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S. HRG. 112–325 

HOUSING FINANCE REFORM: NATIONAL 

MORTGAGE SERVICING STANDARDS 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING NATIONAL MORTGAGE SERVICING STANDARDS AND 

HOUSING FINANCE REFORM 

AUGUST 2, 2011 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

KAY HAGAN, North Carolina 

RICHARD C. SHELBY, Alabama 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

ROGER F. WICKER, Mississippi 

DWIGHT FETTIG, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director 

LAURA SWANSON, Policy Advisor 

ERIN BARRY, Professional Staff Member 

WILLIAM FIELDS, Legislative Assistant 

MICHAEL BRIGHT, Republican Professional Staff Member 

DAWN RATLIFF, Chief Clerk 

LEVON BAGRAMIAN, Hearing Clerk 

JANA STEENHOLDT, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

TUESDAY, AUGUST 2, 2011 

Page 

Opening statement of Chairman Johnson ............................................................. 1 

Prepared statement .......................................................................................... 21 

Opening statements, comments, or prepared statements of: 

Senator Corker .................................................................................................. 2 

Senator Menendez 

Prepared statement ................................................................................... 33 

WITNESSES 

Jack Hopkins, President and Chief Executive Officer, CorTrust Bank, Sioux 

Falls, South Dakota, on behalf of the Independent Community Bankers 

of America ............................................................................................................. 3 

Prepared statement .......................................................................................... 33 

Faith Schwartz, Executive Director, HOPE NOW Alliance ................................. 4 

Prepared statement .......................................................................................... 36 

Robert M. Couch, Counsel, Bradley Arant Boult Cummings, LLP ..................... 7 

Prepared statement .......................................................................................... 74 

Peter P. Swire, C. William O’Neill Professor of Law, Moritz College of Law 

of the Ohio State University (via Teleconference) ............................................. 9 

Prepared statement .......................................................................................... 76 

(III)

(1) 

HOUSING FINANCE REFORM: NATIONAL 

MORTGAGE SERVICING STANDARDS 

TUESDAY, AUGUST 2, 2011 

U.S. SENATE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Committee met at 10:03 a.m., in room SD–538, Dirksen Senate Office Building, Hon. Tim Johnson, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN TIM JOHNSON 

Chairman JOHNSON. Good morning. I call this hearing to order. 

Thanks to all of our witnesses for joining us this morning. I 

would also like to recognize that, for the first time, we have a witness joining us by Skype. Professor Peter Swire is in Oregon but 

was kind enough to start his day early for our hearing. 

Today we will continue the Committee’s oversight of problems in 

the mortgage servicing industry and explore the need for a national 

mortgage servicing standard. 

The housing recovery appears to have stalled—in part because of 

widespread uncertainty in mortgage servicing. Borrowers are not 

certain that servicers are accurately evaluating them for modifications. Servicers are not confident that borrowers’ documents were 

submitted properly. And investors are concerned about how all 

these factors increase litigation risk for servicers. Homes that 

should move through the foreclosure process are held up because 

courts and servicers are concerned that paperwork has not been 

completed properly. 

We need rules of the road so that borrowers, investors, and 

servicers have a clear understanding of the process to follow both 

when a borrower is current on payments and also in the unfortunate event that a borrower becomes delinquent. 

Since our first servicing hearing in November of last year, the 

Federal banking regulators have found significant problems and 

issued consent orders to 14 large servicers; the Federal Housing Finance Agency amended its seller-servicer guidance to align Fannie 

Mae and Freddie Mac’s standards for servicing and improve borrower contact; and the Treasury Department’s HAMP program 

began issuing servicer report cards—which did not show promising 

improvements. 

Even more recently, Reuters and AP released investigative reports detailing ongoing problems in mortgage servicing. I would 

like to place those reports into the record. 

2 

Given the variety of standards and the continuing problems that 

I have mentioned, it is important that we explore a national mortgage servicing standard. 

Several Members of this Committee have already introduced legislation to create such a standard and mitigate the foreclosure crisis. Senator Reed is a consistent leader on this issue, introducing 

legislation last Congress and again this Congress. I would also like 

to recognize Senator Merkley and Senator Brown for their legislative efforts. 

Senator Menendez has also helped in the Committee’s oversight 

of this issue with a productive hearing in the Housing Subcommittee. 

This is an important issue, and the Committee will continue to 

exercise its oversight responsibility. 

Before I turn to Senator Corker, I would like to thank him and 

his staff for working with me and my staff on these housing finance 

reform hearings. Housing finance reform is a large topic that requires our attention in all aspects, and these hearings will help us 

better understand the areas that need reform. 

Senator Corker. 

STATEMENT OF SENATOR BOB CORKER 

Senator CORKER. Thank you, Mr. Chairman, and thanks for having this hearing. And I certainly welcome all the witnesses, both 

here and afar, and appreciate your testimony. I know we are going 

to be talking a lot about servicing today, and the point of view I 

would like to put forth is if we do that without paying attention 

to the mortgage investors, then we are going down the wrong track. 

We have got to have private capital back into mortgages, or rates 

certainly will not continue to be low right now, and obviously we 

are not going to ever get the private market involved unless we 

take that into account. 

I know we know there are two fundamentally different ways of 

going at servicing right now. One is the large, large banks, and the 

other is the community banks around the country. And as we look 

at either regulations or potentially new laws, we need to take that 

into account. 

So I welcome you here today. I look forward to your testimony. 

And, again, I hope whatever we do we continue to remember that 

getting private capital back in the mortgage market ultimately has 

to be a big part of what it is we are focused on. So thank you, and 

I look forward to your testimony. 

Chairman JOHNSON. Before we begin, I would like to briefly introduce our witnesses who are here with us today. 

Our first witness is Mr. Jack Hopkins, a long-time friend and a 

personal resource for me on many South Dakota community banking issues. Jack is the president and CEO of CorTrust Bank, a 

community bank that serves both South Dakota and Minnesota. 

Ms. Faith Schwartz is the executive director of the HOPE NOW 

Alliance. 

Mr. Robert Couch is a counsel at the law firm of Bradley Arant 

Boult Cummings LLP and a former General Counsel at HUD. 

And, finally, we have Professor Peter Swire, who is appearing before the Committee via teleconference. Professor Swire is a proVerDate Nov 24 2008 11:38 Apr 26, 2012 Jkt 048080 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 L:\HEARINGS 2011\08-02 HOUSING FINANCE REFORM -- NATIONAL MORTGAGE SERVI
3 

fessor of law at the Ohio State University and also a senior fellow 

at the Center for American Progress. 

I welcome all of you here today and thank you for your time. Mr. 

Hopkins, you may proceed. 

STATEMENT OF JACK HOPKINS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CORTRUST BANK, SIOUX FALLS, SOUTH DAKOTA, ON BEHALF OF THE INDEPENDENT COMMUNITY 

BANKERS OF AMERICA 

Mr. HOPKINS. Thank you. Chairman Johnson, Senator Corker, 

Members of the Committee, I am Jack Hopkins, president and CEO 

of CorTrust Bank, a $660 million asset bank headquartered in 

Mitchell, South Dakota. As a third-generation community banker, 

I am pleased to represent ICBA’s nearly 5,000 members at this important hearing. 

As this Committee considers the development of national mortgage servicing standards, I have an important point to make. Community banks are successfully servicing their portfolios and do not 

have the widespread servicing problems reports in the press. I urge 

you to ensure any effort to create national standards does not add 

to the regulatory burden of community banks. We must preserve 

the role of community banks in mortgage servicing, or you will see 

further consolidation which will only harm borrowers, especially 

those in rural and underserved housing markets. 

CorTrust Bank was founded in 1930, at the outset of the Great 

Depression, and was built, tested, and proven under historically 

challenging economic conditions. We survived the Great Depression 

and numerous recessions by practicing conservative, commonsense 

lending. We have emerged from the crisis well capitalized and 

ready to lend to support the recovery. CorTrust Bank serves communities in 16 South Dakota cities, from Sioux Falls to rural communities with populations of less than 150. 

Residential mortgage lending has been an important component 

of CorTrust’s business since its founding and has grown more important over the years. Today we have a $552 million servicing 

portfolio consisting of approximately 5,000 mortgage loans. 

Over the years, we have discovered that mortgage lending is a 

great way to cement long-term relations with customers and win 

the opportunity to serve their additional banking needs. To further 

bolster our customer relationships, we need to service these loans, 

whether they are subsequently in the secondary market or held in 

portfolio. Customers do care about who services their loans. They 

value and even seek out local servicing. 

Much of our recent business has come from refinancing mortgages away from large lenders whose borrowers are frustrated with 

remote servicing. Even though at its best it is a break-even business for us and loan for loan it would be more profitable to release 

servicing, we choose to service in-house because it is central to our 

community bank business model. 

The success of community bank servicing is based on close ties 

to customers and communities. Because CorTrust Bank’s servicing 

team consists of only four people, customers always know who is 

on the other end of the telephone or across the desk. 

4 

A customer who dials our 1–800 number will generally get one 

of two people on the line. A customer can walk into one of our 24 

locations and deal with a staff person face to face. 

Smaller servicing portfolios and better control of mortgage documents also provide an advantage over the large servicers. For these 

reasons, community banks have generally been able to identify repayment problems at the first signs of distress. Our staff will contact a late customer on the 16th day, the first day of delinquency, 

and find out what their circumstances are and discuss solutions. 

Personalizing servicing combined with conservative, commonsense underwriting yields exceptional results. Our average delinquency rate of 1.7 percent is about one-third the national average 

and is consistent with other community bank portfolios. In the history of CorTrust Bank, only a handful of mortgage loans have gone 

into foreclosure. 

Overly prescriptive requirements should not be applied across 

the board. There are many examples of harsh new requirements. 

Many of the proposals I have seen would require us to establish a 

call center, a prohibitive and unnecessary expense for a community 

bank the size of mine. The new Fannie Mae standards, published 

in June and scheduled to go into effect on September 1st, are overly prescriptive and will reduce our flexibility in using methods that 

have proven effective in holding down delinquency rates. 

I ask this Committee to urge the Federal Housing Finance Agency to delay implementation of the new standards for small lenders 

with a record of strong performance. 

We are also concerned that the FHFA’s new compensation proposal would sharply reduce servicing revenue that currently only 

covers costs. Moreover, this proposal creates a perverse incentive 

by rewarding the originators and servicers of nonperforming loans 

and punishing community banks. The most significant risk in applying standards that are too rigid and prescriptive and in reducing 

servicing income is that it would cause many community banks to 

exit the mortgage servicing business and accelerate consolidation. 

Any national standards developed by Congress or the regulators 

must exempt community banks. I urge you not to tamper with our 

success. 

Thank you for holding this hearing and for the opportunity to 

present the good story of community bank mortgage servicing. I 

will be happy to take your questions. 

Chairman JOHNSON. Thank you, Mr. Hopkins. 

Ms. Schwartz, you may proceed. 

STATEMENT OF FAITH SCHWARTZ, EXECUTIVE DIRECTOR, 

HOPE NOW ALLIANCE 

Ms. SCHWARTZ. Thank you. Chairman Johnson, Senator Corker, 

and Members of the Committee, thank you for the opportunity to 

speak here today. My name is Faith Schwartz. In 2007, I joined the 

HOPE NOW Alliance as its executive director. 

The foreclosure issues we faced in 2007 were viewed as shortterm subprime issues, and most people thought it would take a 

year or two at most to work through. I am approaching my fifth 

year at HOPE NOW. The crisis has not abated for many homeowners. It affects prime credit and nonprime credit borrowers alike. 

5 

At times we have been discouraged by the scale and the persistence 

of the problems faced on the foreclosure front. But through perseverance and continued efforts by our alliance members, including 

servicers, counselors, and Federal and State offices, we are seeking 

more and more homeowners being helped. We measure some successes by the 4.6 million permanent modifications completed 

through May of 2011. 

Other efforts have been more difficult to measure. Sadly, there 

are cases where homeowners fall through the cracks, and the industry is persevering through the worst housing crisis since the 

Great Depression. Finding ways to help homeowners achieve stability, we are still here doing what it takes through many different 

channels to help homeowners find resolution. And the comments 

today are my own and not necessarily shared by all HOPE NOW 

members. 

I am here to recommend the importance of achieving national 

servicing standards. Many efforts are underway toward this goal, 

but to achieve it will require extraordinary cooperation and communication among industry, Government, and other concerned parties. We all must improve the customer experience for homeowners 

at risk of foreclosure. Uniform clear standards would be a strong 

step in that direction. 

Current economic conditions—underemployment and unemployment in particular—are challenging for customers who are trying 

to maintain their home. Many at-risk homeowners are frustrated 

by the inconsistent messages from some loan servicers when they 

ask for help. Servicers have made real improvements here, but 

more needs to be done to create the confidence in the servicing system. 

Let me be clear. National servicing standards may not change 

the final outcomes for many homeowners at risk of foreclosure. All 

mortgage customers need consistent servicing processes that give 

them timely responses and information on their options when they 

experience difficulty in staying current on their mortgage. 

I will address two of the most prominent issues in servicing: the 

desire to have a single point of contact and the dual-track processing of loans going to foreclosure versus the modification process. 

To a frightened homeowner, the single point of contact is one 

way to lessen the confusion and explain to homeowners what steps 

are required by servicers, investors, and State law. It is important 

to emphasize that the servicing system is facing completely different challenges in today’s environment than it was designed to 

manage. Over the years mortgage servicing developed some uniformity in part because the standards for many loans were set by 

the GSEs and FHA guidelines. 

FHFA, Fannie Mae, and Freddie Mac remain the biggest influence on servicing practices and standards today. For many years 

that worked well, but servicing was primarily a simple task of processing loan payments on performing loans. Delinquent loans and 

troubled borrowers generally were handled by repayment plans or 

the sale of a property at a profit. The current housing crisis completely shifted the demands on the mortgage servicing, and 

servicers must now manage millions of delinquent loans and work 

6 

with the borrowers on more complex solutions such as modifications and re-underwriting of loans. 

Since initiating the homeowners outreach events in 2008, HOPE 

NOW has hosted over 112 events. We have tracked participating 

homeowner satisfaction to gauge our success and adjust the outreach model accordingly. In the past 2 years, HOPE NOW and the 

U.S. Treasury’s Making Home Affordable has worked together on 

outreach. Over half of the borrowers rate these workshops’ experience as excellent. 

And, surprisingly, we continue to find that 35 and 40 percent of 

the participating homeowners are first-time contacts with their 

loan servicers. We have seen a change in the circumstances of atrisk borrowers for up to 30 percent who are unemployed. Unemployment significantly affects the type of aid available and highlights the obvious challenges we face in this crisis. 

This offers some insight to the importance of customer experience 

regardless of the outcome, and it reinforces the need for multiple 

ways to communicate with borrowers who need assistance. There 

are multiple efforts underway to improve and establish servicing 

standards, particularly for helping at-risk homeowners. A single 

uniform standard is needed, but current initiatives must be evaluated, coordinated, and ultimately combined to set national standards. 

There are many rules and standards that have been put in place 

by the various agencies. We have the recent OCC consent orders 

for the top 14 banks. We have unique Fannie Mae, Freddie Mac, 

and FHA servicer guidelines. We have proposed risk retention 

under Dodd-Frank, which includes servicing standards. We have 

FHFA, Fannie Mae, Freddie Mac, and Ginnie Mae setting a new 

compensation servicing model that affects performing loans and 

nonperforming loans. We have the Treasury under Making Home 

Affordable offering recent directives on single point of contact and 

a 1-year forbearance plan. Note the forbearance plan does not 

apply to Fannie Mae, Freddie Mac, or VA loans. 

State Attorneys General are under confidential discussions with 

top banks to discuss practices and processes that will indeed lead 

to standards. The soon-to-be CFPB efforts and interagency guidelines are also being looked at to effect standards. All of these efforts must be evaluated before any decision is made on any single 

uniform standard. 

Just a quick note. I did visit a shop recently, and I wanted to 

see what they had implemented on the single point of contact. 

Hundreds of people were being trained to handle the single point 

of contact rule. Training lasted for 6 weeks. Once the training was 

complete, employees had several large black binders of which to 

navigate for all the different programs and processes they had to 

deliver the message on about what the options were for the borrower. 

The training objective for new hires was to bring consistency, 

empathy for the customers, and accuracy regarding the description 

of the options available for the borrowers as well as access to information that would be relevant to the borrower over the course of 

the eligibility review. 

7 

The training task seemed daunting, but it was indeed impressive. And some companies are dealing with licensing single point 

of contact on the origination process if they are subject to the SAFE 

Act under several State laws. 

It was enlightening to see how the directives were being implemented in the real world. All changes must get adapted into systems, processes, and work flows to educate and train the full workforce, who in turn will need to communicate internally and externally on all these directives. And as a reminder, the single point 

of contact is not the person who will perform any of the underwriting, any of the modifications, or any of the sale processes if 

there is a short sale in place. 

We believe the efforts by various entities currently underway are 

moving in a positive direction to elevate servicing standards and 

improve the customer experience. Increased coordination by all entities is needed in order to make things happen in a timely fashion. 

In summary, we recommend the Administration gather all of the 

involved parties together to review the servicing standard initiatives to ensure that definitions and policies agreed to by regulators, 

enforcement agencies, and investors align with one another. That 

is the time to ensure a uniform set of standards can be identified 

and established. Reducing confusion and friction from the system 

is very important. As Senator Corker initially noted, bringing private capital back to the market is of utmost importance, so looking 

at standards must be done thoroughly and cautiously. 

The home mortgage is the most important investment in the 

lives of many consumers, and it is essential that we get it right, 

and the communication to the consumer of the process and servicing that comes with this investment. The industry nonprofit partners and servicer members are committed to working to improve 

mortgage servicing for consumers. 

Thanks for the opportunity for letting me speak today. 

Chairman JOHNSON. Mr. Couch, you may proceed. 

STATEMENT OF ROBERT M. COUCH, COUNSEL, BRADLEY 

ARANT BOULT CUMMINGS, LLP 

Mr. COUCH. Good morning, Chairman Johnson, Senator Corker, 

and other Members of the Committee. Thank you very much for 

letting me appear today to talk about this important issue. 

I am not going to spend a lot of time on my background, but to 

establish my bona fides, I was General Counsel of HUD, President 

of Ginnie Mae, president of one of the most active mortgage lenders 

in the South, chairman of the Mortgage Bankers Association, and 

president of the Mortgage Bankers Association of Alabama as well. 

First and foremost, I am not here to defend the industry or be 

an apologist for the industry. Mistakes have been made, and there 

have been some abuses of particular processes. But I am here to 

speak about three issues: certainty, fairness, and State law. I 

would like to cover all three of those in the limited amount of time 

I have. 

I would like to start by telling you a story about the last time 

I refinanced my own mortgage, about 10 years ago. At the closing 

table the agent handed me a document about 15 pages long, a 

mortgage. And he said, ‘‘Rob, do you know what this is? Do you 

8 

know what it says, what it means?’’ I said, ‘‘Well, I think I do, but 

tell me what you think it means.’’ He said, ‘‘It is very simple. If 

you pay, you stay. If you don’t, you won’t.’’ 

Now, this may seem unduly harsh to a lot of people, but it is, 

in fact, the essence of the transaction and the essence of this hearing in many ways. 

It is, I think, instructive to briefly talk about how the process 

works. Someone wants to borrow money, goes to a lender, establishes what their likelihood of repaying that mortgage is or that 

loan is, and offers the home that they are about to buy or refinance 

as collateral, as security for the mortgage. At closing they get the 

money. In return they sign a note that says, ‘‘I promise to pay this 

money back, and to secure that promise, I give you the right to 

take my home if I do not pay that money back.’’ 

That certainty in the process allows that loan then to be sold in 

the secondary market, many times to pension plans that you or I 

may be beneficiaries of, and the money is recirculated in the marketplace. That is the way the process is supposed to work. 

But, unfortunately, over the past several years, a lot of uncertainty has, as you mentioned, Chairman Johnson, crept into the 

process, and that uncertainty has been in the form of stretching 

out the period of time that it takes to foreclose on the loan. Today 

it takes, on average, about 400 days from when a person quits paying their mortgage to when the foreclosure process is completed. In 

some States—New Jersey, New York, Florida—it is a much longer 

process. And the uncertainty that has crept into the process has 

made the functioning of the market much more treacherous. 

If you look today, well over 90 percent of all mortgages, in order 

to be done, have to be guaranteed directly by the Federal Government for the mortgage process to take place. Or by way of illustration, if you look over the past 3 years, there have been two private 

label securities backed by mortgages done in this country, worth 

about $500 million. By comparison, if you go back to 2006, there 

were hundreds of securities totaling $723 billion done in that year 

alone—a thousandfold decrease for a 3-year period. So the process 

has dramatically been affected by this uncertainty, and you need 

to be aware of that. 

Fairness is also a very important issue, and many of the efforts 

that we have seen lately have been designed to be compassionate 

to those who cannot or will not pay their mortgages on time. And 

I certainly understand that, but that overlooks the need to be fair 

to those folks that have been very diligent in paying their mortgages, which is the vast majority of people in this country who 

have mortgages. The effect of that stretching out of the foreclosure 

process and the uncertainty I mentioned before has been to 

dampen real estate values across the board across the country for 

those folks that have been diligent in paying their mortgages, and 

I would hope that you would take those folks into consideration in 

your deliberations. 

And, finally, State law. I am not here to advocate for or against 

a uniform national standard, but I would remind the Committee 

that there are 50 States out there with procedures set up to protect 

both borrowers and lenders in the process and make sure the process runs smoothly. I would hope that you would be mindful of all 

9 

of those 50—really 51, State and, in the case of D.C., the district 

laws designed to do just that. 

In sum, in conclusion, please be mindful of certainty, please be 

mindful of fairness, and please be mindful of State law. And please 

be deliberate about this process. 

Thank you very much for the opportunity to talk to you today, 

and I would be happy to answer any questions. 

Chairman JOHNSON. Thank you, Mr. Couch. 

Professor Swire, you may proceed. 

STATEMENT OF PETER P. SWIRE, C. WILLIAM O’NEILL PROFESSOR OF LAW, MORITZ COLLEGE OF LAW OF THE OHIO 

STATE UNIVERSITY (VIA TELECONFERENCE) 

Mr. SWIRE. Thank you, Chairman Johnson and to other distinguished Members of the Committee. Thank you for inviting me to 

participate in this hearing on national mortgage servicing standards. 

As you are aware, I previously committed to speak in Oregon 

today, and I thank the Committee and its staff for the great flexibility of having me testify online today. I believe that using these 

online technologies can continue to open up Congress and our political process to participation by the American people. 

My testimony today draws on two previously published items 

which I have provided to the Committee. The first is a report on 

mortgage servicing that I published in January of this year. The 

second is an article in the Los Angeles Times from March which describes some of my personal experiences as a homeowner with the 

mortgage servicing industry. 

As you said, Mr. Chairman, I am now a law professor at the Ohio 

State University and a Senior Fellow at the Center for American 

Progress. In 2009 and 2010, I was Special Assistant to the President for Economic Policy, serving under Larry Summers on the National Economic Council. At the NEC, my biggest task was to coordinate the interagency process for housing and housing finance 

issues. In this role, I worked extensively on mortgage servicing 

issues and Fannie and Freddie and the FHA, and in that role, I 

met regulated mortgage servicers as well as many other stakeholders. 

My January report was called, ‘‘What the Fair Credit Reporting 

Act Should Teach Us About Mortgage Servicing.’’ The report makes 

a simple point. The sorts of market failures that led to the creation 

of the FCRA in 1970 also exist today for mortgage servicers. The 

single most important fact is that the consumers, the homeowners, 

are not the clients. The clients for the credit reporting agencies are 

the companies that pay for the credit reports, the lenders and employers. The clients for the mortgage servicers are the companies 

that pay the services, and those are the investors in mortgages. 

Mortgage servicers owe their legal duties and market loyalties to 

the investors, not the homeowners. 

Now, in saying this, I am talking about when mortgage servicing 

rights are sold, and that appears not to be the model that Mr. Hopkins’s bank follows, where they keep the servicing in-house, close 

to the market. But the large majority of mortgage servicing rights 

10 

today are sold out into the market to new buyers of servicing, often 

the biggest banks. 

So the structure of the market that we have today leads to problems. Consumers have no market or legal checks on the servicer. 

The homeowner does not choose the service. That choice is made 

by the company usually the one that originates the loan. If the 

homeowner has a bad experience with the servicer, as so many people have, the homeowner cannot even quit. Even if the homeowner 

refinances a loan to get away from the servicer, the servicing market is so concentrated that the homeowner may get the same 

servicer all over again the next time. 

Homeowners not only lack any market choice, but they currently 

lack legal remedies if the servicer performs badly. That is why national standards for mortgage servicing are so important. Where 

there are no market forces to protect consumers, then something 

else should fill the gap. An effective set of consumer rights could 

be embodied in national mortgage servicing standards and I hope 

that will happen. 

Now, I will turn to my dispute with Washington Mutual’s servicing arm in 2006 and 2007. To prepare for this testimony, I have 

brought along and reviewed and provided to the Committee files 

from my 21-month dispute with Washington Mutual in 2006 and 

2007, before the crisis, about flood insurance that they incorrectly 

placed on my family’s home in Bethesda, and that dispute was the 

subject of the Los Angeles Times article. 

Our family was a target of what people have called ‘‘force placed 

insurance’’ and that this Committee has heard about before. In 

early 2006, WaMu asked for proof of flood insurance coverage. My 

State Farm agent immediately faxed them the information. It 

turns out that WaMu had a really cute trick that I discovered after 

numerous phone calls. They did not even process the proof of coverage unless it contained WaMu’s servicing accounting number. So 

WaMu received the State Farm certification and simply ignored it 

and did not tell us until I found it out several months later, and 

that was how WaMu could bill my family for the duplicate flood insurance. 

The next cute trick was to pile up late fees on our monthly mortgage payment. We had automatic payment the first week of every 

month, and even WaMu admitted we never missed a payment. 

WaMu’s practice, though, was to charge for the duplicative flood insurance with each monthly payment. That meant they considered 

our payment too small each month by the amount of that insurance 

premium. So then they declared our entire monthly payment late 

and charged a late fee of over $170 a month. 

I provided the Committee staff with detailed and contemporaneous documentation of these and numerous other problems with 

our servicer. Eventually, after 21 months and over 50 calls to customer service, they finally agreed in late 2007 to withdraw the 

flood insurance and cancel the fees. 

In conclusion on this, I feel fortunate that I was able to get my 

family’s dispute resolved and cancel over $4,000 in erroneous fees 

that they wanted to charge me. Most homeowners, however, are 

not banking law professors. All of those hours sitting on hold, waitVerDate Nov 24 2008 11:38 Apr 26, 2012 Jkt 048080 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 L:\HEARINGS 2011\08-02 HOUSING FINANCE REFORM -- NATIONAL MORTGAGE SERVI
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ing for customer service, gave me plenty of time to think about the 

flaws in our mortgage servicing system. 

My experience in Government and since has taught me there are 

numerous hard-working and talented individuals in the mortgage 

servicing industry. I admire the work of Faith Schwartz and Hope 

Now and many others. The incentives, however, do not work for 

consumers. 

In response to Senator Corker’s opening statement about getting 

private capital back into the market, a goal I very much share and 

the Administration has shared, fixing servicing, which is getting 

the money to flow properly from the homeowner to the investor is 

an essential part of reform. And so I agree that working on national mortgage standards should be seen as part of getting the investor part of the thing to work, as well. 

In short, in the absence of market discipline on servicers, an effective national set of mortgage standards is essential. There is no 

other way to have consumers protected. 

I thank the Committee for its attention to these matters and I 

welcome any questions you may have. 

Chairman JOHNSON. Thank you, Professor Swire. 

Mr. Hopkins, small servicers, like your bank, have not been 

caught up in the problems that large servicers have. Is that just 

due to your size or do you believe that there are other factors? 

Mr. HOPKINS. I think that it starts up front. I think we had strict 

underwriting standards and we always held strict underwriting 

standards. We were not offering a lot of the exotic products, the Alt 

ARMs and some of these things that are creating the problems 

with the foreclosures now. We did not believe in the products. 

Therefore, we did not offer the products. 

So because servicing is a very low-margin business, we felt it was 

important to have a good quality portfolio, so we were always conscious about underwriting our loans very strict up front. I think it 

starts right with the underwriting. We keep our loans in-house. 

Therefore, we are concerned about what we put in our portfolio. 

Chairman JOHNSON. Mr. Hopkins, like mortgage origination, 

there has been a significant consolidation in the mortgage servicing 

industry and the largest banks now service the majority of the 

loans in the country. Have borrowers and communities benefited 

from this consolidation? 

Mr. HOPKINS. Absolutely not. I think that is part of the problems 

that Professor Swire was dealing with a little earlier. You know, 

an article I saw in 2010 showed that the four largest servicers control 70 percent of the market. So they do not have the customer 

contact that we do. I think that if it was a more diverse market 

in the servicing side, that the customers would have a better experience. 

Chairman JOHNSON. Professor Swire, in your testimony, you recommend a Fair Credit Reporting Act equivalent for mortgage 

servicers. Can you expand on what that should include, and how 

could it prevent some of the problems we are currently seeing? 

Mr. SWIRE. Thank you, Senator. There are many people working 

on the details of what the standards should look like. I think the 

point with the FCRA is if there is a mistake being made about the 

customer, we actually can go fix it these days, and when we had 

12 

mistakes with the servicers, we did not have those same kind of 

legal rights, and that is part of what I am point out. I think single 

point of contact is clearly a step in the right direction and the 

standards should address issues around dual track so that when 

people are getting something fixed, they do not suddenly have the 

house yanked out of them, that is part of it. Having disclosures and 

avoiding conflicts of interest to make sure that the servicer is doing 

what is right for the investor and the customer and not for other 

parts of his portfolio, I think those are some of the main categories 

of things you would like to see in the standards. 

Chairman JOHNSON. Ms. Schwartz, with a number of different 

standards being put forward, would a national mortgage servicing 

standard help provide clarity for servicers, homeowners, and investors? 

Ms. SCHWARTZ. Senator, yes, we do believe there is a strong need 

for some coordination and alignment on what is going on today 

with the regulatory efforts and others on servicing standards. I 

would caution the Senator to let this fall out to find out what is 

finally happening with the standards through the AG discussions 

and the OCC consent orders as we see how it works through the 

system before there is another effort to make new standards without testing how these are coming through. 

Chairman JOHNSON. Mr. Couch, in your testimony, you argued 

that homeowners have not been harmed by the problems in mortgage servicing. Do you disagree with the assessments and subsequent required changes imposed by the Federal banking regulators 

and by FHFA? 

Mr. COUCH. Senator, in my testimony, I said that in the event 

that a borrower has been damaged, he or she should be entitled to 

be made whole for those damages. In terms of harm, it is important 

to keep in mind that in the case of foreclosures and this foreclosure 

process, as I mentioned before, the length of time during that 400- 

plus days, depending on what State you are in, while the process 

is working, that borrower is not monetarily damaged. In fact, that 

borrower is living rent-free, so to speak, during that period of time. 

Now, there are in place in all 50 States mechanisms for making, 

if there are damages, making the borrower whole, and I am suggesting that in every case that should take place. But I think it is 

important for the Committee to look at who is actually being damaged in this process. 

Chairman JOHNSON. My time has expired. 

Senator CORKER. Go ahead. I will use that chit later. 

Chairman JOHNSON. Yes. Yes. 

[Laughter.] 

Chairman JOHNSON. I will proceed to a second round if need be. 

Senator Corker. 

Senator CORKER. There are so few of us here, I am more than 

glad for you to take all the time you need, from my perspective. 

But to the witnesses, again, thanks for your testimony. One of 

the folks in our office, as we were getting ready for this hearing, 

was talking about the fact that a year or so ago, they had a decision to make as to who they would borrow money from because 

they, obviously, being a staffer, had had experience with what happens with mortgage servicing. They looked at borrowing money 

13 

from a community bank, where they would actually know the person on the other end of the line, and, on the other hand, looked at 

some of the larger institutions where the rates were actually cheaper but they knew they might be put through a meat grinder if 

something happened. 

And so I use that example to say the customers do have a choice. 

I mean, they can choose to go to a smaller institution and maybe 

pay a higher fee but have that personalized service, or go to one 

of these larger institutions where your file might be in a warehouse 

in Kansas someplace. So there is a difference there, and I know it 

was a difference that, when I used to borrow money for commercial 

loans, I paid attention to. 

And I am just wondering, Ms. Schwartz, what your response 

would be to that. I mean, people do have a choice. 

Ms. SCHWARTZ. Sure, Senator Corker. They do have a choice, and 

I would say in the evolution of a $3 trillion market, there was a 

lot of buying and selling of mortgages, small lenders and large 

ones. Today, most of the mortgage market is controlled through the 

investor guidelines, through Fannie Mae, Freddie Mac, and FHA, 

of which most—many lenders participate, and those guidelines 

really govern how they are serviced. 

But to your point, there are choices to be local with your community banker and go in and see how your payment was applied 

versus online or 800 numbers to find out how it is being processed 

with larger organizations. There is always a choice. But they have 

the right to buy and sell those loans today, and some do. 

Senator CORKER. And that is a good point, and so as we—a lot 

of the things that we do around here, I mean, we look at some of 

the regulatory practices that were put in place with Dodd-Frank. 

There is a concern that that just creates greater consolidation over 

time. So is there any concern by any of the witnesses that if we 

put in place uniform standards by law that there will be consolidation and maybe it gets even more difficult than it is? 

Ms. SCHWARTZ. If I could follow up on that, I believe you can 

have standards and have appropriate protections in place for smaller servicers or banks that have too much cost and burden with 

that, but you can have standards that are fair to customers and 

protect—— 

Senator CORKER. Now, how would that work exactly, because we 

just went through that with debit and interchange and none of the 

community bankers felt like that worked too well. Even though 

they were protected, they know, over time, the market is going to 

migrate away from them if they are charging a higher fee than the 

large institutions. So that is a nice thing to say, but tell me how 

that would actually work, and anybody else that wants to chime in 

would be helpful. 

Mr. SWIRE. I would have an idea, but do you want to go—— 

Senator CORKER. Go ahead. 

Mr. SWIRE. OK. I did not want to step on Faith. So one of the 

basic distinctions for mortgage servicing rights is whether the bank 

retains the servicing, keeps them there in their community bank 

or whether they get sold to somebody else to do the servicing, and 

you can write rules to say, if it is retained, the customer chose that 

bank. It is being serviced by that banking organization. You could 

14 

also have a dollar limit if you want to, so that applies up to some 

amount, so that the smaller banks that retain servicing are more 

likely the whole time you have a customer relation, but once it is 

sold out into the national market, that is where the standards 

apply. 

Ms. SCHWARTZ. If I could—oh, go ahead. 

Mr. HOPKINS. First, if I may step in, one, I think that you have 

already defined in here what a small, or a large investor is. In the 

Fannie Mae guidelines, I think it defines 65,000 loans as being a 

small market investor or small servicer. 

As far as for the cost, what we are looking at, we do some servicing for some other banks, primarily for the South Dakota Housing 

Development Authority loans, because there are only six servicers 

in the State, so I caution that anything—you know, we do some 

servicing for other banks, so we do buy some servicing. But the 

vast, vast majority, 90-some percent, probably 98 percent, is our 

own originated product. So I would argue that if we are doing our 

own product, we are looking not to increase the standards that are 

so prescriptive. They are looking at things that would almost force 

us to have a call center implemented in order to do that, in order 

to track all our contacts with customers. 

And to your point earlier when you were talking about the cost 

of a mortgage at a community bank versus a large bank, I do not 

think, with the markets the way they operate today, there is a difference in cost, particularly with the new incentive rules. So I 

think that the pricing is virtually identical between a large and a 

small servicer. We advertise that we service locally. That is one of 

our key advertising points and we are proud of that. And that 

brings us in business. 

Senator CORKER. But I assume you still do not want national 

standards that are the same for you as they might be for 

JPMorgan or somebody like that, is that—— 

Mr. HOPKINS. No, we do not. I mean, we do not want the standards that are very prescriptive. We have been successful. Our delinquency rate shows that. We have been very successful in servicing, so I am cautious that we have standards that are requiring 

us to contact people on nights and weekends when we do not have 

those type of issues. Our biggest issues is whether they pick up the 

phone. We have gone to the point of using cell phones so they do 

not identify the number when they are collecting, and we change 

the number monthly. 

Senator CORKER. Thank you. I noticed I am over my time, Mr. 

Chairman. 

Chairman JOHNSON. Ms. Schwartz has a comment to make. 

Senator CORKER. OK. 

Ms. SCHWARTZ. Oh, I would just say, I think there are ways to 

create standards where the regulatory oversight body can work 

with the smaller community banks or others to say, are you satisfying single point of contact? Do you have a customer service or 

abandonment rate that is very low that you are really taking care 

of your customers? And of course, they just testified they do. But 

larger companies may have different processes in place because 

they are a higher volume shop and, therefore, they need some different structural concepts. In all cases, though, there are ways to 

15 

be flexible with standards to accommodate customer protections as 

well as the banks’ and investors’ needs. 

Senator CORKER. Thank you. 

Chairman JOHNSON. Senator Menendez. 

Senator MENENDEZ. Well, thank you, Mr. Chairman. Mr. Chairman, I ask unanimous consent that my statement be included in 

the record at the beginning. 

Chairman JOHNSON. It will be. 

Senator MENENDEZ. Thank you. 

Mr. Chairman, thank you for holding the hearing and I appreciate the testimony that I have read of the witnesses. I have a few 

questions and I am hoping that you can all help me here. 

So let me start off with, I know some of you talk about single 

point of contact and dual track, but if you had to name a few specific national mortgaging service standards that you believe would 

be helpful, what would those be and how would they be helpful? 

This is for anyone on the panel. 

Ms. SCHWARTZ. I am happy to offer a few. Clearly, the single 

point of contact has become a dominant discussion in the regulatory environment, the legislative environment, the advocacy environment, because customers are unhappy. And to turn that into 

something where they understand what is happening around them 

and to them and through the options that are made available, a 

single point of contact is something that makes them get through 

the process in an easier way. I testified earlier to say it does not 

mean the outcome will differ if they are not able to make an affordable payment or if they are unemployed and there are very tools 

that will help them get through a loan process. So single point of 

contact. 

Dual track processing is the other very significant issue out 

there. It is confusing to homeowners to get help on the left side of 

the house to get a modification, of which I have spent 4 years 

working with the industry and nonprofits to do. At the same time, 

the laws create process and standards for foreclosure to occur, and 

so to explain that very complicated process has to be done in a 

much better way for the consumer. 

Senator MENENDEZ. Now, Mr. Hopkins, in your testimony, you 

suggest that community banks should not be subject to national 

servicing standards, and I realize your arguments about consolidation in the industry are a concern. But to what extent does that 

depend on what servicing standards are we talking about? 

Mr. HOPKINS. Well, we are already subject to some standards, 

and I think we have been able to follow those standards very carefully. You know, if we are dealing with Fannie Mae, Freddie Mac, 

or South Dakota Housing, in our case, they all have their standards of when they expect us to make contact with customers, et 

cetera. What we are concerned about is the cost that they are looking at to document that we are doing what we are doing, that we 

are having the contact with the customer. But I think, again, our 

results show that we are there. So what we are looking for is that 

anything you are doing does not add cost and burden to us and 

that we have a carve-out if we are meeting certain standards. I 

mean, our delinquency rate—— 

Senator MENENDEZ. So if your—go ahead. Finish that. 

16 

Mr. HOPKINS. I said, our delinquency rate would prove, at 1.7 

percent, where we are one-third the national average, that we are 

doing the job that we are supposed to be doing. We have only had 

a handful of foreclosures over the last few years. And by handful, 

I am talking 23 last year. I mean, that is not—out of 5,000 loans, 

that is not an excessive number of foreclosures. Those are typically 

life-event type things, a divorce, loss of job, et cetera, that are causing those issues. 

Senator MENENDEZ. All right. Let me ask for anyone, maybe 

some of the counsel here, does the panel acknowledge that it is a 

conflict of interest for mortgage servicers to have an ownership interest in a company that performs services associated with that 

owned mortgage services foreclosures—property maintenance, inspection, force placed insurance? Does that not give the servicers 

an incentive to force homeowners to use expensive add-on services 

for their own property, even when that is more likely to drive the 

homeowner into foreclosure? 

Mr. SWIRE. Senator, that—OK. 

Mr. COUCH. Senator, I think that certainly you raise a good 

point, that there are all sorts of interests in place that have to be 

balanced. I would maintain that there is not necessarily a conflict 

of interest for—in fact, it may make it easier for the consumer to 

have services that are provided in-house versus going outside the 

house. 

Now, I think that most of the standards that are proposed would 

require those services to be offered at fair market rates and not be 

marked up, and we have had extensive debate throughout about 

RESPA and what is required under RESPA in that regard. So, I 

mean, you raise a very good point, but I think it is a case-bycase—— 

Senator MENENDEZ. How about force placed insurance? 

Mr. COUCH. And—— 

Senator MENENDEZ. The effect on borrowers—— 

Mr. COUCH. Well, keep in mind what force placed insurance is 

designed to do. If you lend me money and I give you a security interest in my house to secure that money, part of the deal is that 

I keep insurance in place so that your security interest in my house 

is protected. And if I do not go out and get property and casualty 

insurance to keep your security interest secured, I think you as an 

investor would like there to be a provision, a contractual provision, 

that allows that coverage to be put in place so that your security 

interest is secured. 

Senator MENENDEZ. But we have found many cases in which that 

force placed insurance has been well overpriced. And so, again, how 

do you maintain these bounds? The same issue, and I see, Professor, you are trying to get in here, so I will, after I ask this next 

question, have you maybe answer both of them. 

The second thing was—and, Mr. Chairman, thank you for your 

patience—second lien conflict of interest at mortgage insurers. You 

know, so suppose it is a conflict of interest for the company servicing the primary lien to also own the second lien, and that industry alone is not willing to do anything to stop the conflict since it 

might be in the financial self-interest of at least some private sector parties for that conflict to continue. Is that not the kind of situVerDate Nov 24 2008 11:38 Apr 26, 2012 Jkt 048080 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 L:\HEARINGS 2011\08-02 HOUSING FINANCE REFORM -- NATIONAL MORTGAGE SERVI
17 

ation where there is a legitimate role for the Government to step 

in? 

Mr. COUCH. Are you directing that to me, Senator? 

Senator MENENDEZ. Yes. 

Mr. COUCH. Well, again, keep in mind that in most of the cases 

that we are talking about, I mean, we can go back and talk about 

where the piggyback loan, which is where many times this has 

come about, is through the piggyback loans, why those evolved the 

way they did. But keep in mind that the relationship between the 

first and the second is established by State law. Well, it is established by, I think, investors that bought the first, or the lender that 

has the first and the lender who has the second, and any competing interests there are governed by State law and also by the 

contracts that govern the servicing—— 

Senator MENENDEZ. Oh, I understand the right, the privilege 

rights of whatever the first lender is and whatever the second lender is in terms of their status and how they will be compensated if 

there is foreclosure. My concern is the second, you know, the second lien being also the servicing entity, and in that context are 

they working in a way to satisfy their interests as a second lien 

holder or are they working in the interest of the homeowner and 

a resolution of the process in a way that best ensures that they can 

keep the person in their home. 

Mr. COUCH. Well, the primary party affected by that is the owner 

of the first lien, and the first lien holder, if he has concern about 

the way the second lien is going to be serviced, would have to raise 

that concern at the point that he purchased the loan, because those 

are the rights that are most directly affected. 

Now, I recognize that there have been suggestions that that second that the servicer of the second lien may put the interests of 

the second lien in front of the first, particularly if there is a loan 

modification that has been proposed, and I can easily envision the 

conflict that could arise. But the beef, if you will, is with the investor in that first mortgage. 

Senator MENENDEZ. Professor, Swire, and then I will stop there. 

Mr. SWIRE. Yes. Thank you, Senator. Just a couple of quick 

points. First is on force placed insurance, the logic of having the 

insurance to protect the investor is strong. What my experience 

found out was a national servicer had a practice of ignoring proof 

of insurance that came in from my State Farm agent or other 

agents like that and buying insurance anyway. So the fact that 

there is a reason for something does not mean it is being implemented correctly. 

On the conflicts of interest, often, a first step is disclosure of the 

conflict so that people can see it, and I think with force placed insurance, with fees of various sorts, disclosures about that are one 

way to start to address the problem. 

And the last point is on second liens, I know from my time in 

the Administration, there was very great concern that the decisions 

about seconds by major banks were driving how firsts got handled, 

and that a lot of times, seconds seemed to come first, that we had 

a lot of conflicts of interest. It made it much harder to make modifications that worked for the homeowners and for the first lien 

holders, and that was a big problem. 

18 

Senator MENENDEZ. Thank you. I appreciate it. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Hagan. 

Senator HAGAN. Thank you, Mr. Chairman, and I thank all of 

you for being here today and on Skype. 

When I am in North Carolina, I travel across the State, and I 

hold ‘‘Conversations with Kay,’’ and it is an opportunity for constituents throughout North Carolina to come to these events and 

actually bring their—we talk about the issues of the day, but also 

to bring their concerns to me, and we have constituent staffers 

there that can help immediately start working on issues. And without a doubt, there are always concerns about foreclosures, always 

concerns about mortgages that have questions. And in just about 

every situation, they discuss how documents have been requested, 

they send them in, they get lost; they send them in again, they get 

lost; they send them in again. It is a repetitive comment that I 

hear each and every time. 

So my question is—and, Ms. Schwartz, I think you mentioned 

this in your opening talk about how a single point of contact might 

help solve problems like this, and any of you if would care to comment. 

Ms. SCHWARTZ. Yes, Senator, good morning. You know, earlier, 

I also referenced, we created a Web portal called HOPE LoanPort 

for just that reason, so that consumers, counselors, and servicers 

would no longer have that anecdotal back-and-forth but a rigorous 

way to track documentation and process and time and date stamp 

every communication so that there no longer would be an issue, 

and that exists today through HOPE LoanPort, and we created a 

neutral nonprofit entity for just that reason. 

Second, that is a fair concern. There is nothing more frustrating 

than losing documents and having 20 phone calls with someone 

who says—and then someone on the receiving end does not have 

it because of a fax or a FedEx. 

So at the end of the day, this is not complex. There are ways to 

address it through documenting and making sure there is a safe 

and secure system of communicating among all the stakeholders so 

that does not happen anymore. It already exists today. We need to 

as an industry and Government keep working toward those solutions. 

Senator HAGAN. Thank you. 

Mr. SWIRE. Senator, from my experience this problem—first of 

all, the portal that Faith Schwartz just described is something that 

I have supported, and I think it is getting better. But what I saw 

in my own experience because I kept date and time stamps with 

a lot of documents was that at that point they would receive the 

documents, and then it did not fit their system, it did not have 

their loan number on it, and so they ignored the document even 

though they had my insurance agent’s phone number and fax, my 

phone number and fax. They had a proof of insurance. They ignored it because it did not sort of check a box that they had in 

their system, and then they went ahead and bought the industry 

in a force placed way. And so that is in the file that I provided to 

staff, and it was a practice by one of the major servicers in this 

country in 2007. 

19 

Senator HAGAN. Thank you. 

Some have suggested that one way to improve servicing is to create performance thresholds that servicers must meet at the MBS 

level, and if servicers failed to achieve delinquency rate targets, 

time lines, or modification success rates, the servicing rights would 

be sold and the servicer replaced. 

Mr. Couch and Ms. Schwartz, can you discuss whether you believe such an approach would be effective? And then, Mr. Hopkins, 

could performance thresholds get servicers to perform better on behalf of investors and borrowers and at the same time avoid placing 

undue loan-by-loan regulatory burden on community banks that 

service loans? 

Ms. SCHWARTZ. Sure. So there are already in a sense performance thresholds. Fannie Mae and Freddie Mac today have time 

lines required of foreclosure processes. They measure them against 

State law and other efforts, how long it takes to foreclose on a loan, 

and there are incentives in place for servicers to perform under 

their guidelines. 

Certainly there are really great things being done by the small 

and special servicers out there, many who are members of HOPE 

NOW, who all they do is high-touch and feel and help the borrower 

who is in distress, and that is their main business. The larger 

shops have both performing and nonperforming aspects to their departments and have a lot of performing loans they deal with versus 

just a focused efforts. 

Thresholds and ability to move servicing you investors is probably something to be considered because we have been locked up 

in the system with the inability to move loans in and out of pools 

and buckets, and it has caused some stress in the system. 

Senator HAGAN. Mr. Couch. 

Mr. COUCH. She did a good job. 

Mr. HOPKINS. I guess from our standpoint, you know, particularly when we are talking about performance standards, we in the 

South Dakota housing market do have some penalties if we do not 

hit certain delinquency rates. Our fees are actually reduced as the 

delinquency rate goes up. So we are incented to have early and 

often contact with our customer, and it works. 

You know, under some of the new proposals they are looking at, 

it is taking and cutting the servicing fees for your performing loans 

because they say you do not need to deal with them. Well, that will 

drive me out of the business because it is a break-even at best business as it is. And they are looking at, in my opinion, rewarding the 

bad players by paying them more to service and to modify those 

loans. Well, I think that is kind of a perverse relationship, and it 

will drive bad behavior. In my opinion, you should not be rewarded 

for making bad loans and paying people more to service bad loans. 

So we would be in favor of some servicing standards that would 

drive that. 

Senator HAGAN. Thank you. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Mr. Hopkins and Ms. Schwartz, as we have 

heard from Professor Swire’s testimony, resolving a servicer’s mistakes takes time and diligence. To help correct mistakes sooner, 

can borrowers access their servicing records and mortgage files to 

20 

ensure that payments and fees are being applied appropriately? 

Mr. Hopkins. 

Mr. HOPKINS. Yes, if they call into our servicing department, we 

will happily supply them with their payment record and any other 

record that they would like on their mortgage. We will email it, fax 

it to them, whatever they would like, or if they come in and talk 

to us. If they find a discrepancy, we are happy to work with them 

to try to resolve the discrepancy because obviously we are what we 

call a high-touch, high-feel type bank, and we rely on our servicing 

and our expertise in servicing and our reputation as a high-touch 

supervisor. 

Chairman JOHNSON. Ms. Schwartz. 

Ms. SCHWARTZ. Yes, sir. Well, what I have seen from some of the 

largest shops is that they have very impressive Web-based access 

systems where they indeed can go in and look and have a read-only 

review in a private, secure setting to see where they are. And I 

think the industry has made great strides in that area. 

I am not familiar enough to know across the industry the consistency of that opportunity. 

Chairman JOHNSON. Professor Swire, what do you have to say to 

that? 

Mr. SWIRE. Two observations. One is that Washington Mutual 

did, in fact, provide me detailed records eventually on that issue. 

They showed a lot of fees that I did not think I owed, but they 

showed them accurately. 

A second thing is this issue of access to records was an issue in 

the Gramm-Leach-Bliley area, an area I used to work in, where 

there is no right of access in general like you have a right of access 

now to your medical records, and that is something that I think in 

practice usually the banks comply with, but there is not the same 

legal right that we have to our financial records that we have to 

our medical records. 

Chairman JOHNSON. Yes. Thanks again to all our witnesses for 

being here with us today. As more developments within the servicing industry continue to surface, the Committee will continue to 

exercise oversight of this important issue. 

The hearing record will remain open for 7 days for additional 

statements and questions. 

This hearing is adjourned. 

[Whereupon, at 11:06 a.m., the hearing was adjourned.] 

[Prepared statements supplied for the record follow:] 

21 

PREPARED STATEMENT OF CHAIRMAN TIM JOHNSON 

Good morning. I call this hearing to order. 

Thanks to all of our witnesses for joining us this morning. I would also like to 

recognize that, for the first time, we have a witness joining us by Skype. Professor 

Peter Swire is in Oregon, but was kind enough to start his day early for our hearing. 

Today, we will continue the Committee’s oversight of problems in the mortgage 

servicing industry and explore the need for a national mortgage servicing standard. 

The housing recovery appears to have stalled—in part because of widespread uncertainty in mortgage servicing. Borrowers aren’t certain that servicers are accurately evaluating them for modifications. Servicers aren’t confident that borrowers’ 

documents were submitted properly. And investors are concerned about how all 

these factors increase litigation risk for servicers. Homes that should move through 

the foreclosure process are held up because courts and servicers are concerned that 

paperwork has not been completed properly. 

We need rules of the road so that borrowers, investors and servicers have a clear 

understanding of the process to follow both when a borrower is current on payments 

and also in the unfortunate event that a borrower becomes delinquent. 

Since our first servicing hearing in November of last year, the Federal banking 

regulators have found significant problems and issued consent orders to 14 large 

servicers; the Federal Housing Finance Agency amended its seller-servicer guidance 

to align Fannie Mae and Freddie Mac’s standards for servicing and improve borrower contact; and the Treasury Department’s HAMP program began issuing 

servicer report cards—which did not show promising improvements. 

Even more recently, Reuters and AP released investigative reports detailing ongoing problems in mortgage servicing. I would like to place those reports into the 

record. 

Given the variety of standards and the continuing problems that I’ve mentioned, 

it is important that we explore a national mortgage servicing standard. 

Several Members of this Committee have already introduced legislation to create 

such a standard and mitigate the foreclosure crisis. Senator Reed is a consistent 

leader on this issue introducing legislation last Congress and again this Congress. 

I would also like to recognize Senator Merkley and Senator Brown for their legislative efforts. 

Senator Menendez has also helped in the Committee’s oversight of this issue with 

a productive hearing in the Housing Subcommittee. 

This is an important issue, and the Committee will continue to exercise its oversight responsibility. 

Before I turn to Senator Shelby, I would like to thank him and his staff for working with me and my staff on these housing finance reform hearings. Housing finance 

reform is a large topic that requires our attention in all aspects and these hearings 

will help us better understand the areas that need reform. 

ADDENDUM I 

AP Exclusive: Mortgage ‘‘Robo-Signing’’ Goes On 

By Michelle Conlin and Pallavi Gogoi, AP Business Writers 

Tuesday, July 19, 2011 

(07-19) 06:05 PDT (AP)—— 

Mortgage industry employees are still signing documents they haven’t read and 

using fake signatures more than 8 months after big banks and mortgage companies 

promised to stop the illegal practices that led to a nationwide halt of home foreclosures. 

County officials in at least three States say they have received thousands of mortgage documents with questionable signatures since last fall, suggesting that the 

practices, known collectively as ‘‘robo-signing,’’ remain widespread in the industry. 

The documents have come from several companies that process mortgage paperwork, and have been filed on behalf of several major banks. One name, ‘‘Linda 

Green,’’ was signed almost two dozen different ways. 

Lenders say they are working with regulators to fix the problem but cannot explain why it has persisted. 

Last fall, the Nation’s largest banks and mortgage lenders, including JPMorgan 

Chase, Wells Fargo, Bank of America, and an arm of Goldman Sachs, suspended 

foreclosures while they investigated how corners were cut to keep pace with the 

crush of foreclosure paperwork. 

22 

Since then, suspect paperwork has been filed not only with foreclosures, but also 

with new purchases and refinancings. Critics say the new findings point to a systemic problem with the paperwork involved in home mortgages and titles. And they 

say it shows that banks and mortgage processors haven’t acted aggressively enough 

to put an end to widespread document fraud in the mortgage industry. 

‘‘Robo-signing is not even close to over,’’ says Curtis Hertel, the recorder of deeds 

in Ingham County, Mich., which includes Lansing. ‘‘It’s still an epidemic.’’ 

In Essex County, Mass., the office that handles property deeds has received almost 1,300 documents since October with the signature of ‘‘Linda Green,’’ but in 22 

different handwriting styles and with many different titles. 

Linda Green worked for a company called DocX that processed mortgage paperwork and was shut down in the spring of 2010. County officials say they believe 

Green hasn’t worked in the industry since. Why her signature remains in use is not 

clear. 

‘‘My office is a crime scene,’’ says John O’Brien, the registrar of deeds in Essex 

County, which is north of Boston and includes the city of Salem. 

In Guilford County, NC, the office that records deeds says it received 456 documents with suspect signatures from Oct. 1, 2010, through June 30. The documents, 

mortgage assignments and certificates of satisfaction, transfer loans from one bank 

to another or certify a loan has been paid off. 

Suspect signatures on the paperwork include 290 signed by Bryan Bly and 155 

by Crystal Moore. In the mortgage investigations last fall, both admitted signing 

their names to mortgage documents without having read them. Neither was charged 

with a crime. 

And in Michigan, a fraud investigator who works on behalf of homeowners says 

he has uncovered documents filed this year bearing the purported signature of Marshall Isaacs, an attorney with foreclosure law firm Orlans Associates. Isaacs’ name 

did not come up in last year’s investigations, but county officials across Michigan 

believe his name is being robo-signed. 

O’Brien caused a stir in June at a national convention of county clerks by presenting his findings and encouraging his counterparts to investigate continued robosigning. 

The Nation’s foreclosure machine almost came to a standstill when the Nation’s 

largest banks suspended foreclosures last fall. Part of the problem, banks contended, 

was that foreclosures became so rampant in 2009 and 2010 that they were overwhelmed with paperwork. 

The banks reviewed thousands of foreclosure filings, and where they found problems, they submitted new paperwork to courts handling the cases, with signatures 

they said were valid. The banks slowly started to resume foreclosures this winter 

and spring. 

The 14 biggest U.S. banks reached a settlement with Federal regulators in April 

in which they promised to clean up their mistakes and pay restitution to homeowners who had been wrongly foreclosed upon. The full amount of the settlement 

has not been determined. But it will not involve independent mortgage processing 

firms, the companies that some banks use to handle and file paperwork for mortgages. 

So far, no individuals, lenders or paperwork processors have been charged with 

a crime over the robo-signed signatures found on documents last year. Critics such 

as April Charney, a Florida homeowner and defense lawyer, called the settlement 

a farce because no real punishment was meted out, making it easy for lenders and 

mortgage processors to continue the practice of robo-signing. 

Robo-signing refers to a variety of practices. It can mean a qualified executive in 

the mortgage industry signs a mortgage affidavit document without verifying the information. It can mean someone forges an executive’s signature, or a lower-level employee signs his or her own name with a fake title. It can mean failing to comply 

with notary procedures. In all of these cases, robo-signing involves people signing 

documents and swearing to their accuracy without verifying any of the information. 

Most of the tainted mortgage documents in question last fall were related to 

homes in foreclosure. But much of the suspect paperwork that has been filed since 

then is for refinancing or for new purchases by people who are in good standing in 

the eyes of the bank. In addition, foreclosures are down 30 percent this year from 

last. Home sales have also fallen. So the new suspect documents come at a time 

when much less paperwork is streaming through the Nation’s mortgage machinery. 

None of the almost 1,300 suspect Linda Green-signed documents from O’Brien’s 

office, for example, involve foreclosures. And Jeff Thigpen, the register of deeds in 

North Carolina’s Guilford County, says fewer than 40 of the 456 suspect documents 

filed to his office since October involved foreclosures. 

23 

Banks and their partner firms file mortgage documents with county deeds offices 

to prove that there are no liens on a property, that the bank owns a mortgage or 

that a bank filing for foreclosure has the authority to do so. 

The signature of a qualified bank or mortgage official on these legal documents 

is supposed to guarantee that this information is accurate. The paper trail ensures 

a legal chain of title on a property and has been the backbone of U.S. property ownership for more than 300 years. 

The county officials say the problem could be even worse than what they’re reporting. That’s because they are working off lists of known robo-signed names, such 

as Linda Green and Crystal Moore, that were identified during the investigation 

that began last fall. Officials suspect that other names on documents they have received since then are also robo-signed. 

It is a Federal crime to sign someone else’s name to a legal document. It is also 

illegal to sign your name to an affidavit if you have not verified the information 

you’re swearing to. Both are punishable by prison. 

In Michigan, the attorney general took the rare step in June of filing criminal 

subpoenas to out-of-State mortgage processing companies after 23 county registers 

of deeds filed a criminal complaint with his office over robo-signed documents they 

say they have received. New York Attorney General Eric Schneiderman’s office has 

said it is conducting a banking probe that could lead to criminal charges against 

financial executives. The attorneys general of Delaware, California, and Illinois are 

conducting their own probes. 

The legal issues are grave, deeds officials across the country say. At worst, legal 

experts say, the document debacle has opened the property system to legal liability 

well beyond the Nation’s foreclosure crisis. So someone buying a home and trying 

to obtain title insurance might be delayed or denied if robo-signed documents turn 

up in the property’s history. That’s because forged signatures call into question who 

owns mortgages and the properties they are attached to. 

‘‘The banks have completely screwed up property records,’’ says L. Randall Wray, 

an economics professor and senior scholar at the University of Missouri-Kansas 

City. 

In the Massachusetts case, The Associated Press tried to reach Linda Green, 

whose name was purportedly signed 1,300 times since October. The AP, using a 

phone number provided by lawyers who have been investigating the documents 

since last year, reached a person who said she was Linda Green, but not the Linda 

Green involved in the mortgage investigation. 

In the Michigan case, a lawyer for the Orlans Associates law firm, where Isaacs 

works, denies that Isaacs or the firm has done anything wrong. ‘‘People have signatures that change,’’ says Terry Cramer, general counsel for the firm. ‘‘We do not engage in ‘robo-signing’ at Orlans.’’ 

To combat the stream of suspect filings, O’Brien and Jeff Thigpen, the register 

of deeds in North Carolina’s Guilford County, stopped accepting questionable paperwork June 7. They say they had no choice after complaining to Federal and State 

authorities for months without getting anywhere. 

Since then, O’Brien has received nine documents from Bank of America purportedly signed by Linda Burton, another name on authorities’ list of known robo-signers. For years, his office has regularly received documents signed with Burton’s 

name but written in such vastly different handwriting that two forensic investigators say it’s highly unlikely it all came from the same person. 

O’Brien returned the nine Burton documents to Bank of America in mid-June. He 

told the bank he would not file them unless the bank signed an affidavit certifying 

the signature and accepting responsibility if the title was called into question down 

the road. Instead, Bank of America sent new documents with new signatures and 

new notaries. 

A Bank of America spokesman says Burton is an assistant vice president with a 

subsidiary, ReconTrust. That company handles mortgage paperwork processing for 

Bank of America. 

‘‘She signed the documents on behalf of the bank,’’ spokesman Richard Simon 

says. The bank says providing the affidavit O’Brien asked for would have been costly and time-consuming. Instead, Simon says Bank of America sent a new set of documents ‘‘signed by an authorized associate who Mr. O’Brien wasn’t challenging.’’ 

The bank didn’t respond to questions about why Burton’s name has been signed 

in different ways or why her signature appeared on documents that investigators 

in at least two States have deemed invalid. 

Several attempts by the AP to reach Burton at ReconTrust were unsuccessful. 

O’Brien says the bank’s actions show ‘‘consciousness of guilt.’’ Earlier this year, 

he hired Marie McDonnell, a mortgage fraud investigator and forensic document analyst, to verify his suspicions about Burton’s and other names on suspect paperwork. 

24 

She compared valid copies of Burton’s signature with the documents O’Brien had 

received in 2008, 2009, and 2010 and found that Burton’s name was fraudulently 

signed on hundreds of documents. 

Most of the documents reviewed by McDonnell were mortgage discharges, which 

are issued when a home changes hands or is refinanced by a new lender and are 

supposed to confirm that the previous mortgage has been paid off. Bank of America 

declined comment on McDonnell’s findings. 

In Michigan, recorder of deeds Hertel and his counterparts in 23 other counties 

found numerous suspect signatures on documents filed since the beginning of the 

year. 

In June, their findings led the Michigan attorney general to issue criminal subpoenas to several firms that process mortgages for banks, including Lender Processing Services, the parent company of DocX, where Linda Green worked. On July 

6, the CEO of that company, which is also under investigation by the Florida Attorney General’s office, resigned, citing health reasons. 

http://sfgate.com/cgi-bin/article.cgi?f=/n/a/2011/07/18/national/ 

a135435D60.DTL 

25 

ADDENDUM II 

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33 

PREPARED STATEMENT OF SENATOR ROBERT MENENDEZ 

Thank you all for being here today. This hearing of the Banking Committee is 

on a very important topic to our Nation’s homeowners. I explored a similar topic 

in a hearing that I chaired in the Subcommittee on Housing, Transportation, and 

Community Development in May. It is of particular concern to the countless New 

Jersey homeowners who have contacted my office, almost all with terrible stories 

about their experiences going through foreclosure, and many with stories of being 

either mistreated or neglected by mortgage servicers. The typical problems they encounter are servicers losing their paperwork, not understanding what already happened the last time they called since they get a different person each time they call, 

lack of transparency as to whether their modification requests are being calculated 

properly, ineffective appeals, excessive delays in coming to decisions, and a general 

reluctance by servicers to modify loans in ways that would be sustainable in the 

long run. Overall the current process is both emotionally draining and ineffective 

in keeping people in their homes. Closely related to homeowner concerns are mortgage investor concerns about the conflicts of interest that many mortgage servicers 

face when deciding whether to foreclose or modify a loan. 

In response to all of these concerns, numerous commentators have suggested national mortgage servicing standards as a way to provide consistency, accountability, 

and better homeowner and mortgage investor protections. There seems to be increasing consensus that at least some kind of national mortgage servicing standards 

are warranted, and I believe if they are done in the right way, they can actually 

make mortgage servicers’ jobs easier too. 

This is also a timely topic because Federal banking regulators including the OCC, 

Federal Reserve, FDIC, and OTS recently issued Consent Orders as enforcement actions against some of the largest banks to require changes in their mortgage servicing practices. These actions take a step in the direction of developing national 

mortgage servicing standards, but they’re also too little and too late to help many 

homeowners. Fortunately the State Attorneys General settlement framework is providing some basis for discussion of these important issues as well. I look forward 

to hearing the testimony on this. 

PREPARED STATEMENT OF JACK HOPKINS 

PRESIDENT AND CHIEF EXECUTIVE OFFICER, CORTRUST BANK, SIOUX FALLS, SOUTH

DAKOTA, ON BEHALF OF THE INDEPENDENT COMMUNITY BANKERS OF AMERICA

AUGUST 2, 2011 

Chairman Johnson, Ranking Member Shelby, Members of the Committee, I am 

Jack Hopkins, President and CEO of CorTrust Bank, a $660 million asset, nationally chartered bank headquartered in Mitchell, South Dakota. As a third generation 

community banker, I am pleased to represent ICBA’s nearly 5,000 members at this 

important hearing on ‘‘National Mortgage Servicing Standards.’’ 

As this Committee considers the development of national mortgage servicing 

standards, I urge you to ensure that they do not add to the regulatory burden of 

community banks, which are servicing their portfolios successfully and have not contributed to widely reported problems. We must preserve the role of community 

banks in mortgage servicing because the alternative is further consolidation in the 

servicing industry, which will only harm borrowers, especially those in rural and 

underserved housing markets. 

CorTrust Bank was founded in 1930, at the outset of the Great Depression, and 

was built, tested, and proven under historically challenging economic conditions. We 

survived the Great Depression and numerous recessions since that time, including 

the most recent financial crisis, by practicing conservative, commonsense lending. 

We have emerged from the crisis well-capitalized and ready to lend to support the 

recovery. CorTrust Bank serves 16 communities in South Dakota, from Sioux Falls 

to rural communities with populations of less than 150, such as Artesian, where we 

were first chartered under the name Live Stock State Bank. We recently expanded 

into Minnesota. 

Many ICBA member banks with similar stories—some have been in business for 

more than 100 years—have also emerged from the crisis well-capitalized. Despite 

the recent wave of bank failures and consolidations, I fully expect the community 

bank business model will thrive in the future, to the benefit of consumers, communities, and the economy. 

34 

Servicing Is Key to Relationship Banking and Helps Community Banks Remain Competitive 

Residential mortgage lending has been an important component of CorTrust’s 

business since its founding and has grown more important over the years. In 1988, 

we first began to sell mortgages into the secondary market in order to access additional funding. Today, we have a $552 million servicing portfolio consisting of approximately 5,000 loans. 

About two thirds are held by Fannie Mae, and a smaller number are held by 

Freddie Mac and by the South Dakota Housing Authority. 

Over the years, we have discovered that mortgage lending is a great way to cement long-term relations with customers and win the opportunity to serve their additional banking needs. But in order to sustain customer relations we need to service these loans, whether they are subsequently sold or held in portfolio. We also discovered that customers do care about who services their loans. They value, and even 

seek out, local servicing. If they have a question, they want to be able to pick up 

the phone or visit a branch and sit down with a banker in their community. We 

built a successful ad campaign—print, TV, online—around the advantage of local 

servicing. The campaign has resonated with consumers and boosted our mortgage 

sales. Notably, much of our recent business has come in the form of refinancing 

mortgages away from large lenders whose borrowers are frustrated with remote, 

faceless servicing performed outside the community. 

Servicing is key to the marketing of mortgage originations, and together, origination and servicing are integral to our relationship-banking business model. Mortgage lending represents approximately 20 percent of our business, but its significance is greater than its percentage would suggest. Viewed narrowly, loan-for-loan, 

it would be more profitable for us to release servicing when we sell a loan. But we 

chose to keep servicing in-house, even though it’s at best a break-even business, because it is central to our community bank business model. 

CorTrust Bank’s experience is typical of community banks. Servicing helps community banks remain competitive in the mortgage origination business. Today, community banks represent approximately 20 percent of the mortgage market, but more 

importantly, community bank mortgage lending is often concentrated in the rural 

areas and small towns of this country, which are not effectively served by large 

banks. For many rural and small town borrowers, a community bank loan is the 

only mortgage option. Any broad based recovery of the housing market must involve 

community bank mortgage lending. 

Community bank servicing is based on close ties to customers and communities. 

Because CorTrust Bank’s servicing team consists of only four people, customers always know who is on the other end of a telephone or across the desk. A customer 

who dials our 1-800 number will generally get one of two people on the line. Alternatively, a customer can walk into one of our 24 locations and deal with a staff person face-to-face. 

Most importantly, we intervene early to keep mortgages out of default. We know, 

for example, when an employer closes in our community and how that closure impacts the income of our borrowers. A servicer based 1,000 miles away won’t have 

such knowledge. Smaller servicing portfolios and better control of mortgage documents also provide an advantage over the large servicers. For these reasons, community banks have generally been able to identify repayment problems at the first 

signs of distress. Our staff will contact a late customer on the 16th day—the first 

day of delinquency—to find out what their circumstances are and discuss solutions. 

Community Bank Servicing Improves Loan Performance 

This personalized approach to servicing is a natural complement to conservative, 

commonsense underwriting. We make sure loans are affordable for our customers 

and they have the ability to repay. Loans are underwritten based on personal 

knowledge of the borrower and their circumstances—not based on statistical modeling done in another part of the country. We don’t underwrite option adjustable 

rate mortgage (ARM) loans or other exotic credit products. This combination of quality, personalized underwriting and servicing yields results. CorTrust Bank’s delinquency rate on loans transferred to Fannie Mae is 0.83 percent. Our delinquency 

rate on loans transferred to other programs is a bit higher, yielding an average delinquency rate of 1.7, which is consistent with the general pool of community bank 

originated loans and about one-third of the national average. In the most frenzied, 

exuberant years of mortgage lending, 2005 through 2007, the general pool of GSE 

loans was seriously delinquent at a rate four or five times higher than loans originated by community banks and sold to GSEs. In the history of CorTrust Bank mortgage lending, we’ve had very few mortgage loans go into foreclosure. Community 

bank originated and serviced mortgages perform better in all market conditions. 

35 

National Servicing Standards Should Exempt Community Banks 

As a result of widely reported, abusive servicing at some large banks, ‘‘robo-signing,’’ wrongful foreclosures, and other high profile scandals, Congress, the regulators, State officials, and the media have focused on servicing. In June, Fannie Mae 

published Announcement SVC-2011-08, ‘‘Delinquency Management and Default Prevention.’’ These new servicing standards are very prescriptive with regard to the 

method and frequency of delinquent borrower contacts. They are a challenge to implement and have reduced our flexibility to use methods that have proved successful 

in holding down delinquency rates. 

As Congress and the agencies consider how to address the deficient servicing 

standards of some large lenders, they must recognize community banks have fundamentally different standards, practices, and risks. Overly prescriptive servicing 

requirements should not be applied across the board. Examples of difficult and unnecessary requirements include rigid time lines for making contacts that leave no 

discretion to the servicer; mandatory property inspections; establishing a single 

point of contact for the borrower; the creation of a special servicing group for delinquent loans; requiring significant oversight of third-party providers; developing burdensome compliance programs; and annual independent audits of controls and processes. Many of the proposals I’ve seen would require us to establish a call center 

to comply, a prohibitive and unnecessary expense for a community bank such as 

mine. Our small size and our local presence in the communities we serve make 

many of these requirements unnecessary. For example, borrowers are able to quickly find the right person in the bank to address their issues. 

In practice, community bank servicing is consistent with the goals and the spirit 

of national standards proposals I have seen, which promote more personalized service, improved accountability and control of documents. But, in the proposals I’ve 

seen, the means of achieving those goals are overly prescriptive. CorTrust Bank 

services loans with care, diligence, and accountability because quality servicing contributes to the reputation we enjoy in our communities. We don’t need threat of enforcement to incentivize quality servicing. 

The most significant risk in applying standards that are too rigid and prescriptive 

to all banks, regardless of size, is that the additional expense would cause many 

community banks to exit the mortgage servicing business and accelerate consolidation of the servicing industry, leaving it to the largest lenders. Loss of servicing 

would make it harder for community banks to compete for origination business and 

would thereby accelerate consolidation in that business as well. Were this to happen, rural and small town customers in particular would be left with fewer mortgage choices, interest rates and fees would be less competitive, and customer service 

and product choice would suffer. The secondary markets, without well-performing, 

community bank-originated loans to shore them, would be less stable. We all witnessed the danger and devastating fallout that resulted from the concentration of 

mortgage lending in a few major market players. We must promote beneficial competition and avoid further consolidation and concentration of the mortgage lending 

industry. 

Any national standards developed by Congress or the regulators must exempt 

community bank lenders. There are a number of ways of accomplishing this. One 

possibility is to exempt lenders that are both below a threshold number of loans (or 

aggregate dollar value of loans) and whose delinquency rate is below its regional average. As a lender exceeds its regional average, servicing standards could be applied 

on an incremental basis, so that one delinquent loan does not bring on the full array 

of standards that apply to a large bank. However you choose to structure the exemption, I urge you not to tamper with our success in a service that is so important 

to our business and that of other community banks. 

Servicing Compensation Must Cover Costs and Incentivize Diligent Servicing 

A separate but related issue is compensation for servicing. Because the income 

provided by servicing is only enough to cover costs, ICBA is very concerned about 

a recent Federal Housing Finance Agency (FHFA) proposal to change both the 

method and the amount of compensation paid for servicing mortgage loans for 

Fannie Mae or Freddie Mac. The proposal would significantly reduce or eliminate 

all together the minimum servicing fee of 25 basis points earned for performing 

mortgages and would implement a specific fee paid for nonperforming loans. This 

proposal would result in a sharp reduction in mortgage servicing fee income for community banks, who predominantly service performing loans, and does nothing to improve the financial condition of Fannie Mae or Freddie Mac. Further, changing the 

servicing fee structure could cause significant change to the value of existing mortgage servicing rights held by community banks which may impact their capital posiVerDate Nov 24 2008 11:38 Apr 26, 2012 Jkt 048080 PO 00000 Frm 00039 Fmt 6621 Sfmt 6621 L:\HEARINGS 2011\08-02 HOUSING FINANCE REFORM -- NATIONAL MORTGAGE SERVI
36 

1 HOPE NOW is an alliance of counselors, mortgage lenders/servicers, investors, and other 

mortgage market participants to prevent foreclosures through outreach to delinquent borrowers, 

counseling, and loan workouts based on the borrower’s ability to repay. The goal is to prevent 

foreclosures by connecting troubled borrowers with counselors and/or their mortgage servicer. 

HOPE LoanPort® is a Web-based tool that streamlines home retention applications on behalf 

of homeowners at-risk of foreclosure, allowing housing counselors to efficiently transmit completed applications to mortgage companies. 

tion and likely increase consolidation of the servicing business. Moreover, by rewarding the servicers of nonperforming loans—and the originators who typically retain servicing rights—the proposal would create a perverse incentive. Loan servicing 

fees should be structured to incentivize diligent servicing, which can make the difference between keeping a loan current and a lapse into nonperformance. 

Closing 

Thank you for holding this hearing and for the opportunity to testify and present 

the good story of community bank mortgage servicing. For many community banks, 

servicing is integral to competitive mortgage origination and is a crucial aspect of 

relationship business lending. While I appreciate your concern with servicing practices that have harmed consumers and impeded the housing market recovery, I urge 

you not to tamper with the success of community banks in serving their customers 

and keeping loans out of delinquency. 

PREPARED STATEMENT OF FAITH SCHWARTZ 

EXECUTIVE DIRECTOR, HOPE NOW ALLIANCE

AUGUST 2, 2011 

Introduction 

Chairman Johnson, Ranking Member Shelby, and Members of the Committee, 

thank you for the opportunity to testify today. My name is Faith Schwartz. I am 

the Executive Director of the HOPE NOW Alliance and a cofounder of HOPE 

LoanPort®. 1 I have served in a leadership capacity at HOPE NOW since 2007, during which time I worked closely with members and partners of the Alliance, including mortgage servicers, investors, nonprofit housing counseling partners, Government agencies and regulators to help homeowners avoid foreclosure. Before my time 

with HOPE NOW, I served in various capacities in the housing finance industry for 

28 years. 

The comments I make today are my own and reflect my experience in the mortgage business and in particular, in working with servicers and counselors attempting to help at-risk homeowners. These comments do not necessarily represent the 

views of all HOPE NOW members. Attached to my testimony is an addendum on 

HOPE NOW data and supplemental facts from the HOPE NOW Alliance. 

The Goal of National Servicing Standards 

I am here today to speak to you about the goal of achieving strong National Servicing Standards which will require extraordinary cooperation and communication 

between the industry, the Government, and other concerned parties to evaluate the 

servicing standard initiatives now underway. We all want to improve the customer 

experience and the establishment of uniform, clear standards would be a strong step 

in that direction. 

The members of HOPE NOW have been focused on assisting homeowners in need 

for the past 4 years. The joint efforts of servicers, nonprofits and other partners 

have helped millions avoid foreclosure, but unfortunately there are millions of homeowners who still remain at risk of losing their home. In addition to the estimated 

4 plus million homeowners 60 days past due or in foreclosure, there are many customers current with their mortgage, but who struggle to make that payment every 

month letting other bills slip. 

We are all aware that the current economic conditions—unemployment and 

underemployment in particular—are challenging for customers who are trying to 

maintain their home. Additionally, homeowners are frustrated by mixed messages 

from some loan servicers when they ask for help. Improvements have been made, 

but more needs to be done. These issues are part of the motivation for more uniform 

servicing standards. At the same time, it is important to recognize that national 

servicing standards may not change the final outcome for many homeowners at risk 

of foreclosure because of their economic situation, but customers need a servicing 

process that gives them timely responses and consistent answers regarding their 

loans. 

37 

Improving the Customer Experience in Mortgage Servicing 

Our alliance members recognize the importance of improving the customer experience in mortgage servicing and they have been working hard to achieve that goal. 

An ongoing demonstration of the effort on reaching customers directly is the large 

number of outreach events that HOPE NOW has helped organize around the country since the crisis hit. Loan servicers and nonprofit counselors have worked with 

HOPE NOW staff to set up events in different cities and around the country, spending 2, sometimes 3 days on the ground in distressed markets providing in person 

help to at-risk homeowners. HOPE NOW initiated the events in 2008 and when the 

Making Home Affordable program began, we partnered with Treasury to combine 

industry and Government efforts in joint events to reach more borrowers at risk and 

offer solutions in a timely manner. 

Part of the focus at these events is to make sure that the customer walks away 

feeling that they have been helped or at the very least put on the right path to get 

help. Providing access to HUD approved housing counselors at the events has been 

a very important component of the free services offered to a borrower. If a borrower 

comes prepared with all the necessary documents and information, they may have 

the option to be underwritten on site and approved for a loan modification or other 

workout by their loan servicer, subject to various validations. 

Together, we have held 112 outreach events. Just 3 weeks ago, HOPE NOW members and Making Home Affordable partners were in two cities in Florida and met 

with more than 2,000 homeowners. The latest totals for all outreach events reached 

89,207 borrowers. Our follow up from those events indicates that 43.5 percent have 

been assisted by resolving their delinquencies without foreclosure sales. As an addendum to this testimony, there is a list of the communities in which HOPE NOW, 

partnering with our industry members, the Government Sponsored Enterprises 

(GSE), the United States Treasury, and nonprofit counselors have been to since we 

started holding outreach events in early 2008. It is also important to note that several of the larger servicers are holding their own company-sponsored events all over 

the country which directly reach their borrowers at risk in key markets. 

Without question, the outreach events have improved the experience of many customers trying to resolve their mortgage difficulties through a face to face meeting 

with their loan servicer or counseling through a nonprofit agency. Our exit surveys 

reflect over 88 percent strong borrower satisfaction after they have a chance to meet 

face to face with their loan servicers. As many as 30–40 percent of those attending 

had never had contact with their servicer before the meeting. These numbers will 

vary slightly from market to market, but in every case the majority of homeowners 

who come to the events are delinquent on their loans and more than satisfied with 

the service they receive at the outreach event. We truly believe that nothing gives 

a distressed homeowner more peace of mind and satisfaction than sitting down face 

to face with someone and being able to discuss the options that are available to 

them. I have included as part of my addendum exit surveys from recent outreach 

events to give you a taste of how borrowers feel after coming to an event. 

Another ongoing effort that was begun in 2006 is the Homeowner’s HOPE hotline, 

the national 1-888-995-HOPE number that servicers and investors support financially, for homeowners to call to speak to a HUD certified counselor. The Homeowner’s HOPE Hotline, operated by the Homeownership Preservation Foundation, 

has become the leading national hotline and has received over 5.2 million calls from 

borrowers seeking help with their mortgage. 

Servicing Has Changed Dramatically 

It is important to understand some of the history of mortgage servicing and how 

the tremendous challenges of the current crisis have impacted the mortgage servicing system. 

In the decades before the current crisis, mortgage servicing developed some uniformity in part because of the requirements of GSEs and the Federal Housing Agency (FHA) for servicers on loans purchased by the GSEs or insured by FHA. In both 

cases these entities established requirements for mortgage servicing as well as requirements for other features of mortgage finance. In particular, the GSEs became 

the dominant force in setting standards in the industry and could dictate servicing 

rules and standards because they were the primary investor for the majority of the 

residential mortgage loans originated and serviced. 

When the private label mortgage securities market grew in size in the late 1990s 

those private label securitization agreements dictated specific servicing terms that 

had to be followed by the servicers, and when details were missing, the practice was 

to default to the GSE rules as the industry standards. While the market functioned 

smoothly and delinquencies were generally low, these differences in servicing requirements were not meaningful. 

38 

2Single point of contact has many definitions, but for this discussion it describes an individual or small team of individuals in a servicer that can communicate directly with a customer 

and have real time access to all the data in the customer’s file in order to discuss the issues 

with the customer, direct the customer to the specialist in the organization for specific loss mitigation practices (i.e., short sales, modifications, forbearance, etc.). Dual track processing is the 

practice of both proceeding to move a delinquent borrower toward foreclosure while at the same 

time trying to resolve with that borrower an alternative to foreclosure. 

However, once the dramatic downturn in the market occurred in the mid 2000s, 

the challenges facing servicers grew tremendously and differences in servicing requirements became more important. Prior to the crisis, servicing had been a fairly 

simple process of processing payments from current borrowers and forwarding those 

payments to investors. Servicers were paid a set fee for processing performing loans. 

Delinquent loans and troubled borrowers were a small segment generally handled 

by relatively small loss mitigation staffs and solutions often involved repayment 

plans to get borrowers back on track. The housing crisis completely changed the demands on major mortgage servicers. Servicers are now managing millions of delinquent loans and have had to hire thousands of new employees to work with borrowers to find solutions such as loan modifications which require a re-underwriting 

and contractual change in the terms of the original loan. This is a much more complicated servicing process that requires many more staff and additional training. 

HOPE NOW was formed in great part to assist the industry in its attempts to 

deal with the new demands on servicing resulting from the housing crisis. It was 

also created to reach a growing number of borrowers who were going into default 

and were not contacting their servicer. The Alliance helped industry members to 

work together to find a process for offering loan modifications and other assistance 

to borrowers that were consistent with the requirements of investors. The alliance 

helped build a good working relationship with the nonprofit community and Government agencies to work together to stem the tide of foreclosures. 

Today’s Servicing Issues 

The industry strongly supports a uniform approach to servicing standards. 

Progress is being made in providing better service to troubled homeowners, but 

there are a variety of initiatives and requirements from Federal regulators, the 

GSEs and others to set standards. These initiatives need to be evaluated and coordinated to determine the best overall standards. For example, let me address two of 

the main issues that are regularly discussed by industry, Government, and nonprofit groups: single point of contact and dual track processing. 2

Single Point of Contact 

In order to best help a homeowner in difficulty, a homeowner needs to be able 

to talk with a servicer representative who has the information on the customer’s 

mortgage and the options that are available to assist them. A clear, consistent communication channel with someone in the servicing department will help the homeowner understand their options which may range from a loan modification, a short 

sale, to the need for unemployment forbearance. It is equally important that customers not be required to repeat the same request to various customer service representatives and that the information they provide about their income and payment 

situation be consistently available to all decision makers across the company. Finally, the customer needs to know that they have been informed of all options available and that their single point of contact or relationship manager at the company 

is able to confirm needed information and the status of their case. 

All of our members are working to develop a single point of contact or relationship 

manager program that will meet those goals. Most of them have established or committed to establishing such a program. While different companies may have slightly 

different definitions of what a single point of contact is and what programs should 

be used to implement it, most programs include these key features: 

1. The creation and training of servicing specialists who can serve as a relationship manager. 

2. The designation of a group of employees to serve in that capacity, and in some 

cases the establishment of small teams that work together; 

3. The ability to respond promptly to inquiries from borrowers and to immediately record the discussions with the borrower in the company’s data files for 

that customer; 

4. A knowledge of all of the mitigation programs that are available to the borrower and the ability to know when to refer that borrower to a specialist with 

39 

in-depth knowledge of one or more of those programs that might be suitable 

for that borrower; 

5. The ability to connect that borrower with the specialist and then to follow that 

process through to the time that all alternative options have been considered 

and the borrower is either provided an alternative or the foreclosure sale occurs; 

6. The ability for the contact person to reach out personally, as needed, to fully 

explain why an option might have been denied; and 

7. In all instances to utilize a single point of contact to ensure consistent and appropriate feedback to the homeowner about their status in foreclosure. 

Last month I visited a major servicer’s shop to get a first-hand view of their effort 

to develop a single point of contact system. It was an excellent opportunity to actually see how a company is dealing with the growing number of servicing standard 

requirements. This company was hiring hundreds of people to become single point 

of contact managers. (Other servicers have reported they may hire up to thousands 

of additional staff for the single point of contact role.) The company’s training programs lasted up to 6 weeks for these new hires. The long training was for two reasons—they want to make sure they get it right, but they also need time to educate 

this relationship manager of all the options that are available to at risk homeowners 

and the program requirements by the Government and GSEs. For a servicer representative to talk to a homeowner whose loan may be eligible for a Home Affordable Modification Program (HAMP), they had to refer to an eight inch thick black 

binder filled to the brim with the HAMP requirements for each loan evaluation. 

There was a large binder for each program and for each investor, to show what 

would be allowable for a specific loan. 

Obviously, the ability to understand and explain the numerous Government, GSE, 

and other loss mitigation programs is daunting. In the Web-based world we live in, 

it is hard to believe that these binders were not online. The answer was that the 

consistent training, access to internal systems, and an additional system to navigate 

the numerous programs not housed in any one system remained a challenge. 

That said, an impressive manager was charged with training for the new hires. 

The training emphasized consistent and empathetic ways to work closely with the 

borrower, and training on how to work with the several departments across the 

large organization. With this drive to make the system work more effectively for 

customers, I am confident they will establish a process that improves service to all 

their customers needing mortgage assistance. Seeing an organization at work in person was a good experience to understand the many factors in play for strengthening 

servicing performance in assisting borrowers. 

Dual Track Processing 

The dual track process is a confusing concept to many customers, and also confusing for our members to attempt to explain what it means and why it is happening to the homeowner. But the dual track process is driven in large part by investor requirements and State laws on foreclosures. For example, in many States 

once a servicer commences the foreclosure process by sending notice to the borrower, 

the steps that must be taken and the time frames in which they must be taken are 

directed in great part through State laws and regulations. Similarly, investors such 

as Fannie Mae and Freddie Mac have certain guidelines and time lines that require 

processing foreclosures while the efforts to modify loans continue simultaneously. 

There are rules that cover and protect homeowners from going to foreclosure if they 

are eligible for a modification and adhere to time lines for submitting documentation, validating income, and finalizing the modification or alternative solution prior 

to the foreclosure sale. In any event, the foreclosure process (which now exceeds 600 

days in some areas of the country) continues with the exception of a 30 day process 

for review of eligibility for modifications. If a loan is in the midst of a modification 

review, the foreclosure sale process will not commence. Once referred to foreclosure, 

there are various pauses that will occur, and in no case should a foreclosure sale 

occur while under a review for a modification that falls within the HAMP or investor guidelines. Rules differ among investors as to what time lines are required. The 

GSEs are the most important investors setting requirements in the dual track process. 

It is important to keep in mind that the investors’ contracts continue to govern 

much of the latitude for servicers around foreclosures versus short sales and modifications. The investors and rules include HAMP, Fannie Mae, Freddie Mac, FHA, 

Veterans Administration (VA) and private securitization trusts. Often the most 

flexibility exists when a bank/servicer owns the loan in full on their balance sheet. 

These differences help explain the confusion in understanding the dual track issue. 

40 

Our servicer members generally follow a few clear practices on the dual track 

process: 

1. They notify the borrower that a dual track process exists and how it works 

with the continuation of the foreclosure proceedings, including the continued 

delivery of statutorily required notices, but that no foreclosure sale will occur 

if the borrower is still being considered for a modification or is making payments under a trial modification; 

2. The servicer attempts to come to an agreement with the borrower on a loan 

modification or other alternative to foreclosure for which the borrower might 

be eligible while the processes necessary to continue to the foreclosure sale continue; 

3. If a modification is agreed upon and payments have been made to convert the 

trial modification to a permanent modification no further foreclosure notices 

will be sent; and 

4. If no agreement for a modification can be reached, and trigger dates arise after 

which time the foreclosure sale must proceed, the servicer pauses and ensures 

by a separate review of the loan file that all viable options to foreclosure have 

been explored before notifying the foreclosure attorney to continue with the 

sale. 

Multiple Efforts on Servicing Standards 

In evaluating the need for uniform national servicing standards, it is important 

to understand the wide variety of rules and initiatives already in progress that 

servicers are attempting to understand and implement as they develop and utilize 

a single point of contact and address dual track processing issues. These are some 

of the current initiatives by Federal and State governments and the GSEs to set 

servicing standards, many of which have or will set single point of contact and dual 

track processing rules: 

• The OCC consent orders of April, 2011, differ from institution to institution but 

all require specific practices relative to establishing and maintaining a single 

point of contact and safeguards and disclosure requirements when engaging in 

a dual track process with a delinquent homeowner. 

• The Fannie Mae Servicer Guidelines describe a single point of contact as a 

Quality Right Party Contact (QRPC). The guidelines say that Fannie Mae will 

establish benchmarks to measure and monitor effective QRPC, and that it promotes single point of contact which supports those servicers who have or will 

implement single point of contact processes for the purpose of achieving contact 

continuity throughout the delinquency process. 

• The Fannie Mae Guidelines also cover elements of dual track processing in a 

number of ways but do not specifically use that term. The guidelines establish 

uniform disclosure requirements for borrowers, including notices about the evaluation process and time line, explanation of the foreclosure process, and instances where foreclosure shall not be halted, as well as uniform content and 

timing requirements for solicitation during the foreclosure process. 

• The Freddie Mac Servicer Guidelines also use the term QRPC, and is defined 

by a contact that occurs when a servicer identifies and discusses with a borrower, coborrower, or trusted advisor such as a housing counselor, the most appropriate options for delinquency resolution, and makes every attempt to 

achieve quality right party contact by establishing rapport with the borrower, 

expressing empathy with the borrower and a desire to help, determining the 

reason for the delinquency and whether it is temporary or permanent, determining whether the borrower has vacated the property or plans to do so, setting 

payment expectations and educating the borrower on the availability of foreclosure alternative solutions, and obtaining a commitment from the borrower to 

either resolve the delinquency through traditional methods (paying the total delinquent amount) or engage in a foreclosure alternative solution. It has similar, 

but not the same, guidance to that of Fannie Mae with respect to benchmarks 

for measuring effective QRPC and contact continuity. 

• Freddie Mac language with respect to dual track is again similar but not identical to that of Fannie Mae. 

• Treasury’s Home Affordable Modification Program (HAMP) requires that each 

servicer must develop and implement a policy that identifies experience and 

training requirements for the relationship manager position and the appropriate caseload levels to ensure that relationship managers can successfully fulfill all specified requirements. 

41 

• Various States have servicing requirements which vary considerably from State 

to State. In the area of mediation, for example, some States may include opt 

in for mediation, and others may require opt out for mediation and the variations may not be clear on how many meetings are required for servicers send 

borrowers to meet face to face. Some States are silent on mediation. 

• States’ Attorneys Generals are in discussions with the top five servicers and 

while the content of their discussions remains confidential, it is very possible 

that they will have a broad list of required servicing requirements, including 

those relating to single point of contact and parallel tracks. 

• Individual private investors require different servicing rules for various pools of 

securities. For servicers signed up with Making Home Affordable, some of that 

is mitigated but not all. 

• The Board of Governors of the Federal Reserve System and other Federal banking regulators have called for uniform national servicing standards and many 

of those regulators are now in discussions to create new standards. 

• The Consumer Financial Protection Agency (CFPB) has indicated they will 

work on servicing standards early on as they begin to stand up the agency. 

• The proposed risk retention rule under Dodd Frank Act—specifically the Qualified Residential Mortgage (QRM) definition—includes servicing requirements. 

While these do not specifically refer to single point of contact, they do require 

rules in place in the contracts themselves which mandate default mitigation 

policies without regard to whether foreclosure proceedings are underway, therefore raising questions about dual track processing. 

• The Federal Housing Finance Agency (FHFA), Fannie Mae and HUD unveiled 

an initiative on compensation of servicers, which will address a wide variety of 

servicing requirements, including different payments for noncurrent borrowers 

than the payments for current borrowers, and could conceivably address both 

dual track processing and single point of contact. This effort is in progress and 

adds to the changing landscape. 

There are other servicing features that also differ from program to program. For 

example, as recently as July 25th, 2011, Treasury issued a Supplemental Directive 

11-07 that expanded the minimum period of forbearance for unemployed borrowers 

under HAMP to 12 months from 3 months. That is consistent with the new policy 

issued by FHA, but is inconsistent with the policy followed by Fannie Mae and 

Freddie Mac and the VA. 

Servicers faced with this daunting list find that they must frequently change the 

way they do business. That includes, not only changes in systems, but changes in 

training and educating staff throughout the organization. One solution, to which 

many servicers are attracted, is the establishment of a single uniform set of servicing standards which all State and Federal entities must accept, and which would 

establish the parameters for the GSEs, FHA and private investors. 

We believe that the efforts by various entities currently underway are already 

moving in the direction of national standards for servicing. We recommend that 

there be coordination to ensure the definitions and policies set by different regulators, enforcement agencies and investors align with one another. If these efforts 

are given a certain amount of time to be put in place and reviewed, then major 

progress toward national standards will be achieved. To ensure that all these initiatives on servicing standards achieve their intended goal, we would suggest that the 

Administration convene a summit with all necessary partners from the industry, the 

Government, nonprofit agencies, and other concerned entities to review the new 

standards underway, evaluate them, and determine what should be included in a 

uniform national standard. 

Uniform national servicing standards can help improve the customer experience 

as well as give servicers clarity on a single definition of the standards expected. We 

appreciate the difficulties in reaching agreement on servicing standards because the 

servicing process for delinquent loans is complex; there are multiple initiatives at 

the Federal and State levels on standards, and servicers are have programs already 

underway to improve assistance to customers. 

Now is the time to coordinate and align the servicing standard initiative and 

make them work for all parties. This will help rebuild confidence in our housing finance system and assist in the recovery of the market. The home mortgage is the 

most important investment in the lives of most consumers, and it is essential that 

we ‘‘get right’’ the process for communicating to the customer whenever there is a 

change affecting their ability to meet their loan payment. 

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What Has Changed From 2007 to 2011? 

Since the housing crisis began in 2007, there have been tremendous changes in 

the challenges facing homeowners; programs created to address the crisis; and the 

process for servicing loans. It is important to keep all of these events and factors 

in mind as we evaluate how to implement uniform servicing standards. 

Subprime Crisis: When the crisis began in 2007, most of the early foreclosure prevention efforts focused on repayment plans, and some modifications, which entailed 

capitalizing missed payments (arrearages) and re-setting the mortgage. The HOPE 

NOW data indicates that in July 2007, there were 17,000 modifications completed. 

The primary focus was in the subprime products; the hybrid ARMs and option 

ARMs which were defaulting in record numbers, many prior to the ARM reset. In 

2007, The Treasury Department and the Department of Housing (HUD) reached out 

to industry and asked them to increase and expand collaboration with nonprofits to 

reach more borrowers and help them avoid foreclosures wherever possible. 

Through HOPE NOW, more servicers set up toll-free numbers for housing counselors. HOPE NOW servicers produced servicing guidelines to improve the loss mitigation process, and worked with third parties to reach homeowners who were not 

responding to contact from servicers. The housing crisis deepened with the recession 

and we saw more widespread defaults happening across loan portfolios—economic 

problems spread defaults to borrowers with prime, fixed-rate loans. Servicers continued to be proactive working with housing counselors and third parties, while hiring 

and expanding activity around foreclosure prevention efforts. 

In 2007, there was few Government resources focused directly on foreclosure prevention. Mortgage servicers and others worked individually and then pulled together through HOPE NOW to meet the challenge, progress was made but the 

growth of the housing crisis outweighed the response. 

Additionally, since 2008, the Government has taken on a broader role to address 

the crisis. The Government created programs to deal with several problem areas: 

refinances, unemployment assistance, modification, short sale and deed in lieu, and 

mediation (at the State level). Some of these programs are more successful than others and it is difficult to measure the full impact of the programs. However, a combination of factors has led to record longer foreclosure time lines as measured in 

2010. The average loan in delinquency that went to foreclosure in 2010 exceeded 

500 plus days, up from 300 days in 2008, according to a Lender Processing Services 

(LPS) report in early 2011. The following programs have been implemented by the 

Government to deal with the housing crisis: 

1. FHA HOPE for Homeowners was an attempt to assist homeowners who might 

qualify to refinance to an FHA-insured loan with the participation of servicers and 

investors willing to write-down the existing loan. It also required the homeowner 

to share possible future appreciation of the property with the Government. There 

were few loans produced through the program in part because of its complexity. 

Originators and servicers have not been easy to match up with regard to refinancing 

higher risk loans and expanding short payoffs. 

2. Home Affordable Refinance Program (HARP) is the refinance portion of the MHA 

program offered by the Fannie Mae and Freddie Mac. It is a first lien refinance program targeted to loans at 80 percent LTV up to 125 percent LTV. Essentially, it 

targeted borrowers who were current on their loan, but at-risk to become delinquent. From April 2009 through November 2010, FHFA reports 623,000 homeowners refinanced into this program. This is creative and an opportunity to continue 

reaching borrowers who could not otherwise refinance and may become future foreclosure candidates. 

3. Making Home Affordable: HAFA—A short sale and deed in lieu program that focuses on a detailed process for the complicated nature of a ‘‘short sale’’ and deed 

in lieu product. The effort has key time lines, document and process requirements 

that need to be followed and extends the time line for loans for up to 120 days. It 

includes forgiveness of the deficiency when a borrower sells a property short of 

value and it offers clarity, accountability and clear expectations of what is required 

for realtors, servicers, and other stakeholders. Junior lien holders often require 

more dollars than HAFA supports. Recent adjustments to the program offered by 

Treasury suggest that this program may be used more in the future because of adjustments made to the requirements to prove hardship or stick to 31 percent DTI 

thresholds. 

4. Making Home Affordable: HAMP—This is the loan modification program that was 

rolled out in response to the growing stress in the housing market. The crisis was 

deepening. By intervening with a loan modification that was subsidized by the GovVerDate Nov 24 2008 11:38 Apr 26, 2012 Jkt 048080 PO 00000 Frm 00046 Fmt 6621 Sfmt 6621 L:\HEARINGS 2011\08-02 HOUSING FINANCE REFORM -- NATIONAL MORTGAGE SERVI
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ernment, it was a change from the previous attempts to modify loans, and was an 

important step toward creating market standards. 

• Standards: Despite criticism for falling short of projected numbers for permanent modifications, HAMP helped create standards that improved methods and 

transparency on how to achieve affordable and sustainable loan modifications. 

• Increasing Homeowner Awareness: When the United States Government offers 

a potential solution to the loan modification process, the public listens. The 

awareness created by the HAMP program helped engage millions of at-risk 

homeowners in efforts to preserve their home and avoid foreclosure. The existence of the HAMP program helps attract borrowers to seek help. It is still a 

very valuable way for borrowers to get in the system, even if they do not qualify 

for a HAMP modification. 

• First line of defense for homeowners: The HAMP program structure requires 

participating servicers to first review the borrower for HAMP eligibility prior 

to placing them into alternative modifications. Even if they do not ultimately 

qualify, borrowers are first assessed for eligibility for HAMP and then must be 

considered for other loan modifications or other workouts. 

• Safe Harbor: HAMP created an industry ‘‘safe harbor’’ for modifying loans. Due 

to conflicting investor contracts, prior to HAMP it was difficult to identify a consistent ‘‘industry standard.’’ HAMP helped create these standards and common 

practices The creation of tools to use in an evaluation ’’waterfall’’ and use of a 

Net Present Value test has transcended HAMP and is a model for servicers to 

use for proprietary modifications. This may transcend HAMP for other modifications as the process and a net present value test provide an ‘‘industry standard.’’ 

• Structure created: Through Making Home Affordable, Government HAMP modifications introduced clear guidance for the HAMP waterfall, including guidance 

for working with unemployed or underemployed borrowers—one of the most difficult situations. The protocols on structuring an affordable payment for borrowers include: 

• Forbearance (3–6 months, recently updated for HAMP and FHA loans to 12 

months) for unemployed borrowers; 

• 31 percent housing DTI split by investors and Government dollars from 38 

percent; 

• Use of lower interest rate to 2 percent, extended terms to 40 years, and principal deferral and/or principal write-down; 

• If ineligible, servicers must review for proprietary solutions (GSE, other), and 

if ineligible for that option; 

• Servicers must consider HAFA (Home Affordable Foreclosure Alternatives 

short sale and deed in lieu) or proprietary programs; 

• In many instances, foreclosure prevention will then state mediation requirement to review all solutions outside of foreclosure; and 

• Foreclosure sale as the final option. 

• Confusion and expanded time lines were the result of this early execution: Average foreclosure time lines since in 2008, 2009, and 2010 are as follows (according to data from LPS): 

• January 2008—300 days 

• January 2009—350 days 

• January 2010—450 days 

• September 2010—500 days 

• May 2011—590 days 

5. Treasury: Hardest Hit Funds: Treasury has also expanded foreclosure prevention programs by creating a Hardest Hit Fund. The Hardest Hit Fund distributed $7.5 

billion dollars to 18 States and the District of Columbia and directed them to set 

up their own programs to assist unemployed and other at-risk homeowners in the 

hardest-hit housing markets. When a borrower is unemployed, it is difficult to qualify for a loan modification due to lack of income. State housing finance agencies develop the waterfall for approving borrowers for various means of assistance, including unemployment assistance, principle write down, and combined funds that may 

compliment a HAMP modification. 

This deployment of dollars should be helpful to assist some homeowners in particularly distressed States where there are few other solutions. However, the States, 

44 

Treasury, counselors, and State housing finance agencies must continue to work 

with industry to achieve some uniformity to ensure servicers can implement the 

many variations of programs in the different States. To help share information and 

increase the ability to execute on these programs, HOPE NOW has played a role 

in convening the stakeholders to discuss implementation issues. As a reminder, loan 

servicers need uniform standards and guidelines wherever possible for efficient execution. Each time a program is introduced, the more aligned it is with similar programs in various States with uniform automation, the more successful that new program will be. 

6. State Mediation Programs: HOPE NOW has focused on the mediation issue as 

a high priority issue and convened States and the Federal Government to find common ground on what constitutes success. Mediation is a powerful tool that may be 

even more effective with a common definition of success with rules to get there (including early engagement with the borrower). There are now approximately 26 

States that offer some kind of opt-in or opt-out mediation for homeowners. The 

physical presence of a third party is valuable for this final attempt to bring parties 

together to prevent a foreclosure. When appropriate mediation is a viable option, 

however, there is not enough data on mediation programs to make a clear judgment 

around the best mediation process. For instance, an author for the Sun Sentinel 

newspaper recently reported that Broward County, Florida examined 326 cases via 

mediation in December 2010 and 17 percent resulted in written settlements that 

avoided foreclosure. It is important we study mediation efforts going forward and 

wisely use our limited funds and human capital to make these most effective nationwide, and maximize assistance to qualified homeowners. 

There is a movement among the other 24 States to incorporate mediation as another 

means to prevent foreclosures. In doing so, we believe certain risk parameters must 

first be addressed. By nature, mediation hearings delay the foreclosure process. And 

the intent is to ensure the borrower understands the options available to prevent 

foreclosure. We know from experience, sometimes borrowers in financial distress do 

not answer phones, open mail, and respond to more formal meeting requests such 

as State mandated mediation. Our goal over the coming months is to work with the 

stakeholders on mediation to come up with a set of recommendations that make 

sense for all parties, most importantly the homeowner at risk of foreclosure. 

HOPE NOW stands ready to support all efforts to bring homeowners into the system to review options to avoid foreclosure. However, we believe that mediation can 

be streamlined with more effective processes so that all parties participating have 

aligned expectations. 

Conclusion 

HOPE NOW member companies and organizations support the improvement of 

the customer experience in mortgage servicing, and have been actively attempting 

to make the system work better for customers as they wrestle with an unprecedented number of delinquent loans. To evaluate the multiple servicing initiatives 

and rules now under way, the Administration should consider gathering all interested parties together to review the current servicing standard initiatives to ensure 

the definitions and policies agreed to by regulators, enforcement agencies and investors are consistent and to determine if a single uniform set of standards can be identified and established. 

Improving customer communication; reducing confusion and conflicting directives 

for servicers will improve the mortgage servicing system. The home mortgage is the 

most important investment in the lives of most consumers, and it is essential that 

we have a sound servicing system in place to get through the current crisis and set 

the appropriate course for the future. The industry nonprofit partners and servicer 

members are committed to working to improve mortgage servicing for consumers. 

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PREPARED STATEMENT OF ROBERT M. COUCH 

COUNSEL, BRADLEY ARANT BOULT CUMMINGS, LLP 

AUGUST 2, 2011 

Chairman Johnson, Ranking Member Shelby, and Members of the Committee: My 

name is Rob Couch, and I am attorney with Bradley Arant Boult Cummings, a law 

firm based in Birmingham, Alabama. Prior to joining the firm, I served as General 

Counsel of the United States Department of Housing and Urban Development from 

June 2007 to November 2008 and Acting General Counsel from December 2006 to 

June 2007. Before joining HUD, I served as president of the Government National 

Mortgage Association (Ginnie Mae). Prior to my Government service, I was the CEO 

of New South Federal Savings Bank, then the largest thrift in Alabama and one 

of the most active residential mortgage lenders in the South. I have also served as 

Chairman of the Mortgage Bankers Association of America and as President of the 

Alabama Mortgage Bankers Association. Thank you for inviting me to testify today 

about the ongoing debate regarding national mortgage servicing standards. 

Despite my years of involvement within the mortgage and financial services industries, perhaps the most profound lesson about mortgage banking that I ever 

learned occurred when I signed a mortgage of my own several years ago. It was 

about 15 pages long. Right before I signed it, the closing agent looked at me and 

said, ‘‘Do you know what this document means, Rob?’’ ‘‘I think so,’’ I replied. His 

response will remain with me forever: ‘‘If you pay, you stay. If you don’t, you won’t.’’ 

While this summation may seem unduly harsh to some, it provides the essence of 

the subject of this hearing. 

We are all painfully aware of the deficiencies in the mortgage process that came 

to light in the throes of the recent financial crisis. I believe that we are all in agreement about the need to go forward addressing these issues and focusing on the actual harm that they caused. We, of course, must also balance everything against the 

long-term impact that the unintended consequences of our actions will have on 

homeowners and the housing market. It is my hope that my testimony will illuminate the important issues of market certainty and fundamental fairness in a way 

that will encourage this Committee and the Congress to consider these principles 

and take a balanced approach as it proceeds with its important efforts. 

Although there are multiple proposals to make changes to mortgage servicing 

standards, I think that it is important to recognize that historically, the process has 

worked just as it was supposed to. In the debate over how to prevent mistakes in 

the future, there is a tendency to overlook the basics. At the risk of oversimplifying, 

it is worth a couple of minutes to review how the system is supposed to work. 

When an individual decides to borrow money to buy or refinance a home, she provides information to the bank that has the money and the bank makes the decision 

to lend based on the likelihood that the borrower will repay the money along with 

a fair market interest rate. At closing, the borrower receives the money and signs 

a note promising to pay the money back along with interest. She also signs a mortgage stating that, as collateral for the loan, the home itself is subject to being foreclosed upon if the borrower goes into default. This process provides certainty to both 

the borrower and the lender, which is vital to the markets. The borrower’s promise 

to pay and the document that lays out the security is then saleable to investors. 

These investments have historically been attractive to pension plan managers and 

other long-term investors because pension plan participants and other beneficiaries 

of investments in mortgages have long-term horizons and 30-year mortgages provide 

just that. 

While the intention behind setting national mortgage servicing standards is certainly laudable, such standards create unintended consequences that Congress 

should consider through the lens of certainty and fairness. 

I. Certainity 

Much of the recent criticism of the mortgage industry is warranted. Recently, we 

have witnessed sloppiness and abuse of process by some lenders and servicers. Borrowers who have actually been harmed by any malfeasance should unquestionably 

be fully compensated as required by law. While national mortgage servicing standards may well address these mistakes, they can also potentially cause uncertainty 

to creep into the markets and devastate investment, which will ultimately be felt 

by homeowners. Efforts to slow down foreclosures have created a huge backlog that 

has become known as the ‘‘foreclosure overhang.’’ This backlog has further depressed real estate markets that are still reeling from the recent recession. 

Today, over 90 percent of all new mortgages have direct guarantees from the Federal Government. Such direct involvement is necessary to overcome the markets’ uncertainty of investment in mortgages. Ongoing, heavy Government involvement, 

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1Mark Fogarty, ‘‘Trouble Ahead’’, National Mortgage News, Mar. 10, 2011. 2The Board of Governors of the Federal Reserve System, Report to Congress on Risk Retention, Oct. 2010. 3 Jon Prior, ‘‘Delays Push Foreclosures to 40-Month Low in April’’, Housing Wire, May 11, 

2011. 4 Id. 

5Kerri Panchuk, ‘‘Congress Wants CFPB To Come Clean on Mortgage Servicing Settlement’’, 

Housing Wire, Jul. 14, 2011. 

however, is not sustainable over the long run. For private capital to return, certainty must exist. 

To illustrate my point, over the past 3 years, only two private label securities, backed by mortgages, have come to market. They were worth approximately $500 

million. 1 In 2006, by comparison, multiple private label securities worth over $700 

billion were issued backed by mortgages. 2 The lack of private money in the marketplace is in a large part due to uncertainty and any national mortgage servicing 

standards must take that uncertainty into consideration and sufficiently address it. 

Much of this uncertainty in the market is attributable to uncertainty in the foreclosure arena, the execution of the second half of my closing agent’s simple principle: ‘‘if you don’t, you won’t.’’ Investors, many of whom are retirees, watch the 

value of their mortgage-backed investments fall as well-intended efforts to be compassionate to struggling borrowers proliferate. These efforts take many forms, including loan modifications extending or reducing interest rates on loans, reduction 

of the principal amount owed, or indefinite postponement of foreclosure rights. All 

of these proposals may change the terms of the contract the investor purchased and 

contribute to the uncertainty surrounding the mortgage marketplace. 

II. Fairness 

The national average of the amount of time between delinquency and foreclosure 

is 400 days. 3 Put another way, on average, a person who cannot or will not pay 

their home mortgage stays in his or her home rent-free for an average of 400 days 

before possession of the home is transferred to the owner of the debt. In some 

States, this figure is much higher. In New York and New Jersey, it is taking an 

average of 900 days—almost two-and-a-half years—to move a loan from default to 

foreclosure. In Florida, the average foreclosure time line is about 680 days. 4 Many 

of the provisions under debate in negotiations on nationwide standards, such as 

principal write-downs, are well-intended efforts to provide relief to borrowers who 

do not pay. Any national mortgage servicing standards, however, must also address 

the marketplace and equally important, the people who do pay. 

The vast majority of people being foreclosed upon are not legally damaged or suffering demonstrated harm. As an aside, this fact demonstrates one of the major 

flaws with the proposed settlement by State attorneys general as reported in the 

press because they propose to collect money from servicers without basing the collection on demonstrated harm. 5 Individuals who have been harmed during the foreclosure process already have avenues to pursue their legal rights and obtain damages due to them. Fact-based determinations in a court of law, however, are far better and ultimately provide more protection than simply requiring servicers to contribute money to a fund. 

Most of the servicing standard proposals, however, do not consider the majority 

of hardworking Americans who do pay their mortgages every month. National servicing standards that do not address the marketplace or the people who are not in 

default subject those people to the ‘‘foreclosure overhang.’’ Requiring lenders to reduce mortgage balances increases costs that will ultimately be borne by all borrowers. Mortgage write-downs also remove incentives for banks to lend money and 

for investors to purchase mortgages, denying people access to credit needed to purchase or refinance homes and negatively impacting an already devastated housing 

market. In sum, an efficient foreclosure process is necessary to clear local markets, 

facilitate economic recovery, and protect the borrowers who are not in default. 

III. Adequacy of State Law 

Finally, Congress should be mindful that policies and procedures relating to the 

foreclosure process historically have resided within the province of State laws dealing with foreclosure processes and consumer protection. Each State has adopted procedures spelling out how the foreclosure process should be conducted and what protections should be afforded to borrowers. These procedures have worked very well 

for many years. Federal and State regulators should be slow to override State law 

sovereignty by effectively making mortgage servicers subject to new rules without 

a legislative mandate. Moreover, in most cases, remedies under State laws, regulations and requirements already exist for a majority of the perceived problems within 

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1http://www.americanprogress.org/issues/2011/01/fcralmortgagelservicing.html 2Lew Sichelman, ‘‘Mortgage Servicing Errors Highlight Need for Change’’, L.A. Times, March 

6, 2011, available at http://articles.latimes.com/2011/mar/06/business/la-fi-lew-20110306. 

the mortgage industry and any national servicing standard should consider the existence and adequacy of existing rules so that borrowers who suffer actual harm 

may avail themselves of compensation already afforded by State law. 

Thank you again for holding this important hearing and for sharing everyone’s 

commitment to certainty and fairness as we continue to pave the road to our Nation’s economic recovery together. I urge you to be deliberate and balanced in your 

approach to these important issues and be mindful of the unintended consequences 

of your actions. I look forward to answering your questions. 

PREPARED STATEMENT OF PETER P. SWIRE 

C. WILLIAM O’NEILL PROFESSOR OF LAW, MORITZ COLLEGE OF LAW OF THE OHIO

STATE UNIVERSITY

AUGUST 2, 2011 

Chairman Johnson, Ranking Member Shelby, and other distinguished Members 

of the Committee, thank you for inviting me to participate in this hearing on national mortgage servicing standards. As staff is aware, I had previously committed 

to speak at an event in Oregon today, and I thank the Committee and its staff for 

the extraordinary flexibility of having me testify online today, over Skype. In addition to my work on housing and finance issues, my other main area of research is 

in technology and the Internet. I believe that using online technologies in this way 

can help open up Congress and our political process to effective participation by an 

ever-greater portion of the American people. 

My testimony today will draw on two previously published items, which are attached to the testimony. The first is a report called ‘‘What the Fair Credit Reporting 

Act Should Teach Us About Mortgage Servicing,’’ which was published by the Center for American Progress in January, 2011. 1 The second is an article in the Los 

Angeles Times from March 6, 2011, which described some of my personal experiences as a homeowner with the mortgage servicing industry. 2 In 2006 and 2007 my 

servicer, Washington Mutual, repeatedly purchased duplicate flood insurance for my 

house in Bethesda. After dozens of calls, and the erroneous imposition of numerous 

late fees, I was eventually able to resolve this problem with WaMu without paying 

such fees. I have also attached a time line of the dispute that I sent to WaMu in 

2007. 

Background of the Witness 

I am now C. William O’Neill Professor of Law at the Moritz College of Law of 

the Ohio State University, and Senior Fellow at the Center for American Progress. 

From July, 2009 through August, 2010 I served as Special Assistant to the President for Economic Policy, serving under Lawrence Summers in the National Economic Council. At the NEC, my biggest task was to coordinate the interagency process for housing and housing finance issues. In this role, I worked extensively on 

mortgage servicing issues, including the Home Affordable Mortgage Program 

(HAMP), and servicing and other issues affecting the Federal Housing Administration, Government sponsored enterprises (GSEs), and possible reform of the GSEs. 

In this role, I met on a number of occasions with mortgage servicing executives, as 

well as a wide variety of other stakeholders concerned about the mortgage servicing 

process. 

Before and after my NEC service, I have worked on a range of other policy issues. 

My work is likely best known in the privacy area. I served as Chief Counselor for 

Privacy in the Office of Management and Budget under President Clinton, and I testified on the Fair Credit Reporting Act before the Housing Financial Services Committee in 2003. 

What the Fair Credit Reporting Act Should Teach Us About Mortgage Servicing 

My report on the Fair Credit Reporting Act (FCRA) makes a simple point. The 

sorts of market failures that led to the creation of the FCRA in 1970 also exist for 

mortgage servicers. The single most important fact is that the consumers—the 

homeowners—are not the clients. The clients for the credit reporting agencies are 

the companies that pay for the credit reports, such as lenders or employers. The clients for the mortgage servicers are the companies that invest in mortgages. MortVerDate Nov 24 2008 11:38 Apr 26, 2012 Jkt 048080 PO 00000 Frm 00080 Fmt 6621 Sfmt 6621 L:\HEARINGS 2011\08-02 HOUSING FINANCE REFORM -- NATIONAL MORTGAGE SERVI
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gage servicers owe their legal duties and market loyalties to the investors, not the 

homeowners. 

This testimony will not repeat the report’s discussion of the history of mortgage 

servicing and all of the policy analysis. Instead, it is important to understand that 

consumers have no market or legal checks on the servicers. The homeowner doesn’t 

choose the servicer—that choice is made by the company originating the loan or by 

a subsequent owner of the mortgage. If the homeowner has a bad experience with 

the servicer—as so many consumers have—the homeowner can’t even quit. Even if 

the homeowner refinances the loan, concentration in the servicing market means 

the homeowner quite possibly will get the same servicer the next time. 

Homeowners not only lack any market choice, but they currently lack legal remedies if the servicer performs badly. That is the reason that national standards for 

mortgage servicing are so important. Where there are no market forces to protect 

consumers, then something else must fill the gap. An effective set of consumer 

rights could be embodied in national mortgage servicing standards. I hope that that 

will happen. 

Dispute on My Mortgage With Washington Mutual’s Servicing Arm in 2006– 

2007 

To prepare for this testimony, I have reviewed the files from my dispute with 

Washington Mutual in 2006 and 2007 about flood insurance on my family’s home 

on a hill in Bethesda. This dispute was the subject of the Los Angeles Times article 

by Mr. Sichelman in March. 

I am sorry to report that I stated some details incorrectly to Mr. Sichelman when 

I did the interview with him for the story. The interview began as a discussion 

about the FCRA and mortgage servicing policy, and so I did not review the file before speaking with him. Specifically, my family did have flood insurance on the 

house from the time we bought it in 2002. The house is within a couple of hundred 

yards of the top of a large hill in Bethesda, it has never flooded to my knowledge 

since it was built in the 1960s, and I personally did not believe it needed flood insurance. Upon review of the file, however, I learned that we had prudently kept 

flood insurance in effect from the time we bought the house and throughout the dispute with WaMu. 

I provide that detail because the file vividly shows the cascade of mistakes that 

the servicing company made, despite several dozen calls by me to the company and 

detailed documentation. The basic problem, beginning in early 2006, was that 

WaMu bought ‘‘force placed insurance’’—duplicate flood insurance on my house despite the fact that State Farm repeatedly sent them proof of coverage. In numerous 

instances, WaMu would impose a ‘‘late fee’’ on my family. We had automatic payment each month for our mortgage payment, and so we were never late on any payment. The WaMu practice, however, was to charge us for flood insurance without 

telling us, and then declare us ‘‘late’’ for the entire monthly mortgage payment. The 

next month would also be ‘‘late,’’ and subject to additional fees, because of the second month’s duplicate flood insurance fee. 

In May, 2007, I informed WaMu that I would contact regulators and the Congress 

if they did not resolve the problem. My letter to WaMu said: 

The amount of time it is taking for me to resolve this matter resembles a 

major piece of litigation. I feel very sorry for the other customers who get 

caught in this cycle of uninformed debt collectors, automatic threatening 

letters of no insurance, lost faxes by WaMu, an apparent policy of ignoring 

many proofs of insurance coverage, systems that suppress notes saying a 

customer will not be subject to collection calls and late fees, large late fees 

due to no fault of the customer, and so on. 

This letter led to a phone response that made me believe that the problem was 

resolved. Soon, however, the problems began again, and it was not until October, 

2007, that the matter was finally resolved. 

In conclusion, I have taught both banking law and consumer protection, and I feel 

fortunate that I could advocate for myself and avoid the thousands of dollars of fees 

that the servicer erroneously sought to impose on my family. Most homeowners, 

however, are not banking law professors. Before the financial crisis of 2008, my experience with WaMu sensitized me to the flaws in our current mortgage servicing 

system. My experience in Government and since has taught me there are numerous 

hard-working and talented individuals in the mortgage servicing industry. The incentives, however, do not work for consumers. In the absence of market discipline 

on servicers, an effective national set of mortgage standards is essential. 

I thank the Committee for its attention to these important matters, and I welcome 

any questions you may have. 

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