who want 

to get into mortgages, we don’t want the government efforts to prevent them or drive up the cost for them to buy a home. 

We want those families who are looking for homes to be able to 

get into those homes. And we believe that the focus ought to be on 

them and not on those who can’t make payments or do not have 

proper credit. 

I think we can all get there. And I want to commend the regulators. We all acknowledge we were too loose in 2006 and 2007 

with our underwriting standards. 

But two wrongs don’t make a right. And being too tight today or 

responding inappropriately today with too tight standards or settlements that really don’t help those Americans who want to buy a 

home is counterproductive. 

Thank you. 

Chairwoman CAPITO. Thank you. 

I would like to try to get back in my rhythm here, so I am going 

to recognize Mr. Fitzpatrick, the vice chair of the Oversight Subcommittee, for 1 minute. 

Mr. FITZPATRICK. Thank you, Madam Chairwoman. 

For my constituents in the eighth district of Pennsylvania, few 

issues could be more relevant or important than those that are 

dealing with the usual foreclosure. Our economic situation is both 

a symptom and a result of our Nation’s housing woes. 

So as we work together to repair the damage, improve the economy, and ensure that these failures won’t happen again, we cannot 

forget about those victims who have already been affected. 

Foreclosure puts a unique strain on a family. And the damage 

can linger for years. 

This committee and this body have a responsibility to make sure 

that the mechanisms in place to avoid this catastrophic event are 

functioning. Mortgage servicers are on the frontline of this battle. 

Issues with our mortgage finance system aside, servicers are the 

primary point of contact for most homeowners. 

8 

Our constituents’ service staff works closely with servicers in an 

attempt to avoid foreclosure. We count on the servicers to be responsive to our efforts and the regulators to be helpful toward that 

end. 

So, Madam Chairwoman, I look forward to this hearing. 

I am hopeful we are going to hear that progress has been made 

in this area. But more importantly, I want to hear that improvements are going to continue. 

I yield back. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Ms. Waters from California for 11⁄2 minutes to make an opening statement. 

Ms. WATERS. Thank you very much, Chairwoman Capito and 

Chairman Neugebauer, for holding this hearing. 

Mortgage servicing was a topic of intense focus for me when I 

was chairwoman of the Housing and Community Opportunity Subcommittee. And it is good to have a joint hearing on this topic 

today. 

I think it is a little late, but we really do have to deal with this 

subject. 

And while I am pleased to have the opportunity to question our 

witnesses today, I am a bit perplexed as to why the subcommittee 

has decided not to invite any servicers to testify. After all, it is 

their corner-cutting and even fraud that causes us to be in this 

hearing today. I would really like to hear from them. 

Every Member here today has undoubtedly heard from constituents complaining about servicers not telling them the truth on the 

phone, losing back paperwork, and incorrectly assessing fees, 

among other improper practices. 

So make no mistake, the servicers were allowed to have these 

botched operations because regulators failed to rein them in, despite continuous pleadings from the advocates. 

As a result, this failure to act has now culminated in regulators 

and State attorneys general trying to make up for lost time by setting up the industry standards and compensating borrowers who 

have been jerked around, often losing their life savings in the 

meantime. 

While some of my colleagues will no doubt characterize these settlements as some sort of a shakedown, I see it as an attempt to 

disgorge servicers of wrongful profits accrued through years of running botched, deliberately understaffed operations. 

This is in addition to the untold damage done to the securities 

market in this country by the failure of these banks to properly establish the legal ownership of the mortgages they packaged and 

sold. 

So, thank you very much, Madam Chairwoman. 

I look forward to hearing from our regulators. 

Chairwoman CAPITO. I thank the gentlewoman. 

I would like to make a point of clarification. Both Mrs. Maloney 

and I felt strongly about having servicers at this hearing as well. 

They declined because of the pending legal settlement and legal 

discussions going on, and that is why they are not in attendance 

at this meeting today. 

Ms. WATERS. Thank you very much. 

9 

Chairwoman CAPITO. Thank you. 

I would like to recognize Mr. Royce for 1 minute. 

Mr. ROYCE. Thank you, Madam Chairwoman. 

According to the New York Times, 2 weeks ago, they said in New 

York State, it would take lenders 62 years at the current pace to 

repossess the 213,000 houses now in severe default or foreclosure. 

In New Jersey, they said it would take 49 years. 

Economists often argue that a single clearly defined set of rules 

would be part of the solution to effective regulation and certainly 

to clearing the market. I think it is no wonder that the housing 

market continues to sputter. 

And I think we add to the problem, given the hodgepodge of statutes and rules, none of which are the same, by the way. 

But we have RESPA, TILA, Dodd-Frank, 50 State laws, local ordinances, Federal regulations, State regulations, court rulings, enforcement actions, FHA requirements, VA requirements, and rural 

housing service requirements. You have the Fannie Mae standards 

and the Freddie Mac standards. 

So, at a minimum, the lack of a single clearly defined set of rules 

has added to the confusion. It has delayed much of the market 

from clearing. It has discouraged private capital from coming back 

into this sector. 

Economists are right about this. And we could be part of the solution here if we assist it. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

I would like to recognize the ranking member for the remaining 

time. 

Mrs. MALONEY. Okay. I will use some time and yield some time 

to the gentleman from Georgia. 

I agree with Chairman Bachus that we need to work through 

this backlog that is flowing in our economy. Economists say housing is roughly 25 percent of our economy. As long as it is there, 

we are going to have a problem with our economy. 

But we need to do it in a fair way. And I don’t think anyone on 

this panel or this room agrees with the robo-signature or moving 

to evict people from their homes without meeting with them, telling 

them of a program for possibilities that are there, working with 

them or even finding out if they have the money in the bank to 

help move through the process. 

So we need to move through it, but in a fair way. And, again, 

I look forward to the rules and standards that will be coming out 

tomorrow. 

And I yield to the great man from Georgia. 

Mr. SCOTT. Thank you very much. 

I think I have a few seconds here. But I do want to just share 

with the committee that I have just come out of working on a major 

home foreclosure prevention event. And we had phenomenal success. 

As many of you may know, Georgia now ranks fourth in the 

number of home foreclosures in this Nation. In one of my counties—Clayton County—1 out of every 70 homes is in some form of 

foreclosure. 

10 

But we had a very, very effective event in Atlanta, Georgia, 

about 2 weeks ago. And because we were able to get the information there and get under one roof the loan servicers—which is so 

important for them to have been here today, but I understand they 

had some disagreement with their situation and could not. 

But let me just say, I take my hat off. We had some outstanding 

loan servicers there from Bank of America, and Wells Fargo, and 

Citizens, and Regions Bank, and SunTrust, all major servicers. 

We were able to save 2,107 homes in one shot over that weekend, 

with Treasury’s help and HUD’s help. And the reason for it was we 

were able to get the information processed adequately. 

This has been one of the major reasons why we have had such 

a high rate of home foreclosure, because there have been inadequate information on the parts of exchange from the loan 

servicers. 

This has not historically been an area of high profit opportunity 

for the loan servicers. So they have high turnovers within the people who are providing the service to the homeowner. 

A homeowner may call one day, come back, get an answer on his 

phone, answer it, call back, and there is somebody else handling 

their case. But when we can sit down with the loan servicers and 

with the homeowners themselves and make sure that proper information is processed, we can get this problem licked. 

I can’t begin to tell you. We had line after lines of thousands of 

people, people in wheelchairs, people on canes, senior citizens, everyone coming at the convention center and leaving with tears in 

their eyes, so happy that they were able to get their problem addressed. 

So there is hope out there. There is success out there. 

But we have to get the right information and get the loan 

servicers to be able to interact properly with the homeowners. And 

I wanted to share that positive news. We have a ways to go. 

And I look forward to this hearing. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

I would like to recognize Mr. McHenry for 1 minute. 

Mr. MCHENRY. Thank you, Chairwoman Capito. 

There is no doubt the robo-signing debacle uncovered problems 

in the mortgage settlement process used by the Nation’s largest 

servicers. But what is clear is that any proceeds of a settlement 

need to recover losses for those who are actually harmed, and make 

sure that the management of the foreclosure process has improved. 

Instead, it seems certain folks in the position of influence to negotiate this deal are working out of the mentality of ‘‘never let a 

good crisis go to waste.’’ 

Judicial Watch recently uncovered extensive involvement by the 

CFPB, and specifically Ms. Warren, in her attempts to step well 

outside of her position as an adviser to both the President and the 

Treasury Secretary, providing a detailed framework for the structure of a settlement and holding ‘‘emergency meetings’’ with State 

attorneys general. 

This is troubling. I find this in-depth involvement very troubling. 

I look forward to the rest of the hearing. 

Chairwoman CAPITO. Thank you. 

11 

Mr. Grimm, for 1 minute? 

Mr. GRIMM. Thank you, Chairwoman Capito and Chairman 

Neugebauer, for holding this hearing. 

I appreciate the witnesses’ time. 

As everyone is aware, the real estate market in the United 

States remains very, very weak. It makes it very difficult for the 

economy to experience a strong and robust recovery. 

And at the same time, the government is either directly or indirectly underwriting over 90 percent of new home loans in this 

country. That is a situation that obviously is unsustainable. 

So in order for the real estate to recover and to stabilize over the 

long term, we must get private capital back into the mortgage market. This is the reason the mortgage servicing standard is so important to the future of housing finance. 

Investors in new mortgage loans must have confidence that their 

principal and interest statements will be received in a timely manner and that their positions will be protected in the event that a 

borrower defaults or of a foreclosure, if it unfortunately occurs. 

Without such assurances, I fear that private capital cannot and 

will not and will continue to be reluctant to return to the mortgage 

market. 

Therefore, again, I thank the witnesses. And I look forward to 

the rest of this hearing. 

Chairwoman CAPITO. Thank you. 

Mr. Canseco, for 1 minute? 

Mr. CANSECO. Thank you, Madam Chairwoman, and Chairman 

Neugebauer. 

The ongoing foreclosure crisis in this country is one of the largest 

challenges facing our economy. Since home prices began their decline in 2006, millions of Americans have had their homes foreclosed. And there doesn’t seem to be an end in sight for this cycle. 

Last fall, some troubling revelations came out about the 

servicers’ industry, an industry which is dealing with an unprecedented amount of workflow due to the crippling housing market. 

As with any other government action towards an industry, we, 

as a Congress, must keep a close watch on the regulatory response 

to ensure it is targeted and does not make the problem worse. 

I have great concern that potential rules prescribed by Federal 

regulators, rules designed to apply to the largest mortgage 

servicers, will ultimately impact the smaller servicers who will find 

the rules too onerous to stay in the servicing business. 

I am also concerned that the purported State attorney general 

settlement with the largest servicers could open the door to perverse incentives that could make the foreclosure problem worse. 

With this in mind, I look forward to your testimony. Thank you. 

Chairwoman CAPITO. Mr. Fincher, for 1 minute? 

Mr. FINCHER. Thank you, Madam Chairwoman. 

When the mortgage crisis hit our economy a few years ago, it left 

many homeowners questioning their American dream. Their mortgages were now more than their homes were worth. Many homeowners looked to their lenders, to State governments, and to Washington to find the answers. 

Our number one priority should be not to cripple our financial 

institutions, but to find the happy medium to prevent another 

12 

mortgage crisis while ensuring that the approach taken will not 

impede our economic recovery. 

We don’t want to fall into the trap, as Chairman Bachus said a 

few minutes ago, of overreaching and unintended consequences. 

So I thank the witnesses for coming, and I look forward to your 

testimony. 

I yield back. 

Chairwoman CAPITO. Thank you. 

That concludes our opening statements. I would like to introduce 

our first panel of witnesses for the purpose of giving a 5-minute 

opening statement. 

I would like to yield to the chairman of the full committee. He 

would like to introduce his witness really quickly and then— 

Chairman BACHUS. Thank you. 

It is my pleasure to introduce a good friend of mine, Luther 

Strange, who is the new attorney general in Alabama. General 

Strange was named one of the South’s leading economic development attorneys prior to being elected to his position as attorney 

general. 

I have read his testimony before this committee. And I think he 

offers an awful lot. 

He is committed to consumer protection. He is also committed to 

a strong economy and to seeing that our Nation recovers. 

I think what he has laid out—and he has some strong reservations about the settlement that he is being led into, that it may 

have some unintended consequences. 

Luther and Melissa, his wife, have two sons. And Luther is normally the tallest guy in the room. He was the starting center at 

Tulane University. But he is actually maybe the third tallest person in the room today because I see Luke and Kane, his two sons. 

Luke works for Joe Bonner, one of our colleagues. And Kane 

works for Senator Sessions. And they are the two guys who are just 

as tall as Luther back there, sticking way up in the audience. 

So you have a cheering section, Luther. We welcome you. It is 

really a pleasure to have you. And you are doing a fine job as attorney general. 

Your testimony is very insightful. Thank you. 

Chairwoman CAPITO. Thank you. 

I would first like to recognize Ms. Julie Williams, First Senior 

Deputy Comptroller and Chief Counsel, Office of the Comptroller of 

the Currency. 

Welcome. 

STATEMENT OF JULIE L. WILLIAMS, FIRST SENIOR DEPUTY 

COMPTROLLER AND CHIEF COUNSEL, OFFICE OF THE 

COMPTROLLER OF THE CURRENCY 

Ms. WILLIAMS. Thank you. Chairwoman Capito, Chairman 

Neugebauer, Ranking Member Maloney, Ranking Member Capuano, and members of the subcommittee, I appreciate the opportunity to appear this morning on behalf of the OCC to discuss 

issues related to mortgage servicing. 

My testimony focuses on three areas. First, my written statement 

describes the examinations by the OCC and the other Federal 

13 

banking agencies of defects in foreclosure processes at the 14 largest federally-regulated mortgage servicers. 

Although these examinations found that the loans in the sample 

examined were seriously delinquent, the exams also found serious 

deficiencies of different degrees at each of these servicers in the 

areas of foreclosure governance, foreclosure document preparation, 

and the oversight of third-party service providers. 

These deficiencies constitute unsafe and unsound banking practices. To address them, the OCC and the other banking agencies 

issued cease-and-desist orders. 

The sample of foreclosures reviewed in the exams exposed serious flaws in the banks’ foreclosure processes. But as a sample it 

could not, of course, quantify the individual borrowers who might 

have suffered financial harm due to these defects. 

That is why the orders issued by the agencies require a comprehensive and independent review of foreclosure actions during a 

2-year look-back period. 

The independent review will seek to identify financially harmed 

borrowers who had a pending or completed foreclosure in 2009 or 

2010 through two distinct means: one, notice and outreach to those 

borrowers of their right to file a complaint, and to have that complaint reviewed by an independent consultant; and two, targeted 

review of the loans of borrowers who are in identifiable high-risk 

segments, which will provide an additional opportunity to detect 

borrowers who suffered financial harm. 

The orders require that the servicers submit detailed action 

plans to revamp major aspects of their mortgage servicing and foreclosure operation. For example, action plans are required to implement comprehensive revisions of mortgage servicing, loan modification, and foreclosure processes. 

The orders also address the elimination of dual tracking and require the establishment of a single point of contact system, to ensure that borrowers can contact a live person throughout the process. 

The second portion of my written statement discusses the relationship between the implementation of our enforcement orders 

and the separate negotiations that are being conducted by other 

authorities. Most notably, the Department of Justice is coordinating settlement discussions involving DOJ, a group of other Federal agencies, and State attorneys general. 

The scope of these discussions includes issues outside the scope 

of our orders, but it also includes areas of mortgage servicing and 

foreclosure procedures that overlap with the scope of action plans 

that are required under our orders. 

Other initiatives also are under way that will affect mortgage 

servicing standards. In particular, the newly announced GSE delinquency management and default prevention standards will have a 

substantial effect on servicing practices, since those standards, for 

the foreseeable future, will govern an overwhelming portion of the 

mortgage market. 

These different initiatives will subject servicers to more rigorous 

standards and provide borrowers greater protection. But they also 

raise the prospect of multiple and potentially inconsistent standards. 

14 

We have strongly urged the value of achieving a common set of 

standards, whereby servicers can satisfy not only the terms of any 

settlement agreements but other applicable requirements as well, 

such as the GSE standards. 

In order to help achieve this result, in consultation with DOJ, we 

have adjusted the deadline for servicers’ submission of various action plans that are required under our order to facilitate synchronization with the DOJ-led settlement effort. 

In the final portion of my testimony, I discussed the current 

interagency effort to develop comprehensive and uniform servicing 

standards. The goal here is to establish rigorous, uniform standards for responsible servicer conduct that reach beyond the 

servicers covered by the current enforcement action. 

It will be critically important to ensure that any standards that 

are adopted apply to and are implemented by all firms engaged in 

mortgage servicing, not just the federally-regulated depository institutions, and that there is strong oversight of all servicers’ compliance. 

I appreciate the opportunity to appear before the subcommittees 

this morning to discuss these important topics. And I look forward 

to answering your questions. 

Thank you. 

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

128 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Mark Pearce, Director, Division of Depositor and Consumer Protection, FDIC. 

Welcome. 

STATEMENT OF MARK PEARCE, DIRECTOR, DIVISION OF DEPOSITOR AND CONSUMER PROTECTION, FEDERAL DEPOSIT 

INSURANCE CORPORATION 

Mr. PEARCE. Great. Thank you, Chairwoman Capito, Chairman 

Neugebauer, Ranking Members Maloney and Capuano, and members of the subcommittee. 

Thank you for the opportunity to testify today on behalf of the 

FDIC about the ongoing need to address and resolve challenges in 

mortgage servicing. 

The issues involved continue to impact our housing market, borrowers, and communities across the Nation. As you know, the 

FDIC is not the primary Federal regulator of the largest financial 

institutions and mortgage servicers, where major servicing and 

foreclosure deficiencies have been found. 

Nevertheless, as the insurer of deposits of these institutions, we 

remained concerned about the potential ramification of these deficiencies, not only on these institutions, but on the housing and 

mortgage markets overall. 

Last fall, in the wake of allegations of robo-signing, the primary 

Federal regulators invited the FDIC to participate in interagency 

review of the foreclosure practices of 14 of the largest mortgage 

servicers. These reviewers identified significant deficiencies in the 

foreclosure processes of all 14 institutions. 

These deficiencies included the filing of inaccurate affidavit and 

other documentation in foreclosure proceedings, inadequate overVerDate Nov 24 2008 18:24 Mar 30, 2012 Jkt 067939 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\67939.TXT TERRIE
15 

sight of attorneys and other third parties involved in the process, 

inadequate staffing and training of employees, and the failure to effectively coordinate the loan modification and foreclosure process to 

ensure effective communications with borrowers seeking to avoid 

foreclosures. 

In April of this year, the primary Federal regulators took an important first step in addressing the deficiencies by issuing enforcement orders related to foreclosure practices by these largest mortgage servicers. 

The FDIC is hopeful these orders will put services on a path to 

having the staffing, management and operational control necessary 

to work effectively with homeowners to fairly and efficiently resolve 

mortgage defaults. To do so, regulators will need to closely monitor 

the servicers to ensure the orders are implemented as they are intended to be. 

In particular, the review of past foreclosures must be able to convince the skeptical public that homeowners harmed by servicer errors have been identified and compensated, as promised by the primary Federal regulators. 

Even if implemented fully, the consent orders are only a partial 

resolution to mortgage servicing deficiencies. The interagency review of foreclosure practices did not purport to examine loan modification practices or other potential errors in mortgage servicing. 

As such, the FDIC supports the Federal-State collaboration between the Department of Justice, other Federal agencies, and the 

State attorneys general to address a broader range of issues regarding the servicing process. 

A comprehensive resolution for past servicing errors is essential 

to the recovery of the housing market and the greater economy. 

Past servicer errors had given rise to a multitude of actual and potential claims from litigation, placing a cloud of uncertainty over 

recent foreclosures and transfers of title. 

Market anxiety regarding the ownership rights and the obligation of borrowers and investors dampens expectations regarding 

the housing market’s recovery and discourages the return of private capital to the mortgage market. 

Accordingly, the FDIC has encouraged the Financial Stability 

Oversight Council to continue its efforts in examining the potential 

financial systemic risks surrounding mortgage servicing and foreclosures. 

Furthermore, until servicers improve their practices and processes, some current homeowners will miss the opportunities to 

avoid foreclosure, while others will be able to delay the inevitable. 

Given the continuing fragility of the housing market, effective servicing is as important as ever. 

In conclusion, the mortgage servicing system over the past few 

years has ill served all parties involved—borrowers, neighborhoods, 

and investors—and has impaired the health and the recovery of the 

housing and mortgage markets. 

Market reforms are needed to align the incentives for effective 

servicing. 

In addition, the FDIC will continue to work with our Federal colleagues to develop sensible and balanced servicing standards, tempered by the knowledge that community banks have not demVerDate Nov 24 2008 18:24 Mar 30, 2012 Jkt 067939 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\67939.TXT TERRIE
16 

onstrated the type of deficiencies and errors present in the largest 

institutions. 

Thank you for the opportunity to testify on these issues before 

you today. I look forward to responding to your questions. 

[The prepared statement of Mr. Pearce can be found on page 95 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Raj Date. He is the Associate Director 

of Research, Markets, and Regulations at the Consumer Financial 

Protection Bureau, U.S. Department of the Treasury. 

Welcome. 

STATEMENT OF RAJ DATE, ASSOCIATE DIRECTOR FOR RESEARCH, MARKETS, AND REGULATIONS, CONSUMER FINANCIAL PROTECTION BUREAU, U.S. DEPARTMENT OF THE 

TREASURY 

Mr. DATE. Thank you. 

Chairwoman Capito, Chairman Neugebauer, Ranking Members 

Maloney and Capuano, thanks for inviting me to testify today 

about mortgage servicing. 

My name is Raj Date. I serve as the Associate Director for Research, Markets, and Regulations at the CFPB. 

Our mission at the CFPB is clear: to make consumer finance 

markets work for the American people. That means ensuring that 

consumers have the information they need to make financial decisions that are right for them. 

It means promoting fairness and transparency and competition 

in consumer finance. It means setting and enforcing clear, consistent rules that allow banks and other firms to compete on a level 

playing field. 

The Bureau is not yet open for business. But 2 weeks from today, 

on July 21st, pursuant to last year’s Dodd-Frank Act, the Bureau 

will receive transferred authority from seven existing regulators to 

administer Federal consumer financial protection laws. 

And on that day, I am happy to report we will be— 

Chairwoman CAPITO. Excuse me, Mr. Date. Could you move the 

microphone a little closer? 

Mr. DATE. Certainly. 

Chairwoman CAPITO. Thank you. 

Mr. DATE. On July 21st, I am happy to say that the Bureau will 

be ready. And on that day, mortgage servicing will be one of the 

CFPB’s priorities. 

That is because mortgage servicing is important. It is an enormous market, with some $10.4 trillion of unpaid principal balances. 

It is, moreover, marked by two structural features that make it 

unlikely that market forces alone can suffice to protect consumers. 

The first of those structural features is simple. In the vast majority of cases, consumers can’t actually choose their mortgage 

servicers, at least not over time. 

Let me introduce the importance of that, just as an example. 

Last week, I had the occasion to go to a drugstore. If my pharmacist had made me stand in a long line, or if she was rude, or 

if she was losing my paperwork, or if she was impossible to find 

17 

on the phone, or if she gave me guidance that was wrong, I would 

just go to a different pharmacist next time. 

That is how most consumer-facing markets work. 

I get to choose my drugstore. I typically don’t get to choose my 

mortgage servicer, at least not over time. 

The second structural feature of mortgage servicing that relates 

to consumer protection is that under the current system of servicer 

compensation, taking on the servicing of a mortgage resembles a 

bet on credit. 

If a loan remains performing, then servicing the loan remains 

profitable. But if the borrower becomes delinquent, then the cost of 

properly servicing the loan is likely to be greater and perhaps substantially greater than the revenue from servicing that loan. 

If a servicer’s portfolio, therefore, contains many more non-performing loans than the servicer expected, the servicer tends to lose 

money. 

Faced with that unfortunate financial reality, when they encountered an upswing in mortgage delinquencies, servicers apparently 

started cutting corners. Rather than making necessary investments 

in capacity, they have loosened operational protocols, even to the 

point of violating State and Federal laws. 

The evidence of this is striking. In the examinations of 14 major 

servicers this spring, the Fed, the OCC, and the OTS discovered 

critical weaknesses in governance, in foreclosure processing, and in 

vendor management. 

They discovered unsafe and unsound practices. They found violations of State and Federal law. They discovered these weaknesses 

and deficiencies in all 14 of the 14 servicers examined, together accounting for more than 2⁄3 of the entire mortgage market. 

In the Dodd-Frank Act, Congress took important steps that will 

correct flaws in Federal regulation of mortgage servicing, in particular the lack of comprehensive Federal standards for mortgage 

servicers and the lack of direct full Federal oversight over independent non-depository servicers. 

The CFPB, when it has its full authority, will have the tools to 

address both of those problems. 

And to make sure that we deeply understand the markets we 

will be regulating, our team has already been in contact with a 

range of stakeholders, community banks, credit unions, big banks, 

consumer groups, academics, and many others. 

But while the CFPB can and will address consumer protection, 

a comprehensive approach that also protects investors, the financial sector and the economy and the housing market as a whole requires the coordinated action of a larger group of Federal agencies, 

including the prudential regulators. 

The Bureau will be working together with those agencies to the 

maximum extent possible. Because, after all, both consumers and 

the industry will benefit when regulatory action is careful, and it 

is coordinated, and it is coherent. 

Two weeks from now, the Bureau will be ready to start helping 

make the consumer finance markets work for the American people. 

And I am confident that the result of our efforts, coordinated with 

those of the other agencies, should make the servicing market work 

better for everyone. 

18 

Thank you for the opportunity to testify. 

[The prepared statement of Mr. Date can be found on page 86 of 

the appendix.] 

Chairwoman CAPITO. Thank you. 

Our final witness on this panel has already been introduced by 

Chairman Bachus, but he is the Honorable Luther Strange, Attorney General of the State of Alabama. 

Welcome. 

STATEMENT OF THE HONORABLE LUTHER STRANGE, 

ALABAMA ATTORNEY GENERAL 

Mr. STRANGE. Thank you very much, Chairmen Capito and 

Neugebauer, Ranking Members Maloney and Capuano, and members of the subcommittee, and my Congressman, Chairman Bachus. 

My name is Luther Strange, and I am the attorney general of the 

State of Alabama. Thank you for inviting me to testify today on the 

ongoing settlement negotiations with the mortgage servicing companies. 

In October of 2010, the Alabama Attorney Generals Office joined 

49 other State attorneys general to form the so-called Foreclosure 

Multi-State Working Group. The purpose of the group is to investigate allegations that mortgage companies mishandled documents 

and violated laws when they foreclosed on homeowners across the 

United States. 

Like 26 other States, Alabama is a non-judicial foreclosure State. 

The other States have elected through their legislatures to adopt 

the judicial foreclosure process. 

In March of this year, the Working Group submitted a term 

sheet to the Nation’s largest mortgage servicers, which was presented as a draft agreement on behalf of attorneys general and 

other State and Federal agencies. And it was intended to settle allegations related to improper foreclosure practices and loan servicing. 

The servicers have responded to the term sheet. And negotiations 

are currently under way between the States, the Federal Government, and the mortgage servicers. 

As I, as an attorney general, review any potential settlement 

agreement, I am guided by three overarching principles. 

First, the settlement must hold the mortgage servicers accountable for unlawful and deceptive practices under State law. Second, 

attorneys general are not responsible for legislating and setting 

policy. And the settlement agreement should not attempt to overreach into the area of State and Federal policy decisions. 

Third, the settlement must contain provisions that discourage 

and deter future illegal activity. Above all else, unethical mortgage 

servicers and any other bad actors in the mortgage servicing industry must be held accountable for any unlawful or deceptive practices they engaged in. 

Certain aspects of the term sheet, such as those dealing with single point of contact, dual-track foreclosures, robo-signing, and 

verification of account information, contain many changes in practice that are beneficial to consumers. Enforcement agencies and the 

entire industry should have a vigorous debate on these proposals. 

19 

My staff and I take our duty to protect consumers seriously. And 

we will work to investigate and prosecute bad actors to the fullest 

extent of the law. 

Any fines or penalties assessed on the servicers, pursuant to a 

settlement agreement, should be linked, in my opinion, in response 

to specific documented violations of State and Federal law. 

Protecting consumers, like many other goals of the Foreclosure 

Multi-State Working Group, is not only laudable, it is something 

that I consider my highest duty. 

But I am concerned that what started out as an effort to correct 

specific practices harmful to consumers has evolved into an attempt to establish an overarching regulatory scheme that fundamentally restructures the mortgage loan industry in the United 

States, an effort which is well beyond the scope of responsibility of 

attorneys general. 

Here are just a few specific concerns that I have. First, any ultimate settlement must not preempt State law sovereignty. Alabama, 

like the majority of other States, has made the policy decision to 

permit non-judicial foreclosures. 

I am skeptical of any agreement that essentially makes all States 

subject to the judicial foreclosure process without a legislative mandate. 

Second, mandated principal reduction is bad public policy and 

creates questions of fundamental fairness and justice. Mandated 

principal write-down would create an incentive for homeowners to 

default and seek a reduction of principal. 

Requiring lenders to reduce mortgage balances would remove incentives for banks to lend money and for investors to purchase 

mortgages, denying people access to the credit they need to purchase a home. 

Third, a settlement must not impair an efficient foreclosure process that clears local markets and facilitates economic recovery. I 

am very skeptical of any settlement that forces servicers to violate 

contracts with mortgage owners and abrogates the rights of second 

lien holders. 

Finally, a settlement must not impose onerous regulatory burdens on community banks. In my State of Alabama, we have over 

130 community banks that are an important economic driver in the 

State. 

We must not increase their regulatory burden when it is clear 

they generally were not engaged in the conduct giving rise to the 

investigation. 

Thank you again for holding this important hearing. And I look 

forward to answering your questions. 

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

123 of the appendix.] 

Chairwoman CAPITO. Thank you. Thank you all. 

And I would like to begin questioning. 

Ms. Williams, one of the concerns that I have, and I think it has 

already come to light as we have had before or before in testimony, 

is we have the OCC over here, developing a standard. 

You mentioned in your statement that the GSEs had looked at 

a servicing standards. The State attorneys general want to make 

20 

sure that there are no State preemptions, so they have servicing 

standards. 

Who is going to enforce all this? And what kind of singular 

standards—in my view, if we are going to move in this direction, 

a singular standard would certainly be better in terms of how the 

servicers meet those demands, but also in terms of the service provided to consumers. 

Could you comment on that? 

Ms. WILLIAMS. Certainly. As I indicated, a concern that we have 

with the processes under way right now is whether there will be, 

at the end of the day, multiple and potentially inconsistent sets of 

standards. 

And so we very strongly urge the effort to try to come together, 

at least on core principles and core elements of the servicing standards that are going to be the components of the different enforcement result here. 

And that would also, we think, carry over to the discussions that 

are on going at the banking agencies, the CFPB and FHFA, for example, with respect to developing uniform, consistent national 

standards that would apply to all servicers. 

So, I think the enforcement processes, in other words, will identify a body of core standards and some detail under those standards that hopefully will translate into significant portions of uniform standards that the agencies can adopt going forward. 

There are potentially different enforcers involved for the different 

entities subject to the standards, at the end of the day. 

Chairwoman CAPITO. I thank you for that. 

And I think you highlight properly that there can be some serious issues involved with trying to figure this all out, and deliver 

the best service, and stop some of the practices that have gone forward. 

The other thing I would like to ask about is the principal reduction. And I would like to ask all of you all this question briefly. 

The State attorney general, Mr. Strange, has already mentioned 

that he doesn’t think this should be mandated. Principal reduction 

should not be part of a national servicing standard. 

Is this something that you are recommending? 

I will start with you, Mr. Date. What does the CFPB think about 

that? 

Mr. DATE. Thank you, Chairwoman Capito. 

The way in which I try to think about the notion of principal reduction is within the broader context of loss mitigation within 

mortgages, which is, after all, largely speaking, a non-recourse secured lending market. 

In that kind of market, there is always a potential for moral hazard. And indeed, most of the loss mitigation techniques that are 

employed by servicers today in the marketplace involve some manner, appropriately, of economic concessions to a borrower in order 

to try to keep that borrower current. 

Principal reduction is one of those manners of economic concessions, and one that could very well, and indeed today does for some 

servicers play a part in the overall loss mitigation arsenal. 

21 

Chairwoman CAPITO. So what you are saying is that it might be 

one of the tools in the toolbox, but it wouldn’t be a requirement of 

a national servicing agreement? 

I think just a quick ‘‘yes or no’’ because I am running out of time 

here. 

Mr. DATE. National servicing standards may or may not address 

any particular loss mitigation techniques. But I know that the 

interagency group is working hard to frame the issues and at least 

think about what those— 

Chairwoman CAPITO. Are you aware if this is already included 

in the settlement agreement that is being worked with the State 

attorneys general? 

Mr. DATE. I am not specifically aware; I am not involved in the 

day-to-day conversations with mortgage servicers. That clearly is a 

process being led by the Department of Justice and State attorneys 

general. 

Chairwoman CAPITO. Thank you. 

Mr. Pearce, did you have a quick comment on that? 

Mr. PEARCE. Yes. I think the way servicers look at whether to 

do a loan modification is to figure out whether doing a modification 

of some kind is better than the alternative of going to foreclosure 

and losing a significant portion of money there. 

And so I would agree— 

Chairwoman CAPITO. I guess I am asking for the mandatory 

issue. 

Mr. PEARCE. Right. 

Chairwoman CAPITO. Do you think it should be a mandatory part 

of a national servicing standard? 

Mr. PEARCE. Right. I think the attorneys general and the Department of Justice are really working out whatever voluntary agreement they can come to with the largest servicers on that. And so, 

I can’t really speak to where they are in that process. 

But I don’t think that sort of a mandatory process is something 

that—certainly the FDIC hasn’t talked about, that people should 

make principal reductions when they don’t make economic sense. 

Chairwoman CAPITO. Right. Thank you. 

Mrs. Maloney? 

Mrs. MALONEY. For the overall economy, the large number of defaults, the losses, the servicer challengers are really putting up a 

barrier that could delay a broader recovery of our economy. 

So moving forward and getting this solved is critical. And I 

would like to Attorney General Strange and then Mr. Date and 

down the line about the servicing process. 

In New York, we had some of the highest numbers of subprime 

loans. But under the leadership of our Governor, we organized regional meetings with other elected officials, and banks and not-forprofits voluntarily participated. And we one-on-one worked out details that helped people stay in their homes. 

So, I would like to ask you, do you think that servicers have done 

a good job of communicating to borrowers about their loss mitigation policies and about their rights and options once they have gone 

into default? 

If not, what improvements need to be made? And what is the 

best mechanism to ensure that we have this improvement? 

22 

Starting with Mr. Strange, then Mr. Date, and down the line. 

Mr. STRANGE. We have a consumer protection unit in our Office 

of the Attorney General. And we have received a number of complaints. 

We deal with those on an individual basis. I wouldn’t say it is 

a crisis situation in Alabama. But we have State laws that deal 

with it. 

And I believe they work well. That is the decision we have gone 

with. As I mentioned, the non-judicial foreclosure process, which 

contains a number of protection for consumers. 

So, we are very diligent in making sure that those procedures are 

followed. And I think it is working fairly well in our State. 

Mrs. MALONEY. Mr. Date? 

Mr. DATE. Thank you. 

Mortgage servicing, because of its size and the relative diversity 

of the participants in it, naturally has a range of players in terms 

of how good they are, frankly, at some of the harder pieces of the 

business. 

Loss mitigation in particular and making sure that there is a 

high touch customer context during delinquency is a difficult skill. 

And there is no doubt in my mind that some firms happen to be 

quite better at it than others. 

The question of whether or not, therefore, there should be some 

manner of baseline expectation is exactly the kind of question that 

I would love to be addressed in this interagency dialogue on national mortgage servicing standards. It is precisely that kind of 

question. 

Mrs. MALONEY. What do you think would be the baseline? Obviously, what we saw in the past was robo-signatures, moving to 

evict people from their homes without even meeting with them or 

telling them their options, or even looking at their bank accounts 

to see whether or not they could work it out. 

What kind of baseline would you suggest would be appropriate? 

Mr. DATE. There is, obviously, the most rudimentary baseline, 

which is abiding by current Federal and State law. Despite, for example, the diversity in the standards across the various States and 

as promulgated by, for example, by the GSEs or FHA, the fact of 

the matter is there is no State in which falsely notarizing an affidavit is an acceptable thing to do. 

So there is that baseline. But, unfortunately, that baseline comes 

down to effective supervision and effective enforcement over time. 

With respect to mortgage servicing standards, more broadly, 

there are certainly mechanisms that one can use at a trigger point, 

in terms of number of days of delinquency, where if you are going 

to proceed, for example, to foreclosure, some other steps should 

have taken place. 

One form of that is restraints on so-called dual track processing. 

Mrs. MALONEY. Thank you. Mr. Pearce? 

Mr. PEARCE. Certainly, in our participation, in our agency review, we found significant efficiencies throughout the foreclosure 

process to ease around staffing and training. And that is in my testimony. 

And I think one of the things that Mr. Date raises is that there 

are different departments in mortgage servicers. The larger mortVerDate Nov 24 2008 18:24 Mar 30, 2012 Jkt 067939 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\67939.TXT TERRIE
23 

gage servicers don’t always communicate very well with each other. 

And that can present some real challenges for borrowers. 

That is why the FDIC has strongly supported the idea of having 

a single point of contact, to have a real individual person there who 

can answer a borrower’s questions, regardless of whether they are 

in the process of foreclosure or in the process of a loan modification. 

We think that would really add a lot to making this process work 

smoother, in addition to the improvements in staffing and training. 

Ms. WILLIAMS. I think you are asking a question that has a couple of dimensions: one, how the borrowers are dealt with in their 

interactions with the servicers; and two, the outreach to the borrower in working out the problems that they have with their mortgagers. 

I think what we have seen over the course of the last couple of 

years is that the servicers got a slow start in both respects. They 

have done a lot to improve on the outreach part in the initiatives 

they have undertaken in themselves and in the way that they partner with local, regional and national community organizations in 

those sort of events that Congressman Scott described. 

And there have been significant improvements in the way that 

they have dealt in their internal operations with customers, the 

single point of contact being one example. 

In the complaints process that we envisioned in our orders to 

have the servicers reach out to borrowers who were in any stage 

of the foreclosure process during specified time periods, we are 

going to be requiring even more aggressive outreach in that process. 

Chairwoman CAPITO. Thank you. 

The gentlelady’s time has expired. 

I would like to recognize Chairman Neugebauer for 5 minutes for 

questions. 

Chairman NEUGEBAUER. Yes. Thank you, Madam Chairwoman. 

Just to restate, I think everybody agrees that if the mortgage 

servicers violated the law and didn’t have good policies, that you 

have taken the appropriate action. And nobody is faulting that. 

We also need to understand, though, that these servicers, in 

many cases, did not originate these loans. And so, in many cases, 

we have to careful of what we are punishing them for. 

Are we punishing them for poor servicing? Or are we trying to 

punish them for some mistakes that were made up the food chain? 

What I am most concerned about, though, is clear evidence that 

this Administration has been trying to install into this settlement 

agreement policies that this Congress has rejected. And that is the 

point that I want to cover this morning. 

And, Mr. Date, if you recall, Chairwoman Capito and myself and 

others wrote Secretary Geithner to express our concern about Ms. 

Warren’s involvement in promoting the State attorneys general settlement. 

The response we got back was that the request was basically limited to advice. Yet, when we received documents that were produced to this committee Tuesday night, those documents showed 

that Ms. Warren actually took a leadership role in the settlement 

talks. 

24 

For example, emails showed that the CFPB convened an emergency meeting with certain attorneys general to push settlement 

solutions that focus on principal reduction modifications. Would 

you agree that activity constitutes a little bit more than advice? 

Mr. DATE. Thank you for the question. 

With respect to the request that was made to the Treasury Department and to Professor Warren, with respect to her participation or the Bureau’s participation in the mortgage servicing settlement conversation, I do feel that the response has been unambiguous over time. 

And I suppose that, for my own part, I would reiterate it again 

today. We have been asked by the Secretary of the Treasury to provide advice to those Federal and State agencies involved in this 

matter. 

We tried to do that. And in doing so, we were active and I hope 

engaged participants in that dialogue. That, I believe, was the response at that time, Mr. Chairman. And I believe it is my response 

now. 

Chairman NEUGEBAUER. I don’t think it is just this one event 

here. We can look at a series of emails between Ms. Warren, yourself, and U.S. Bank CEO Richard Davis, documenting meetings 

held on March 10, 2011, and March 11, 2011. 

What was the nature of these meetings? And was anything about 

the settlement discussed in those meetings? 

Mr. DATE. Mr. Davis, as you say, is the CEO of U.S. Bank. And 

we have had the opportunity to talk on several occasions in the 

past about a variety of issues. The nature of my role in particular 

is to lead the division that is called Research, Markets and Regulations. 

And, indeed, my intent and our division’s intent is to make sure 

that what we do from a policy point of view is simultaneously 

grounded in empirical analysis, on the one hand, and a deep 

grounding in the pragmatism of what actually happens in the marketplace. 

To my recollection, any conversations with Mr. Davis and/or his 

team has been with that in mind. And in particular, in the meeting 

that you are discussing, I recall Professor Warren actually prefacing that meeting with an explicit statement that what that meeting was about is about the market broadly and not— 

Chairman NEUGEBAUER. Let me just refresh your memory a little 

bit. In that email, it describes this needs test to determine the eligibility for principal reductions in loan modifications. 

So, this loan modification discussion has been evidently going on 

for a long period of time. 

And, in fact, I think in one of those emails, Mr. Davis said—it 

goes into detail of this presentation that he has and discussions 

that you all had on determining who is going to get loan modifications. 

Mr. DATE. Without talking about anything in particular as it relates to U.S. Bank, I would be happy to talk about the nature of 

that conversation with Mr. Davis. It is broadly known that the institution acquired through the FDIC institutions with what I would 

characterize as a deeply-troubled mortgage portfolio. 

25 

They, like other mortgage participants, have thought about the 

range of loss mitigation devices to use therein. Loss mitigations are 

a form of economic concession. And if you don’t carefully think 

about how they are offered, it can trigger moral hazard which, of 

course, as any kind of non-recourse secured lender, you want to 

avoid. 

Chairman NEUGEBAUER. Yes. 

Mr. DATE. He was talking about one of the means by which that 

is done. 

Chairman NEUGEBAUER. My time has expired. But I think that 

you have done a great job of avoiding answering the question. 

The truth is that the CFPB has been extremely involved in these 

negotiations. And there is other email traffic here with other CEOs 

where they are wanting to know, can we meet off the record, because we are concerned about what we are reading in the paper. 

And so, I think that is the troubling part of what we see going 

on here, is the fact that this agency, which you say on July 21st 

which has no Director, by the way. And a lot of us question whether your agency can actually be up and running on— 

Chairwoman CAPITO. The gentleman’s time has expired. 

Chairman NEUGEBAUER. —July 21st or not, because of the fact 

that you don’t have an acting Director or the Director has not been 

nominated and confirmed by the Senate. 

But I think it is troubling that we find the extent of the involvement, be it banal, by the CFPB of really having much input— 

Chairwoman CAPITO. The gentleman’s time has expired. 

I would like to recognize Mr. Capuano for 5 minutes. 

Before I do that, I would like to ask unanimous consent to enter 

into the record a statement from the Board of Governors of the 

Federal Reserve System, and also a statement from the National 

Association of REALTORS®. Without objection, it is so ordered. 

Mr. Capuano? 

Mr. CAPUANO. Thank you, Madam Chairwoman. 

Mr. Attorney General, I think you raised some interesting points. 

I just need some clarification. 

You or your predecessor—I assume it was you—voluntarily 

joined this lawsuit? 

Mr. STRANGE. That was my predecessor. 

Mr. CAPUANO. Your predecessor, voluntarily. He wasn’t required 

by any law, so he voluntarily joined. And for any settlement, is 

there a way for you to step back and say, ‘‘Look, we were glad to 

be a part of it up until now, but we don’t want to participate.’’ 

Mr. STRANGE. Yes. 

Mr. CAPUANO. So anything that is agreed to by, for the sake of 

discussion, 49 others or 5 others, you do not have to participate in 

it? 

Mr. STRANGE. That is correct. Yes, sir. 

Mr. CAPUANO. That is a fair point. Thank you. 

That is important because I think some of the points you raised 

are important and particularly when they are important to you. I 

totally agree on the sovereignty issue. No one should require any 

State to take action that they don’t want to take. 

So, I think you just answered that question for me satisfactorily. 

26 

When you have been involved with other cases like this, or even 

in this case itself, in the final analysis, how do 50 States or 10 

States, or whatever the number is going to be, how do you finally 

come to an agreement at the end? 

Do you vote on it? Or is it a general consensus? How is it generally done? 

Mr. STRANGE. I am relatively new to this, since I was not sworn 

in until January of this year. So I sort of inherited this. 

Mr. CAPUANO. Okay. 

Mr. STRANGE. And so, as I have weighed into it, I couldn’t speak 

to the history of these things that are done. This particular case 

is being led by Attorney General Miller from Iowa, who has been 

extremely active in these types of things for many, many years. 

So, I am sort of learning about it. That is why I am really speaking in terms of principal— 

Mr. CAPUANO. In the end, though, the attorneys general who are 

left at the table, the ones who have not walked away will have a 

say in the final decision. Is that accurate? 

Mr. STRANGE. The way this is structured is with a sort of a working group within the AGs. So I think there are maybe seven or 

eight AGs who are actively involved. I have not personally been involved in— 

Mr. CAPUANO. But no one from the outside can force you to come 

to a decision. Is that a fair assessment? 

Mr. STRANGE. Yes, sir. 

Mr. CAPUANO. And that includes the CFPB? 

Mr. STRANGE. I don’t think anyone can force the attorney general 

to do anything. 

Mr. CAPUANO. That is my understanding. When you have done 

other—before the attorney general, were you involved in these 

kinds of matters? 

Mr. STRANGE. I did a lot of different types of corporate business 

transactions over the years. 

Mr. CAPUANO. And when you were involved in things like this in 

the past, would you ordinarily reach out to people who may not be 

participants for their expertise, for their input, for their advice? 

Mr. STRANGE. In my experience, I was typically dealing with parties and negotiated arrangements. There were two parties with direct involvement in the situation. 

So I really don’t have a lot of experience in dealing with these 

sort of global policy matters. 

Mr. CAPUANO. That is a fair answer. 

I would like to ask Ms. Williams or others, you have been involved in similar things? Is it ordinary for people to reach out either to you or for you to reach out to other people who might have 

expertise and knowledge in an area that you don’t? 

Ms. WILLIAMS. My experience is in the interagency process with 

the banking agencies. And so, I don’t know if that parallels the experiences of having a 50-AG negotiating group. 

Within the OCC, we reach out to experts within the different departments to provide support. 

Mr. CAPUANO. Yes. 

27 

Mr. Pearce, at the FDIC, have others reached out to you when 

you were a party to a suit? Or have you reached out to others to 

find expertise that you may not have available? 

Mr. PEARCE. Sure. I think especially, as Ms. Williams’ points out 

in her testimony, we are trying to align these things up as much 

as possible. And so having interagency consultations is a key part 

of that process to understand. 

Mr. CAPUANO. Fair enough. 

And I believe it was you, Ms. Williams. I would like to clarify. 

Is it fair to say that everybody should have a general interest, 

not to give up any rights or abilities, but a general interest in coordinated oversight and regulation of the financial services industry? 

Has anybody ever heard of anybody who is interested in having 

a discoordinated oversight and regulation, to make sure that every 

bank, every financial service agency has 20 different regulators? 

They have not even talked to each other. 

Has anyone on the panel ever heard anybody advocate that position? 

I didn’t think so, because we all want coordinated oversight. Is 

there anyone here who disagrees that Mr. Date’s comment that on 

July 21st, the CFPB, whether you like it or not—that the CFPB 

will take over a significant amount of the regulatory oversight of 

this particular aspect of the financial services industry? 

Does anybody disagree with that statement? 

Ms. WILLIAMS. Congressman, one thing that I would clarify here 

is the transfers that occur on July the 21st do not transfer the safety and soundness authorities of the banking agencies. 

Mr. CAPUANO. I understand that. But do you disagree that a significant portion of the oversight of this industry will be transferred 

to the CFPB on July 21st? 

Ms. WILLIAMS. That is correct. 

Mr. CAPUANO. So, what we have is a situation where people, who 

may or may have not certain expertise, have reached out to an 

agency that is still in the creation situation, to ask their advice and 

coordination. 

And when they did that, though CFPB has no authority, no 

right, nor have they ever said that they can force anyone to agree 

to anything, nor do they have a vote at the table, so that the big 

crime here is that someone actually reached out and asked for advice. 

Chairwoman CAPITO. That was your time, Mr. Capuano. 

Mr. CAPUANO. I would suggest that is not only not only a crime, 

but it would be a crime to do otherwise. 

Chairwoman CAPITO. I would like to recognize the chairman of 

the full committee, Mr. Bachus, for 5 minutes for questions. 

Chairman BACHUS. Thank you. I would like to clarify something 

first. 

When Ms. Warren testified in March before our committee, I specifically asked her if she had participated in negotiations. Her response was that she gave advice when asked. I then wrote her 

after the hearing and asked her if she would like to clarify. 

And at that time, she did say that she had been an active participant with both Federal and State agencies. I consider that quite 

28 

different from advice, because I had her asked her if she participated. 

She was forthcoming in response to my letter, although most of 

the headlines at that time said that she gave the same response 

she gave at the hearing. You would have to be illiterate to think 

that. I don’t think people read her response and compared it to her 

testimony. 

In that letter in March, Mrs. Capito and I asked her for any documents pertaining to that participation. We didn’t get those until 

last Tuesday night. 

A lot of the documents were put out by Judicial Watch about a 

month ago. But it was Tuesday night of this week when we were 

given information which other independent sources had picked up. 

I think the staff has handed you the ‘‘Perspective on Settlement 

Alternatives.’’ This is a settlement proposal that the Consumer Financial Protection Bureau gave the attorney general back in February, is it not? 

Mr. DATE. This is a document, Mr. Chairman, that describes— 

lending not comprehensively but in a way that is meant to propose 

ideas, put those ideas in— 

Chairman BACHUS. No, it is more than an idea. You actually pro- posed a settlement of at least $25 billion. You actually say a $25 

billion settlement would not be sufficient, do you not? 

Mr. DATE. Mr. Chairman, I apologize. Would you mind? 

Chairman BACHUS. Look at page two, where you say that servicers saved $20 billion, and $20 billion plus a $5 billion settlement seems too low. 

Mr. DATE. No, Mr. Chairman. My reading—I am looking now at 

the top of the page. 

Chairman BACHUS. Yes. 

Mr. DATE. The second sentence says, ‘‘as a result, a notional pen- alty of roughly $5 billion would seem too low.’’ 

Chairman BACHUS. Yes, but you say that they saved more than $20 billion. Were you all proposing a $5 billion settlement or saying 

$25 billion wouldn’t be enough? 

Mr. DATE. Oh, I see. Here is what was done here. Obviously, 

there are a variety of ways to calibrate any kind of monetary penalty. 

Chairman BACHUS. I am sure. But what I am asking is, you were suggesting that $25 billion would not be enough, correct? 

Mr. DATE. No, I believe it says that $5 billion is not enough. 

Chairman BACHUS. For a penalty. 

Mr. DATE. If I am looking at— 

Chairman BACHUS. For a penalty. 

Mr. DATE. That is right, a notional penalty of roughly $5 billion 

is too low. 

Chairman BACHUS. Okay. And you proposed that the settlement 

be used for principal reduction, correct? 

Mr. DATE. Mr. Chairman, I would be happy to describe the analysis that underpins this document that, obviously, is in the public 

domain. 

Chairman BACHUS. When you say, ‘‘A principal reduction mandate could be meaningfully additive to HAMP’’ on page six, and 

‘‘PRM would mandate 3 million permanent modifications,’’ you are 

29 

advocating for a program to be an addition to HAMP or a HAMPlike program? Is that correct? 

Mr. DATE. To be clear, this would be a component of a voluntary 

settlement. 

Chairman BACHUS. I understand. Yes. You are right. You are 

proposing components of a settlement. Is that right? 

Mr. DATE. That is right. 

Chairman BACHUS. Okay. 

Mr. DATE. Not by any means comprehensive. But the notion, just 

to ground what is here a bit, if it is helpful, is that because there 

are different means by which to think about the size of the penalty, 

what this principally does is it tries to say, well—and the analogy 

would be, ‘‘If I stole a car and it is your job to punish me for stealing that car, I don’t know what the right way for you to punish me 

is, but you should probably take the car away.’’ 

That is, in general, the— 

Chairman BACHUS. Sure. So you propose taking the $20 billion 

that they saved plus a penalty? 

Mr. DATE. That would be a way in which— 

Chairman BACHUS. Right. I am not arguing with you about the 

merits. I am just saying that you suggested that they saved $20 

billion. So in addition to that, you believe they ought to pay a penalty, which— 

Mr. DATE. Mr. Chairman, I don’t think that is what is actually 

in this document. I am not contesting that reasonable people might 

think that. But I am just not sure I have seen that. 

Chairman BACHUS. Yes. All right, let me close by saying this. 

You proposed that the money from this settlement be used for 

mortgage principal reductions, correct? 

Mr. DATE. That is a facet of what is presented here. 

Chairman BACHUS. Right. Okay. 

Are you aware that we have a law, the Miscellaneous Receipt 

Settlement, that says that a settlement needs to go into the Treasury to pay down on the debt, as opposed to being used to create 

a new program? 

Mr. DATE. I would not be able to tell you the specifics with respect to that. But I— 

Chairman BACHUS. So you wouldn’t be opposed to that, would 

you, that we just pay down the debt with this settlement? 

Mr. DATE. Mr. Chairman, again, I should not— 

Chairman BACHUS. Instead of— 

Chairwoman CAPITO. The gentleman’s time has expired. 

Chairman BACHUS. I will close. But instead of a principal reduction, that would be an alternative, would it not? 

Chairwoman CAPITO. The gentleman’s time has expired. 

Chairman BACHUS. Thank you. 

Chairwoman CAPITO. The ranking member of the full committee 

is recognized for 5 minutes. 

Mr. FRANK. I guess, I am here thinking of Claude Rains and his 

great role in ‘‘Casablanca’’ as the police chief. Apparently, my colleagues are shocked—shocked—that a leading consumer adviser to 

the President made suggestions about how we should deal with a 

major consumer problem. 

30 

I am absolutely baffled by what this is all about. Yes, Elizabeth 

Warren, who is a very able, very thoughtful expert in the field, apparently made some suggestions. 

They weren’t binding. They weren’t coercive. She made some suggestions. 

And instead of talking about the merits of the issues, we are in 

this panic or outrage that she dared do that. This is the silliest 

thing I ever heard of. I am very pleased that Ms. Warren made 

these suggestions. 

Let me ask you, Attorney General Strange, were you attorney 

general in February of this year? 

Mr. STRANGE. Yes, sir. 

Mr. FRANK. Did you feel coerced by Elizabeth Warren? Did she 

threaten you in any way? Did you need to get protection against 

her? 

Mr. STRANGE. I think I may have met her once in passing, but 

she didn’t seem threatening. 

[laughter] 

Mr. FRANK. Thank you. I appreciate the— 

Mr. STRANGE. Personally, anyway. 

Mr. FRANK. Maybe some of my Republican colleagues will take 

heart from your courage in being willing to stand up against this 

incredible force, this Elizabeth Warren. 

I guess, maybe it is a play that we should be writing: ‘‘Who is 

afraid of Elizabeth Warren?’’ She made suggestions. She actually 

made them in the form of coherent proposals. 

Maybe if she was incoherent or internally inconsistent, my colleagues would have been less threatened. 

And then, she had the temerity to suggest that those financial 

institutions, many of which made loans they shouldn’t have made 

and packaged them into securities that shouldn’t have been sold, 

and then incompetently serviced them, that they should pay some 

penalty. 

That is consistent, because my colleagues on the other side have, 

throughout this, been very protective of the financial assets of the 

large institutions. Indeed, there have been complaints about the 

money that has been spent in part of this. 

Under the bill that originally passed the conference committee 

last year, in the financial reform bill, there was a section that said 

$20 billion would come to administer this financial reform bill, including some of the mortgage relief for the unemployed and others, 

from an assessment on financial institutions that had $50 billion 

or more in assets. 

And to get the Republican votes we needed in the Senate to pass 

it, that was transferred from the large financial institutions to the 

taxpayer. So there has been a consistency here, in terms of worrying that the financial institutions would be somehow unfairly put 

upon. 

And the suggestion, apparently, the CFPB—actually, Ms. Warren 

suggested that the estimate be what they saved and a penalty. 

That might be wrong. That might be right. Maybe you want to do 

principal reduction. Maybe you don’t. 

31 

I have been a little skeptical of too broad a scale principal reduction. Although where we are talking about the unemployed, I think 

there is a very clear case for that. 

But the notion that it is improper for Elizabeth Warren to suggest that in a wholly non-coercive way—there is an obsession with 

Elizabeth Warren. 

And let’s be clear where it comes from. It comes from people who 

never wanted an independent consumer bureau, who wanted consumer protection to continue to be with the regulators whose job, 

as the chairman said, was to serve the banks. 

They did not want independent consumer protection taken away 

from those regulators. We found in the Majority that the regulators 

had not done a good job, and we wanted to put consumer protection 

in an independent agency. 

Part of what they want to do is to take away that independence, 

and give the bank regulators the right to overrule the consumer 

agency. But they don’t like the consumer agency. 

They haven’t been able to make a head-on assault because it is 

kind of popular. Someone said what we have is, let us demonize 

Elizabeth Warren. Let us discredit the consumer agency by attacking the person who I think ought to be the head of it, and who had 

certainly played a major in coming up with the idea and worrying 

about it. 

And what did they convict her of? In fact, I guess Ms. Warren 

should take comfort in the fact that the worst thing they can say 

about her, people who are really determined to kind of diminish 

her reputation—as the chairman said once, this isn’t about Elizabeth Warren. But I wouldn’t take a lie detector test on that. 

The worst thing they can come up with to discredit Elizabeth 

Warren is that a woman charged with protecting consumers and 

looking out for consumer interests proposed a scheme, a plan for 

dealing with the mortgage situation. 

How terrible of her. Shame on her that she would actually sit 

down and try and figure out what she thought was good, and then 

submitted in a wholly non-coercive, suggestive way to others. 

I have to tell you that the attorney general wasn’t intimated. I 

know Ms. Williams. Sometimes I wish I could intimidate her a little more than I have been able to. 

I don’t think she was in any way frightened by this. They would 

have different rules on preemption if she were more easily 

influenceable. I don’t think anybody has ever said, oh, that Elizabeth Warren, she threatened to beat me up. She did all this to 

me— 

Chairwoman CAPITO. Your time has expired. 

Mr. FRANK. Come save me and protect me from Elizabeth Warren. And I hope—a little more time. To the chairman, another 10 

seconds. I would just say this, I would like to— 

Chairman BACHUS. Madam Chairwoman, I would like at least 30 

seconds to respond to the— 

Mr. FRANK. I don’t see why— 

Chairwoman CAPITO. Oh, hold it. Hold it. Hold it. 

Mr. FRANK. Pardon me, but the gentleman— 

Chairwoman CAPITO. In respect to this, you can finish in 10 seconds. 

32 

Mr. FRANK. The gentleman had 6 minutes. And I don’t understand that we go back and forth and respond. That is not the 5- 

minute rule. 

But the point is this. I will now offer to anyone who feels threatened by Elizabeth Warren, let us know, and I will do everything 

I can to protect them from this menace of a consumer protection 

advisor making suggestions. 

Chairwoman CAPITO. Mr. Fitzpatrick for 5 minutes. 

Mr. FITZPATRICK. Thank you, Madam Chairwoman. 

Mr. Date, what is about the deficiencies of the mortgage servicers 

that justifies a principal reduction? 

Mr. DATE. Thank you, Congressman, for the question. 

As you point out, the deficiencies of the mortgage servicers, 

which principally have been documented by the examination of our 

sister agencies, are troubling in that they are pervasive and, within 

the scope of the examinations, quite profound. 

And it is certainly a fair question to ask in those cases where violations, for example, of a law have taken place. So it would be a 

reasonable question, I suppose, to ask in a case of an active duty 

soldier who has been foreclosed upon in violation of the Service 

Members Civil Relief Act. What is the appropriate penalty for that 

kind of activity? And what is the appropriate remedy and how 

should it be structured? 

Of course, there are a range of alternatives with respect to these 

questions. And that is precisely why I have been glad that the Secretary of the Treasury has asked us to try to inform those deliberations amongst the agencies that have authority here. 

Mr. FITZPATRICK. For instance, do you see a causal link between 

robo-signing, on the one hand, and a particular mortgager or borrower being underwater? Is there a causal link, one to the other? 

Mr. DATE. It is a good question, because the robo-signing, in the 

way that it is most customarily thought about, entails the systematically false provision of the affidavits with respect to various judicial mechanisms around mortgage servicing in particular. 

And because, after all this is not the furniture business—it is not 

as if the paperwork is somehow ancillary to the main business. 

This is financial services. The paperwork is kind of the point, in 

that the documentation with respect to these transactions is meant 

to provide investors with the comfort that they have and that they 

need in order to put money into the system. 

And it is meant to provide borrowers with the confidence protection that they have with respect to the credit transaction that they 

have entered. 

Mr. FITZPATRICK. Attorney General Strange, you testified that 

you are concerned that the proposed settlement terms would force 

a State like Alabama, which is a non-judicial foreclosure State, to 

become a judicial foreclosure State. Can you expand on that? 

Mr. STRANGE. Yes, Congressman. 

My basic concern is that our State has chosen a method for handling home foreclosure. Our State legislature considered the alternatives and voted on it. 

My concern is that a settlement of some kind that imposes on not 

just my State, but the 26 or 27 other States, the majority of States 

that have chosen this path, is somehow altered or converted withVerDate Nov 24 2008 18:24 Mar 30, 2012 Jkt 067939 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 K:\DOCS\67939.TXT TERRIE
33 

out the approval of the legislature that put in place the original 

plan. 

That is really my overarching concern. That kind of policy issue 

really to me seems to be a decision for the Members of the Congress here or for the members of the State legislature, not a group 

of attorneys general. 

Attorneys general are very good at enforcing the law and preventing future illegal activities. They are not very good, in my experience, economic policy experts. 

Mr. FITZPATRICK. Where you aware of the proposed settlement 

terms before they were sent to the mortgage servicers? 

Mr. STRANGE. I have not been in the loop in terms of the details 

of the settlement, no. 

Mr. FITZPATRICK. Do you believe it is the role of attorneys general to be involved in setting national servicing policies? 

Mr. STRANGE. I do not. I believe it is our job to enforce the law, 

to protect consumers. As I mentioned in my testimony, that is a top 

priority of ours. 

I believe the policy matters ought to be left to the policymakers, 

who are here in this room in the Congress and in the State legislatures. 

Mr. FITZPATRICK. Okay. I yield back. Thank you. 

Chairwoman CAPITO. The gentleman yields back. 

The gentlelady from California is recognized for 5 minutes. 

Ms. WATERS. Thank you very much, Madam Chairwoman. 

I don’t know if I have questions as much as I am perplexed about 

how this subprime meltdown, which has caused all of these foreclosures, and the so-called efforts to help homeowners has could fail 

so miserably. 

This review, I guess that was led by OCC—was it—that supposedly found about 14 loan modifications that have been turned 

down and haven’t been done correctly. Where is that? Are you familiar with that, Ms. Williams? 

Ms. WILLIAMS. Congresswoman, are you referring to the— 

Ms. WATERS. The interagency foreclosure review. 

Ms. WILLIAMS. The interagency foreclosure review. 

Ms. WATERS. Are you familiar with that? 

Ms. WILLIAMS. I am familiar with that report, yes. 

Ms. WATERS. Are you familiar with the fact that out of 2,800 

files, they found a small number of foreclosures that should not 

have proceeded because the borrower was a member of the military, covered by the Service Members Civil Relief Act? 

Is that what you understand they found? 

Ms. WILLIAMS. That is correct. But as I said in my testimony, the 

horizontal examinations— 

Ms. WATERS. I can’t hear you. 

Ms. WILLIAMS. The horizontal examinations that were done relied on a sample of loan files of each of the servicers. So there was 

a limited sample that was covered in those exams. 

Ms. WATERS. We have basically projected out, with the number 

of foreclosures that have taken place, that exactly 10,000 homeowners probably had been wrongfully foreclosed upon. Did you do 

those kind of projections? 

34 

Ms. WILLIAMS. Congresswoman, the purpose of the look-back 

process that is part of the enforcement orders issued by the OCC 

and the other banking agencies is to specifically identify homeowners who were financially harmed as a result of the deficient 

practices. 

So we have not done a look back of the envelope extrapolation. 

What the enforcement orders require is a very robust process using 

independent consultants to identify homeowners who did suffer financial harm as a result of the petition. 

Ms. WATERS. I am not so sure what that means, but let me tell 

you what I experienced in working with servicers. I did get some 

waivers from homeowners. We were bombarded with calls and we 

started calling trying to find out what was going on. And over a 

period of time, it was just unbelievable. 

First of all, they lost records. Was that identified, how many 

records get lost all the time? Is anybody aware of that? 

Ms. WILLIAMS. Yes. 

Ms. WATERS. Also, are you aware of the problem of fees? Homeowners sometimes, even if they get to modification, by the time 

they pay the late fees, the attorney’s fees, the brokerage price opinion fees, the process fees that the mortgages back up, the payments 

back up where they were before they got the loan modification. Are 

you familiar with that? 

Ms. WILLIAMS. The area of fees, whether fees were excessive, 

whether they were reasonable and customary, whether they were 

specifically authorized by the loan document that the borrower had 

with that particular lender, is an area that will be specifically 

looked at in this look-back process, pursuant to our enforcement 

order. 

Ms. WATERS. Don’t you think that consumers should have more 

protection than anyone should be able to say that you signed this 

document and you agreed to all of these fees. I am sure you are 

aware that most people don’t know in that fine print that they 

have all of these brokerage price opinion fees and process fees. 

Most consumers don’t know that. Wouldn’t you agree? 

Ms. WILLIAMS. I think that consumer disclosures is an area 

where there is a lot of room for improvement in the financial services arena. And we strongly support that. 

Ms. WATERS. Since we have three of the too-big-to-fail banks— 

Bank of America, Wells, and Chase—who have 60 percent of all 

servicing, don’t you think we ought to be able to get our arms 

around that? They are the ones who are doing all of this servicing. 

In addition to all of the lost papers and the fees, etc., I discovered 

that many of these servicers were not very well trained. Has that 

been looked at? And has something been done about that? 

Ms. WILLIAMS. That has also been looked at. And there are provisions in our enforcement orders that specifically addressed staffing, 

both in terms of numbers and training of staff involved in the servicing loss mitigation, loan modification, and foreclosure process. 

Ms. WATERS. Are you aware that at Bank of America, when one 

first calls to try and get some help, they go to a loss mitigation that 

is offshore, oftentimes? 

Ms. WILLIAMS. I am personally not aware of that. 

Ms. WATERS. Would you check it out? 

35 

Ms. WILLIAMS. I certainly can. 

Chairwoman CAPITO. The gentlewoman— 

Ms. WATERS. Thank you. I yield back. 

Chairwoman CAPITO. Mr. Hensarling for 5 minutes for questions. 

Mr. HENSARLING. Thank you, Madam Chairwoman. 

Ms. Williams, in your testimony, you talked about the examinations that were produced by your agency and several others, the 

prudential regulators. I believe there was a sample size of 2,800 

borrower foreclosure cases, correct? 

Ms. WILLIAMS. Yes. That is correct. 

Mr. HENSARLING. How was that sample chosen? 

Ms. WILLIAMS. First of all, the sample was 200 per servicer. It 

was a judgmental sample, determined by the examiners responsible 

for the particular institution. There was a mix of judicial and nonjudicial States that were— 

Mr. HENSARLING. Did the agencies consider it to be representational of the larger universe? As I understand it, there are 1 million, 2 million, maybe 3 million under the consent decree, foreclosure cases that the mortgage servicers are going to be required 

to reach out to. Is that correct? 

Ms. WILLIAMS. The samples were intended to be representative 

of the types of standards and of the processing centers and— 

Mr. HENSARLING. Okay. On page four of your testimony, you say, 

‘‘In general, the examinations found that the loans in the sample 

were seriously delinquent.’’ 

So I think you are telling me that at least you consider the sample to be representational. The loans in the sample were seriously 

delinquent. 

I know that mortgage servicers have gone out and done a lot of 

bad and sloppy work. And now I am trying to figure out the extent 

of it. 

So, to some extent, what we are trying to figure out here is just 

how widespread this damage is. So it sounds like the vast majority 

of these loans, there are going to be foreclosure proceedings against 

these people anyway. 

I will ask anybody else on this panel, is there another sample 

size between the 2,800 borrower foreclosure cases that your agencies have examined? And what is the number of those who have 

been foreclosed upon who were not ‘‘seriously delinquent.’’ 

Do you have a number, anybody else on the panel? 

So what we know is limited to this 2,800 sample size. And the 

conclusion is that these folks were seriously delinquent. 

Mr. Date, in your testimony, you say that the Bureau is not yet 

open for business. It sounds like you have been pretty busy for an 

agency that is not yet in business. 

In your term sheet, you clearly suggest a $20 billion settlement. 

I am looking at your term sheet dated February 14th, although I 

don’t see a page number. I am sorry, on page two, you suggest a 

$20 billion settlement. 

I guess my question is this, you have been charged with protecting consumers and you are also suggesting $20 billion in principal write downs, is that correct? And I believe you testified earlier that was ‘‘an aspect to it.’’ 

Did I hear you correctly, Mr. Date? 

36 

Mr. DATE. Yes. But just to clarify, you are referring, I am assuming, to the presentation called, ‘‘Perspective On Settlement’’— 

Mr. HENSARLING. Correct. 

Mr. DATE. And not, by contrast, the 27-page State attorney general term sheet that I believe was— 

Mr. HENSARLING. Wasn’t this your perspective of what a term 

sheet should be? 

Mr. DATE. The term sheet is rather more comprehensive than 

the— 

Mr. HENSARLING. Okay. 

Mr. DATE. That is the distinction I am trying to draw. 

Mr. HENSARLING. Here is my question. If you are suggesting a 

$20 billion in principal write down, we know right now that already the taxpayers are out $150 billion so far in the GSEs. The 

Fed, I believe, has invested over a trillion or about a trillion dollars 

in mortgage-backed securities already. 

That deals with taxpayers not consumers. But every single investor group I know of in America is fearful of a government-forced 

principal reduction. 

And so I guess my question is this. If you are there to protect 

consumers, does a robust private capital mortgage market—does 

the CFPB consider that to be part of consumer protection, yes or 

no? 

Mr. DATE. Access to financial markets is a part of our mandate, 

Congressman. I am happy that it is. 

Mr. HENSARLING. So would you be concerned if there was less 

private capital coming into the market because of this global settlement that you suggest? 

Mr. DATE. Congressman, I am concerned that the pervasive and 

profound deficiencies in mortgage servicing have made it difficult 

for mortgage private label investors to have confidence in how it is 

that their assets are going to be serviced. I think we should all 

share that concern. 

Chairwoman CAPITO. The gentlemen’s time has expired. 

The gentleman from Texas, Mr. Hinojosa 

Mr. HINOJOSA. Thank you, Madam Chairwoman. 

I ask unanimous consent to insert into today’s joint hearing 

record Supplemental Directive 11–06, entitled, ‘‘Making Home Affordable Program—Updates to Servicer Incentives,’’ dated July 6, 

2011. 

Chairwoman CAPITO. Without objection, it is so ordered. 

Mr. HINOJOSA. Thank you. 

Last month, the Treasury Department rated the performance of 

the 14 largest servicers participating in the Making Home Affordable Program, ranking them on three criteria: number one, identifying and contacting homeowners; number two, homeowner evaluation and assistance; and number three, program management reporting and governance. 

Treasury determined that six of the servicers needed moderate 

improvement and four needed substantial improvement in the first 

quarter of 2011. None of the servicers needed only minor improvement. 

The interagency review of foreclosure policies and practices found 

that, ‘‘individuals who signed foreclosure affidavits often did not 

37 

personally check the documents for accuracy or possess a level of 

knowledge of the information that they attested to in those affidavits. 

‘‘In addition, some foreclosure documents indicated they were executed under oath when no oath was administered. Examiners also 

found that the majority of the servicers had improper notary practices, which failed to conform to State legal requirements. These 

determinations were based primarily on servicers’ self assessment 

of their foreclosure processes and examiners’ interviews of servicer 

staff involved in the preparation of foreclosure documents.’’ 

It seems to me that there is room here for investigation claims 

that borrowers are often charged exorbitant and unjustified forced 

place insurance. Can one of you tell me how this is being handled 

so as to help these individuals we are trying to help out? 

Ms. WILLIAMS. Congressman, I can start. 

Mr. HINOJOSA. Yes. 

Ms. WILLIAMS. The issue of fees and whether borrowers were 

charged unreasonable fees, fees that were not reasonable and customary, or fees that were not authorized under the terms of the 

agreements that they entered into, is an element that is part of the 

look-back process pursuant to our enforcement orders. 

So that is one of the things that will be part of the review of the 

borrowers who are in the scope of that look-back. 

Mr. HINOJOSA. Anyone else? 

Mr. DATE. Congressman, I know that Title XIV of Dodd-Frank 

appropriately, to my mind, includes the request for the Bureau to 

undertake an evaluation of this forced-place insurance issue and 

includes rulemaking authority. Obviously, anything that the Bureau would do in this respect would be grounded in real analysis 

on what the impact would be and whether it would, in fact, help 

the market and help consumers. 

Mr. HINOJOSA. We have seen an impact that the actions of the 

top 14 servicers had on our military servicemen, servicewomen, 

who put their lives at stake each and every day to protect us here 

in America. What actions can be taken to ensure that those troops 

are protected from unscrupulous lenders and mortgage servicers? 

Mr. STRANGE. Congressman, from the law enforcement perspective, we are seeking and extremely interested in any instance like 

that. And I am sure I can speak for all the attorneys general that 

if that type of activity comes to our attention, we will pursue it to 

the fullest extent of the law. 

Ms. WILLIAMS. Congressman, actions have already been taken by 

the Department of Justice in some respects. But I think the short 

answer to your question is 100 percent compliance with the 

Servicemembers Civil Relief Act. 

Mr. HINOJOSA. That is good to know. 

With that, Madam Chairwoman, I yield back. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Royce, for 5 minutes. 

Mr. ROYCE. Thank you, Madam Chairwoman. 

I am going to ask Ms. Williams some questions. 

And Ms. Williams, I am not a fan of bifurcated regulation. I 

think it has had some very adverse consequences. But as I menVerDate Nov 24 2008 18:24 Mar 30, 2012 Jkt 067939 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 K:\DOCS\67939.TXT TERRIE
38 

tioned in my opening statement, the number of existing or proposed servicing standards is pretty daunting. 

You have HAMP, FHFA for Fannie and Freddie, individual State 

laws, bank regulator consent orders, the bank regulator joint interagency initiative, the legal settlement reported in the press. You 

have risk retention for qualified residential mortgages. You have 

congressional proposals. 

You have the potential activity by the CFPB. And I quoted from 

the New York Times, in terms of the overhang or the inability 

here. I think you have 60-some years worth in New York State in 

order to work through the backlog. 

So you mentioned in your prepared testimony that the OCC supports the development of a uniform servicing standard. And you 

are all working with the various regulatory agencies to come up 

with such a standard. 

I wanted to ask you about that. And I was going to say, looking 

at the backlog of foreclosures throughout the country, what impact 

does the lack of a clearly defined set of rules have on the confusion 

throughout the market? 

Is that adding to the delays? And does that add perhaps to recovery when you have that amount of confusion out there? 

Ms. WILLIAMS. To the extent that lenders and servicers are uncertain about what the rules of the road are in proceeding with 

their mortgage servicing and with the foreclosure process, that does 

slow down the process. 

As I said in my testimony, there are under way right now a number of different initiatives that deal with mortgage servicing, in the 

larger sense, mortgage servicing with respect to current and performing loans, loss mitigation, including loan modification efforts, 

and also the foreclosure process, and of mortgage servicing. 

And we do think that it is very important for the different players to try to bring those together to be as consistent as possible, 

so that there is a single set of standards, to the extent possible, so 

that the servicers clearly know what is expected of them, and so 

that customers know what to expect from their servicer. 

Mr. ROYCE. The committee has heard a lot about coordinated 

rulemaking efforts. I can just give you my take on this sitting 

through the hearings and then talking to people in the regulatory 

community about their feelings. 

And the truth seems to be that there is little communication and 

coordination occurring in many, many ways, partly due to regulatory turf battles, partly the fact that we just don’t have this one 

clear set of rules. 

And I think it is in everybody’s interest to see that this is done 

right. But let us say for a minute the New York Times is right in 

this story of a week-and-a-half ago. Let us say that New York 

State, that it will really take lenders 62 years at the current pace. 

What might that portend going forward? How are we going to see 

a return to the private market when we are building so many inconsistencies into the system? 

Ms. WILLIAMS. Congressman, I don’t recall all of the details of 

the article that you are referring to. But it is premised on the current pace. One would hope that that current pace isn’t going to be 

39 

the pace going forward once we got some clarity in the standards 

that are expected going forward. 

Mr. ROYCE. As the story goes through also other States, New Jersey 49 years, Florida, Massachusetts, Illinois—it would take about 

a decade in those States. So, again, we are dealing here with bifurcated regulation, with 50 different States, with 50 different sets of 

rules. 

And even at the Federal level, bifurcated regulations without the 

common standard yet. Until we get it, it is hard to figure out how 

we move out of this morass and sort things through in the marketplace with respect to the overhang. 

I yield back, Madam Chairwoman. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Miller, from North Carolina, for 5 minutes for questions. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Madam Chairwoman. 

The American people are justifiably skeptical and I am skeptical 

that anybody who has been involved in all this, who is supposed 

to be independent, has actually been independent. That certainly 

was true at the rating agencies. Everybody involved seems to have 

deep business ties with each other. 

And even when they are supposed to be looking after somebody 

else, they seem to be just looking after each other. It is all the 

same folks, whether they are called servicers or trustees or 

securitizers or whatever else. 

Ms. Williams, the consent order a couple of months ago with the 

14 servicers required an independent review, a consultant’s independent lay review of some of the files. 

Mr. Pearce, in his testimony, said that review should include all 

foreclosures where the homeowner had applied for modification or 

had filed a complaint against a servicer or was a member of the 

military, and that because of the importance of the review and the 

skepticism about whether they are really independent or not, that 

there will be an interagency group that would sample the reviews 

and look hard at them to see how they had been done. 

Do you agree with that? 

Ms. WILLIAMS. I think the approach that we are taking at this 

point is to share information. We have been sharing information 

among the agencies that have been participating in the reviews in 

other respects. But we have not gotten to the point of having sort 

of an interagency second review as part of that process. 

Mr. MILLER OF NORTH CAROLINA. Are you telling me, then, you 

are taking a—whether or not you are doing it in consultation with 

others or with an interagency group, I took that to be that the 

FDIC was volunteering to be part of an interagency—just as in Mr. 

Pearce’s testimony, they volunteered to work with you in that and 

be part of an interagency operation. 

But you say that you are taking a hard look at a reasonable sample of those files? 

Ms. WILLIAMS. Oh, absolutely. 

Mr. MILLER OF NORTH CAROLINA. And does it include all of 

those, whether it is in the foreclosure, where the homeowner applied for modification or filed a complaint or is in the military? 

40 

Ms. WILLIAMS. What we are in the process of doing is identifying 

the level of review for different segments, different high-risk segments, and what the factors are that will trigger a 100 percent review versus the sampling approach. 

Mr. MILLER OF NORTH CAROLINA. Okay. There is a further concern that contributes to the skepticism of the American people and 

me. Brandeis said that the best disinfectant was sunlight, and the 

street lamp the most efficient policeman. There has been no light 

on most of this. All of this has been in the dark. 

Will the result of those reviews be public? To what extent will 

it be public, so the public can look over your shoulder and decide 

whether you are really being an independent watchdog, as you 

were supposed to be? 

Ms. WILLIAMS. Congressman, what we anticipate is probably two 

public-type reports as we go through this process. One, an interim 

report to describe the structure of the look-back process, sort of the 

details of how the whole process is going to be conducted. And this 

will get to some of the questions that you just asked. 

And then a report at the end of the process that will be similar 

to the interagency horizontal report— 

Mr. MILLER OF NORTH CAROLINA. Reports from the consultants, 

the independent— 

Ms. WILLIAMS. No, the reports that the agency would put out describing the— 

Mr. MILLER OF NORTH CAROLINA. Their review? 

Ms. WILLIAMS. —the look-back process, describing the findings, 

describing the financial remediation that would be provided. 

What we would not anticipate doing is having bank-specific information because that is confidential bank supervisory information, 

but providing information about the scope and the details acrossthe-board. 

Mr. MILLER OF NORTH CAROLINA. Mr. Pearce, do you have a response to the question about the necessary views that address your 

testimony? 

Mr. PEARCE. I guess I would say that people have been skeptical 

about what has gone on in the mortgage servicing, and whether the 

servicers that have made errors in following State laws and other 

laws that have been on the books for a long time, whether they are 

going to be held accountable for that. 

And so I think the FDIC’s view, in consultation with our fellow 

regulators, is that that this look-back process really does need to 

be robust. And it needs to look at the areas where we think there 

is likely to be harm. 

As Ms. Williams stated, the sampling approach can really identify where there might be errors and then how many errors you 

might find there. But it won’t go all the way for these high risk 

segments, like borrowers who applied for a loan modification and 

then ended up through foreclosure that—excuse me. 

Just to finish up, having a full review of those files seems to be 

pretty fundamental, in our view. 

Mr. GRIMM [presiding]. Thank you. 

Representative Hayworth, you are recognized for 5 minutes for 

questioning. 

Dr. HAYWORTH. Thank you, Mr. Chairman. 

41 

Mr. Date, in particular, there have been questions about whether 

or not the CFPB should be viewed primarily as a banking—or substantively as a banking regulator or more as a consumer protection 

agency to the extent that it has considered itself, if you will, or if 

it is considered to be a banking regulator, then the Federal Financial Institution Examination Council’s policy presumably would be 

applicable to the CFPB’s actions, vis-a-vis some type of financial institutions obviously. 

And in the assessment of penalties and in this prospective document that we have all been talking about, there was reference to 

penalties in particular regarding deficits in mortgage servicing. 

There are mitigating factors that have to be considered in terms 

of FFIEC policy. There is the whole list of mitigating factors, including the size of the institution, evidence of past violations, evidence of concealment, etc., that themselves flow from certain statutory requirements regarding banking regulations. 

So how is the CFPB considering its activities in terms of those 

FFIEC guidelines? 

Mr. DATE. Thank you, Congressman. 

With respect to specifically the FFIEC guidelines, broadly speaking, the Bureau will, as my understanding, participate in the 

FFIEC. The Bureau’s Director will be a member of the Financial 

Stability Oversight Council. 

I spent most of my career as a banker. I can assure you that in 

that capacity, someone with supervisory authority over, for example, the Truth in Lending Act and RESPA, etc., I would view it as 

a bank regulator. And that is certainly how it is that we are thinking about what we are setting up. 

With respect to the mitigating circumstances associated with any 

putative settlement, I am confident that the people at the table, in 

terms of the Department of Justice and the State attorneys general, as well as presumably the legal representatives of whatever 

servicers might be involved, are considering and making arguments 

about mitigants in the industry. 

Dr. HAYWORTH. So, in other words, you are not necessarily subscribing specifically to FFIEC policy. That hasn’t been internally 

determined, yet it is still all under consideration? 

Mr. DATE. For context, I will explain my role at the Bureau, but 

then also point towards what might be a productive answer to your 

question. I think examination practices in the main. 

My role at the Bureau is really running the division called Research, Markets and Regulations. There is an Assistant Director 

for Depository Supervision who, among other things, has been recruiting a team that is ready to take over supervisory authority 

with respect to the specifically enumerated Federal consumer financial protection laws, as of July 21st. 

And they have been hard at work to make sure we are ready to 

use guidelines, policies, and procedures to that end. Again, my understanding is that would be in light of existing protocols, and to 

the extent possible coordinated. 

Dr. HAYWORTH. The importance being obviously that since we 

are talking about penalties being assessed against banks in regard 

to their relationship to the mortgage servicers—obviously, you are 

getting in that issue through the banks here. And we are talking 

42 

about the broader issue of bringing private capital into the mortgage marketplace, encouraging that. 

If penalties are assessed without due consideration for what 

banks, as you know very well, consider to be a policy that they understand and are familiar with, then it increases the uncertainty. 

It might deter further or enlarge participation by private capital in 

the marketplace. 

Any comments by any of our other panelist would be welcome in 

that regard. 

Mr. PEARCE. I guess that from the FDIC’s point of view, I think 

we are concerned that the servicing errors have really created an 

environment where there may be lots of different litigation and 

claims at either the State level or Federal level, not only bank regulators or the Department of Justice, but there may be other Federal agencies or other State regulatory authorities that have issues. 

So the range of government parties out there that may have 

some claim related to servicer errors. There is private litigation 

going on relating to loan modification programs, enhanced and nonenhanced, whether a chain of title is secure in that. 

And so I think the point there is that resolving these issues is 

really important to get private capital back in the marketplace, and 

so a comprehensive resolution, we would like to see that if we can. 

Mr. GRIMM. The gentlelady’s time has expired. 

The gentleman from Georgia is recognized for 5 minutes. 

Mr. SCOTT. Thank you very much, Mr. Chairman. I appreciate 

that. 

As I mentioned in my opening remarks, we had extraordinary 

success in Atlanta, Georgia, with our home foreclosure event. And 

Mr. Raj Date—I hope I didn’t do too much injustice to your name 

there. But you are with Treasury, although you are with the 

CFPB—is that correct? 

Mr. DATE. During the stand-up period for the CFPB, the Bureau 

of which I am an employee is under the governance of the Secretary of the Treasury, during that— 

Mr. SCOTT. Excellent. The only reason is I want you to get a message to the Treasury for me, especially Ms. Alvina McHale, Assistant Secretary Kim Wallace, and the acting Secretary for the U.S. 

Treasury Office of Financial Stability, Tim Massad. They really 

worked tremendously in making such a success that we got over 

2,000 homes prevented from foreclosure in this event. 

It opened my eyes to a world of which I was only dimly aware. 

And I feel so much stronger now about how we can attack and 

solve this problem. 

This is a war that we have going out here. And so many of our 

American people and the struggling homeowners are just victims 

because of a lack of information, or a lack of access for that information. For it is there. We have a plethora of programs. 

And the reason we were able to solve this—and people came out. 

As I have said before, thousands and thousands. I walked the lines. 

I talked with thousands of people, so I learned exactly what was 

on their minds. The complaints about the loan servicers not returning calls, multiple people, people foreclosing without the proper 

knowledge of the loan, etc. 

43 

People were very, very frustrated. But when we were able to get 

in there, we were able to solve those problems. 

But there are two points I want to address here. One is the 

HAMP program, which has come under a lot of criticism—but let 

me tell you that we were able to effectively use HAMP in over 200 

of those cases right there on the spot. 

And the reason for that was because there are some banks, like 

Bank of America was there, who made the decision to bring their— 

what do you call—loan underwriters. Excuse me. When they 

brought their underwriters there, they could do the deal right 

there. 

This was a major move. And it should be encouraged. 

So, I really believe that if your Department continues that kind 

of work and outreach—if it worked in Atlanta, Georgia, that way, 

just imagine what that would be if it was done over and over. Like 

I said, it is a war. We have to get this information out to the people 

and make sure that happens. 

I do want to get your comments, especially the Office of the 

Comptroller of the Currency and the FDIC, on the move that you 

are making to deal with the loan servicers’ issues and deficiencies 

which is this consent agreement. 

Could you tell me exactly, and the American people, what that 

is and why we are having the consent agreement? And then explain which types of servicers are not subject to the consent agreement? This I understand is a major tool that we are using now to 

address some of these deficiencies of the loan servicers. 

Ms. Williams, could you start? 

Ms. WILLIAMS. The reason why we have these consent agreements is because there were serious deficiencies in the foreclosure 

processes of the large mortgage servicers. 

And the consent agreements are extensive. They require major 

changes in significant areas of the servicers’ compliance, governance, mortgage servicing oversight, loss mitigation, including loan 

modifications, foreclosure processes, MIS. 

They are very comprehensive. 

Mr. SCOTT. Why are certain loan servicers not subject to the consent agreement and others are? Why is that? And who are they? 

Ms. WILLIAMS. When we embarked on the interagency horizontal 

exam, the 14 largest federally-supervised mortgage servicers were 

identified, just in looking at the volume of mortgages that they 

handle. And so those were the entities that were subject to the 

interagency exam process. 

None of those entities came out of it with a good grade. And so, 

therefore, all of them are subject to the orders. 

Mr. SCOTT. Okay. 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. SCOTT. Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Mr. Canseco, for 5 minutes. 

Mr. CANSECO. Thank you, Madam Chairwoman. 

Ms. Williams, I am curious about the overall goal of the consent 

orders that the OCC and other agencies have provided the banks. 

And as a follow up to my colleague, Mr. Scott here, let me ask you 

this, please expand on what exactly the OCC is trying to do with 

the guidelines they are requiring banks to follow? 

44 

Ms. WILLIAMS. What we are trying to do with the guidelines with 

respect to servicing practices or all of the guidelines— 

Mr. CANSECO. Servicers’ practices. 

Ms. WILLIAMS. —in the consent? 

What we are trying to accomplish with the—I will call them the 

action plans is what they are referred to in the consent for mortgage servicing procedures, loss mitigation activities, foreclosure 

processing, is to make sure that there is a rigorous process with 

integrity in handling the way that those operations are conducted 

by the servicers, that customers are dealt with properly, that the 

servicers are making decisions based on accurate and complete information, and that they are conducting themselves in accordance 

with all of the applicable State and Federal laws in how they operate. 

Mr. CANSECO. These consent orders or consent decrees, will they 

do anything to reduce foreclosures? 

Ms. WILLIAMS. They could to the extent that there are foreclosures that have been based on incorrect information, that have 

been based on, for example, incorrect information about amounts 

owed or fees that have been charged. 

Mr. CANSECO. But not to the extent that it is going to prevent 

somebody who has not been paying his mortgage, prevent them 

from being foreclosed on. 

Ms. WILLIAMS. No, sir. 

Mr. CANSECO. Okay. There has allegedly been some discussion 

among the regulators about changing the way in which mortgage 

servicers are compensated. And one idea apparently being floated 

would pay servicers less for performing loans and more for non-performing loans. 

And my concern is that this conversation among regulators is focusing only on the larger servicers, and little attention is being 

paid to community-based servicers that have close relationships 

with borrowers. 

So since the loans at these banks tend to perform much better, 

simply because of the personal relationship that they have with 

their community, any cut in service compensation for performing 

loans would cause smaller servicers to get out of business. 

And these servicers might not be the most efficient in the industry, but their business model is exactly what some customers are 

looking for. Has your agency, the OCC, considered the impact on 

community lenders of these proposed changes that would change 

the way servicers are compensated? 

Ms. WILLIAMS. Congressman, the initiatives that you are describing are actually not initiatives that my agency or the other Federal 

bank regulatory agencies have commenced. The FHFA and I believe HUD, together with the GSEs have embarked on a significant 

initiative to revisit the compensation structure for the GSE-held 

mortgages and the servicing of those mortgages. 

So, the driver of the standards or the potential changes that you 

are describing are the GSEs, the FHFA and, I believe, HUD. I completely agree with the point that you are making about the implications for community institutions. 

Mr. CANSECO. Thank you. 

Mr. Pearce, would your answer be the same? 

45 

Mr. PEARCE. Yes. I would agree that it is a process that HUD 

and FHFA have taken on to look at servicing initiatives. And I do 

think we want to be careful here that problems we have identified 

really are in the larger institutions that have sort of the economies 

of scale and different foreclosure and loss mitigation and collections 

departments. 

And so the problems we have seen really been, the right hand 

doesn’t know what the left hand is doing, and the borrower falls 

through the crack. 

Mr. CANSECO. Right. 

Mr. PEARCE. But that has not been the problem in community 

banks. 

Mr. CANSECO. Okay. Great. I appreciate your answer. And I don’t 

mean to be rude by cutting you off, but I am running out of time 

here. 

I want to know from both of you, have you considered any measures that would help to keep high-quality community-based 

servicers in their business, especially those involving community 

banks and other smaller servicers? 

Mr. PEARCE. I am sorry. I didn’t hear that. 

Mr. CANSECO. If you have considered any measures that would 

help to keep high-quality community-based servicers in business, in 

your rules and regulations and orders? 

Mr. PEARCE. Certainly, as the primary Federal regulator for most 

of the community banks, we didn’t find those problems in those institutions. And we are very concerned about new initiatives and are 

paying attention to that. 

Mr. CANSECO. Thank you, sir. 

And Ms. Williams? 

Ms. WILLIAMS. I think that is something that we should certainly 

be sensitive to in doing interagency mortgage servicing standards. 

Mr. CANSECO. Thank you both very much. And I yield back my 

time. 

Chairwoman CAPITO. Mr. Perlmutter for 5 minutes. 

Mr. PERLMUTTER. Thanks, Madam Chairwoman. 

I want to follow up on Mr. Canseco’s line of questioning and just 

come at it a little differently. 

My law firm, for many years, had a general practice. We represented a lot of lenders, a lot of financial institutions. And so, 

from time to time, when the economy went south, we did a lot of 

foreclosure work. 

Sometimes, we were swamped, and we couldn’t process as fast as 

our client wanted us to. And, ultimately, I am going to get to you, 

Mr. Attorney General. 

But, in this instance, we have a huge number of foreclosures into 

the system. So we got all sorts of competing pressures. But there 

is this need for speed, so to speak. 

But where I have seen the excesses and where I am concerned 

about—before I get there, just a public comment. The new form 

that CFPB has done on disclosures when you take out a loan, good 

work. I just want to applaud you for that. 

But getting back to the default side of all this—not the lending 

side, but the default side—we have the biggest banks, and we have 

Fannie Mae and Freddie Mac. And, generally, they pay a certain 

46 

amount to process a foreclosure. Isn’t that right? Like $650 for the 

foreclosure and ‘‘X’’ number of dollars for the bankruptcy. Correct? 

Mr. Attorney General, I don’t mean to ask leading questions, but 

am I off base on that? There is a standard— 

Mr. STRANGE. I am sure there is. 

Mr. PERLMUTTER. There is a standard payment for the bulk of 

the foreclosures that are processed, unless they are a private kind 

of a loan that has been made? 

So, within that amount that mostly Fannie Mae and Freddie Mac 

pay to have a foreclosure process, now we have this tremendous 

number of foreclosures coming through. And now we have, as opposed to what I used to deal with, there is sort of a middle man 

who is taking charge of the default process, the loan process 

servicer, LPS, or whatever they are called. 

And from my review of the cases and the consent decrees, that 

seems to be where we have a lot of problems. 

Mr. Attorney General, can you sort of expand on that? Am I off 

base or— 

Mr. STRANGE. I think you are describing the situation and the 

problem. I think that is a new twist to the whole experience. It 

sounds like yor experience with this issue is similar to mine. 

As the individual cases state law process—that is still really typically the situation in Alabama, in my State. 

Mr. PERLMUTTER. So, we have this massive number of foreclosures that have to be processed. And the client who is up here 

could be a big bank one or could be a Fannie Mae number one. 

You have a loan processing servicer company here, and then you 

have lawyers and title companies down here. How in regulating all 

of this—Ms. Williams you were talking about some standardized 

processing, because we have State-by-State laws. 

But how would you approach this? Because I think in your testimony, you talked about trying to standardize this stuff. 

Ms. WILLIAMS. What we found in our examinations—and it is 

part of the areas where additional corrective action is required in 

our orders—is that the oversight of these, I will call them thirdparty vendors, and they include law firms, but they also include 

the paper processor, packagers. 

The large servicers relied significantly on third-party vendors of 

different types to do important components in the foreclosure process. And they did not oversee them properly. 

We have guidance that we have issued, supervisor guidance that 

deals with oversight of third-party vendors that banks use, regardless of what particular service is being provided. That guidance 

was pretty well ignored in the oversight of the law firms and 

wasn’t adequately applied elsewhere. 

Mr. PERLMUTTER. And so that sort of reminds me of what used 

to be doctor-patient, then it became doctor-insurance company-patient. Here it is client-servicer-lawyer. And hearing from the lawyers, they were getting nicked like crazy by the servicer, almost a 

RESPA in reverse, that they would have to payback kickback, if 

you will, moneys to the servicing company. 

Then, there was this piecemeal or piece process, where they just 

had to speed these things through. And you lost the lawyer-client 

relationship. 

47 

And I don’t know if in Alabama, there are ethics issues that are 

going on. I want to be here on behalf of the lawyers to say, let them 

do their job. 

Mr. STRANGE. I agree with your comment. And some of the 

things I pointed out in my testimony that I think are good, as far 

as this overall negotiation process, the single-point contact, the 

dual-track negotiations, eliminating this robo-signing problem, 

verifying accounting information, a lot of things that consumers deserve and should have in a simple forum are very good parts of this 

whole discussion. 

Chairwoman CAPITO. The gentleman’s time has expired. Thank 

you. 

Mr. Luetkemeyer for 5 minutes for questions. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

Mr. Strange, just very quickly, I am curious, how many cases 

have you filed so far in your investigatory work against servicers? 

Mr. STRANGE. In our State? 

Mr. LUETKEMEYER. Yes. 

Mr. STRANGE. I don’t know of any at this point. 

Mr. LUETKEMEYER. Okay. How long have you been investigating 

them? 

Mr. STRANGE. I have been in office for 5 months. 

Mr. LUETKEMEYER. Okay. You are following a predecessor. Are 

you initiating— 

Mr. STRANGE. We have had a lot of organizing to do. But we have 

a very robust consumer protection division. We have received lots 

of information, complaints that we are pursuing. 

But I couldn’t comment on specific investigations right now. 

Mr. LUETKEMEYER. Can you give me a number of complaints? I 

know you can’t get specific. 

Mr. STRANGE. In the hundreds. 

Mr. LUETKEMEYER. In the hundreds. What would be the fine for 

someone who is deemed to have committed fraud here or committed an offense? What would be the fine? 

Mr. STRANGE. I think it depends on what the offense is, obviously. And I would have to get back to you on that. I am not exactly sure. It depends on where they fall. 

Mr. LUETKEMEYER. Okay. 

Mr. STRANGE. I would be happy to get that information for you, 

though, for our State. 

Mr. LUETKEMEYER. Thank you. What do you see, so far as—I 

think we have had a pretty good discussion this morning—afternoon now, I guess—with regards to the events that all transpired, 

and how it has all come about with regards to some of the servicing, obviously, has fallen short here. 

And now in the default process, there is, obviously, some lack of 

communication, probably some other shortfalls. Is that what you 

see so far? Are there some other players along the line here that 

did some inappropriate things as well? 

Mr. STRANGE. Most of the complaints that we receive are lack of 

communication or a lack of understanding of the process. And it 

can be from lots of different sources or reasons. We try and do everything we can to inform the consumer and then try and adopt the 

approach that I think Congressman Scott mentioned, get people toVerDate Nov 24 2008 18:24 Mar 30, 2012 Jkt 067939 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 K:\DOCS\67939.TXT TERRIE
48 

gether so that they can get the information. And oftentimes, that 

will solve the problem. 

Mr. LUETKEMEYER. Okay. 

Mr. Date, I am just kind of curious. A while ago, you were talking about, basically, the 14 mortgage servicers have 50 percent of 

the market, roughly. And then, you were talking about working 

with all the stakeholders. And you included academics in that. 

Can you explain how the academics are part of the stakeholders 

in mortgage servicing? 

Mr. DATE. What we have tried to do within the Bureau broadly, 

and certainly within our work in our research and markets team, 

is to make sure that we are plugged in to both the actual pragmatic market reality of how these financial markets work, operationally how do they work, how do the financial incentives work, 

what is the structure and concentration in the markets, and then, 

simultaneously, be aware of and be on top of advances in the conceptual understanding from a research point of view. 

There are lots of great economists, for example, who are in the 

employ of the bank regulatory agencies. But we really know that 

we don’t have the monopoly on good ideas or different perspectives. 

So we want to make sure that we are talking and getting the insights and the perspectives of a wide range of people. 

Mr. LUETKEMEYER. Even those people who are not on the ground 

dealing with it everyday? That is just kind of curious. It is kind of 

interesting to me, how they can impact it, since they don’t have a 

working knowledge of it, because they are not there everyday? 

They are just conceptualizing. 

Mr. DATE. Congressman, I appreciate your point, certainly. But 

I will say that when I was in the business, I would occasionally 

talk to academic researchers. It is a different perspective and, 

therefore, valuable. 

Mr. LUETKEMEYER. Okay. That is fine. 

In April, a letter from the Center for Responsible Lending was 

sent to Federal bank regulators stating the preference for State solutions to addressing deficiencies in the mortgage servicing as opposed to solutions crafted by the Federal Government. Does the 

CFPB concur with this position? 

Mr. DATE. I am sorry. Would you mind? I couldn’t quite— 

Mr. LUETKEMEYER. In April, there was a letter sent from the 

Center for Responsible Lending to the Federal bank regulators 

stating the preference for State solutions to address the deficiencies 

in the mortgage servicing, as opposed to solutions crafted by the 

Federal Government. I just asked if CFPB concurs in this position. 

Mr. DATE. The CFPB has the advantage structurally of being 

able to have supervision authority with respect to Federal consumer protection laws, irrespective, when we have our full authority, of a particular charter or locale that the servicer is in. 

So it does allow us, over time, to be able to be a meaningfully 

additive voice to creating a baseline that is consistent across-theboard. 

That said, much of the constraints on the mortgage market, because of the size of the real estate market, are matters of State 

law, which is why I assumed that the State attorneys general figure so prominently in this debate. 

49 

Mr. LUETKEMEYER. So, is that a yes or a no? 

Mr. DATE. State law issues and solutions ought to, I suspect, be 

an important part of the solution. But I don’t think that somehow 

excuses the Bureau or other Federal regulators from trying to improve what today appears to be a broken market. 

Mr. LUETKEMEYER. Okay. Thank you very much. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. Mr. McHenry for 5 minutes. 

Mr. MCHENRY. Thank you, Chairwoman Capito. 

Mr. Date, in connection with this loan servicing issue, has CFPB 

proactively reached out to the State attorneys general? 

Mr. DATE. With respect to the mortgage servicing settlement conversations, I assume, Congressman? At the invitation of the Treasury and the Secretary, we have been asked to participate in the 

interagency Federal and State dialogue in that way. 

There are 50 State attorneys general. Although I don’t personally 

know, I would expect that some reached out to us and that members of the team reached out to some of them. 

Mr. MCHENRY. Okay. And in connection with this loan servicing 

issue as well, has the agency proactively reached out to loan 

servicers? 

Mr. DATE. Just to clarify, with respect to the attorneys general, 

the CFPB will have an enforcement division. And in an effort to 

make sure that we are at some level coordinated with State attorneys general, I know that we have, at least, been trying to connect 

with State attorneys general over time, in respect with their significant authority over these areas. 

But that is a more broad-based comment than mortgage servicing. 

Your comment with respect to reaching out to mortgage 

servicers, my job, just a component of it, is to make sure that we 

are very plugged in to how it is that these businesses, as a practical matter, actually work in the moment. 

And what that means is that it is incumbent on me and it is incumbent on my team to make sure that we are connecting, I would 

hope on a regular basis, with those who can provide market color 

and market insight. 

As the gentleman pointed out a moment ago, the mortgage servicing market has come to be quite concentrated. And so my expectation is that members of my team, if not me personally, have 

talked with the institutions that have mortgage servicing platforms 

of some sort. 

Mr. MCHENRY. Okay. In light of that, is it part of your practice, 

in terms of your engagement in this mortgage servicing settlement 

issue, to float ideas with the industry to see if it is workable? 

Mr. DATE. In general, that has not been the approach. What we 

have tried to do is to provide advice to Federal and State agencies 

that are at the table. 

I would argue that it would become confusing and slightly 

entropic to be making some parallel set of negotiating rounds with 

servicers. And so, that is not something we have done. 

To be clear, I have tried—I have personally tried to provide ideas 

to our sister agencies and to State attorneys general, to put those 

ideas in perspective, those perspectives in some grounded analysis, 

50 

to communicate that analysis and to listen and receive feedback 

with respect to—and provide feedback about ideas. All of that is 

certainly true. 

Mr. MCHENRY. Okay. So, that is in light of the PowerPoint presentation that has been going around for a few months now, that 

some proactive solutions that the CFPB is proposing as a part of 

this agreement. 

Do you have an email from Richard Davis at U.S. Bank to you 

and Ms. Warren, from back in March, where it appears that it is 

a follow-up from a conversation? You are asking about details of a 

needs test. 

And so, I just want to be clear, sometimes you are soliciting opinions from the mortgage servicer on what would be workable? I just 

want to make sure that I give you another opportunity to answer 

that question. Perhaps I didn’t word it correctly. 

But it appears, in light of the email that we have—we are not 

privy to your conversation you had with U.S. Bank. But in response to that meeting, they go through a detailed analysis of what 

a needs test would look like and how operationally it worked. 

Is that something that you solicited? 

Mr. DATE. Congressman, I can’t recall this specific conversation 

with Mr. Davis around the—I remember the meeting, of course. 

But I want to make sure that I understand your question. 

A needs test is one of, frankly, many structural mechanisms that 

a variety of mortgage servicers use in order to prevent what otherwise can be an arguably pernicious impact of moral hazard when 

loss mitigation techniques are used. 

And as a large mortgage servicer, I would expect that particular 

institution would have some experience in that, particularly in 

light of delinquencies in the marketplace. And I naturally, by virtue of my role, would be very interested in their perspective and— 

Mr. MCHENRY. So you did solicit their opinion on that? 

Mr. DATE. I have solicited. I don’t remember that in particular, 

but it would not surprise me. I have solicited opinions about a 

great many things with respect to the mortgage market and otherwise. 

Mr. MCHENRY. Okay. Thank you for your testimony. 

Chairwoman CAPITO. The gentleman’s time is expired. 

Mr. Duffy, for 5 minutes? 

Mr. DUFFY. Thank you, Madam Chairwoman. 

Just to revisit an issue that came up earlier, there was quite a 

bit of conversation earlier in this hearing about Ms. Warren. And, 

I think one of our concerns is that she has come into this committee and told us very specifically that she was here just providing advice for certain folks as her role with the formation of 

CFPB. 

But as we have come to learn, I think she has been less than 

forthright, that she has been actively engaged in the negotiations, 

actively making proposals for these settlements. 

As one of my Democrat colleagues mentioned earlier, sunlight is 

the best disinfectant. And when we feel like there has been a cloud 

around what she has been doing, that will raise our need to question further. And I think that is what has been happening here. 

51 

But with that clarification, Mr. Date, is it fair to say that the 

CFPB is making recommendations that we should have some form 

of principal write-down as a settlement proposal? 

Mr. DATE. We have provided ideas and perspectives on mortgage 

servicing broadly. I personally had— 

Mr. DUFFY. That is not my question. Have you guys provided 

ideas that a principal write-down should be part of the settlement? 

Mr. DATE. That is an idea that we have presented in the past. 

Mr. DUFFY. So you have set out the idea that principal writedown could be part of the settlement? 

Mr. DATE. As part of a broader settlement. 

Mr. DUFFY. Are you aware that the Senate and the House last 

year considered the concepts of principal write-down? And they 

soundly rejected those ideas? 

Mr. DATE. Congressman, I wouldn’t be able to point to specific 

provisions that were considered or not. But obviously, that was not 

in the context of a voluntary settlement by parties. 

Mr. DUFFY. Sure. But you are aware that it was considered last 

year in the Senate when we talked about bankruptcy judges being 

able to do a principal write-down as part of a bankruptcy? 

And then in the House, there was a measure to allow mortgage 

cram-down that was rejected. Are you aware of that? 

Mr. DATE. I am not specifically aware of the specific contours. 

But I do know that the Congress appropriately is thinking about 

and considering different ways in which to help American households through what is a grotesquely difficult period. 

Mr. DUFFY. That is right. And so, the Congress has rejected 

these ideas. But here at the CFPB, even though we, the elected 

Representatives of the people of the United States, have rejected it, 

you all come in and said, as a form of a settlement, as per the documentation that was provided to you earlier by Mr. Bachus. 

You say, no, no, no. This is an appropriate form of settlement, 

even though we have all rejected it, and we are the ones who are 

the elected officials. I take some offense to that because I think, in 

the end, what it does is it is going to drive up interest rates. It is 

going to drive capital out of the private marketplace. 

And in the end, it is not going to serve consumers in my district. 

I think it is going to make it more difficult for them to obtain a 

mortgage for a new home. 

Ms. Williams, as you have been dealing with this issue, is it fair 

to say that the Federal Reserve and the OCC have been discussing 

the deficiencies in the servicing process over the last couple of 

years? 

Ms. WILLIAMS. The OCC, the Fed, the FDIC, and the OTS—this 

has been a subject of interagency discussion. 

Mr. DUFFY. And is it fair to say that you guys have entered into 

consent orders with the Nation’s largest mortgaging services? 

Ms. WILLIAMS. Yes, sir. 

Mr. DUFFY. Yes. And part of that consent order is that there 

would be significant remedial steps taken to make sure this doesn’t 

happen again? 

Ms. WILLIAMS. Absolutely. 

Mr. DUFFY. And so, you have stepped in. And I hope that you 

would have taken appropriate caution to make sure this doesn’t 

52 

happen again. Do you then see the need to have the CFPB and the 

State attorneys general stepping in to supplement the remedies 

that you have implemented? 

Ms. WILLIAMS. The settlements that the State AGs and the DOJ 

are involved in deal with areas that are separate and distinct from 

the areas that we addressed in our orders. They deal with matters 

of State law. They deal with other Federal agencies’ issues. 

So, we have moved on parallel and coordinated tracks, but it is 

a separate track. 

Mr. DUFFY. But the concern for everyone here is that there have 

been some deficiencies in the servicing process, right? 

Ms. WILLIAMS. Yes, sir. 

Mr. DUFFY. And you wanted to make sure this doesn’t happen 

again, right, moving forward? 

Ms. WILLIAMS. That is correct. 

Mr. DUFFY. And you have implemented procedures to make sure 

that doesn’t happen again 

Ms. WILLIAMS. We are in the process of doing that. Yes. 

Mr. DUFFY. Okay, fine. 

I am out of time. I yield back. 

Chairwoman CAPITO. The gentleman’s time has expired. 

The first panel—I believe we have had all the questions—is dismissed. 

I would like to thank the first panel very much. You had great 

testimony and great responses to questions. 

Thank you very much. 

At this time, I would like to call up our second panel of witnesses. I ask everyone to take their seats. 

Hello. Welcome to the second panel. I will introduce them individually for the purpose of giving a 5-minute statement. 

Mr. David Stevens is no stranger to the Financial Services Committee room. And I welcome him back in a different capacity, as 

president of the Mortgage Bankers Association. 

Welcome. 

STATEMENT OF DAVID H. STEVENS, PRESIDENT AND CEO, 

MORTGAGE BANKERS ASSOCIATION (MBA) 

Mr. STEVENS. Thank you, Chairwoman Capito, Ranking Member 

Maloney, Chairman Neugebauer, and Ranking Member Capuano 

for the opportunity to testify today on mortgage servicing and national servicing standards. 

We at MBA believe that a consolidated national servicing standard, if developed in a cooperative manner, could stimulate much 

needed reform of a residential mortgage loan servicing system that 

has admittedly failed a great number of consumers during the recent foreclosure crisis. 

In 2008, we faced a ‘‘perfect storm.’’ As the global economy collapsed, the subprime market imploded. Many Americans lost their 

jobs and millions of Americans defaulted on their mortgages, putting extraordinary strains on the existing servicing system. 

When the crisis hit, I was in the private sector running a large 

real estate firm. I saw firsthand the buy and sell sides of the business grind to a halt. All the members of these two subcommittees 

53 

know from your own experiences the devastating impact that ensued. 

It is clear that the real estate finance industry as a whole was 

unprepared to handle these unprecedented events, and that mistakes were made. What brings us here today, and what is grossly 

lacking at every level within the industry, is trust. 

There is a lack of trust between borrowers and servicers. There 

is a lack of trust between servicers, regulators, the State attorneys 

general, and the courts to find a joint solution as to how to equitably handle borrowers facing foreclosure. And there is a lack of 

trust between investors, underwriters, and credit rating agencies to 

restore private capital to the mortgage market in a meaningful 

way. 

Without the trust, the housing industry goes nowhere. And by 

trust, I mean the ability of policymakers, borrowers, and the industry at large to have faith in the products and services we provide, 

and how those loans will be serviced. It must do better moving forward. 

I am here today representing an important segment of the mortgage finance market. In my prior job as FHA Commissioner, you 

may recall that my staff and I worked hard to get bipartisan support for FHA reform last year. That proposal passed overwhelmingly in this House. 

Now here today, I believe the environment exists to reach similar 

consensus amongst regulators and stakeholders regarding national 

mortgage servicing standards. Certainly, the MBA will support 

such an effort. 

I can assure you that the mortgage finance industry and 

servicers have not stood still and we are constantly in the process 

of addressing our shortfalls in implementing new program upgrades. 

Creating a truly national servicing standard would streamline 

and eliminate many overlapping requirements, providing clarity 

and certainty for servicers, borrowers, lenders, and investors alike. 

It is critical that all of the Federal regulators involved act in a 

coordinated manner to establish one national consolidated servicing 

standard that applies to the entire industry, rather than each piling on requirement after requirement. 

A national standard should start with a complete analysis of existing servicer requirements and State laws governing foreclosures. 

Development should include an open dialogue with stakeholders in 

the servicing arena, all of whom must ultimately work together to 

ensure the standard achieves the dual goal of better serving borrowers while allowing for a sustainable mortgage servicing business model. 

MBA actually initiated the process in January by convening a 

blue-ribbon council on Residential Mortgage Servicing. That council 

examined the entire servicing model and is the basis for work that 

is currently under way to identify recommendations to improve the 

system for all stakeholders. 

In May, the council released its preliminary White Paper. In it, 

the council examined the current servicing model, educated the 

public on the role and compensation of servicers, and addressed 

54 

popular misconceptions relating to servicing practices and incentives. 

I believe this White Paper has provided useful information to you 

and other policymakers that are currently engaged in the debate, 

and I encourage your two subcommittees and Congress to use MBA 

and its counsel as a resource going forward. 

In conclusion, as we develop servicing standards, I urge you to 

pay careful attention to the interdependence of servicing and the 

impact that changes to the system will have on the economics of 

mortgage servicing, tax and accounting rules and regulations, and 

the effect of the new requirements on Basel capital requirements 

and the TBA market. 

Servicing does not exist in a vacuum. Instead, it is part of a 

broader interdependent and interconnected ecosystem that involves 

all the varied elements of the mortgage industry. The housing market remains fragile. Therefore, when considering changes to the 

current model, policymakers must be mindful of unforeseen and 

unintended consequences that could ultimately result in higher 

housing costs for consumers and reduced access to credit. 

I have spent more than 30 years in this industry. Despite what 

we have just lived through, and the challenges we continue to face, 

I am optimistic that we can successfully address the challenges in 

the mortgage servicing system. 

To both subcommittees and the full Congress, I would reiterate 

that MBA supports reasonable national servicing standards that 

apply best practices to the process to better serve the needs of borrowers, servicers, and investors alike. 

Again, we want to be part of the solution and we look forward 

to working with you and other policymakers towards that end. 

I look forward to any questions. Thank you 

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

106 of the appendix.] 

Chairwoman CAPITO. Thank you. 

I would like to introduce Mr. Michael Calhoun, the president of 

the Center for Responsible Lending. 

Welcome. 

STATEMENT OF MICHAEL CALHOUN, PRESIDENT, CENTER 

FOR RESPONSIBLE LENDING (CRL) 

Mr. CALHOUN. Thank you, Madam Chairwoman, ranking members, and members of the subcommittee, for this opportunity to testify today. 

It has been noted what a critical time this is for the housing 

market. And the housing market is increasingly probably the most 

important drag on our recovering economy. For the point on that, 

housing starts today are at the lowest point that they have been 

at since World War II. 

We have an overhang of housing in the real estate market that 

will take far more than a year to clear—that is, existing houses for 

sale—without the addition of the many other houses that face foreclosure now. 

CRL comes to this and other consumer financial issues from a 

dual viewpoint. We work to help families achieve and maintain financial security in two ways. 

55 

First, we fight for consumer protection that helps families have 

access to sustainable lending. And second, through our affiliates, 

we provide, through this affiliate, substantial financing, over $6 billion to date, primarily for homeownership. 

We currently, today, have a large portfolio of loans for which we 

have 100 percent of the credit risk, that we are wrestling ourselves 

with these very issues of how do you sort out which families can 

be helped, and which ones need to transition to the next stage. 

And so, we deal with this in a very real way on an every day 

basis. 

I appreciate the opportunity to testify today with David Stevens 

and the work we do with the MBA. 

There are three main points. The first is documented by the regulator’s repeated studies. There are serious servicing deficiencies 

and they continue. Importantly, these harmed not only borrowers, 

but also investors, surrounding property owners, local government, 

and the overall economy. 

Second, there are deep structural barriers to a properly functionally servicing market. As noted, borrowers do not select or control 

the servicer. Investors, likewise, have very little control over selecting or controlling the servicers. 

And perhaps most important, typically, the servicer does not own 

the loan that they are servicing. They are doing it for another 

party. That changes the incentives. 

And indeed, often, the servicers have conflicts of interest, in that 

they own second loans and unsecured loans that are subordinate 

to the very loans that they are servicing, and can be adversely affected depending how they service those loans. 

There have been questions about what has been the impact of 

the servicing deficiencies. And I think it is critical to remember the 

same company, the same personnel who have been charged with 

the robo-signing, cutting corners, and inadequate staffing foreclosure, are the very same companies, the same personnel who 

have been responsible for implementing loss mitigation efforts, 

have been where the rubbers meets the road of processing which 

families can be saved and which should be moved forward. 

And I think it is noteworthy that the largest legal action to date 

regarding servicing deficiencies was brought by investors who felt 

their investments were being damaged by the inadequacy of the 

servicing, and that too many families were being pushed into foreclosure rather than through loan modification. 

And indeed, the remedy in that proposed settlement is that the 

servicing for troubled loans be transferred to another servicer. In 

effect, we are trying to figure out how you make servicers treat 

other people’s loans like they do their own. 

The solution, as we outlined in our testimony, is better baseline 

servicing standards and coordinated oversight. Key among the particular individual protections, there needs to be required loss mitigation evaluation before foreclosure can be either initiated or continued. 

As noted by many, we need to get in place promptly a single 

point of contact, so people don’t get lost in the maze of these servicing companies. 

56 

There needs to be third-party review of loan modification denials. 

Audits continue to show very high failure rates and error rates by 

the servicers. And again, this provides the safeguards and improves 

the quality of the modifications. 

And there need to be standards for imposition of fees. Often, borrowers start with a small delinquency and are buried under an avalanche of pyramided fees that push them into an unrecoverable 

delinquency. 

Again, in summary, everyone who is affected by this housing crisis and the key role of servicing in it, we need to move forward 

with coordinated common sense ground rules and careful oversight, 

to restore the health of the housing market and our economy. 

Thank you. 

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

72 of the appendix.] 

Chairwoman CAPITO. Thank you. I would like to thank you both. 

I would like to recognize myself for questioning. 

Mr. Stevens, I would like to ask you about something that the 

first panel got into quite a bit, and that is the mandatory principal 

modification write down. 

How do you feel about that? Do you think that will help solve 

the problem? Is there a fairness quotient? How do you decide how 

much, in which direction, and what harm? 

I would just like to hear your comments on that. 

Mr. STEVENS. So, as briefly as I can, when I was FHA Commissioner, we introduced the FHA Short Refinance Program, which 

was a program created to provide principal write-down, but it was 

optional. 

I believe mandatory principal write-down is extraordinarily problematic for a variety of reasons. One, it will have a direct impact 

on future liquidity being provided from this mortgage finance system which desperately needs private capital to reengage. If there 

are concerns that, down the road, agreements made in pooling and 

servicing agreements could suddenly be changed at some point, 

with principal write-down being thrown in as a mandatory provision at awkward moments in economic cycles, the willingness for 

private capital to reengage will be problematic. 

The second reason why I am not in favor of mandatory principal 

write-down, but do favor, again, optional principal write-down, is 

that the critical component during this crisis was people’s ability 

to afford their home. In some cases, they may not be able to afford 

the home without principal write-down. And the servicer and investor combined should take a look at that particular borrower’s need, 

and use that if that is the best solution, based on their determination. 

But if forced principal write-down were to occur, it could encourage strategic defaults of people who can make their payments, took 

a prime mortgage, knew what they were getting into when they 

bought the home, and simply because of property value loss, they 

want the investor to take that loss. 

And so in each case, I think we need to look at the broad spectrum of loss mitigation options and work primarily towards finding 

the best resolution, whether it be forbearance, principal writedown, payment reductions or payment modification programs that 

57 

are provided for in HAMP, proprietary modifications, all of those 

components. 

And that is just the tip of the iceberg, not going into the GSE 

solutions, the FHA solutions, or the private market solutions. 

Chairwoman CAPITO. Thank you. Mr. Calhoun, you wrote a letter, I believe, asking the regulators to withdraw their consent orders, and saying that you think the States were better positioned 

to make these decisions. Could you give me some background on 

that or clarification, please? 

Mr. CALHOUN. Certainly. As set out in our testimony, and I think 

this follows the comments of Ms. Williams, we believe that you 

need a coordinated approach from the Federal banking regulators, 

the State attorneys general and State banking regulators, as well 

as the CFPB. 

As also as Ms. Williams—I was on the panel with her some time 

ago when she made the point even more explicitly. The State attorneys general are investigating State law violations. They are not 

Federal statutes that they are acting under. 

And we believe, first, in general, in the preservation of State 

rights and the preservation of enforcement of those State responsibilities by the State AGs. 

We certainly have been supportive, in our testimony today and 

other times, of the need for the Federal regulators to also have a 

baseline of servicing standards. But in terms of resolving those 

State claims, we believe it is appropriate for the State attorneys 

general to take the lead on that. 

Chairwoman CAPITO. Okay. Thank you. 

One of the points I think that has been made and the servicing 

standard suggestions have been the singular point of contact, individual point of contact. Boy, that sounds great. 

But can you really get it done when you are talking about 

servicer moves to servicer? Who is in charge? Who is on first? Who 

is on second? We all like to have the day where you really just had 

to walk down the street and talk to your local mortgage guy and 

say, ‘‘I am going to be a little late this month. Can you help me 

out here?’’ 

I talked to Ms. Williams about this previously. Is that achievable? As much as I think it is great and we should do it, is this 

workable? And what kind of suggestions would you make to make 

it workable, so that when somebody has a problem, they actually 

have somebody that they can impact. and they are not stuck with, 

‘‘push one for this, push two for that, and call back in 24 days.’’ 

Do you have any suggestions? I don’t have much time, but how 

might that work? 

Mr. CALHOUN. I think, as you know, it can make a lot of progress 

where we are now. There are some debates. Some of the servicers 

are already going to a goal of a point a contact, to make sure that 

if you have a problem, you can call and get a live person who has 

access to all your information, not somebody who is just writing 

down a note to pass on to someone else. 

And that, at least as the minimum, should be there. And hopefully, the goal is actually there is a case manager. 

The loan modifications are very akin to re-underwriting a loan. 

And in that process, I think it is noteworthy that the servicers typiVerDate Nov 24 2008 18:24 Mar 30, 2012 Jkt 067939 PO 00000 Frm 00063 Fmt 6633 Sfmt 6633 K:\DOCS\67939.TXT TERRIE
58 

cally do have a single underwriter assigned to underwrite the loans 

for the original making of the loan. 

And so, I think that suggests that there is a lot of wisdom in 

having that same process when you, in fact, are re-underwriting 

the loan for purposes of the loan modification. 

Chairwoman CAPITO. Yes. I would agree with that. And I think 

that what we have found here is that the servicers did not have 

the staff available, didn’t anticipate, I don’t think, the numbers and 

the complexities of where we were going to be. Hindsight is always 

better. 

So, hopefully, this will help with that, because I think that is a 

very valuable point of a national servicing standard, if that is the 

direction that we end up going, which it looks like it is. 

So I will recognize Ranking Member Maloney for 5 minutes. 

Mrs. MALONEY. My main question is, how do we prevent this 

from happening in the future? And is the consent agreement that 

has come forward from the regulators—is that strong enough? Or 

what changes need to take place so that we prevent this disaster 

to individuals and our overall economy from happening again? 

I would like to start with Mr. Calhoun, then Mr. Stevens. In 

what way does the consent agreement fail to provide sufficient accountability for servicers, either in their foreclosure procedures 

generally or in their loan modification or loss mitigation efforts? 

And I would also like you to comment on the point that my colleague, Mr. Perlmutter, raised, where the servicers come in and 

they say to the bank, ‘‘Oh, we are not going to charge you anything. 

We will handle it for you.’’ 

Meanwhile, they contract with the lawyers who are paying them, 

that they have obstructed the lawyer-client responsibility, where 

the lawyer must look out for the best interest of their client. And 

maybe that has cost this country more, in terms of what it is costing us individually and as an overall economy and government to 

respond to this. 

If an attorney-client relationship was there, where they were 

really forced to look at every option and work with that individual, 

but it is cut off. And if I understood him correctly, the attorneys 

then are pressured, don’t ask questions; just pay us and get it 

done. 

And maybe it would have been better if there were able to have 

that communication and that responsibility, and to ask those questions on the individual basis of how to best work through it, both 

for the individual and the country. 

Starting with you, Mr. Calhoun, and then Mr. Stevens. 

Mr. CALHOUN. I think the first point is that the best way to avoid 

this, again, is—and I think we are making great progress on this— 

strong but workable mortgage origination standards, so that we are 

not flooded with portfolios where you have 50 or 50-plus percent of 

the loans going to foreclosure. It can be very difficult to design a 

system that can absorb that. 

We have worked with the MBA, for example, on concerns with 

the qualified residential mortgage standards. We are very concerned at CRL about access to credit. We think that is a huge 

thing. But specifically, you need some bright line ground rules because of the structure of this market in good times. 

59 

These structural problems have been there. They were masked 

by the bubble housing economy of 2000 to 2006, when the 

securitization and a lot of the structure grew up. Default rates 

were so low and they were illusory low, because people, in point of 

fact, were defaulting, but instead they could get an easy refinance. 

And there really was a buildup of the foreclosures. 

But you need more specificity, so that there are basic ground 

rules that then the system can operate competitively with. 

Mr. STEVENS. I would completely agree with the statement about 

strong, well-founded, secure origination practices being the first 

bellwether to protect this environment from ever occurring again. 

If we all reflect back, we had an industry that was designed for 

efficiency over the last decade. It became fully automated only in 

the late 1990s. So we didn’t even have automated underwriting 

systems until the 2000s that were actually been using in this country. 

All the processes of servicing became based on efficient, low-cost, 

low-touch, highly technologically-oriented servicing systems that 

could work efficiently for performing loans. 

When the bubble collapsed, the models had never been tested. 

The automated systems had never been through this, a testing of 

a market correction. When the house of cards completely collapsed, 

these low- cost, low-touch, efficient servicing models found themselves completely incapable of dealing in what was now needed to 

be a high touch, a highly trained, extraordinary set of underwriting 

skills, a personnel base that just absolutely did not exist. 

The servicers were not prepared for this. The capital had already 

been expended. The market was not prepared for the extraordinary 

collapse of these models that proved to not be able to withstand the 

pressures of an economic downturn, no matter how they were 

viewed when the loans originated. 

And that subsequent collapse has created all of this backlog, the 

extraordinary pressure on all of our systems in our economy, that 

could be avoided going forward if we had strong rules about performing loans. 

This is the last point I would make. If you look at prime owneroccupied residential loans originated by the GSE’s fully documented, the default rate is only about 5 percent. It is high, but it 

is extraordinarily low. And had we stuck to those kinds of underwriting characteristics, we wouldn’t have found ourselves anywhere 

near the predicament we are in today. 

Mrs. MALONEY. Thank you. 

Chairwoman CAPITO. The gentlelady’s time has expired. 

Mr. Renacci, for 5 minutes for questions. 

Mr. RENACCI. Thank you, Madam Chairwoman. 

It is interesting, because I am still hearing you say that if we 

had all the procedures and all of the things in place in advance, 

this would not have happened. Even going into the future, I think 

I heard you just say that, Mr. Stevens. 

And my concern is even if they are in place, you are always going 

to have issues going forward. But I also heard you talk about personnel. Do we have the personnel? Are we going to have the servicing agencies? Are they going to be available with the personnel 

and the opportunities for another major downturn? 

60 

I am not talking about one that happened in 2007, 2008. But, 

what are we going to do to make sure those things don’t occur in 

the future? 

Mr. STEVENS. I really believe that is the discussion that we are 

all actively engaged in, and my worry in the process today is that 

we are so concerned about coming up with a perfect answer in the 

current moment, that we see, again, multiple sets of rules and regulations coming out of the various regulators, some untested 

ideas—even single point of contact, for example, is not really tested. 

It is now being required in HAMP, but we don’t ultimately know 

if that is the right solution. 

Independent servicers has been a proposal. We don’t know if 

independent servicers can ultimately handle the volume. 

My contention is that if we go back decades in the industry—and 

I started in this industry in Colorado—yes. And we all know Mayor 

McNichols lost his job because he didn’t have enough snow plows 

for the big snow storm, yet he had enough plows for normal sets 

of snow storms. 

We will go through market corrections. In Colorado, they also experienced the oil patch crisis. And during the oil patch crisis, we 

saw market corrections. And there were home value declines. And 

there were large numbers of foreclosures. 

I was personally in the industry at that time. We were able to 

manage it because we hadn’t built on top of that this extraordinary 

bubble of unsustainable mortgage products, given to people who 

never should have qualified for that product in the first place, created this frenzy around using their home as an ATM machine. 

And I do believe when we come back to it—and we will go 

through market corrections again, there is no question about it. 

If we can create safe and sustainable guidelines for mortgage 

products, and we can create a standardized set of servicing requirements that protect the consumer, but also provide for an industry 

that can actually deal with these crises, I think we will come a long 

way to creating an environment that will allow us to withstand the 

storms of the future. 

And I think that is the most important thing we need to be prepared for. 

Mr. RENACCI. Mr. Calhoun, do you have any comments? 

Mr. CALHOUN. I think your point is well taken, that there need 

to be basic protections and quite frankly, some basic rights for consumers. I am sure you had constituents who called their servicer 

and they were basically at the mercy of what the servicer decided 

to do, for example, with imposing fees, with how they treat their 

payments, etc. 

In the absence of the rules, we should expect that. So what happened was servicing companies pay the originator of loans to get 

the right to service the loans. And then again, they get paid a 

monthly fee, typically 25 basis points for a GSE-type loan. 

And they are supposed to make the money back through that fee 

and through the additional fees that are charged, because they get 

to keep the late fees, the property inspection fees, the third-party 

vendor fees. 

61 

Without standards there, companies who can charge a lot of 

those fees are going to bid up the price of the value of servicing. 

And so, if you want to be in that market, you have to match what 

they are doing. If you are allowed to charge those fees and everyone allows it, that is the only way you can stay in the market. 

So we need that baseline of—and I think we are close. There can 

be areas of disagreement. But there is evolving consensus of what 

the contours of that baseline of protection should be. 

We need to get those in place. And then at the other side, investors are now much more attuned to making sure that they have 

more protection about servicing and start to insist on protection in 

the securitization field, when up to now, no one even thought about 

that when they were doing due diligence on a security. 

Mr. RENACCI. Mr. Calhoun, how would you protect consumers 

from illegal mortgage servicing in the future, the illegal things that 

have occurred, some of the ones that have occurred? 

Mr. CALHOUN. I think the CFPB will play an important role in 

this, because you need the flexibility to respond to the changes in 

the market. The CFPB needs to be careful to not throttle innovation, to not adversely impact credit, which I think for the next 

probably— 

Mr. RENACCI. Excuse me, not to interrupt, but how is the CFPB 

going to do that? 

Mr. CALHOUN. Under Dodd-Frank, it transferred those specific 

statutory responsibilities for servicing under RESPA. It also is 

given a general mandate to oversee the servicing companies, along 

with the Federal banking regulators, and to police and prohibit any 

unfair deceptive practices by the servicers. 

Mr. RENACCI. I know I ran out of time, but I was really trying 

to get to the specifics. 

Mr. CALHOUN. Forced-place insurance is a big thing, where the 

servicers will place insurance with a company that the owner has 

interest in, and charge the borrower 3 or 4 times what the regular 

insurance rate is. 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. Perlmutter? 

Mr. PERLMUTTER. Okay. And again to follow up on my colleagues’ 

questions—and first of all, thank you two for being here. The wisdom you are bringing to the table is really important. 

In Colorado, I would say, though, having done the foreclosures 

during that period when our economy fell apart, we, as the lawyers, did say 10 foreclosures a month, boom, boom, boom. All of a 

sudden, we were doing 100. 

And we weren’t ready for it. Okay. 

This time around, some guys have been doing 100 foreclosures a 

month. All of a sudden, they have 5,000 a month. And they can’t 

do it. 

So the system has just been swamped, from beginning to end. 

And it started with some lousy loans being made in the first place. 

So you two are right on the money. That is where it starts. But 

I don’t know that any system is going to be foolproof when, all of 

a sudden, you have this giant lurch in the numbers that are being 

processed. Because we are going to go back to some normal at some 

point here. And then we will deal with it. 

62 

And then there will be another downturn. And for a while, there 

is going to be a backlog. 

But what I don’t want—and I want the servicers or whoever is 

processing these things to do them, to do them in a speedy fashion. 

But the real problem here is that the borrower is entitled to some 

due process. And that is what has been missed in so many of these 

cases. That is why that robo-signing isn’t right. 

That is why pushing these out the door so fast, in some instances, because that borrower has rights. The investors have 

rights. Everybody has rights in this deal. But the borrower’s rights 

were getting hurt in the name of speed. 

So, let us go back to some of those things that need to be corrected, whether it is robo-signing or, in my opinion, I think the 

lawyers are being asked—as they process these things, they have 

to kick back in effect. 

They are paying certain fees back to the servicers that really 

weren’t ever in the deal in the first place. But to get the foreclosure, they have to do it. 

So I will let you follow up on Mr. Renacci’s question. And if you 

can answer that and my questions, I would appreciate it. 

Mr. STEVENS. Let me just try just a couple, the robo-signing, 

where, in fact, the laws were violated—robo-signing became a big 

catch-all phrase. But where, in fact, affidavits were signed by people who are not the individual who was actually supposed to sign, 

or could not support the attestations being made in that affidavit, 

because they hadn’t reviewed the subsequent documentation, those 

are legal violations. 

And those are fully enforceable. So, to some degree, I think what 

we found during this process of this collapse is in the effort to respond to this massive pile of foreclosures, people were setting up 

the proverbial, as the stories would call it, card tables with Burger 

King kids, which was the story in Florida, of just untrained, inexperienced people signing off on documents. 

All of that is illegal. That is fully enforceable. And that clearly 

has to change. I still come back to the— 

Mr. PERLMUTTER. If I could— 

Mr. STEVENS. Yes. 

Mr. PERLMUTTER. I guess that is what I am trying to say. Here 

you have these massive numbers of foreclosures coming through. 

Everybody is trying to deal with it. There are plenty of laws in 

place to go after a lot of these practices. 

I would caution the regulators as they get involved in this to not 

go overboard. 

Mr. STEVENS. Right. 

Mr. PERLMUTTER. We had something—there is a huge swamp of 

the system. So, go ahead and finish. But I agree with that point. 

Mr. STEVENS. So if you take that at its premise, there were laws 

broken by not all institutions but some. Those cases are being 

fought either through State attorneys or through class action lawsuits or other measures where people are paying fines. Some are 

going to jail. Many institutions have failed in this process, because 

they were not legitimate. 

So that is one core measure that exists anytime crimes are committed. There are other provisions that exist today. And I think 

63 

FHA is actually a good example. FHA has had in state, in their 

processes as a requirement, by rule and by statute, a set of servicing standards that must be complied with. Even the OTC consent 

decree references the FHA as a model for how you set up servicing 

centers. 

What we found through this last cycle was that not all guarantors of risk, not all institutions that paid out servicing fees to companies that service their loans had the same set of standards. They 

vary significantly. Even Freddie and Fannie had different sets of 

standards that weren’t completely in sync. 

But the FHA sets of standards also came with explicit penalties 

for noncompliance, which could, at bare minimum, include nonpayment of claim, meaning your loan is not insured and you take 

the full loss on that loan if you don’t service it appropriately. 

Mr. CALHOUN. Dave, could I add— 

Mr. STEVENS. Yes, go ahead. 

Mr. CALHOUN. —a couple of specifics there. The first is how your 

payments are treated. 

One of the real scams that goes on is say, you make a payment 

that there is a late fee taken out, or your payment is $50 short. 

Many servicers now, instead of crediting you—should have paid 

$1,050, you paid $1,000; instead of crediting the $1,000, they put 

it in something called the suspense account, meaning you get no 

credit for it. 

The account is treated is if you made no payment. And so interest accrues as if you had made no payment. Penalty accrues as if 

you paid no payment. 

That should not be allowed. There should be prompt and full 

crediting of all your payments. 

All the junk fees that get piled on, that has been the business 

model, if you are a servicer, of how you make this possible, is you 

just pile on the jump fees. If people are late, they ought to pay a 

reasonable fee. 

I think much like what was done with the Card Act, where for 

credit cards we had no basic ground rules and we saw all these 

abuses and games come up. Put in a set of basic ground rules and 

then let the market compete. 

You didn’t set credit card interest rates, appropriately so, as the 

focus of that bill was on the basic ground rules. So let the companies compete on service, benefits, and the fee, and their interest 

rate, but don’t let them have all these under the table, things that 

people can’t shop on and make the market not work. 

Chairwoman CAPITO. The gentleman’s time has expired. 

I am going to go to our last question, because we are going to 

be having a vote and, if we can, we will come back. 

Mr. Manzullo, for 5 minutes. 

Mr. MANZULLO. Thank you very much. I am going to date myself, 

because I was practicing law when RESPA came into effect, and we 

had to back-date the documents 3 days in order for the homeowner 

to buy the house. I used to be able to close a real estate loan as 

an attorney in 20 minutes, with a stack of papers maybe the size 

of my thumb. And now it is 2 hours and there are so many disclosures, there are so many protections out there, no one knows what 

goes on. 

64 

If they think it is bad in housing, any of you who are making 

payments on a student loan, look at the national organization that 

really screws that one up. They hang up on you. They put things 

in a suspension account. They scream at you. You can’t pay in advance. There are a lot of problems there. 

But what I wanted to return to is the fact that when I was first 

elected back in 1992, shortly thereafter, somebody came up with 

the brilliant idea to bypass recording home mortgages with a local 

recorder, something called MERS. That is the reason now where 

we have a lot of people who don’t know who owns the notes. They 

don’t know who owns the mortgage. 

And so, in all those great automations to make things easier, to 

standardize things, things got worse. It is almost to the point 

where there is no longer, with the exception of many community 

banks, any type of face-to-face contact. 

And oftentimes, the only real people that the homeowner will see 

is the community bank that originated the loan, sold under secondary markets and maintains the relationship of collecting the 

payments. And it is obvious that relationship must exist. Otherwise, local homeowners absolutely have no idea as to whom to contact in the event that there has to be something taken care of. 

The second thing is in the FHFA extended the timeframe within 

which a mortgage has to be foreclosed. But the problem that we see 

is every State has its own mortgage foreclosure. In some States, it 

is an administrative function that doesn’t even go through the 

courts. In the State of Illinois, it is a formal legal proceeding with 

the equity of redemption and everything rolled into it. 

I know what you are trying to do. And I know what you are advocating. The problem is that that you are advocating common 

sense. And that is never going to find its way into anything that 

makes sense coming out of this City. 

Isn’t there a way, for example, of coming out when a loan is 

originated, that there are 10 principles that can be followed that 

would add to the stack of papers I guess that the homeowner would 

get, that would talk about exactly what is expected of when the 

person makes the payment? 

Could that be adopted as a standard of the industry as opposed 

to, in fact, allowing the Consumer Financial Protection Bureau to 

come up with some more standards? 

On page five of your testimony, Mr. Stevens, you say, ‘‘Unfortunately, each of the parties mentioned has a different opinion on 

what the servicing standards should be, making it very difficult for 

a servicer to implement what has already been issued.’’ 

Mr. STEVENS. I think you are highlighting the extraordinary 

complexity to this process and the concerns that we have about creating more confusion, rather than finding a solution to protect consumers. 

We are moving in that direction, to come out with what we believe could be an industry response. And we are moving as rapidly 

as possible, so as to hopefully contribute to what ultimately we 

could get others to join in with us to get to that solution. 

The point that I would continually emphasize is that our industry desperately believes that we need a solution to create servicing 

standards, but that we need to change the perspective that there 

65 

is some value creation in doing it badly. Servicers have paid an extraordinary price for the mistakes of this broad industry and the 

crisis that we have just been through. 

Even these partial payment applications, the servicer must redeem a full payment to the investor every month, whether the consumer makes no payment or a partial payment. And a consumer 

who decides to be constantly late by choice and continues to make 

partial payments, I think the question ends up being asked, should 

the servicer have to pay the brunt of that continuous delinquency 

in the process. 

All of these are very complex questions, which is why what I said 

in my testimony and we continue to advocate for, we need to work 

collectively and aggressively to try to conclude with a national set 

of servicing standards that can be adopted to protect consumers, to 

reach our objective, but not to overreach and create a system that 

is just nonfunctional for either the industry or the consumer, or for 

capital to engage back in the system. 

And I will pledge to you that the mortgage bankers are moving 

on that path. We already have started down that path and we hope 

to have something— 

Chairwoman CAPITO. The gentleman’s time has expired 

Mr. STEVENS. —to talk about here at the short-term. 

Chairwoman CAPITO. Mr. Neugebauer for 5 minutes. 

Chairman NEUGEBAUER. Thank you, Madam Chairwoman. The 

first thing I would like to do is ask unanimous consent to offer material that I used during my questioning this morning for the 

record. 

Chairwoman CAPITO. Without objection, it is so ordered. 

Chairman NEUGEBAUER. Thank you. 

I apologize, I am kind of bouncing back and forth. 

But, Mr. Stevens, one of the things that my friend, Mr. Hensarling from Texas brought up earlier, and maybe others have, is 

that we need to get the mortgage market back functioning again. 

And particularly, we need to get private capital back into play 

here. 

I know a number of my colleagues have been sitting down with 

people who have been in the past participants in the private mortgage market. There is a lot of reluctance, quite honestly, right now 

for those participants to come back into the market. And particularly, they point to just a lot of uncertainty. 

And I think the latest round of uncertainty is now there is this 

huge proposed settlement that we haven’t seen yet. But also that 

the implications of that in the chain of title and the rule of contract, where servicers are going to be mandated to basically enter 

into modifications and principal reductions. 

Without really a lot of input from I think really the ultimate 

holders of those mortgages, the investors are buying those mortgage-backed securities. And while obviously having some certainty 

of what the world is going to look like moving forward, I think the 

troubling part is that we may have created so much what I call 

regulatory risk in the mortgage market that is going to cause an 

increased pricing premium for new risk that is out there that subsequently wasn’t there in the past. 

Is that a sentiment that you share? 

66 

Mr. STEVENS. Congressman, if I could, I would like to separate 

the settlement discussions going on with the broader question 

about the regulatory environment and the mortgage capital and I 

need to do that because of my previous role as FHA Commissioner 

and that I was with the ethics council prior to leaving, and the 

servicing settlement discussion is a subject that I cannot discuss 

and have not been involved in since I became FHA Commissioner 

at all. 

On the broader question, when we created the FHA short refinance program, which has received mixed reviews, those kinds of 

programs were created with the intention of it being an optional 

opportunity to write down principal refinancing to a new mortgage. 

The uncertainty premium that exists right now in the market is 

clearly impacting the desire, the inclination of private capital, private market players to come up with private capital, there is no 

question about it. 

There are other things, home prices being flat or declining, that 

uncertainty as well makes the investors concerned about the collateral they are investing in. 

But there is no question that many of the actions that are being 

discussed or to take place in the future from a regulatory standpoint are going to have extraordinary impact on who invests in the 

U.S. mortgage market. One fact we all know is to finance $1.5 trillion of annual mortgage production, sort of a normalized market, we cannot depend 

solely on the banking system to provide that financial capital and 

so that will have to come in from external parties. 

To do so, we need confidence in the servicing environment. We 

need confidence in that terms that are agreed to in investor documents will be upheld and that there won’t be changes to those documents down the road. 

And the more uncertainty we create to this discussion while trying to reach a conclusion to help protect consumers and create a 

safe market, that has to be in balance to the notion that we need 

to have a functioning housing finance system going forward or 

there will be no really functional recovery for a much longer period. 

So I do appreciate your concern, and I think it is one that why 

we are so concerned about making sure that we are all actively engaged in this discussion, regulators as well as private sector participants and the other stakeholders before decisions are made because these all have extraordinary impacts on this ecosystem which 

we depend on to make the housing market function. 

Chairman NEUGEBAUER. Mr. Calhoun? 

Mr. CALHOUN. First, I think there is very broad evidence that 

there are not enough loan modification efforts taking place and 

that they are not being done well. 

As I have made the point earlier, the servicers who messed up 

the foreclosures are the same ones doing the loan modifications. 

And indeed, it is the investors who are coming in and demanding, 

including a legal action, so that there will be more modifications 

because they ultimately are paying a heavy price. 

Second, the touchstone still needs to be net present value, that 

the modification results in a higher return for the holder of the 

mortgage or the investor who holds the security. But I do think we 

67 

can move to a better place and there is broad consensus of the contours of how we do that to get some baseline standards in place 

and that will help both consumers and the investors which also indirectly helps the consumers. 

Chairwoman CAPITO. Thank you. 

Mr. Carney, for 5 minutes, will be our final questioner, as we 

have votes, so proceed. 

Mr. CARNEY. Thank you, Madam Chairwoman. I appreciate it. 

And I apologize to the panel for just coming in a minute ago. I am 

probably going to ask questions that you may have addressed in 

your testimony. 

But I would like to follow up on really the conversation you were 

just having about what we need to be doing or what ought to be 

done to address the problem at large, and in particular, to address 

the problems that folks in delinquency and foreclosure experiencing. 

In my State, the State of Delaware, we put together a group of 

people that included the banks and servicing agency, the community service organizations that have housing counselors and working with homeowners, the government agencies. 

And in my view, it has always been that it requires a whole series of talks. We have had debates in this committee with the other 

members here about anything else, the government has been the 

problem, one side argues and, today, we have heard about the problem that the servicers have had. 

And it seems like I was frankly appalled to hear about the practices that were not being done. Could you elaborate again on what 

you were just addressing what we need to really address these 

problems? 

Getting people processed through in my State, we ran into consumers who can’t get one single point of contact that is going to 

get it fixed. The documents get lost. They can’t move through the 

process. Nobody is willing to make a decision. 

The HAMP program in Delaware has been very successful. It 

hasn’t been as successful in other States. Could you offer your 

thoughts on what we should be doing? Both of you, if you would, 

please? 

Mr. STEVENS. I will start. This is the billion dollar question that 

we really need to be thinking about. 

I will cover a couple of points. The HAMP program works particularly effectively obviously with Freddie Mac and Fannie Mae 

loans. But Freddie Mac and Fannie Mae can’t do principal writedown using the FHA’s short refinance program. 

Private label investors, because of concerns about Safe Harbor 

provisions, etc., working through trustees, it makes it difficult for 

a servicer to take action on a certain modification initiative because 

they could expose themselves to litigation for violating the pooling 

servicing agreement. 

We are in a very complex financial environment, on top of which, 

as I said earlier in my testimony, I would never want to back away 

from that, the entire servicing industry has been working frantically to hire tens of thousands of people across this country and 

train them to be underwriters—the skill that they didn’t typically 

68 

have to have in the servicing world to be able to respond to the 

enormous need of families across America. 

I would be glad to do this as a follow-up. Let me just start at 

a high level. And this is going to sound extraordinarily limited. But 

I view the market issues right now as both a supply and a demand 

struggle. 

On the supply side, we have excessive inventory as it were of 

foreclosures and borrowers at risk, either do the unemployment, 

causing them to not be able to pay their mortgages or having them 

put into mortgages that were not sustainable, or strategic default 

due to the overhang of negative equity. Each of those has a set of 

solutions we need to work with and systems need to be created. 

And then on the demand— 

Mr. CARNEY. Do we have those systems? 

Mr. STEVENS. I think the system is—there is a lot of— 

Mr. CARNEY. And tools? 

Mr. STEVENS. Let us talk— 

Mr. CARNEY. Every situation is different. 

Mr. STEVENS. Let us talk about—let us finish this up and I will 

turn it over, because it is a long answer. 

Mr. CARNEY. My time is running out. 

Mr. STEVENS. Look at modification today, about 4.7 million modifications have been proprietary modifications done by financial institutions, the same servicers that we have talked about in this 

hearing today. 

HAMP modifications have been about 700,000 because the proprietary modifications have actually been far more effective as a solution than— 

Mr. CARNEY. And that is a good thing. 

Mr. STEVENS. It is a good thing. 

Mr. CARNEY. It is a good thing. 

Mr. STEVENS. But it tells you that it is impossible to come up 

with a one-size-fits-all solution. 

Mr. CARNEY. Exactly. 

Mr. STEVENS. And it takes the private sector and these regulators working together to come up with a broad set of solutions 

and then training expertise— 

Chairwoman CAPITO. Will the gentleman yield for 2 seconds? 

Mr. CARNEY. Sure. 

Chairwoman CAPITO. Following up on your comment that Fannie 

and Freddie cannot write down loans, do you think they should be 

able to write down loans? 

And I yield back to the gentleman. 

Mr. CALHOUN. If I can respond to that? 

Mr. CARNEY. Please do. 

Mr. CALHOUN. In the broader question, the baseline that needs 

to be there is you should not be allowed to start or complete a foreclosure unless the servicer can demonstrate that they have gone 

through a good faith evaluation of whether an alternative loan 

modification is possible. 

Obviously, if the borrower doesn’t respond, or the borrower 

doesn’t have the income to make it work, they don’t have to modify. 

But, as you have said, when you get people into the room and you 

69 

force them to commit those resources, and as we heard from Congressman Scott, it works. 

Second, on principal reduction, industry analysts and investors 

are calling for principal reduction because it generates a higher return than foreclosure, which right now is producing horrific losses. 

And there are repeated studies, Amherst Securities, for example, 

shows that currently performing loans, if they are deeply underwater, are rapidly falling into default and foreclosure. 

And that is why some servicers have recently published these— 

added some banks on their portfolio loans are offering principal reduction in carefully controlled ways because it makes sense. Again, 

we need to force the servicers to treat other people’s loans as they 

are treating their own portfolio loans. 

Mr. CARNEY. Thank you very much. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. The time has expired. The Chair notes that 

some members may have additional questions for this panel, or 

both panels, which they may wish to submit in writing. Without 

objection, the hearing record will remain open for 30 days for the 

members to submit written questions to these witnesses and to 

place their responses in the record. 

I would like to thank all of the witnesses, and I understand some 

have come from far away, so I appreciate that. 

And with that, this hearing is adjourned. 

[Whereupon, at 1:37 p.m., the hearing was adjourned. 

(71) 

A P P E N D I X 

July 7, 2011 

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